The Complexities of FBAR and FATCA: Do You Have to File One or Both?

Foreign financial asset reporting seems to be one of the more confusing things for taxpayers with foreign accounts and assets.

 You might not even know about the critical reporting requirements under the Foreign Bank Account Report (FBAR) and the Foreign Account Tax Compliance Act (FATCA). And even if you have heard these acronyms, you might have no idea whether they apply to you.

If you have a foreign bank account or foreign investments, it is essential that you understand when you need to file these reports – and whether you might need to file both – in order to avoid big penalties imposed by the IRS.

 Need help with foreign asset reporting? Attorney Sammy Kim is a tax attorney with deep experience helping clients stay in compliance and avoid penalties for failing to file FBAR and FATCA.

FBAR: The Foreign Bank Account Report

 FBAR (FinCEN Form 114) is a filing requirement for U.S. persons and certain domestic entities who have a financial interest in, or signatory authority over, foreign financial accounts exceeding certain thresholds.

It does not include accounts located in a U.S. territory or possession. But residents of U.S. territories and possessions are required to comply with the FBAR reporting requirements.

The purpose of FBAR is to prevent tax evasion by requiring taxpayers to report their foreign accounts to the Financial Crimes Enforcement Network (FinCEN).

When Do I Have to File FBAR?

You must file an FBAR if you are a U.S. person and the aggregate value of your foreign financial accounts exceeds $10,000 at any time during the calendar year.

 That includes bank accounts, brokerage accounts, mutual funds, grantor trusts, life insurance or annuity contracts with a cash value, and assets held in foreign branches of U.S. banks.

 FBAR must be filed electronically through the FinCEN’s BSA E-Filing System by April 15th each year. An automatic extension to October 15th is available for extension filers.

FATCA: Foreign Account Tax Compliance Act

 FATCA (Form 8938) requires U.S. persons and certain domestic entities with financial interests abroad, including resident aliens of U.S. territories, to report specified foreign financial assets if the total value exceeds certain thresholds.

Unlike FBAR, which focuses on financial accounts, FATCA targets a broader range of foreign assets. In addition to applying to most of the same accounts as FBAR (except the signatory authority and indirect beneficial interests) FATCA also requires disclosure of foreign securities and stocks, and certain types of foreign business interests.

When Do I Have to File FATCA?

 FATCA requires U.S. taxpayers living in the U.S. to report specified foreign financial assets if their total value exceeds $50,000 on the last day of the tax year or $75,000 at any time during the year (married filing jointly: $100,000 and $150,000, respectively).

Higher thresholds apply for taxpayers living abroad. For single expats, FACTA is required if their total asset value exceeds $200,000 at the end of the year or $300,000 at any time during the year (married filing jointly: $400,000 and $300,000, respectively).

These reports are made on Form 8938, which is attached to your annual tax return (Form 1040). The due date is the same as your income tax return, typically April 15th, with extensions available.

Could I Be Required to File Both FBAR And FATCA?

Yes, it is possible to have to file both FBAR and FATCA.

While there is some overlap between the two requirements, they serve different purposes and, as noted above, they have different filing thresholds and deadlines.

If you meet the criteria for both, you must comply with both reporting requirements.

When You Might Need to File Both FBAR And FATCA

A U.S. person may need to file both FBAR and FATCA if they meet the criteria for each.

Here are some scenarios when both might be required:

Taxpayer 1:

A single taxpayer living in the U.S. has multiple foreign financial accounts with an aggregate value of $60,000 at the end of the year. Since this amount exceeds the $10,000 threshold for FBAR, they must file an FBAR. Additionally, because the value exceeds the $50,000 threshold for FATCA at the end of the year or $75,000 at any time during the year, they must also file Form 8938 under FATCA.

Taxpayer 2:

A married U.S. couple living abroad has foreign financial assets totaling $450,000 at the end of the year. They must file an FBAR because the total value exceeds $10,000. They also need to file Form 8938 under FATCA since their total foreign assets exceed $400,000 at the end of the year, if they are filing jointly.

Taxpayer 3:

A single taxpayer living in the U.S. holds a foreign brokerage account with a value of $100,000. This account must be reported on both the FBAR (because it exceeds $10,000) and Form 8938 under FATCA (because it exceeds the applicable FATCA thresholds for their filing status, which is $50,000 at the end of the year or $75,000 at any time during the year).

With so much complexity involved in figuring out FBAR and FATCA filings alone, a tax attorney specializing in foreign account reporting and tax compliance can help you meet all reporting obligations and avoid penalties.

Talk to a skilled foreign tax attorney now.

Frequently Asked Questions on Filing FBAR & FATCA

What Happens If I Don’t File FBAR?

Failure to file FBAR can result in severe penalties. Non-willful violations can incur penalties up to $10,000 per violation. Willful violations can lead to penalties greater than $100,000 or 50% of the account balances, as well as potential criminal charges.

What Happens If I Don’t File FATCA?

If you fail to file FATCA (Form 8938), the IRS will impose a $10,000 failure-to-file penalty, plus an additional penalty of up to $50,000 for continued failure to file if you have received an IRS notice. Also, underpayments of tax attributable to failing to disclose foreign financial assets may be subject to a 40% penalty. In cases of willful neglect, criminal charges could also be filed against you.

Could I Be Required to File Both FBAR and FATCA?

Yes, you can be required to file both FBAR and FATCA if you meet the filing criteria for each. FBAR must be filed if the aggregate value of your foreign financial accounts exceeds $10,000 at any time during the year. FATCA must be filed if the total value of specified foreign financial assets exceeds the applicable threshold for your filing status and residency. 

Can I File FBAR and FATCA Reports Myself?

While it is possible to file these reports on your own, you might want to consult with a tax attorney who specializes in international tax compliance to ensure accuracy and completeness.

What Should I Do If I Missed the Filing Deadline for FBAR or FATCA?

If you missed the deadline for filing FBAR and/or FATCA, you should contact a tax attorney right away. An experienced attorney who understands foreign account and asset reporting can help you navigate filing late reports, determine if any voluntary disclosure programs are right for you, and work to minimize any potential penalties.