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Filing Requirements for U.S. Taxpayers with Foreign Finances

FBAR & FATCA: Filing Requirements for U.S. Taxpayers with Foreign Finances

Do you have a foreign bank account or overseas investments? As a U.S. taxpayer with foreign assets, you might have encountered terms like “FBAR” and “FATCA.”

Or maybe you haven’t and now you’re wondering, “Uh oh! Did I miss something important?!”

Here we’ll explain the difference between FBAR and FATCA, who needs to file, and what information is required.

For those of you who have already missed these mandatory U.S. filings, we’ll discuss what to do next, including how to minimize (or even avoid) fines and penalties.

What is FBAR?

 FBAR stands for Report of Foreign Bank and Financial Accounts, which is an annual reporting requirement for U.S. persons (citizens, residents, trusts, estates, and domestic entities) with foreign financial accounts.

The purpose of FBAR is to combat tax evasion, money laundering, and other financial crimes by requiring U.S. persons to disclose their foreign financial accounts.

FBAR is an annual report filed with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury (not the IRS). FBAR is a reporting requirement — for transparency purposes — not a tax filing.

What is FATCA?

FATCA, or the Foreign Account Tax Compliance Act, is a U.S. law enacted in 2010 to prevent tax evasion by U.S. persons holding financial assets abroad.

This Act requires U.S. taxpayers to report their foreign financial assets on Form 8938, filed with their annual income tax return.

FATCA also imposes reporting obligations on foreign financial institutions. The U.S. has entered into 110 reporting agreements with other countries around the world, requiring their banks to share information about U.S. account holders with the IRS.

Do I Need to File Both FBAR and FATCA?

FBAR and FATCA apply to U.S. persons and entities with foreign financial assets, but they serve different purposes and have different filing requirements.

Here’s a breakdown:

Who Files:

  • FBAR (FinCEN Form 114): FBAR applies to U.S. persons and certain domestic entities with ownership, interest, or signature authority over foreign financial accounts. Does not include accounts located in a U.S. territory or possession. However, residents of U.S. territories and possessions are required to comply with the FBAR reporting requirements.
  • FATCA (Form 8938): FATCA applies to U.S. persons and certain domestic entities with financial interests abroad. Includes resident aliens of U.S. territories.

Where to File:

  • FBAR: Electronically submitted to the Financial Crimes Enforcement Network (FinCEN).
  • FATCA: Filed with the IRS as part of your tax return (Form 8938 attached to Form 1040).

Reporting Thresholds:

  • FBAR: S. persons and entities must report if the total value of their foreign financial accounts exceeds $10,000 at any time during the year.
  • FATCA: S. taxpayers living in the U.S. file this form with their federal tax return if the total value of their foreign financial assets 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). Thresholds are higher for U.S. expats living abroad.

What Gets Reported:

  • FBAR: Applies to assets held at foreign financial institutions, including bank accounts, investment accounts, grantor trusts, life insurance or annuity contracts with a cash value, and assets held in foreign branches of U.S. banks. Again, that includes accounts where you have signature authority and/or indirect beneficial interest.
  • FATCA: Applies to most of the above (with the exception of signatory authority and indirect beneficial interests). Also requires disclosure of foreign securities and stocks, and certain types of foreign business interests.

Note that real estate, personal property (e.g., art, collectibles), and foreign government-sponsored retirement programs are generally excluded from these reporting requirements. See this IRS comparison of Form 8938 and FBAR requirements.

FBAR and FATCA Example Scenarios

To better understand when FBAR and FATCA come into play, let’s consider a few examples:

 John is a single taxpayer with $8,000 in a Greek bank account.

  • John does not need to file an FBAR because his foreign account balance is below the $10,000 threshold.
  • John does not need to file Form 8938 because his account balance is below the $50,000 FATCA threshold for single taxpayers living in the U.S.

Sumitha has $9,000 in each of six separate accounts in India ($54,000 total).

  • Sumitha needs to file an FBAR and a Form 8938. Even though her assets are spread across multiple accounts, the total value exceeds both the $10,000 FBAR threshold and the $50,000 FATCA threshold for single taxpayers living in the U.S.

Mr. and Mrs. Song have $80,000 in their combined accounts in Korea.

  • The Songs only need to file an FBAR. The FBAR filing threshold remains the same ($10,000) regardless of your filing status. It’s always $10,000 for married taxpayers filing jointly, single filers, or any other tax filing status.
  • They do not need to file Form 8938 because their combined total is below both FATCA thresholds for married filing jointly ($100,000 at year end, or $150,000 at any time during the year).

Sarah inherits €100,000 (roughly $110,000) from a relative in France. She holds those funds in a French account for a few months before transferring the funds to the U.S.

  • Sarah needs to file an FBAR because at some point in the year she held a foreign account with a value over $10,000.
  • Sarah also needs to file Form 8938 because her account exceeded the $75,000 threshold for single taxpayers.
  • (Alternately, if Sarah had inherited $60,000, and then closed the account before tax year end, she would not have a FATCA reporting obligation because the account would have fallen below the $75,000 “at any point in the year” threshold. However, if she kept the $60,000 account open, then yes, she would have to file because she exceeded the $50,000 “year-end” threshold.)
  • Note that foreign gifts and inheritances trigger an IRS Form 3520 requirement — a wholly separate reporting obligation.

I Missed an FBAR or FATCA Filing. Now What?!

If you missed an FBAR or FATCA filing deadline, take action to address the issue as soon as possible. Failing to file these forms can result in significant penalties, but there are options available to help you resolve the situation.

As a tax lawyer specializing in international tax issues, Attorney Sammy Kim can help you understand your options. The IRS offers voluntary disclosure programs that allow taxpayers to proactively disclose previously unreported foreign financial accounts and income:

Be aware that these programs are only available if you contact the IRS proactively. If you wait until the IRS contacts you, these relief programs may no longer be an option. If the IRS contacts you first, a revenue agent and a subject matter expert will be assigned on your case for an audit.

Attorney Sammy Kim can assist you in preparing and filing delinquent FBARs (FinCEN Form 114) and help you amend any FATCA-related income tax returns, if necessary. There are certain covered periods for each form, which means you do not have to file ALL missing returns.

If you didn’t know about FBAR and FATCA requirements and did your best to act as soon as you became aware of the rules, we may be able to persuade the IRS to close the issue without penalty based on reasonable cause. The longer you wait, the harder it is to argue non-willful negligence, inadvertence, or a mistake.

We’re Here to Help with FBAR and FATCA

FBAR and FATCA filing requirements can be complex! Many general practice domestic CPAs and tax advisers just don’t know what’s required for foreign account holders. So even if you’ve worked with a tax professional in the past, you may not have gotten complete advice.

Consult with an international tax attorney to ensure you’re in compliance. If you think you’ve missed a deadline — don’t panic! Attorney Sammy Kim has helped many clients minimize or even erase these IRS penalties.

Speak to an experienced foreign tax attorney now.

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