FBAR & FATCA |
Foreign Bank Account Reports (Form 114) and the Foreign Account Tax Compliance Act (Form 8938)
Over the past several decades the US Congress has made substantial efforts to eliminate the use of foreign financial assets to evade applicable US taxes.
Since 1970 there has been a requirement for US persons with bank accounts held in foreign countries to disclose these accounts on the Foreign Bank Account Report, or FBAR (formerly Form TD F 90-22.1, now FinCEN Form 114). For nearly 40 years it was a largely unknown and forgotten compliance requirement, but in the post-financial-crisis anti-tax-evasion world the government has increased efforts to enforce the law. Indeed, in 2008 the IRS issued a press release reminding those US taxpayers with foreign bank accounts of the reporting obligations, as well as the consequences of not reporting (which can be severe—see below). At present, the reporting threshold is a US person with foreign accounts which in total exceed $10,000 in aggregate value at any time during the year.
In 2010 Congress introduced the Foreign Account Tax Compliance Act (FATCA) and its associated Form(s) 8938, Statement of Specified Foreign Financial Assets. FATCA is designed to force foreign financial institutions to report to the IRS in the same way as domestic US ones. It has a broader remit than FBAR and requires disclosure to the IRS of foreign financial accounts and other financial assets not held in an account. This means not only currency and assets held in foreign bank/custodial accounts, but also assets such as shares and bonds not held in custodial accounts (e.g. share certificates). The reporting thresholds are much higher, and account for whether the taxpayer lives abroad or in the US. The FATCA rules for individuals are applicable from Tax Year 2011 going forward.
The primary difference between FBAR and FATCA is that the Form 114 is an information return that is reported to the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), while the FATCA Form(s) 8938 are additional scheduled items individually reported within the Form 1040. The FBAR is not filed with the Form 1040—it is sent separately to the Treasury's FinCEN. The FinCEN wants to make sure you are not hiding any foreign assets; while the IRS wants to make sure you are paying all the tax you owe on gains in your foreign assets.
There is a large amount of overlap between the FBAR and FATCA reporting requirements but not all of the terminology and definitions are the same, resulting in substantial confusion. The majority of people who require FATCA compliance will also require FBAR, but many FBAR filers do not have to file FATCA.
Note that for both FBAR and FATCA the potential penalties for non-compliance are onerous and severe.
Please phone us to obtain the password for access to our full TY 2017 FBAR & FATCA information pack in the Downloads section.
Over the past several decades the US Congress has made substantial efforts to eliminate the use of foreign financial assets to evade applicable US taxes.
Since 1970 there has been a requirement for US persons with bank accounts held in foreign countries to disclose these accounts on the Foreign Bank Account Report, or FBAR (formerly Form TD F 90-22.1, now FinCEN Form 114). For nearly 40 years it was a largely unknown and forgotten compliance requirement, but in the post-financial-crisis anti-tax-evasion world the government has increased efforts to enforce the law. Indeed, in 2008 the IRS issued a press release reminding those US taxpayers with foreign bank accounts of the reporting obligations, as well as the consequences of not reporting (which can be severe—see below). At present, the reporting threshold is a US person with foreign accounts which in total exceed $10,000 in aggregate value at any time during the year.
In 2010 Congress introduced the Foreign Account Tax Compliance Act (FATCA) and its associated Form(s) 8938, Statement of Specified Foreign Financial Assets. FATCA is designed to force foreign financial institutions to report to the IRS in the same way as domestic US ones. It has a broader remit than FBAR and requires disclosure to the IRS of foreign financial accounts and other financial assets not held in an account. This means not only currency and assets held in foreign bank/custodial accounts, but also assets such as shares and bonds not held in custodial accounts (e.g. share certificates). The reporting thresholds are much higher, and account for whether the taxpayer lives abroad or in the US. The FATCA rules for individuals are applicable from Tax Year 2011 going forward.
The primary difference between FBAR and FATCA is that the Form 114 is an information return that is reported to the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), while the FATCA Form(s) 8938 are additional scheduled items individually reported within the Form 1040. The FBAR is not filed with the Form 1040—it is sent separately to the Treasury's FinCEN. The FinCEN wants to make sure you are not hiding any foreign assets; while the IRS wants to make sure you are paying all the tax you owe on gains in your foreign assets.
There is a large amount of overlap between the FBAR and FATCA reporting requirements but not all of the terminology and definitions are the same, resulting in substantial confusion. The majority of people who require FATCA compliance will also require FBAR, but many FBAR filers do not have to file FATCA.
Note that for both FBAR and FATCA the potential penalties for non-compliance are onerous and severe.
Please phone us to obtain the password for access to our full TY 2017 FBAR & FATCA information pack in the Downloads section.
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