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Foreign National Tax Basics

FBAR and FATCA

These IRS initiatives have become the twin 800 pound gorillas of US expat tax and US resident issues. Read carefully if you are an expat (or thinking of becoming one), if you are a US work or resident visa holder – or if – for any other reason, you are an owner of – or even a signer on – a non-US bank or brokerage account.

FOREIGN BANK ACCOUNT REPORTING – FBAR

IF YOU HAVE a non-US bank or brokerage account or accounts – or, are thinking of doing so – we urge you to read the information here and at irs.gov and become aware of the draconian fines and penalties for falling afoul of these two new US Treasury and IRS compliance hot buttons.

FBAR: ARE YOU REQUIRED TO FILE?

IF you are a US Person and have a financial interest in or signature or other authority over any foreign financial accounts as defined in the above section – AND IF the aggregate value of these accounts exceeds $10,000 at any time during the calendar year – YOU HAVE A LEGAL REQUIREMENT TO FILE THIS FORM.

WHAT TYPES OF ACCOUNTS MUST BE REPORTED?

Details on various forms of foreign financial accounts – and there are many – are on the IRS web page, or through our quick reference tables at the bottom of the page.

DUE DATE

Due date is April 15th for the prior tax year. That is, April 17, 2022 for tax year 2022. As of 2018, all taxpayers are granted an automatic six month extension to file. No action is required to receive the extension.

FBAR rules have become a major irritant, to be sure, but a fact of expat life these days, indeed the governments expanded compliance net extends to many more “US persons” than just expats. Make sure you know your status and your possibility of being required to file such reports.

FOREIGN ACCOUNT TAX COMPLIANCE ACT – FATCA

Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. Those foreign financial assets could include foreign accounts reported on an FBAR. The FATCA Form 8938 filing requirement is in addition to the FBAR filing requirement.

FATCA was enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts. FATCA requires foreign financial institutions to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

Quick Guide to FATCA and FBAR Requirements, as of Jan 2016

	FATCA	FBAR
Who Must File?	Specified individuals, which include U.S citizens, resident aliens, and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold	U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Does the United States include U.S. territories?	No	Yes, resident aliens of U.S territories and U.S. territory entities are subject to FBAR reporting
Reporting Threshold (Total Value of Assets)	$50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)	$10,000 at any time during the calendar year
When do you have an interest in an account or asset?	If any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return	Financial interest: you are the owner of record or holder of legal title; the owner of record or holder of legal title is your agent or representative; you have a sufficient interest in the entity that is the owner of record or holder of legal title. Signature authority: you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account.
What is Reported?	Maximum value of specified foreign financial assets, which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets	Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported?	Fair market value in U.S. dollars in accord with the Form 8938 instructions for each account and asset reported Convert to U.S. dollars using the end of the taxable year exchange rate and report in U.S. dollars.	Use periodic account statements to determine the maximum value in the currency of the account. Convert to U.S. dollars using the end of the calendar year exchange rate and report in U.S. dollars.
When is it Due?	By due date for income tax return, including any extension	Received by June 30 (no extensions of time granted)
Where to File?	File with income tax return, pursuant to the instructions for filing the return	File electronically through FinCENs BSA E-Filing System. The FBAR is not filed with a federal tax return.
Penalties	Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply	If non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply

Quick Guide to Types of Foreign Assets and Whether They are Reportable

	FATCA	FBAR
Financial (deposit and custodial) accounts held at foreign financial institutions	Yes	Yes
Financial account held at a foreign branch of a U.S. financial institution	No	Yes
Financial account held at a U.S. branch of a foreign financial institution	No	No
Foreign financial account for which you have signature authority	No, unless you otherwise have an interest in the account as described above	Yes, subject to exceptions
Foreign stock or securities held in a financial account at a foreign financial institution	The account itself is subject to reporting, but the contents of the account do not have to be separately reported	The account itself is subject to reporting, but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account	Yes	No
Foreign partnership interests	Yes	No
Indirect interests in foreign financial assets through an entity	No	Yes, if sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in the entity
Foreign mutual funds	Yes	Yes
Domestic mutual fund investing in foreign stocks and securities	No	No
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor	Yes, as to both foreign accounts and foreign non-account investment assets	Yes, as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value	Yes	Yes
Foreign hedge funds and foreign private equity funds	Yes	No
Foreign real estate held directly	No	No
Foreign real estate held through a foreign entity	No, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate	No
Foreign currency held directly	No	No
Precious Metals held directly	No	No
Personal property, held directly, such as art, antiques, jewelry, cars and other collectibles	No	No
‘Social Security’- type program benefits provided by a foreign government	No	No

Quick Guide to FBAR Non-Compliance Penalties

VIOLATION	CIVIL PENALTIES	CRIMINAL PENALTIES	COMMENTS
Negligent Violation	Up to $500	N/A	31 U.S.C. §5321(a)(6)(A) 31 C.F.R. 103.57(h)
Non-willful Violation	Up to $10,000 for each negligent violation	N/A	31 U.S.C. §5321(a)(5)(B)
Pattern of Negligent Activity	In addition to penalties under §5321(a)(6)(A) with respect to such violationes, not more than $50,000	N/A	1 U.S.C. 5321(a)(6)(B)
Willful Failure to File FBAR or retain records of accounts	Up to the greater of $100,000, or 50% of the amount in the account at the time of the violation.	Up to $250,000 or 5 years, or both	31 U.S.C. §5321(a)(5)(C) 31 U.S.C. §5322(a) 31 C.F.R. §103.59(b) for criminal. The penalty applies to all U.S. persons.
Willful Failure to File FBAR or retain records of accounts while violating certain other laws	Up to the greater of $100,000, or 50% of the amount in the account at the time of the violation.	Up to $500,000 or 10 years, or both	31 U.S.C. §5322(b) 31 C.F.R. §103.59(c) for criminal. The penalty applies to all U.S. persons.
Knowingly and Willfully Filing a False FBAR	Up to the greater of $100,000, or 50% of the amount in the account at the time of the violation.	Up to $10,000 or 5 years, or both	18 U.S.C. §1001 31 C.F.R. §103.59(d) for criminal. The penalty applies to all U.S. persons.

Civil and Criminal Penalties may be imposed together. 31 U.S.C. §5321(d).
It should be noted that the penalties are assessed per account and not per FBAR