201611.27
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A Summary of FATCA and FBAR – Golding & Golding

While FATCA (Foreign Account Tax Compliance Act) and FBAR (Report of Foreign Bank Accounts) have similar reporting requirements, they are not the same.  

The failure to understand the nuances between these two programs may result in extremely high penalties — reaching 100% value of the foreign account in a willful, multi-year audit scenario.

Why is FATCA & FBAR Important?

With offshore reporting continuing to be a mainstay on the IRS’s priority enforcement, it is very important that if you maintain offshore investments or accounts that you stay in compliance with US tax law.

Golding & Golding - U.S. and International Tax Lawyers

Golding & Golding – U.S. and International Tax Lawyers

For most individuals, this will require the reporting of foreign investments on two main forms – FBAR and FATCA Form 8938.

While most people associate both acronyms together, they are very different.

In fact, the FBAR requirement has been in effect for nearly 50 years, while FATCA is a relatively new law that only came into effect less than three years ago.

The following is a brief summary of the difference between these two programs:

FATCA Form 8938

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

Does the United States include U.S. territories?

No

Reporting Threshold (Total Value of Assets)

Taxpayers living in the US:

Unmarried taxpayer (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.

Married taxpayer filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

Taxpayers living outside the US:

Unmarried taxpayer (or married filing separately): Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.

Married taxpayer filing jointly: Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the 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

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

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

When Due?

Form is attached to your annual return and due on the date of that return, including any applicable extensions

Where to File?

File with income tax return pursuant to instructions for filing the return. Form 8938 and Instructions can be found at www.irs.gov/form8938

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

What Types of Assets must Be Reported?

– Financial (deposit and custodial) accounts held at foreign financial institutions

– Foreign financial account for which you have signature authority (No, unless you otherwise have an interest in the account as described above)

– 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)

– Foreign stock or securities not held in a financial account

– Foreign partnership interests

– Foreign mutual funds

– 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)

– Foreign-issued life insurance or annuity contract with a cash-value

– Foreign hedge funds and foreign private equity funds

– 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)

FBAR

The FBAR is a report of Foreign Bank And Financial Account Form. The FBAR is required to be filed by any individual, business or state that has ownership, interests or signature authority over an annual aggregate total accounts that exceeds $10,000 on any day of the year.

The following is a summary of the FBAR requirements as reported by Internal Revenue Service:

Who Must File the FBAR?

The FBAR is required to be filed by any 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 reporting requirements.

Does the United States include U.S. territories?

Yes, resident aliens of U.S territories and U.S. territory entities are subject to FBAR reporting

Reporting Threshold (Total Value of Assets)

Aggregate value of financial accounts exceeds $10,000 at any time during the calendar year. This is a cumulative balance, meaning if you have a combined account balance of $12,000 at any one time (but divided between 2 accounts), both accounts would have to be reported.

When do you have an interest in an account or asset?

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 financial accounts maintained by a financial institution physically located in a foreign country

How are maximum account or asset values determined and reported?

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 Due?

Received by June 30 (no extensions of time granted)

*Starting in 2017, the U.S. Governments intends on changing the due date to April 15th, along with a Tax Return.

Where to File?

File electronically through FinCENs BSA E-Filing System. The FBAR is not filed with a federal tax return.

Penalties

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

*The IRS may issue penalties, even if non-willful, as high as $10,000 per account, per year – not just one overall penalty of $10,000.

What Must be Reported on the FBAR?

– Financial (deposit and custodial) accounts held at foreign financial institutions

– Financial account held at a foreign branch of a U.S. financial institution

– Foreign financial account for which you have signature authority (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)

– Indirect interests in foreign financial assets through an entity (Yes, if sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in the entity. See instructions for further detail).

– Foreign mutual funds

– Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor (Yes, as to foreign accounts)

– Foreign-issued life insurance or annuity contract with a cash-value

About Golding & Golding, A PLC

We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.

Golding and Golding, Board-Certified Tax Law Specialist

Golding and Golding, Board-Certified Tax Law Specialist

Golding & Golding: Our international tax lawyers practice exclusively in the area of IRS Offshore & Voluntary Disclosure. We represent clients in 70+ different countries. Managing Partner Sean M. Golding is a Board-Certified Tax Law Specialist Attorney (a designation earned by < 1% of attorneys nationwide.). He leads a full-service offshore disclosure & tax law firm. Sean and his team have represented thousands of clients nationwide & worldwide in all aspects of IRS offshore & voluntary disclosure and compliance during his 20-year career as an Attorney.

Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
Golding and Golding, Board-Certified Tax Law Specialist