Can a Treaty Election Help Eliminate FBAR (FinCEN Form 114)?

Can a Treaty Election Help Eliminate FBAR (FinCEN Form 114)?

Treaty Election and FBAR (FinCEN Form 114)

When a Taxpayer is considered a US person, that means that they are required to report their worldwide income on their US tax return. They are also required to report their global assets on various international information reporting forms, such as the FBAR (Foreign Bank and Financial Account Reporting Form aka FinCEN Form 114), FATCA (Foreign Account Tax Compliance Act, aka Form 8938) Form 3520 Foreign Gift and Trust Reporting – and several other invasive IRS tax forms. When a taxpayer is a resident of a treaty country, they may qualify to make a treaty election that they want to be treated as a foreign resident for US tax purposes, in a situation in which they have significant contacts with a foreign country.  If a person is considered a foreign resident for tax purposes under a treaty election, are they exempt from filing the FBAR?

Treaty Election does Not Eliminate FBAR

Unfortunately, even if a US person qualifies to make a treaty election in order to be treated as a foreign resident for tax purposes, so they would file a form 1040-NR instead of a 1040—they are still required to file the FBAR.  Recently, in 2022, the US government updated its FBAR reference guide and provide the following example:

FBAR Example 1: US Resident

      • Matt is a citizen of Argentina. He has been physically present in the U.S. every day of the last three years. Because Matt is considered a resident under 26 USC Section 7701(b), he is a U.S. person for FBAR purposes.

FBAR Example 2: Treaty Election

      • Kyle is a permanent legal resident of the U.S. Kyle is a citizen of the United Kingdom. Under a tax treaty, Kyle is a tax resident of the United Kingdom and elects to be taxed as a resident of the United Kingdom. Kyle is a U.S. person for FBAR purposes.

      • Tax treaties with the U.S. do not affect FBAR filing obligations

Missed Prior FBAR Filing?

If a person failed to file FBARs in prior years, they are not out of luck. The US government has developed various international information tax amnesty programs, collectively referred to as offshore voluntary disclosure. Some of the more common programs include Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures –– but there are other options available as well.

International Tax and Offshore Compliance

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.

Contact our firm today for assistance.