Avoid FBAR & FATCA by Closing an Offshore Bank Account?
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Avoid FBAR & FATCA by Closing an Offshore Bank Account?
Avoid FBAR & FATCA by Closing an Offshore Bank Account? If only life was that easy, right? When a U.S. Person with an offshore bank account (or several accounts) learns about FBAR & FATCA, it is an unfortunate wake-up call.
FBAR is Foreign Bank and Financial Account Reporting (FinCEN Form 114). FATCA is the Foreign Account Tax Compliance Act (Form 8938 for most U.S. person filers).
The first instinct for many taxpayers is simply to close the account. While closing an offshore bank account will help the U.S. person avoid foreign account reporting in future years, it does not erase the past.
Closing the accounts to avoid past reporting is dangerous.
In recent years, the IRS has taken an aggressive position on foreign accounts compliance, so timely reporting is important.
If you missed the reporting due date, there are various offshore amnesty programs available to assist you.
Timing the Account Closing Example
Peter has five offshore bank accounts in the U.K.
On June 10, 2010, he closes his five accounts.
When it comes time for Peter to file his 2019 FBAR (due in 2020), Peter will report the accounts on the FBAR (and usually Form 8938 as well).
Why?
Because even though the accounts were closed in 2019, the accounts we also open for part of 2019. Therefore, they are reportable on the 2019 FBAR, which is due in 2020.
In 2021, sine accounts were not open during 2020, Peter will not need to report the accounts.
*The rules differ for dormant accounts.
Closing an Account to Avoid Past FBAR & FATCA Reporting
Simply closing the account does not eliminate the reporting requirement.
First, after you closed your bank account, it may be much more difficult for you to obtain all the necessary account information that you will need to get into compliance.
Moreover, the bank will no longer send you statements, so if the bank is predisposed to send you out a FATCA letter before reporting the account information to the IRS, you may not be on any notice (and you may miss the opportunity to voluntarily disclose.)
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