In March, 2010, FATCA , or The Foreign Account Tax Compliance Act, was enacted by Congress to remedy a perceived growing problem with foreign banks facilitating and encouraging U.S. taxpayers to conceal assets in their financial institutions. Seventy-nine countries have since signed FATCA agreements with the IRS, which require the financial firms within each of the participating countries to report account data for accounts owned by U.S. taxpayers or face severe penalties.
Also, the IRS is now automatically exchanging digital financial account information with tax authorities in other countries.
It’s not as easy as it used to be for taxpayers and their assets to avoid IRS scrutiny outside of the United States. Now, international account owners face substantial financial penalties and even possible criminal prosecution for failing to file a Report of Foreign Bank and Financial Accounts
(FBAR) and abide by the requirements of FATCA. The IRS offshore voluntary disclosure program allows international account owners to square their tax bill with the IRS and reduce some of their tax penalties in exchange for a good faith attempt at tax reconciliation, provided that the hitherto non-compliance was not willful. Individuals with foreign assets aware of FATCA are consequently filing FBARs at a greater rate in recent years as these filings exceeded 1 million for the first time in calendar year 2014.
The FBAR was in use for many years as Form TD F 90.22.1 but, as of tax year 2013, has since been replaced by FinCen Report 114. The FBAR filing requirement is not part of filing a tax return and must be filed with the Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department. The form must be filed electronically (not with a tax return) and is only available online through the BSA E-Filing System website. Who needs to file an FBAR? Taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during any calendar year must file an FBAR.
To meet the legal requirement that U.S. citizens and resident aliens report any and all worldwide income, including income from foreign trusts and foreign bank and securities accounts, in most cases, taxpayers must complete and attach Schedule B to their tax returns. In Part III of Schedule B taxpayers are required to list foreign accounts, such as bank and securities accounts, and must report the country and other details in which each account is located.
In addition, certain taxpayers may also have to complete and attach to their return, Form 8938 – Statement of Special Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. $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). Form 8938 has been in existence since tax year 2011, and is included in the annual tax return. The FATCA Form 8938 requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR Form 114.
Finding a tax haven is not as easy as it used to be. If you have questions about the filing of Form 8938 or the FBAR, or any tax questions, call THE TAX EXPERTS AT THE Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
