Five Things American Expats Need To Know About Foreign Bank Account Reporting
By David McKeegan
- FATCA and FBAR are not the same
FBAR (Foreign Bank Account Report) and FATCA (Foreign Account Tax Compliance Act) are both part of a US initiative to thwart tax evaders who are hiding assets in overseas accounts—and the IRS is serious about collecting any monies owed to them.
FATCA has garnered worldwide notoriety of late, as foreign financial institutions are now being forced to report on the accounts of their American clients. As a result, some foreign banks are refusing to work with Americans to avoid the burden of the additional filing requirements.
Neither FATCA nor FBAR result in additional taxes you must pay—they simply exist as reporting requirements. This means that the IRS and Department of the Treasury want to know about where your money and assets reside, but you aren’t taxed on the assets when you report them. Tax obligations are only triggered when specific events occur (such as withdrawing funds from certain investment accounts).
- FBAR is all about bank accounts.
FBAR is a report of foreign bank accounts and your reporting requirements are based solely on your account balances overseas. So if your foreign bank accounts (or any accounts you have signing authority over) have balances that exceeded $10,000 or more at any point last year, you must file FBAR. This is a combined balance of all your accounts. So if one account balance is $4,000 and another is $7,000, both accounts must be reported.
The FBAR is filed to the US Treasury Department via FinCEN Form 114 (not to the IRS). The filing deadline is 30 June 30 and unlike your US tax return, no extensions are available.
- FATCA encompasses a broader spectrum of assets
FATCA filing requirements are a little different than FBAR. While bank accounts are part of FATCA reporting, the filing requirements are broader. You must file FATCA if the value of specified foreign assets exceed the filing threshold, which varies by filing status and residency.
Specified foreign financial assets are defined as things such as:
- Foreign pensions
- Foreign stockholdings
- Foreign partnership interests
- Foreign financial accounts (i.e. your bank accounts)
The thresholds for US taxpayers living overseas are as follows:
- Single filer: Total value of assets was $200,000 or more at the end of the tax year, or $300,000 at any point during the year
- Married filer: Total value of assets was $400,000 or more at the end of the tax year, or $600,000 at any point during the year
The thresholds are much lower for those living in the US (so pay close attention to this information if you are planning to move back to the US sometime in the future!):
- Single filer: Total value of assets was $50,000 or more at the end of the tax year, or $75,000 at any point during the year
- Married filer: Total value of assets was $100,000 or more at the end of the tax year, or $150,000 at any point during the year
FATCA Form 8938 is filed along with your US Federal Tax Return so if you file for an extension on that, it also applies to your FATCA form.
If you don’t actually have a US tax filing requirement (i.e. your income is under the tax filing threshold) you are not required to file FATCA, regardless of the value of your assets.
- A filing requirement for one does not create a filing requirement for the other
While these initiatives are similar in theory, the filing requirements are quite different. You may need to file one, the other, both or neither! To gain a better understanding of the differences between the two, review our detailed chart with a side-by-side comparison.
- You can get caught up without penalties
If you are behind on your filings, please know this is very common for US expats! Many expats don’t realize they have a filing requirement and the IRS has created an ‘amnesty program’ which is the best way for expats like yourself to become compliant—the Streamlined Filing Procedures.
If your lack of filing was innocent (meaning you didn’t purposely hide your assets from the government), then you simply file the last three year’s tax returns and last six year’s FBARs and you are caught up. Currently the IRS is waiving all late filing and FBAR penalties, which allows you to become compliant without fear of a huge financial burden.
The IRS hasn’t set an end date for this program so it could be terminated at any time. Your best bet is to get caught up as soon as possible, as the IRS is far more reasonable when it comes to those who come forward voluntarily than those who they find on their own!