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If you are a United States citizen with a bank account in a foreign country, it is important you understand the differences between FBAR filing and FATCA reporting as well as the necessity of adhering to IRS stipulations of both.
FBAR, a Foreign Bank Account Report, provides data on the balances of foreign bank accounts. If a U.S. citizen has $10,000 or more in a foreign bank account, he/she must file a Foreign Bank Account Report, regardless of whether the $10,000 is stored in one foreign bank account or spread across multiple foreign bank accounts.
This requirement mostly affects Expats who live overseas; however, it was also created for United States residents who keep money in offshore bank accounts. Remember, if you are an American citizen with $10,000 or more in any type of foreign bank account, it is imperative you file a Foreign Bank Account Report.
The FBAR is separate from an IRS tax return. It is sent to the United States Treasury Department using FinCEN Form 114, and it is due before June 30. If you don’t submit an FBAR, the penalty can be large—as high as $50,000—and there is no extension allowance.
A Foreign Account Tax Compliance Act (FATCA) is quite different from an FBAR. While the FBAR demonstrates a bank account reporting, a FATCA reveals the reporting of foreign assets including but not limited to foreign bank accounts.
A FATCA report includes assets such as pensions, partnership interests and corporate stock as well as foreign financial accounts. Individually owned foreign real estate is not subject to FATCA reporting. According to the IRS, FATCA was created to “combat tax evasion by U.S. persons holding accounts and other financial assets offshore.” If you set up a new account with a foreign bank, financial institution or, in some cases, insurance company, expect to answer questions in regard to your citizenship so the entity can properly maintain its FATCA obligations.
The reporting requirement for FATCA is as follows for filers residing in the United States:
Single Filer: If you are a single (unmarried) filer residing in the U.S. and the value of your foreign financial assets is greater than $50,000 on the last day of the tax year or more than $75,000 at any point throughout the year, you must file IRS Form 8938 under FATCA.
Married Filer: If you are a married filer residing in the U.S. and the value of your foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time throughout the year, you file Form 8938 under FATCA.
For filers not residing in the United States, the requirements are:
Single Filer: If you are a single (unmarried) filer not residing in the U.S. and the value of your foreign assets is greater than $200,000 on the last day of the tax year or $300,000 at any time throughout the year, you must file Form 8938 under FATCA.
Married Filer: If you are a married filer not residing in the U.S. and the value of your foreign assets is greater than $400,000 on the last day of the tax year or $600,000 at any point throughout the year, you must file form 8938 under FATCA.
FATCA, unlike FBAR, is filed with your U.S. tax return, and is due when your income taxes are due. You can apply for an extension if you are also applying for an extension on your tax return.
If you do not have to file a U.S. tax return, then you do not have to file IRS Form 8938, regardless of the amount of your foreign assets; however, you may still be required to file an FBAR.
For more detailed information, visit the IRS’s Summary of the IRS FATCA Reporting for U.S. Taxpayers.
We can assist you with an FBAR filing. In order to make this filing, you will need to have a Federal Tax ID Number. If you do not have a Federal Tax ID Number, we can help you acquire one as well. If you have additional questions about FBAR or FATCA, or if you would like assistance with filing an FBAR, please contact us at firstname.lastname@example.org.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.