Let's Talk International Taxes FBAR & FATCA

Author: Tax Resolution Attorney Gwin, PLLC |

You achieved your dream. You bought a beach house in the Caribbean; or perhaps you bought a vacation home in Costa Rica or Mexico; you may even have been lucky enough to inherit a villa in Tuscany or a home in Greece. You opened a foreign bank account to pay the bills, have access to cash, or even just to deposit money from vacation rentals. You now have foreign reporting requirements. 

Foreign reporting requirements were put in place to prevent U.S. taxpayers from hiding money overseas and to uncover what has already been hidden to avoid paying U.S. taxes. There is no place you can hide from the IRS! If you believe that you might be non-compliant, call us. We are here to help.

The key is to get compliant BEFORE you get any warnings or notification of potential non-compliance. Once you are on the radar, no penalty mitigation is possible. 

Foreign Bank Account Reporting (FBAR)
Not Part of the U.S. Tax Return

It is interesting to note that FBAR form 114 is not part of the U.S. tax return. FBAR is a separate requirement with distinct and direct electronic filing requirements with the Financial Crimes Enforcement Network (FinCen). Further, there is no statutory authority to extend the time for filing and all requests for extensions are denied.

How Extensive is FBAR?

FBAR extends to U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States and trusts or estates administered under the laws of the United States.

FBAR applies annually to any U.S. taxpayer with a financial interest in, or a signature authority over any and all foreign financial accounts with the aggregate value exceeding ten thousand U.S. ($10,000) dollars in one day of a tax year even if it is only for one minute. 

FBAR form 114 filing deadline for the year of 2018 is April 15, 2019, which coincides with the federal income tax filing season. The April 15, 2019 filing date is mandated by Public Law 114-41, section 2006(b)(11). Extensions of time to file a U.S. tax return DO NOT extend the time to file form 114.

Non-Willful Failure to Comply - $10,000 Penalty

Non-willful failure to comply with the FBAR filing requirement can result in a civil penalty not to exceed ten thousand ($10,000) dollars per year.

Willful Failure to Comply - $100,000 Penalty & Possible Felony Charges

Willful failure to comply with the FBAR filing requirement can result in a civil penalty of the greater of one hundred thousand ($100,000) dollars or fifty (50) percent of the balance in the account at the time of the violation, for each violation. Criminal penalties may also apply.

One simple “X” can cause financial ruin! In Kimble v. The United States, No. 17-421 (December 27, 2018), the United States Court of Federal Claims held that a taxpayer is deemed WILLFUL when the Schedule B (Form 1040) “No” box is checked, even if the taxpayer never read the tax return prior to signing and submitting. In Kimble, the FBAR penalty assessed for one year was $697,229 for willfully failing to disclose the family’s Swiss bank account and a French account. 

Foreign Account Tax Compliance Act - FATCA
Attachment to U.S. Tax Return

You are going to need a sip of your beverage for this one. Not only is there FBAR, there is also a Statement of Specified Foreign Financial Assets known as FATCA. FACTA applies to taxpayers with foreign financial assets, that exceed the threshold. FACTA is reported using Form 8938 and attaching it to the U.S. tax return. 

The value of the financial asset is the maximum fair market value reached during the entire tax year reported.

How far does FATCA Extend?

FATCA includes foreign accounts reported on the FBAR. FATCA applies to all accounts owned, even if the financial assets of the account do not generate taxable, reportable income. 

FATCA extends to U.S. persons including citizens, resident aliens, nonresident aliens who have elected to be treated as a resident for the purposes of filing a joint tax return, and nonresident aliens who are bona fide residents of American Samoa or Puerto Rico.

The reporting threshold, valued in U.S. dollars, is different for married, unmarried taxpayers and depends on whether the taxpayer resides inside or outside of the U.S. The threshold value is the total value of the specified foreign financial assets, not the individual value of each asset.

Failure to File - $10,000 Penalty

The penalty for failure to file Form 8938 by the due date for your annual return (see below), including extensions, is ten thousand ($10,000) dollars. Continued failure to file within ninety (90) days after IRS notification earns a penalty of ten thousand ($10,000) dollars for each thirty (30) day period up to a total of fifty ($50,000) dollars. 

An annual return includes the following returns:

         Forms: 1040, 1040NR, 1041, 1041-N 
                  April 17, 2020

         Forms: 1065, 1020, 1020-S 
                  Generally, the15th day of the 3rd Month after tax year end 

         Forms: 1020, 1020-S
                  Generally, the 15th day of the 4th Month after tax year end 

Covered Over a Beverage

Foreign reporting requirements are complex. The snippet of information here is what can be covered over a beverage. We are here to help. 

Please contact Kelly should you require assistance in these areas. (407) 704-7152  or email us at  Kelly@TaxResolutionAtty.com