Reporting Foreign Assets: Compliance with FBAR and FATCA

By Kapil Handa

FBAR and FATCA are two IRS filing regulations that require some individuals and entities to report their foreign assets or accounts above a minimum value. As more people become aware of these regulations, FBAR and FATCA compliance is improving.

Reporting requirements vary between FBAR and FATCA. Generally, minimum dollar thresholds for reporting depend on an individual or entity’s:

  • Immigration status
  • Tax filing status
  • Residency location (in the US or abroad)

FBAR and FATCA impact individuals who receive inheritances or gifts and store them overseas. US citizens or green card holders who live abroad must also follow these regulations.

The IRS does not tax foreign assets or accounts under FBAR and FATCA.

Does the IRS Tax Foreign Assets?

Income tax is charged on earnings that are generated overseas.

Individuals can claim foreign tax credit for US federal taxes, but only if the US has a tax treaty with the foreign country. Many countries have tax treaties with the US. For example, the US has an income tax treaty with India.

FATCA and FBAR Reporting Requirements

Below are more detailed reporting requirements for FBAR and FATCA.

FinCen Form 114: Report of Foreign Bank and Financial Account (FBAR)

Form 8938: Statement of Specified Foreign Assets (FATCA)

Who must file

Every US person, and certain entities, including:

  • US citizens

  • Green card holders

  • Resident foreign nationals

  • Trusts

  • Estates

  • Certain domestic entities

Must file if the combined value of all foreign accounts is greater than $10,000.

Every US person, and some entities, including:

  • US citizens

  • Green card holders

  • Resident foreign nationals

  • Certain non-resident foreign nationals

  • Certain domestic corporations, partnerships, trusts

Are required to file if the combined value of all accounts is greater than $150,000 at any time during the year or $100,000 on the last day of the tax year (if filing married filing jointly).

Reporting thresholds are halved if your tax return filing status is single or married filing separately.

Due date

The form should be received by the IRS by April 15 of the following year (six-month extension to Oct 15).

For example, a 2017 FBAR form must be filed by April 15, 2018 or by October 15, 2018 if an extension is applied.

The form goes along with your annual income tax return and has the same due date including any applicable extensions.

Where to File

File electronically and separately from the federal return

File with income tax return as per instructions for the return

Penalties

There are two types of penalties:

  • Willful: up to greater of $100,000 or 50% of account balances

  • Non-willful: up to $10,000

 

 

The IRS can impose a penalty of up to $10,000 for failure to disclose and file form 8938. In addition, there is a penalty of $10,000 for each 30 days after IRS notice of non-filing that the form goes un-filed. There is a maximum penalty of $60,000.

Please be aware that non-filing can also lead to criminal penalty.

Next Steps to Comply with FBAR and FATCA

If you have foreign assets or accounts, you may need to comply with FBAR and FATCA. Please contact your trusted Chugh CPA for expert advice.