With over 7 million Americans living overseas, the IRS has been getting more and more serious about claiming the money contained in offshore bank accounts. And while it may appear that the IRS has been mellowing their stance towards overseas finances, due to the implementation of the Offshore Voluntary Disclosure Act, giving American citizens the opportunity to come forward with overseas assets for reduced penalties, the fact is: the IRS are serious about getting their money. An IRS Foreign Bank Account Report, or FBAR, is one of the ways they come to collect.
What Is An IRS Foreign Bank Account?
If an American citizen – defined as someone born on native American soil, an individual with dual-citizenship, green-card holders, and investors with assets tied to American institutions – holds an offshore bank account for a sum greater than $10,000, they are expected to file a FBAR with the government. Types of accounts included in this act are bank accounts, mutual funds, brokerage accounts, or trust, according the Bank Secrecy Act.
There are some exceptions to the IRS Foreign Bank Account ruling, including:
- Jointly owned foreign bank accounts held by certain spouses
- United States citizens included in a joint FBAR
- Correspondent or Nostro accounts
- Foreign financial accounts held by specific government institutions
- Foreign financial accounts held by international entities
- IRA Owners
- Beneficiaries of tax-qualified retirement programs
- Individuals with signature rights, but no interest in, a foreign bank account
- Recipients of trust benefits
- Holders of foreign bank accounts located on US military bases
IRS Foreign Bank Accounts vs. FATCA
The IRS has recently implemented another program aimed at holders of offshore bank accounts, known as the Federal Account Tax Compliance Act, or FATCA. The two programs are related, but not identical.
Here are some general rules of thumb to consider, as guidelines to file a FBAR, FATCA or both.
- Who Must File?: U.S citizens, green card holders, and some individuals with dual citizenship, as well as individuals holding an interest in foreign assets must file both a FBAR and FATCA
- Resident aliens on US territories are required to file a FinCEN Form 114, for FBAR, but not for FATCA
- US Citizens with over $50,000 in holdings in foreign bank accounts on the last day of the tax year, or over $75,000 at any time during the year, are required to file a form 8398 with the IRS, for FATCA. Accounts with over $10,000, at any time during the year, for even as little as one day, are required to file Form 114, to be in compliance with FBAR regulations.
- For both FATCA and FBAR, having an interest in a foreign bank account means receiving any income, whether from interest, gains, losses, or credits. FBAR extends this definition to include someone with signature rights on an account with foreign assets.
- For both FATCA and FBAR, US citizens are required to report the maximum holdings on the offshore bank account
- Both FATCA and FBAR are reported in USD, using the current market conversion rate at time of filing
- Failure to comply with FATCA results in a $10,000 fine, with an additional $10,000 accruing every 30 days of non-filing. Non-compliance with FBAR can result in a $10,000 fine, for non-willful compliance, and up to $100,000, or 50% of the account holdings and can result in criminal charges.
- Form 8398, for FATCA, is due on the date when taxes are due. Form 114, for FBAR, is due on June 30 of every year.
Remember: There are no extensions on FBAR, with serious repercussions for failing to file, so if you have any questions or need assistance with IRS foreign bank accounts, FATCA or FBAR compliance, contact us today, and see how our international finance experts can help!