FBAR & FATCA
When it comes to international tax and reporting compliance, two of the most common acronyms you will undoubtedly come across in your research quest are FBAR (Foreign Bank and Financial Account Reporting aka FinCEN Form 114) and FATCA (Foreign Account Tax Compliance Act aka Form 8938). While both of these acronyms refer to the same concept of reporting foreign assets, accounts, investments, and income to the US Government, they are not the same — and oftentimes Taxpayers may have to report their assets and accounts on both forms. The failure to comply with FBAR & FATCA may have serious implications, resulting in fines and penalties – but these penalties can oftentimes be reduced, avoided, or abated with one of the various offshore tax amnesty programs. Let’s look at five important facts about FBAR & FATCA.
FBAR Reporting is Not a New Form
While FATCA is a relatively new compliance procedure, the FBAR has been around since about 1970. FBAR is based exclusively on US tax law and requires US persons who have ownership, interest, or even just signature authority in a foreign financial account to report that information to the US government and directly to FinCEN. Despite the fact that the FBAR is neither a tax form nor an IRS form, it is the Internal Revenue Service that is tasked with enforcement of compliance and for the past several years, has significantly increased the number of penalty assessments.
FATCA Compliance Involves Reciprocal Global Reporting
FATCA refers to the Foreign Account Tax Compliance Act. Since 2014, the United States has entered into more than 110 intergovernmental agreements (IGA) with foreign countries across the globe. The goal of FATCA is to facilitate reciprocal reporting by persons with assets and income in the respective foreign countries. For example, a US person with foreign accounts will be reported by the Foreign Financial Institution to the US government and the US Government reports the foreign person with US assets to the foreign government’s tax authorities. This makes it easier for the IRS to keep tabs on US persons and make sure all accounts are being reported and offshore income is being included on the US tax return.
FBAR Has a Much Lower Threshold
The FBAR threshold is relatively low. If a US person (which is more than just a US individual, see here) has an annual aggregate total of all of their foreign accounts exceeding $10,000 on any given day of the year, then the FBAR is required. It is very important to note that it is an annual aggregate total of all the accounts, and not just that each separate account must exceed $10,000. For example, a US person with 10 accounts and $9,000 in each account would absolutely have to report, since the annual aggregate total is $90,000. On the other hand, the FATCA threshold requirement varies based on marital filing status and domestic vs. foreign residency of the Taxpayer.
FATCA Requires Having an Interest in the Asset
While the FBAR reporting rules do not require that the Taxpayer have any interest in money in the account, FATCA is different. For FATCA, the filer must have an interest in the account in order to meet the requirement to file the form.
FBAR Is Filed Separately; FATCA Is Filed With the Return
The FBAR is not a tax form and it is not filed with the Internal Revenue Service; it is lodged electronically on the FinCEN website. Conversely, FATCA reporting is made directly to the Internal Revenue Service and it is submitted by US taxpayers on an annual Form 8938. This form is part of the US tax return and is included with the taxpayer’s tax return in any year they are required to file the form.