What is FBAR?
FBAR, the Foreign Bank Account Report or Form TD F 90-22.1 is due by June 30th each year. Every “United States person / read: U.S. Tax Payer ”, who has one or more foreign bank account(s) which at any point during the year reach an aggregate balance of over $10,000 is obliged to file a report with the US Treasury Department listing all foreign accounts.
The IRS recently clarified that for the FBAR filing due 30 June 2009, the term “‘United States person’ means (1) a citizen or resident or U.S. taxpayer of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust.” This was a temporary retreat from revised instructions previously issued requiring FBAR filings by any person “in and doing business in the United States”, which casts a very wide net. To learn more about FBAR and how it might impact you, you can speak to your with us for more information.
What’s an Account? Foreign bank and brokerage accounts are generally included, as are offshore mutual funds or pooled investments. However, hedge and private equity funds generally don’t count. An account with a U.S. institution that holds foreign assets doesn’t require a filing as long as you can’t directly access foreign assets maintained in a foreign institution.
FBAR Penalties. The penalties for failure to file an FBAR are worse than tax penalties. Failing to file an FBAR can carry a civil penalty of $10,000 for each non-willful violation. But if your violation is found to be willful, the penalty is the greater of $100,000 or 50 percent of the amount in the account for each violation—and each year you didn’t file is a separate violation.
New FBAR regulations spell out more clearly what are considered as "other financial assets" held abroad and that should be declared on revised form TDF90-22.1 (FBAR) due June 30 every year. We highly recommend that US taxpayers consult with us to be certain that they declare all their foreign financial holdings correctly.
FinCEN (Financial Crimes Enforcement Network, Department of the Treasury) published the final rule regarding Foreign Bank Account Report (FBAR) regulations over calendar year 2010.
"FinCen also received comments from individuals living abroad who objected to the FBAR filing requirements. Some of these commenters were married individuals who raised concerns that their non-U.S. spouses did not want information regarding joint financial accounts to be reported to U.S. government authorities. With respect to the comments raised by United States persons living abroad, FinCEN does not believe than an exemption is appropriate simply because a United States person chooses to live outside the United States."
Note also that life insurance or annuity policies with a cash value are to be reported as accounts for FBAR purposes only. And that legal permanent residents who elect under a tax treaty to be treated as a non-resident for tax purposes must still file the FBAR.
As to the numerous concerns about duplicative reporting in cases where various individuals have signature power over a foreign bank account (as in a business), makes it "more difficult for the account and the individuals having access to that account to escape detection."
What is FATCA?
The Foreign Account Tax Compliance Act (FATCA) is an important development in U.S. efforts to improve tax compliance involving foreign financial assets and offshore accounts. The Foreign Account Tax Compliance Act, better known as FATCA, was passed in 2010 as part of the HIRE act.
Starting in 2014 foreign financial institutions (FFI) will be required by the US government, under FATCA, to report information regarding accounts of US citizens, US persons, Green Card holders and individuals holding certain US investments to the IRS. This law requires foreign financial institutions such as your “foreign” local bank, stock brokers, hedge funds, insurance companies, trusts, etc. - to report directly to the IRS all their clients who are "US persons.” FFIs that do not become compliant will be subject to a 30% withholding on these investments, which will directly impact FFI clients.
FATCA also requires US citizens who have foreign financial assets in excess of $50,000 (higher for bona fide residents overseas – $200,000 for single filers and $400,000 for joint filers – see the IRS website for more details) to report those assets on a new Form 8938 to be filed with the 1040 tax return. Instructions for form 8938 were published in December 2011 and can be found on the IRS website.
Many Americans residing overseas are reporting banking lock-out. Many foreign financial institutions have simply chosen to eliminate their US citizens and US person client basis in order to minimize their exposure to FATCA reporting requirements, withholding fees and potential penalties.
The US Treasury has entered into Intergovernmental Agreements (IGAs) with a large number of countries which will facilitate the transfer of information. The IGA agreements do include a non-discriminatory clause that is aimed at helping to alleviate issues of lock-out of banking services US citizens and US persons.
Reporting by Foreign Financial Institutions
FATCA will also require foreign financial institutions ("FFIs") to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. To properly comply with these new reporting requirements, an FFI will have to enter into a special agreement with the IRS by June 30, 2013. Under this agreement a "participating" FFI will be obligated to:
Undertake certain identification and due diligence procedures with respect to its account holders;
Report annually to the IRS on its accountholders who are U.S. persons or foreign entities with substantial U.S. ownership; and
Withhold and pay over to the IRS 30-percent of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income, made to: (a) non-participating FFIs, (b) individual accountholders failing to provide sufficient information to determine whether or not they are a U.S. person, or (c) foreign entity account holders failing to provide sufficient information about the identity of its substantial U.S. owners.
To learn more about FATCA and how it might impact you, you can speak to us for more information.
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