Reporting and Filing Information

There are certain reporting obligations on every account that shows income, be it a national or a foreign account. These obligations are met by answering questions on tax returns paid and the means becomes the FBAR. Since it needs to be filled annually, it has been brought online by FinCEN’s BSA E-Filing System. Since the federal tax and FBAR are not filled together, an income tax extension would not mean an extension for FBAR. For people who file the FBAR with their spouse or have it filed by a third party can use FinCEN Report 114a, Record of Authorization to Electronically File FBARs. It is very beneficial in certain ways for FinCEN Report 114a does not need to be filed with the FBAR but could be kept as records which could be presented to FinCEN and IRS whenever they request for it.

Now for those who fail to file this FBAR report, or maybe submit an incomplete and incorrect report, they would be subject to civil monetary penalties. Another penalty which was added from August 01, 2016, it stated that any violation starting/reported after November 02, 2015 would have an individual charged with the inflation-adjusted civil penalty which would not exceed $ 12,459 per violation. This would be charged for non-willful violations that were not caused for a reasonable cause.

However, for violations caused before the assessment of August 01, 2016, the IRS may charge an individual with a penalty that may not exceed $ 10000 per violation which was not caused because of any reasonable cause. Further, for the willful violations, the penalty may be higher than $ 100000 or 50% of the balance in the account at the time of the violation, per violation.

But this form, the FBAR was not the only form which was required to be filed by the US citizen residing off-shores. Taxpayers with specified foreign financial assets that exceed certain predetermined thresholds are obligated to report their holdings to the IRS via Form 8938. It is a Statement of Specified Foreign Financial Assets that requires to be filed with the income tax returns. What is included in these financial assets would also be inclusive of foreign accounts reported on the FBAR? Hence, one could easily say that it is an additional requirement of Form 8938 which has to be filed along with the FBAR.

The value determined for the assets that should be reported under the threshold should be at least $ 50000 and that detail of assets must be mentioned in Form 8938. This, in turn, gets submitted as an attachment to the annual income tax. Until January of 2013, it was termed that only individuals were entitled to report their assets. However, later in time, not only the individuals but even the institutions and groups of people who yield income abroad that could be liable for tax needs to fill these forms. The Form 8938 has certain exceptions which included a non-payment from those who are not liable for paying the income tax. Thus, no matter how much their foreign financial assets value, they are not asked to report their assets if they do not file their returns. Apart from these exclusions, there are some people whose foreign income includes interest in foreign entities and foreign gifts, they are only supposed to file the Form 8938 and not repeat the details elsewhere.

How does one report these thresholds?

Like already mentioned, there is a situation where one has a joint account with their spouse, the approach is different. However, if an individual file a single or a separate income tax from their spouse, they are obligated to file the Form 8938 provided their assets, in the year of consideration, exceed $ 200000 at any point. This is in regards to the foreign financial assets where the individuals are living abroad. Further, if the same exceeds $ 50000 while that individual resides in the US, they are asked to file the form. For people filing a jointly with their spouse, the thresholds become double. However, what if a person is abroad for not too long, how do we determine the lads that live abroad? There is a justification here that they are determined by the number of days they live in a foreign country. Those US citizens that live in any foreign country for more than or at least 330 days out of a consecutive 12-month period are considered as US citizens living abroad.

But after all this while, we must wonder what did people comply if not FATCA for paying their taxes living offshores. Yes, there was a program earlier which was not as strict as FATCA. It was known as the Offshore Voluntary Disclosure Program which continued to acquire the interest and tax from the taxpayers voluntarily. However, even this was entwined with the FBAR where individuals were required to inform and report their values of offshore assets and pay taxes. Today, the closing of this program is near.

Coming back to the threshold, there are taxpayers living in the US as well as living abroad. This results in having separate regulations for both types of US citizens to file the Form 8938.