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Expat Tax Info from Barron HarperFBAR and FATCA Should You Know What are FBAR and FATCA? If you are an American citizen or resident with financial accounts or assets outside the US, whose aggregate values exceed $10,000 or $50,000 respectively, you need to know the acronyms FBAR and FATCA. In fact, if you have power-of-attorney over such accounts or assets, for an elderly parent for example, you also need to know these acronyms. FBAR stands for the Report of Foreign Bank and Financial Accounts act and FATCA stands for the Foreign Account Tax Compliance Act. Congress enacted these laws to address perceived tax abuse by US persons through the use of offshore accounts. The laws require individual taxpayers and foreign financial institutions (FFIs) to report to the IRS account information, including the name, address, taxpayer ID number, account number, and ac-count balance (or value). FBAR requires individuals to report accounts whose aggregate value exceeds $10,000 at any time during the calendar year. FATCA requires individuals and FFIs to report similarly, but the value threshold is triggered when the aggregate value of a person’s assets exceeds $50,000. While the reporting regimes for individuals under FBAR and FATCA are in place, the regime for FFIs will not be ready until January 1, 2013. Beginning then, the IRS will have data on file for large foreign asset holders to compare with information reported by taxpayers. FBAR reporting is due June 30th of the year following the year the account holder meets the $10,000 threshold. The information is reported via Form TD F 90-22.1. It is an information return filing, and not an income tax filing. Nonetheless, the penalties for failure to report are quite severe: Non-willful failure to file is $10,000; willful failure to file is the greater of $100,000 or 50% of the value of the foreign accounts. No penalty is assessed if the IRS determines a late filing was due to reasonable cause. FATCA reporting by taxpayers begins in 2012 for assets held in taxable years beginning on or after Janu-ary 1, 2011. Like FBAR, it is an information return filing. Taxpayers are required to file Form 8938, which must accompany their tax return. Failure to report will result in a penalty of $10,000. A penalty of up to $50,000 is assessed for continued failure to report after IRS notification. Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial under-statement penalty of forty (40%) percent. FATCA reporting by FFIs begins in 2013. Accountholders who fail to provide sufficient information to determine their U.S. person status, non-participating FFIs, and foreign entity accountholders who fail to provide sufficient information about the identity of their substantial U.S. owners will confront draconian penalties. Participating FFIs will be obligated to withhold and pay over to the IRS thirty (30%) percent of any payments of U.S. source income that would have gone to the aforementioned group, as well as the gross proceeds from the sale of securities that generate U.S. source income that would have gone to the group. The following table summarizes the main attributes of the two acts:
Some individuals have innocently initiated offshore accounts that are not in compliance with FBAR or FATCA, while others have opened the very accounts the IRS is looking for. The IRS has initiated a program to allow all taxpayers to disclose previously unreported offshore accounts, and to amend their income tax returns to recognize previously unreported income. Taxpayers have until August 31, 2011 to meet all program requirements. For those who do, for the years 2003 through 2010, the program grants protection from significant civil penalties and criminal sanctions. If you have undisclosed offshore accounts, it’s time to declare them. We are here to help you if you need assistance. Follow @jeffsteiner |
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