FACTA & FBAR
The rapid growth of global economy presents complex planning and compliance challenges that must be addressed proactively. We offer the expertise and global perspective to help with a broad range of issues, including:
- FACTA and FBAR Compliance
- Minimize or Eliminate Non-Compliance Penalties
- Outbound and inbound structure planning
- Foreign tax credits
- Transfer pricing review
- International business advice and planning
Who Must File an FBAR (Do you have a foreign bank account?)
U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States are required to file an FBAR if:
- You have a financial interest in or signature authority over at least one financial account located outside of the United States; and
- the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
Exceptions to the Reporting Requirement
There are filing exceptions for the following United States persons or foreign financial accounts:
- Certain foreign financial accounts jointly owned by spouses
- United States persons included in a consolidated FBAR
- Foreign financial accounts owned by a governmental entity
- Foreign financial accounts owned by an international financial institution
- Owners and beneficiaries of U.S. IRAs, tax-qualified retirement plans
- Certain individuals with signature authority over, but no financial interest in, a foreign financial account
- Foreign financial accounts maintained on a United States military banking facility.
Reporting and Filing Information
A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income.
The FBAR (FinCEN 114) is a calendar year report and must be filed on or before April 15 of the year following the calendar year being reported. An automatic 6 month extension will be granted with extension request for U.S. Individual Income Tax Return.
Those required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to civil monetary penalties. For penalties that are assessed after August 1, 2016, whose associated violations occurred after November 2,2015, the IRS may assess an inflation-adjusted civil penalty not to exceed $12,459 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the inflation-adjusted penalty may be the greater of $124,588 or 50 percent of the balance in the account at the time of the violation, for each violation.
Note regarding civil penalty assessment prior to August 1, 2016: For those violations occurring on or before November 2, 2015, the IRS may assess a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation.
Who Must File Form 8938
(Do you own an interest in a foreign entity?)
Note: If you do not have to file an income tax return for the tax year, you do not need to file Form 8938, even if the value of your specified foreign assets is more than the appropriate reporting threshold.
1. You are
- A U.S. citizen
- A resident alien of the United States for any part of the tax year
- A nonresident alien who makes an election to be treated as resident alien for purposes of filing a joint income tax return
- A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico
2. You have an interest in specified foreign financial assets required to be reported.
A specified foreign financial asset is:
- Any financial account maintained by a foreign financial institution (Exceptions applied)
- Other foreign financial assets held for investment that are not in an account maintained by a US or foreign financial institution, namely:
- Stock or securities issued by someone other than a U.S. person
- Any interest in a foreign entity, and
- Any financial instrument or contract that has as an issuer or counterparty that is other than a U.S. person.
3. The aggregate value of your specified foreign financial assets is more than the reporting thresholds that applies to you:
- Unmarried taxpayers living in the US: The total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year
- Married taxpayers filing a joint income tax return and living in the US: The total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year
- Married taxpayers filing separate income tax returns and living in the US: The total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
- Taxpayers living abroad. You are a taxpayer living abroad if:
- You are a U.S. citizen whose tax home is in a foreign country and you are either a bona fide resident of a foreign country or countries for an uninterrupted period that includes the entire tax year, or
- You are a US citizen or resident, who during a period of 12 consecutive months ending in the tax year is physically present in a foreign country or countries at least 330 days.
If you are a taxpayer living abroad you must file if:
- You are filing a return other than a joint return and the total value of your specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or
- You are filing a joint return and the value of your specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
Who Must File Form 5471 and 5472
(Are you an officer, director or shareholder of a foreign corporation?)
United States persons who own interests in foreign entities must comply with a variety of U.S. reporting requirements.
U.S. citizens and U.S. residents who are officers, directors, or shareholders in certain foreign corporations are responsible for filing Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. The filing requirements for Form 5471 relate to persons who have a certain level of control in certain foreign corporations.
The categories of U.S. persons potentially liable for filing Form 5471 include:
U.S. citizen and resident alien individuals,
U.S. domestic corporations,
U.S. domestic partnerships, and
U.S. domestic trusts.
Substantial penalties exist for U.S. citizens and U.S. residents who are liable for filing Form 5471 and who failed to do so.
U.S. Citizen or Resident living abroad
1. I’m a U.S. citizen living and working outside of the United States for many years. Do I still need to file a U.S. tax return?
Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.
2. I pay income tax in a foreign country. Do I still have to file a U.S. income tax return even though I do not live in the United States?
You have to file a U.S. income tax return while working and living abroad unless you abandon your green card holder status or you renounce your U.S. citizenship under certain circumstances described in the expatriation tax provisions.
IRS Compliance Options
Offshore Voluntary Disclosure Program (OVDP)
The IRS Offshore Voluntary Disclosure Program is working with taxpayers whose penalties may be reduced. The IRS began an open-ended OVDP in January 2012 offering taxpayers with undisclosed income from offshore accounts another opportunity to get current with their tax returns. The 2012 OVDP offers clear benefits to encourage taxpayers to disclose foreign accounts now rather than risk detection by the IRS and possible criminal prosecution.
The streamlined procedures are designed to provide to taxpayers in such situations with
- a streamlined procedure for fling amended or delinquent returns, and
- terms for resolving their tax and penalty procedure for filing amended or delinquent returns, and
- terms for resolving their tax and penalty obligations.