Overseas Accounts: New Rules That Could Cost You
If you have foreign assets, the IRS rules that expand the reporting and tax requirements. In addition to the previous reporting required by filing a Report of Foreign Bank and Financial Accounts (FBAR), foreign accounts and holdings have come under a larger scope due to the Foreign Account Tax Compliance Act (FATCA) passed in 2010. Penalties can be as high as $50,000 for not reporting these holdings, making it a costly mistake if you are not compliant.
The Difference Between FBAR and FATCA
The new requirements for FATCA are in addition to, not instead of, reporting previously done through FBAR. The requirements and rules can be extensive, but here is a breakdown of the two filings.
FBAR
-Filed by U.S. citizens and residents, including U.S. territories, resident aliens, trusts, estates and domestic aliens that have interest in foreign accounts that meet the threshold
-Threshold of $10,000 or more at any time during the calendar year of financial accounts held at a foreign institution.
-Due by June 30th for the previous year with no extensions granted
-Penalties can be up to $10,000 for non-willful, up to $100,000 or 50% of the holdings, whichever is greater, for willful non-reporting of assets. Willful non-reporting may also have criminal penalties.
FATCA
-Filed by specified U.S. citizens and residents, NOT including U.S. territories, resident aliens and some non-resident aliens that have interest in foreign accounts that meet the threshold.
-Threshold of $50,000 or more for individuals at the last day of the tax year or $75,000 or more held at any time through out the calendar year of financial accounts held at a foreign institution and other foreign non-account investment assets. Higher thresholds are required for married individuals filing jointly and for individuals living abroad.
-Due at the same time as income tax filing, or extension, when applicable.
-Penalties up to $10,000 for failure to disclose and an additional $10,000 per 30 days for non-filing after IRS notice of non-disclosure, with a maximum of $60,000. Possible criminal charge may also apply.
Filing
The main difference that the additional filing of FATCA has added is that there is a larger scope of assets that falls under its umbrella, not just accounts in financial institutions. FBAR filers will use form TD F 90-21.1 and those who fall under FATCA will use form 8938, many having to do both if they have larger foreign assets.
If you have foreign holdings, you need to make sure you are aware of these newer regulations under FATCA and make sure you are compliant. There is detailed information available on www.irs.gov or you can consult your financial or tax advisor. The cost could be significant for non-disclosure and it is not worth the risk!
