No matter where you live—Paris, France, or Paris, Texas—all U.S. citizens and permanent residents are required to report their income worldwide on their U.S. income tax returns. This means that all income you make anywhere in the world is taxed by the IRS, regardless of the fact that it’s taxed somewhere else.
The first thing that you need to do if you have an interest in foreign accounts or assets is note it on your personal tax returns—your Form 1040 annual filing, at 1040, Schedule B, Section III, Question 7(a).
In addition, you must comply with the provisions of the Bank Secrecy Act of 1970. These laws address worldwide income, and the filing requirements for foreign accounts in which U.S. citizens and permanent residents may have an interest. The two primary forms are the FBAR (Financial Bank Account Report – Form FinCen 114), and Form 8938 pursuant to FATCA, the Foreign Account Tax Compliance Act.
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The FBAR is due on April 15th for the year following the calendar year being reported. You’re allowed an automatic extension to October 15th if you fail to meet the FBAR annual due date of April 15th. Also, you don’t need to request an extension to file the FBAR, as you do with your personal tax return (Form 1040).
What About Non-Residents?
Non-resident aliens who received income from U.S. sources also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens may be April 15th or June 15th, depending on their sources of income.
If you are in violation of the FBAR filing requirements, you should speak to an experienced FBAR attorney at Ely J. Rosenzveig & Associates about the best options available to you to cure the violation, including correcting past mistakes by filing an amended or past due return.
An individual may be subject to severe penalties for a willful failure to file FBAR. Penalties for the willful failure to file FBAR penalties are up to the greater of $12,921 (in 2020, indexed to inflation) or 50% of the account value. In addition, the individual may face criminal prosecution, as a willful violation, if proven by the government beyond a reasonable doubt, is a felony punishable by up to 5 years imprisonment and fines of up to $250,000.
The penalties for the non-willful failure to file FBAR penalties can be up to $10,000, and $10,000 for every 30 days of non-compliance—up to a maximum of the lesser of $60,000 or 50% of the account balance.
Federal law requires all U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.
Unless your case qualifies for an exception, you must file Form 8938 if you’re a specified person that has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold.
Am I a Specified Person?
The IRS says that you’re a specified individual if you are one of the following:
If your tax home is in a foreign country, you meet one of the presence abroad tests, and no exception applies, you must file Form 8938 with your income tax return if you satisfy the applicable reporting threshold.
Unmarried taxpayers. If you’re not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.
Married Taxpayers Filing a Joint Income Tax Return. If you’re married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is greater than $400,000 on the last day of the tax year or greater than $600,000 at any time during the tax year.
Married Taxpayers Filing Separate Income Tax Returns. If you’re married and file a separate income tax return from your spouse, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.
What is the Test for Presence Abroad?
You satisfy the presence abroad test if you are either of the following:
Note that the FATCA Form 8938 requirement doesn’t replace or in any way impact a taxpayer’s obligation to file an FBAR Form FinCen 114. You may be required to file both the FBAR and the FATCA forms, depending on your specific situation.
Ask an attorney at Ely J. Rosenzveig & Associates about the differences in the two filing requirements of Form 8938 & FinCen 114 and how they apply to your circumstances.
The attorneys at Ely J. Rosenzveig & Associates have extensive experience successfully navigating the complex and highly nuanced rules and protocols related to FinCEN and the Bank Secrecy Act (“BSA”), and achieving extraordinary results for their clients, including the substantial mitigation or removal altogether of criminal sanctions and civil fines upon individual U.S. taxpayers with bank accounts and other assets in foreign countries who fall into foreign account or asset reporting non-compliance. We can help; Contact us today.
Violation of the FBAR (Report of Foreign Bank Accounts) and FATCA (Foreign Assets Tax Compliance Act) reporting and record-keeping requirements can seriously impact you and your family. Work with an experienced attorney at Ely J. Rosenzveig & Associates to ensure your peace of mind and your financial future.