As a US expat, you likely have opened bank accounts and perhaps have even acquired some in the foreign country in which you live and work, and maybe in some other foreign countries, as well.
In the past, before the IRS and US Department of the Treasury started enforcing reporting compliance, it was easy for American taxpayers living abroad to avoid paying US taxes on income earned in foreign bank and investment accounts. To crack down on these non-reporting abuses by taxpayers hiding money and assets abroad, FATCA was enacted by the US Congress in 2010.
What is FATCA?
FATCA stands for the Foreign Account Tax Compliance Act. It is a United States federal law that was enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act.
The primary purpose of FATCA is to combat tax evasion by U.S. citizens and residents who hold financial assets and accounts outside of the United States. Under the FATCA provisions, all US citizens must report foreign financial accounts and assets. While FATCA is not aimed directly at cracking down on US expats, it impacts many expats, as they may have an additional reporting requirement to ensure compliance with FATCA.
As a US citizen or green card holder living abroad with foreign bank accounts, you may be required to file Form 8938: Statement of Specified Foreign Financial Assets, together with your 2023 US tax return, if the aggregate value of your accounts and assets exceeds a certain threshold (see below), depending on your filing status.
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In addition to foreign bank accounts, foreign stock, mutual funds, precious metal holdings, partnerships and even foreign life insurance may be reportable on Form 8938. Please be aware that FATCA requires foreign financial institutions to provide information to the IRS about US citizens holding accounts. If you have substantial balances in foreign banks and own substantial foreign assets, you may be non-compliant if you have not filed Form 8938 to disclose your foreign holdings, even if you have continued to file US returns yearly.
The penalties for non-compliance with filing Form 8938 are very severe: $10,000 per violation, an additional penalty of up to $50,000 for continued failure to file after an IRS notification, and a 40% penalty on any understatement of tax attributable to non-disclosed assets.
Is FATCA the Same Thing as FBAR?
No. While the FATCA Form 8938 is similar to the FBAR Form, FinCen 114, Report of Foreign Bank and Financial Accounts, the reporting requirements are somewhat different. Form 8938 is reported to the IRS, while the FBAR is reported to the US Department of the Treasury.
Foreign Bank Account Reports (FBAR)
FBARs are filed by US citizens, resident aliens, trusts, estates, and domestic entities with assets abroad to report foreign financial accounts, which aggregate a total of $10,000 at any time during the calendar year. If an FBAR is required to be filed, it gets filed electronically with the US Department of the Treasury and is due April 15 following the calendar year reported. This means that you have until April 15, 2024 to submit your 2023 FBAR. An automatic extension to October 15, 2024 is permitted if a filer fails to meet the FBAR annual due date of April 15, and an extension does not need to be requested.
Moreover, utilizing the FBAR exchange rate provided by the US Treasury Department is of utmost importance when filing your FBAR. This exchange rate ensures accurate and standardized conversion of non-US bank account balances from foreign currencies to US dollars.
FATCA Reporting (Form 8938)
While FBARs are only meant for reporting foreign bank accounts, the FATCA reporting requirements on Form 8938 are more comprehensive, including other foreign assets in addition to bank accounts, and the reporting thresholds are much higher, as follows:
Single Taxpayers Living Abroad – $200,000 on the last day of the year, or $300,000 at any point during the year
Married Taxpayers Living Abroad – $400,000 on the last day of the year, or $600,000 at any point during the year
Need help filing your 2023 FATCA and FBAR forms?
FATCA reporting is a crucial tool in the fight against tax evasion, aiming to bring about transparency in global financial transactions. While it does come with challenges and controversies, its impact on tax compliance and revenue generation cannot be overstated. As financial institutions and taxpayers navigate the complexities of FATCA reporting, understanding the requirements and staying informed about updates is essential for ensuring compliance in today’s interconnected financial landscape.
Are you worried about having missed an FBAR and FATCA Form 8938 filing that you should have made? Universal Tax Professionals can get you back in compliance by helping you file your required FBARs and Forms 8938 and avoid penalties for non-compliance.