If you are required to file a U.S. income tax return and you have an interest in foreign financial assets, you are required to comply with the FATCA and the report of foreign bank accounts rules for individuals regardless of where you live. International businesses are also required to comply with these rules. The below discussion is for individuals with foreign bank accounts.
US citizens and permanent residents are subject to tax on their worldwide income should they be required to file a US tax return.
You are not alone if you didn't know about FBAR filing requirements and the penalties involved for a failure to report your foreign accounts.
Do you need to file a Report of Foreign Bank Accounts, FBAR Form Fincen114?
The filing of a report of foreign bank accounts (FBAR), form Fincen 114, is required for certain US persons who meet or exceed the $10,000 threshold. The 20XX foreign bank accounts report must be filed online on or before October 15, 20XX+1. This BSA FBAR Link must be used to submit Form Fincen114 by April 15 (October 15, with auto extension, without the need to request an extension). Having an only interest in or signature authorities over foreign accounts also creates the disclosure requirement based on the threshold amount.
Accounts with joint owners: if you are a joint owner of foreign bank accounts that meet or exceed the threshold, then you must also report these accounts and their full account balances.
Accounts jointly owned with nonresident alien: if you have a joint account with a nonresident alien who is not required to file a tax return, you are still required to disclose the full account balance. Generally, nonresident aliens are not required to file the form FBAR.
The filing of the form applies to both individuals and global companies that have directly or indirectly foreign financial account(s) with an aggregate balance that meets or exceeds the $10,000 threshold.
Substantial penalties for non-willful violations may be assessed up to $10,000 per violation.
Late filing of your foreign bank account reports can be easily mitigated. If you are behind on certain reporting, get in touch and we will work with you and provide the right solution for you.
Here are a few questions received from US expats and certain foreign nationals:
Am I required to file FBAR Form Fincen114? Yes, you are required to file form Fincen114 if both 1 and 2 below apply:
You are a United States person that had 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.
What is a United States person? United State person for FBAR purpose includes:
U.S. citizens;
part or full-year U.S. residents for tax purposes;
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.
See the IRS FBAR page for more details
Do I have to report my virtual currency held in foreign wallets?
The Fincen has clarified that foreign wallets/Crypto accounts/ virtual currency is not reportable on the FBAr for now. However, this position may change.
Whin Global position: the conservative approach would be to include your virtual currency held in a foreign account on your FBAR form FinCEN 114.
Do you need to file a Statement of Specified Foreign Financial Assets, Form 8938?
U.S. citizens and U.S. Green Card holders or tax residents per the substantial presence test are required to file Form 8938 to report their foreign financial assets if the total value is over a certain threshold. This form is attached to the annual individual income tax return. Per the IRS, Taxpayers with a total value of specified foreign financial assets below a certain threshold do not have to file Form 8938.
If the total value is at or below $50,000 at the end of the tax year, there is no reporting requirement for the year, unless the total value was more than $75,000 at any time during the tax year. This threshold is higher for individuals who are married or live outside of the United States. Thresholds are different for married filing joint tax returns.
Taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, regardless of the value of their specified foreign financial assets. Full-year U.S. nonresident taxpayers do not have to report their foreign financial assets. Form 8938 is filed per year per tax return and not per spouse if filing jointly.
The instructions of form 8938 clearly state that unless an exception applies, you must file Form 8938 if you are a specified individual that has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold. For your information, here is a table summarizing the 8938 Thresholds.
What is a specified foreign financial asset? A specified foreign financial asset is:
Any financial account maintained by a foreign financial institution, except as indicated above
Other foreign financial assets held for investment that are not in an account maintained by a U.S. 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 held for investment with an issuer or counterparty that is not a U.S. person.
A US person is defined under the FBAR section.
Refer to Form 8938 instructions for information on how to determine the total value of your specified foreign financial assets.
Please note that penalties apply for failure to file the report accurately or timely.
Important: Forms Fincen 114 and 8938 are two separate filings. Filing Form 8938 doesn’t relieve you from filing the Foreign Bank Account Report online on Form Fincen 114 through the treasury BSA website. Penalties apply to each separate form for failure to file.
Please contact your certified public accountant at Whin Global for more information. you may also email us your questions to info@whinglobal.com.
