During tax season, FBAR and FATCA reporting impacts US persons who have foreign bank accounts or offshore tax holdings. So, what does that mean?
While both FATCA and FBAR arise due to the transfer or holding of assets abroad by US taxpayers, the similarity ends there. Let’s take a closer look:
- Report of Foreign Bank and Financial Accounts (FBAR): Under the Bank Secrecy Act, eligible US taxpayers must file a FBAR report. Eligibility hinges on ownership or authority on a foreign bank account, or accounts, that exceed $10,000 at any time during the reporting calendar year. There are exceptions, of course, but if you have a foreign financial account, talk to a tax attorney about whether you need to file an FBAR. Although filed at approximately the same time as an annual tax return, the FBAR is filed through the Financial Crimes Enforcement Network’s (FinCen) website.
- It is a good idea to maintain compliance on FBAR reporting. Forgiveness programs once offered by the Internal Revenue Service (IRS) have lapsed. Penalties for non-filing can be wicked and break upon the difference between willful and non-willful filing. The current maximum penalty for non-willful (accidental) non-filing of a FBAR is $12,291 per event. For a purposeful avoidance of filing, or willful non-filing, that penalty jumps to $129,210 or 50 percent of the account value, whichever is greater. Given that the requirement for FBAR reporting is well-established, proving a non-willful filing can be a difficult feat to accomplish.
- Foreign Account Tax Compliance Act (FATCA): The FATCA report is not the responsibility of the US taxpayer, but of the foreign institution that holds the financial account. The IRS program requires financial entities in foreign countries to provide information to the IRS on accounts owned by persons with ties to the US. Among other factors, an association to the US is triggered when funds are transferred to an American account, a US resident owns, has signature authority, or power of attorney on a foreign account, or if the owner has US contact information or was born in the US.
The two reporting initiatives try to plug the leaks when money from the US flows to foreign financial institutions and back without taxation. By comparing reports, the IRS can identify when there is a failure to file on either the part of the taxpayer or the foreign financial institution—potentially triggering an IRS audit, and if warranted, money penalties.
In recent years, the IRS has maintained robust enforcement against US persons who do not file FBARs and institutions that fail to file FATCA reports. In either case, the penalties and settlements are high. If you are unsure of your filing requirements or in arrears on compliance reporting, speak with an experienced tax lawyer for advice and sound solutions for avoiding tax litigation.
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The tax group at Robert J. Fedor, Esq., LLC represents business and individual clients responding to tax controversy, IRS offshore tax allegations, or employment tax disputes. When experienced tax advice is needed locally or internationally, call 800-579-0997 or contact us for a free consultation.