Over the years, there’s been a significant increase in interest in taxpayer transactions by the IRS, including information about foreign financial accounts.
Taxpayers with foreign assets come in all shapes and sizes. Maybe it’s an executive who works in the U.S. on a non-immigrant visa who still has assets in their native country. Or a parent who opened a bank account for their child, who is a student studying abroad. It could be someone who worked in Europe or Asia, living frugally while tucking $$$ away in a bank account. Or even an adult child who opened a bank account for their Mom in her country while she was ill so she could pay medical bills. If it is YOU, here’s what you need to know.
Under FBAR rules, each “U.S. person” with a financial interest in, signature authority, or other authority over one or more accounts, such as a bank account, brokerage account, mutual fund, or other financial account in a foreign country, must file an FBAR if the aggregate value of such accounts at any point in a calendar year exceeds $10,000. A “U.S. person” is not limited to individual taxpayers. A U.S. person is a citizen or resident of the United States, or any domestic legal entity such as a partnership, corporation, limited liability company, estate, or trust.
If the total of all of the foreign accounts in which you have an interest reaches $10,000 or more at any point in the calendar year, the threshold applies even if you’ve been faithfully reporting the income on your federal income tax return and even if you’ve never repatriated a single dollar to the U.S. It also applies even if the account produces no taxable income.
If more than one person owns a foreign financial account, then each person must report the entire value of the account on an FBAR.There is an exception for spouses: spouses don’t need to file separate FBARs if all of the reportable financial accounts of the non-filing spouse are jointly owned with the filing spouse, and the filing spouse reports all accounts held with the non-filing spouse on a timely filed FBAR. If both spouses do not qualify for the exception, then each must file separate FBARs, and report the entire value of the jointly owned accounts. Children are not exempt from filing an FBAR. If a child can’t file their own FBAR for any reason, such as age, their parent or guardian must file it for them.
The FBAR is not filed with the IRS. It must be filed electronically with the Financial Crimes Enforcement Network (FinCEN), available through the BSA E-Filing System website. If you cannot e-file your FBAR, you must contact FinCEN at 800-949-2732 (+ 1 703-905-3975 if outside the U.S.) or FRC@fincen.gov.
The deadline for filing the FBAR is the same as the federal income tax return, which means you must file by April 15th. This year the FBAR filing deadline follows the federal income tax due date guidance, which notes that when the federal income tax due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day, April 18th.
If you miss the April deadline, you will receive an automatic extension until October 15, 2022, to file the FBAR—you do not need to request the additional time. This is a change from years past when FBARs were due in June with no opportunity for an extension. If you don’t file an FBAR when required, you may be subject to significant civil and criminal penalties.
The IRS claims it will not penalize taxpayers who properly reported a foreign account on a late-filed FBAR if there was reasonable cause for late filing.
If you need to make a change, you must file a new FBAR with the correct information, clearly marked as “Amended.” Be sure to check the “Amended” box on the form and fill in your BSA ID from your original return.
If you have foreign assets, you may also be responsible for filing other forms, including Form 8938, Statement of Specified Foreign Financial Assets. Form 8938 must be filed by U.S. taxpayers holding certain foreign assets. The reporting threshold depends on your filing status and whether you live inside the U.S. For example, married taxpayers living in the U.S. and filing a joint return satisfy the reporting threshold if the total value of specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year. You can find additional thresholds and criteria in the IRS form instructions. Note that unlike the FBAR, which is filed separately from your federal income tax return, Form 8938 must be filed with your Form 1040.
Depending on the nature of your business holdings, you may also need to file Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. This form is a reporting form for officers, directors, or shareholders in certain foreign corporations and are used to satisfy the reporting requirements of sections 6038 and 6046. You would file Form 5471 with your Form 1040.
CONTACT US: Other informational forms may also apply. If you’re not sure whether you need to file additional forms and you inherit or hold foreign assets, check with your Fuoco Group professional at CPA@fuoco.com or 855-542-7537. The IRS has an International Taxpayers page on its website, which you might find helpful.
