FBAR vs FATCA: Navigating Complex International Tax Rules

FBAR vs FATCA: Navigating Complex International Tax Rules

FBAR vs FATCA (New 2024)

When it comes to international tax law and reporting foreign accounts and assets, there are two main acronyms that you need to know. The first acronym is FBAR — which refers to foreign bank and financial account reporting. This requirement has been around for more than 50 years and requires certain taxpayers who meet the threshold requirements for reporting to file a FinCEN Form 114 each year, electronically and directly on the FinCEN website. FATCA refers to the Foreign Account Tax Compliance Act. This law is relatively new and involves more than 110 reciprocal IGA (Intergovernmental Agreements) that the United States has entered into with various foreign countries to promote foreign account and asset reporting transparency — and to eliminate cross-border tax evasion. Our Board-Certified Tax Law Specialist team has authored countless articles on issues involving FBAR and FATCA but we wanted to go back to the basics and provide you an introductory guide about what you should know about these two very important reporting rules.

FBAR (5 Key Facts)

The FBAR Is the more well-known form because it has been around longer and the penalties can be astronomical, especially in situations in which a taxpayer is considered to have willfully violated the law. Here are five important facts to know:

      • The FBAR is not limited to just bank accounts, but also includes foreign pension accounts, foreign investment accounts and certain life insurance policies.

      • Taxpayers are required to file the FBAR, even if they do not have ownership of the account.

      • If a U.S. person is a joint owner with a foreign person, the US person is still required to report the full balance of the account even if the full balance is not owned by them.

      • There is no form currently to file a late FBAR, but the due date has been on automatic annual extension until October for the past several years.

      • Even if a taxpayer is not required to file a tax return, they may still be required to file the annual FBAR — this includes minor children.

FATCA (5 Key Facts)

Out of all the different international information reporting forms that a US person may have to file, FATCA (Form 8938) is the new kid on the block. Let’s look at five important facts to know about FATCA:

      • Unlike the FBAR, the Form 8938 is only required if the taxpayer is required to file the tax return. In other words, if a tax return is not required to be filed (for exampke, if the taxpayer is below the threshold) then he does not have to file a Form 8938.

      • There are different threshold requirements for filing Form 8938, depending on the taxpayer’s filing status (Single, MFS, MFJ) and whether the Taxpayer is a US resident or not.

      • Form 8938/FATCA requires the Taxpayer to disclose more detailed information about the accounts and assets than the FBAR does.

      • Only accounts that the taxpayer has an interest in are required to be reported for FATCA.

      • The failure to file the FATCA may result in an otherwise closed tax return to remain open, even if the statute of limitations would have otherwise expired.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

Contact our firm today for assistance.