A record high 1,163,229 Report of Foreign Bank and Financial Accounts (more commonly, FBARs) were filed in 2015, up more than 8% from the prior year. That growth, however, is nothing new: FBAR filings have grown on average by 17% per year during the last five years, according to data from the Treasury Department’s Financial Crimes Enforcement Network (FinCen).
The FBAR requirements (31 CFR 103.24) are part of the Banking Secrecy Act (BSA). Under the rules, each “US person” with an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in any foreign country must file an FBAR if the aggregate value of such accounts at any point in a calendar year exceeds $10,000. A “US person” generally means a citizen or resident of the United States, or a person in and doing business in the United States – it is not limited to individual taxpayers and includes partnerships and corporations.
In other words, if the total of your interests in all of the foreign accounts in which you have an interest reaches $10,000 or more at any point in the calendar year, you may need to file an FBAR. That applies even if you’ve been faithfully reporting the income on your federal income tax return and even if you’ve never, ever repatriated a single dollar to the U.S. It also applies even if the account produces no taxable income. Some exceptions apply.
The FBAR is due by June 30 – there are no extensions – and is filed electronically through the BSA E-Filing System website. The penalties for noncompliance may, under the law, result in civil penalties, criminal penalties or both: the list of potential penalties that may apply is distressingly long. It’s all very draconian but it’s also very real.
That (as well as increased media attention) likely accounts for the increased compliance rates.
“Taxpayers here and abroad need to take their offshore tax and filing obligations seriously,” said IRS Commissioner John Koskinen. “Improving offshore compliance has been a top priority of the IRS for several years, and we are seeing very positive results.”
Also on the rise? Filings of federal form 8938, Statement of Specified Foreign Financial Assets (downloads as a pdf). Taxpayers filed more than 300,000 forms 8938 with their tax returns for the tax year 2014; that’s roughly the same number as the year before but up nearly 50% for the tax year 2011, the form’s debut year.
Form 8938 filing requirements were written into the Foreign Account Tax Compliance Act (more commonly called “FATCA”). FATCA was signed into law in March 2010 as part of an effort to step up tax compliance by U.S. taxpayers with foreign accounts. Generally, U.S. taxpayers (typically, U.S. citizens, resident aliens and certain nonresident aliens) are subject to FATCA requirements and must report specified foreign financial assets on form 8938 if the total value of those assets exceeds $50,000 at the end of the tax year or if the total value was more than $75,000 at any time during the tax year for taxpayers filing as single or married filing separately (or if the total value of your 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 for taxpayers filing as married filing jointly).
Unlike the FBAR, which is filed separately, form 8938 is filed together with your tax return. U.S. taxpayers are generally required to file a tax return – that includes many non-U.S. citizens.
The reporting requirement for form 8938 is separate from the reporting requirement for FBAR. You may need to file one form or both forms: separate penalties may apply for failure to file each form.
The rules that apply to U.S. citizens and resident aliens living abroad can be tricky. If you need more information, check with a tax professional.
NOTE: The rules for filing FBARs have changed since this post was originally published. FBARs are now filed at the same time as your tax return (April 15) and they are filed electronically (you don’t file them with your tax return). For more, check out the IRS website.
