Avanttax:-Tax Management System-:
  • FATCA/ FBAR

    Foreign Bank Account reporting commonly known as FBAR – FATCA is required by most US Individuals or corporations having financial assets overseas. The penalties for non-compliance are potentially devastating. Our Tax Specialists offer advice on filing necessary returns to ensure full FBAR/FATCA compliance.



    FATCA

    Individuals or corporations who earn foreign income or have foreign bank accounts may need to file a Report of Foreign Bank and Financial Accounts (FBAR). FBAR is an acronym for the Foreign Bank Account Report. The FBAR is now reported on FinCEN Form 114 (previously Form TD F 90-22.1). The forms must be filed electronically at bsaefiling.fincen.treas.gov. It is a simple form to collect basic information of US citizens or US residents of their overseas financial accounts in their names or wherein they have signing authority or control. In general, a U.S. person (individual or domestic entity) must make a FBAR filing if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. U.S. persons who have a financial interest in or signatory authority over foreign financial accounts that exceed certain threshold at any time during the year must report the accounts.

    Effective July 1, 2014, based on the Foreign Account Tax Compliance Act, or FATCA, thousands of foreign banks started reporting accounts held by U.S. persons to the IRS.

    Failure to file will result in financial crimes, penalties, IRS enforcement. Foreign Asset includes bank accounts, brokerage accounts, mutual funds, unit trusts, annuities and “other foreign financial accounts. The key words here are “other foreign financial accounts” because these accounts may be difficult to determine. For example, they may include life insurance and annuity policies.

    There are two types of penalties applicable to FBARs – (1) Non-Willful and (2) Willful. If you willfully fail to file FBAR, for instance, the penalty can be as high as $100,000, or 50% of the total balance of the foreign account, in addition to one year in prison, per violation. Non-willful violations that the IRS determines were not due to a reasonable cause may incur a $10,000 fee per violation.It should be noted that the penalties are assessed per account and not per FBAR. Additionally, the penalties are assessed for each year there is a violation. We represent clients in sensitive civil audits before the IRS that involve offshore bank accounts and assets.

    The IRS is searching for individuals and businesses that have failed to report foreign income and foreign financial assets. If your FBAR filing is late, contact us right away. Our professionals can help taxpayers who have neglected to file FBARs for income reported on their tax returns, or that should have been reported. If the IRS is coming after you for high penalties, don’t try to avoid them, contact us to find a way to solve your foreign compliance issues.

    FBAR

    What is FATCA?
    FATCA, an acronym for Foreign Account Tax Compliance Act (FATCA), It is a federal law that requires US persons, including individuals who live outside the US to report their financial accounts held outside the United States, and also requires foreign financial institutions to report directly to the IRS details of financial accounts of US persons held with them. This includes withholding on payments to those foreign financial institutions that fail to comply with FATCA. As final implementation of this 2010 legislation begins, withholding on US source income that is subject to FACTCA generally took effect July 1, 2014.

    Who need to file FATCA?
    U.S. citizens, U.S. individual residents, and a very limited number of nonresident individuals who own certain foreign financial accounts or other offshore assets (specified foreign financial assets) must report those assets - Use Form 8938 to report these assets - Attach Form 8938 to the annual income tax return (usually Form 1040)

    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 - The threshold is higher for individuals who live outside the United States - Thresholds are different for married and single taxpayers

    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. - There are penalties apply for failure to file accurately.

    What is reported on FATCA?
    Foreign Financial Assets are required to be reported on FATCA form 8938 which include:

    • Checking, savings and deposit accounts with banks held as NRE, NRO, FCNR or Resident accounts
    • Brokerage accounts held with brokers & dealers
    • Stocks or securities issued by a foreign corporation
    • Note, bond or debenture issued by a foreign person
    • Swaps of all kinds including interest rate, currency, equity, index, commodity and similar agreements with a foreign counterparty
    • Options or other derivative instruments of any currency, commodity or any other kind that is entered into with a foreign counterparty or issuer
    • Partnership interest in a foreign partnership
    • Interest in a foreign retirement plan or deferred compensation plan
    • Interest in a foreign estate
    • Any interest in a foreign-issued insurance contract or annuity with a cash-surrender value; and
    • Any account maintained with a foreign financial institution and every foreign financial asset, income or gain whereof is to be reported in the tax return to be filed with the IRS.

    When to Report?
    FATCA form 8938 is filed with tax payers U.S. Tax return. Form 8938 is not required for the individuals who do not have tax filing requirement. What if I failed to file?

    The US government has exerted pressure on foreign banks, compelling them to report the assets held by US taxpayers. It will be increasingly difficult to avoid detection, and the government is pursuing taxpayers who fail to report their foreign assets. Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (an a penalty up t $50,000 for continued failure after IRS notification). Further underpayments of tax attributable to non-disclosed foreign financial assets are subject to an additional substantial understatement penalty of 40 percent.

    To learn more about FATCA and how it may affect your taxes, Please call us to schedule free consultation.

    FATCA VS FBAR

    What are the differences between FBAR and FATCA reporting requirements?

    The United States Foreign Accounts Tax Compliance Act (FATCA) and Foreign Bank Account Report (FBAR) are two methods adopted by the US government in an effort to perhaps combat tax evasion by hiding assets/income abroad.

    The FATCA and FBAR reporting requirements can be challenging. Coupled with the fact that the potential penalties are significant, we suggest that you discuss your facts and circumstances with our tax advisors in order to ensure your compliance with the FATCA and FBAR reporting requirements.

    Please visit the following link to IRS website for the detailed comparison of Form 8938 and FBAR Requirements

    Source: IRS http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements.

    Offshore Voluntary Disclosure Program

    If you have a foreign bank account or any other kind of foreign financial account and never reported it along with the foreign earnings to the IRS on the Foreign Bank Account Report (FBAR), you are exposed to severe criminal and financial consequences! With the help of experienced advisors, you can discover whether you’ve committed a Foreign Bank Account Report (FBAR, also known as Form TD F 90-22.1) reporting violation or other US tax reporting violation. If you have, IRS offers the following options for addressing previous failures to comply with U.S. tax and information return obligations. Tax payer can choose the option which best fit their unique situation.

    • 1. 2014 Offshore Voluntary Disclosure Program (OVDP);
    • 2. Streamlined filing compliance procedures; and
    • 3. Delinquent Report of Foreign Bank and Financial Accounts (FATCA /FBAR) and delinquent international information return submission procedures.

    We are very familiar & experienced with each of these options to effectively counsel clients as to which compliance path best fits the particular facts and circumstances of the case. Not every case is the same.