U.S. tax rules for reporting foreign bank accounts by individuals can be tricky. They require an understanding of not one, but two sets of requirements – The Financial Account Tax Compliance Act (FATCA) and the requirements of the Financial Crimes Enforcement Network (FinCEN).
What is FBAR and FATCA?
The Foreign Account Tax Compliance Act (FATCA) came about in 2010 to prevent U.S. taxpayers with foreign financial accounts and other assets outside the U.S. from hiding those assets to avoid paying U.S. taxes. Under these rules, certain “specified individuals” with “specified foreign financial assets” file a Form 8938, Statement of Specified Foreign Financial Assets with their tax return, if the reporting requirements are met.
In addition, U.S. persons must consider the requirements of the Financial Crimes Enforcement Network (FinCEN) to file a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) with FinCEN to report foreign financial accounts.
Its is also important to note that filing a Form 8938 with a U.S. tax return does not relive a U.S. filer from considering the FBAR reporting requirements.
A Comparison of FBAR and FATCA Requirements
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FATCA (Form 8938) |
FBAR (FinCEN Form 114) |
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| Who should consider the need to file?
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“Specified individuals” including U.S. citizens, resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets | U.S. persons including U.S. citizens, resident aliens, trusts, estates and domestic entities that have an interest in foreign financial accounts |
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When are the requirements for filing met?
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Thresholds vary depending on whether you live in or outside the U.S. and your filing status and start at $50,000 |
$10,000 at any time during the year |
| What do I need to report?
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Maximum value of specified foreign financial assets, including financial accounts in a foreign financial institution and certain foreign non-account investments assets |
Maximum value of financial accounts in a financial institution based physically in a foreign country |
| Where is the information reported? | Included with income tax return | E-filed via FinCEN BSA e-filing system |
| When is it due?
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At the time of filing the tax return including extensions, if any | April 15, with an automatic extension to October 15 |
| What are the penalties for non-compliance?
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Up to $10,000 for a failure to disclose and $10,000 for each 30 days of not filing after an IFRS notice up to $50,000; criminal penalties may also apply |
$10,000 if non-willful and up to $100,000 or 50% of account balances if willful; criminal penalties may also apply |
Types of Accounts That May Be Reportable
There is a broad range of assets that may be subject to FBAR and FATCA. As such, many Canadian accounts including Registered Education Savings Plans (RESPs), Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) should be considered by U.S. filers. Accounts subject to U.S. FBAR and FATCA filing requirements include:
- Financial deposit and custodial accounts held at foreign financial institutions;
- Foreign financial accounts for which you have signatory authority;
- Foreign mutual funds; and
- Foreign issued annuity or life insurance contract with a cash value.
The Path to Compliance
If you have missed a filing, or two all is not lost. Depending on your circumstance, there are several paths to compliance, including Delinquent Information Return Submission Procedures, Streamlined Filing Procedures and Voluntary Disclosure. A cross-border tax specialist can help with selecting your best option.
Got US tax and Canadian tax compliance issues? Contact Cross-Border Financial Professional Corporation – When Perspectives Matter!
Karlene J. Mulraine, EA, CPA, CA, CPA (NH) is the President of Cross-Border Financial Professional Corporation. Follow us on Linkedin and Twitter, or hang out on Facebook.
The views expressed in this article are those of the author and should not be relied on to make decisions. Consider discussing your specific circumstances with an appropriate specialist.