Form 114:
By now, most of us that fall into the above titled category for reporting Foreign Bank Accounts Reporting, FBAR, and hopefully met the June 30, 2015 filing deadline of Form 114, “Report of Foreign Bank and Financial Accounts”, that is filed with the Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department. As you recall, this form must be filed electronically and is only available online through the BSA E-Filing System website and there is no extension of time for filing on the June 30, 2015 deadline for calendar year 2014. Failure to timely file has heavy penalties and an exception for late filing may apply to your particular situation. If you have missed this important deadline, call us at your very earliest time so that we may assist you with an early resolution.
Record Filing Form 114:
FBAR filings have risen dramatically in recent years as FATCA phases in and other international compliance efforts have raised awareness among individuals with offshore assets. According to data from FinCEN, FBAR filings exceeded 1 million for the first time in calendar year 2014 and rose nine of the last 10 years from about 280,000 back in 2005.
The qualifying individuals listed in this article’s title, with foreign assets, even relatively small amounts should check to see if you have yet another relatively unknown filing requirement. Qualifying individuals also is intended to include American Expats, U.S. citizens and Green Card Holder living and working overseas may also have to file the FATCA-related Form 8938 with their individual tax returns by the yearly June 15 deadline.
“… FBAR and FATCA filing requirements make it tougher for that relatively small number of taxpayers trying to hide assets and income offshore,” said IRS Commissioner John Koskinen. “Taxpayers are encouraged to review the rules and disclose their offshore assets.”
FATCA Requirements:
FATCA refers to the Foreign Account Tax Compliance Act. The law addresses tax non-compliance by U.S. taxpayers with foreign accounts by focusing on reporting by U.S. taxpayers and foreign financial institutions.
In general, federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax returns. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and generally requires U.S. citizens to report the country in which each account is located.
In addition, certain taxpayers may also have to complete and attach to their return, “Statement of Special Foreign Financial Assets”. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds.
NB: The FATCA Form 8938 requirement does not replace or otherwise affect a taxpayer’s obligation to file the above-mentioned FBAR Form 114. A brief comparison of the two filing requirements is available below. If you find yourself unsure of your filing requirements or have not made the timely filing, please call us for a private consultation to get this matter resolved.
Comparison of Form 8938 and FBAR Requirements:
The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file FinCEN Form 114 (Report of Foreign Bank and Financial Accounts). Individuals must file each form for which they meet the relevant reporting threshold.
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Form 8938, Statement of Specified Foreign Financial Assets
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FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)
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Who Must File?
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Specified individuals, which include U.S citizens, resident aliens, and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
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U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
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Does the United States include U.S. territories?
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No
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Yes, resident aliens of U.S territories and U.S. territory entities are subject to FBAR reporting
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Reporting Threshold (Total Value of Assets)
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$50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
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$10,000 at any time during the calendar year
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When do you have an interest in an account or asset?
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If any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return
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Financial interest: you are the owner of record or holder of legal title; the owner of record or holder of legal title is your agent or representative; you have a sufficient interest in the entity that is the owner of record or holder of legal title.Signature authority: you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account.See instructions for further details.
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What is Reported?
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Maximum value of specified foreign financial assets, which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
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Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
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How are maximum account or asset values determined and reported?
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Fair market value in U.S. dollars in accord with the Form 8938 instructions for each account and asset reported. Convert to U.S. dollars using the end of the taxable year exchange rate and report in U.S. dollars.
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Use periodic account statements to determine the maximum value in the currency of the account. Convert to U.S. dollars using the end of the calendar year exchange rate and report in U.S. dollars.
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When Due?
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By due date, including extension, if any, for income tax return
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Received by June 30 (no extensions of time granted)
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Where to File?
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File with income tax return pursuant to instructions for filing the return
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File electronically through FinCENsBSA E-Filing System. The FBAR is not filed with a federal tax return.
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Penalties
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Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply
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If non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply
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Types of Foreign Assets and Whether They are Reportable
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Financial (deposit and custodial) accounts held at foreign financial institutions
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Yes
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Yes
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Financial account held at a foreign branch of a U.S. financial institution
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No
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Yes
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Financial account held at a U.S. branch of a foreign financial institution
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No
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No
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Foreign financial account for which you have signature authority
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No, unless you otherwise have an interest in the account as described above
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Yes, subject to exceptions
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Foreign stock or securities held in a financial account at a foreign financial institution
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The account itself is subject to reporting, but the contents of the account do not have to be separately reported
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The account itself is subject to reporting, but the contents of the account do not have to be separately reported
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Foreign stock or securities not held in a financial account
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Yes
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No
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Foreign partnership interests
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Yes
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No
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Indirect interests in foreign financial assets through an entity
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No
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Yes, if sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in the entity. See instructions for further detail.
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Foreign mutual funds
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Yes
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Yes
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Domestic mutual fund investing in foreign stocks and securities
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No
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No
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Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
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Yes, as to both foreign accounts and foreign non-account investment assets
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Yes, as to foreign accounts
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Foreign-issued life insurance or annuity contract with a cash-value
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Yes
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Yes
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Foreign hedge funds and foreign private equity funds
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Yes
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No
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Foreign real estate held directly
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No
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No
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Foreign real estate held through a foreign entity
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No, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
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No
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Foreign currency held directly
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No
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No
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Precious Metals held directly
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No
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No
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Personal property, held directly, such as art. …
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No
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No
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