The FBAR for Expats: A U.S. Tax Guide for Expats Filing FBAR

All About Expats and FBAR (Foreign Account) Requirements

All About Expats and FBAR

The FBAR refers to foreign bank and financial account reporting. Each year, U.S. persons are required to report their foreign financial accounts on FinCEN Form 114. Taxpayers file the form to report the maximum account value in their foreign accounts and assets. Where it can get unnecessarily complicated for U.S. expats, is that since the United States follows a citizenship-based taxation model, expats are generally required to meet the same tax and reporting standards just as if they resided in the United States. This means that even expats who live outside of the United States for most of the year are still required to file the annual FBAR. For expats who are getting ready to file the FBAR, here are a few tips for the new year:

FBAR is Not Limited to Bank Accounts

The first thing to remember is that while for many taxpayers their foreign accounts will consist primarily or exclusively of bank accounts, the FBAR is not limited to only foreign bank account reporting. In addition to bank accounts, FBAR reporting includes foreign accounts and assets such as investment accounts, mutual fund and ETF accounts (or individually held funds), pension plans, and life insurance policies.

Account Held Jointly with Non-Resident

Even if the foreign account is being held jointly with a foreign person who is a non-us person with no U.S. tax nor reporting requirements, the taxpayer is still required to report the account and identify the individual who is jointly held on the account. For taxpayers who want to limit the exposure of a foreign person, should speak with their tax professional before submitting the form.

Full Account Value vs Ownership Value

The FBAR requires a taxpayer to report the maximum account value of the account that they are listed on. Thus, if they were only a partial owner of the account, they’re still required to report the maximum value in the account even though all the money is not attributed to them.

FBAR Double-Counting is Common

Take for example a taxpayer who may have opened and closed several accounts in the same year using the same money and transferring it into different institutions. For a taxpayer who may have done this by using the same $200,000 and depositing/withdrawing it into five different accounts may look like they have $1,000,000 when it is the same $200,000 being transferred. It is important to note, that the FBAR is not used to necessarily report the maximum amount of money that the taxpayer has come up rather the maximum value of each specific account listed on the FBAR.

Missing Account Information

Even if a taxpayer is missing account information, they should still submit the FBAR the best they can with the information they have.

FBAR is Only One of Many International Tax Forms

While the FBAR is one of the most common international information reporting forms required by the US government, it is one of only several forms of the taxpayer may have to file each year. The taxpayer may have to file other forms such as FATCA Form 8938, 8621, 3520/3520-A, and 5471 — noting that the same asset may be duplicated on several forms.

Avoid FBAR Quiet Disclosure

Taxpayers who may not have filed FBARs in prior years and/or filed them incorrectly will want to take precautions before filing the current year’s FBAR to avoid putting themselves into the quiet disclosure situation. The IRS has stated that they will aggressively pursue taxpayers who conducted required disclosure very aggressively.

Case: Aroeste and Treaty Election Hope

Taxpayers who are not considered U.S. citizens but may have US person status because they are lawful permanent residents and live overseas may consider making a treaty election if it benefits them for other reasons as well. That is because, in the recent case of Aroeste, the lower court determined that the taxpayer qualified for a treaty election to be treated as a foreign person for tax purposes and thus was not considered a US person and not required to file the FBAR for those years that he qualified as a foreign resident for U.S. tax purposes.

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.