If you’ve been reading our US Expat Taxes Explained series for the last couple of months, you will be aware of how important it is to stay up to date on your expatriate tax return and FBAR filings. On April 30th, 2011, the Wall Street Journal underscores this point in a really useful and interesting story on this topic: “Sacre Bleu! The Foreign Account Penalty,” written by Laura Saunders.
Today, we highlight some of the more critical elements from the Wall Street Journal article that you should be aware of.
“The FBAR is one element of a concerted push by Congress and the Internal Revenue Service to make sure U.S. taxpayers are paying what they owe on foreign accounts. Unlike other countries, Uncle Sam taxes citizens and residents on world-wide income.”
Make sure that both you and your expat tax services provider understand the FBAR and expatriate tax return filing requirements
The Wall Street Journal article very rightly points out how important the FBAR is. It may seem obvious, but many tax preparers are not familiar with the FBAR. Be sure that your tax preparer really does have experience in US expatriate tax return filing. You could wind up in trouble! According to the WSJ:
“Experts worry that despite extensive publicity, taxpayers and even preparers are still unaware of the FBAR requirement. “I’ve seen scores of returns where foreign income was reported, yet the preparer checked a box saying there were no foreign accounts,” says Barbara Kaplan, an attorney at Greenberg Traurig in New York, who is handling hundreds of amnesty cases.”
In addition, the article outlines what your expatriate tax return preparer will hopefully have already told you, specifically
Who must file. U.S. taxpayers, including citizens, residents and entities, with foreign financial accounts totaling more than $10,000 at any point during a year. This trigger isn’t indexed for inflation, and all affected assets or accounts are aggregated. Experts say those with signatory authority over foreign accounts (say, for a business) should be especially careful, as should U.S. citizens with non-U.S. family members.
The rules for figuring asset totals are confusing: One takes the highest value of the account during the year—even if a large payment such as a bonus was there for only a day or two—but converts it using exchange rates as of Dec. 31 of that year.
• Covered assets. Generally included are foreign bank and brokerage accounts, offshore mutual funds or pooled investments (but not private-equity and hedge funds), some foreign trusts, foreign life insurance or annuities if they have cash value and overseas individual pension plans, such as the Canadian version of an IRA.
The rules note that an account with a U.S. bank at a branch physically located outside the U.S. must be reported, but an account with a foreign bank at a branch inside the U.S. doesn’t. “The name of the institution is irrelevant, it’s where it’s located,” says Kevin Packman, an attorney with Holland & Knight in Miami.
• Filing issues. Because the FBAR is not an IRS but a Treasury Department form (TD F 90-22.1), filing rules are different. The deadline is June 30 and the form must be received by that date, not just postmarked—it can’t be e-filed.
• Penalties. Even nonwillful failure to file an FBAR may trigger a $10,000 penalty per year. In practice, many who have come forward under the IRS’s 2009 limited amnesty for undeclared offshore accounts have been forfeiting 40% to 70% of the current value of their accounts, plus attorney’s fees, even if little or no tax was owed, according to Ms. Kaplan and other attorneys.”
Filing a US expatriate tax return and the FBAR are mandatory requirements. Your expatriate tax service provider should be reminding you to file your FBAR by June 30th each year or do it for you. Your expatriate tax services provider should also advise you of the current Voluntary Disclosure Program if you are a late filer or have not been keeping up with the FBAR requirements.
Some additional resources about the FBAR and your expatriate tax return filing obligations
- Read the full WSJ article on Foreign account reporting requirements
- Consult our post about the FBAR and current Offshore Voluntary Disclosure Program
- Read our tips about how to save money when filing your expatriate tax return
Are you one of the many Americans living abroad who needs help getting caught up with their expatriate tax return and FBAR filings? Contact Greenback Expat Tax Services right away — there is still time!