Have money overseas? The IRS wants to know. The most natural response to such curiosity could be – Get out of my business! And the IRS realizes how we feel about it. So they came up with a little, uhmm, incentive: the penalties for not reporting foreign accounts to the IRS start at $10,000. Yes, $10,000 penalty or more. Do I have your attention now?
I must start with a disclaimer: I’m an expert in real estate taxation, not in International taxation, so my knowledge here is limited. (Coincidentally, foreign real estate holdings do not require special reporting.) If you want a specialist in International taxes, that would be my colleague and friend, Marc Enzi, EA.
Now, to the rules. You have to deal not with one, but with two separate reports:
- FBAR report – Form 114, filed via FinCEN website no later than June 30th
- FATCA report – Form 8938, filed together with your IRS tax return
The IRS offers a rather confusing comparison between the FBAR and FATCA, and I will offer my attempt to translate these rules into English. Well, sort of.
FBAR report – Form 114
These reports are collected not by the IRS, but by Financial Crimes Enforcement Network (FinCEN), another agency under the US Department of the Treasury.
- You must file this report if your foreign accounts totaled more than $10,000 at any point during the last year.
- Starting from 2014, the report must be filed electronically, on the FinCEN website. Scroll down to Form 114, where you will find links to the form 114 itself and 22 pages of instructions. Yes, 22 pages. What did you expect?
- The strict deadline is June 30th. No extensions. No mercy.
How serious the government is about penalizing someone the whooping $10,000 for not reporting a measly $15,000 overseas savings account set up for you by your parents? They sure promise to do so, and I’m not interested in testing them on that frightening promise. I suggest you heed their warning.
FATCA report – Form 8938
This one is an IRS form. The rules are different, even though they sound similar. Even the definition of a “foreign account” varies somewhat. Not much surprise here, right? Be sure to read the small print or hire an expert to help you.
- The threshold is higher for FATCA. It is triggered if you had $75,000 in foreign accounts at any point during last year ($150,000 for married couples) or if you had $50,000 on December 31st ($100,000 for couples).
- The form is filed as part of your IRS tax return. Make sure to mention your foreign accounts to your CPA. You, not your CPA, will be penalized if you do not include the form.
- If you filed an IRS extension on April 15th, that extension does apply to the FATCA form, as well.
Which one do you file?
Maybe one, maybe the other, and maybe both.
Beware: filing one of the reports does NOT excuse you from not filing the other report and does NOT protect you from those mega-penalties.
Some of the resources that can be helpful
IRS portal page for FBAR and FATCA – scroll down to the “Educational Resources” where the IRS included a webinar and a video. Considering this is official information, do not be surprised if you’re more confused after watching this than before.
IRS Help line for FBAR: 866-270-0733
FinCEN eFiling Help desk: 866-346-9478
Houston firm specializing in International taxation: Marc Enzi, EA.
Good luck! You may need it.