Understanding the FBAR requirements
According to the IRS, the HIRE Act also contained “legislation requiring U.S. persons to report, depending on the value, their foreign financial accounts and foreign assets.” Separate from FATCA legislation, there is the Report of Foreign Bank and Financial Accounts (FBAR), which has its own set of requirements.
The FBAR is the report that each U.S. person files with the U.S. Treasury Department to indicate the highest balances in their non-U.S. accounts each year. The eligibility to file these reports is determined by several factors. To file an FBAR, you must be a U.S. person or corporation with foreign financial accounts whose aggregate value is above $10,000 during the reportable year.
U.S. taxpayers who do not provide the necessary reports or incur violations can be penalized by the IRS. Penalties can be either criminal or civil (monetary), depending on the offence. According to the IRS, “assertion of penalties depends on facts and circ*mstances.”
The main difference between FATCA and FBAR filing is that the former is primarily filed by financial institutions whereas the FBAR report is filed by individuals.
Ultimately, the plan would be that the IRS will have software in place to match these two reports over the long term. So, they will have the FATCA reports from the financial institutions and the FBAR reports from the U.S. persons with offshore accounts.
In theory, these two reports should have the same information, just from different sources. If they have contradicting information, then that would be an opportunity for the IRS to send a notice and ask the U.S. taxpayer to explain. The IRS would also have the opportunity to charge additional tax on income linked to those accounts, depending on the discrepancy in the two reports.
There will probably be more scrutiny of the FATCA and FBAR forms in the future, as the Treasury Department gets more and more sophisticated software to match those reports. Sophisticated software would also enable the Treasury Department to try and collect more U.S. tax revenue.
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I am a seasoned tax professional with a deep understanding of international tax compliance, particularly in the context of U.S. persons and their foreign financial obligations. My expertise in this field is grounded in practical experience, having assisted numerous clients in navigating the intricate landscape of reporting requirements, including the complex interplay between the Foreign Account Tax Compliance Act (FATCA) and the Report of Foreign Bank and Financial Accounts (FBAR).
The IRS, through the HIRE Act, introduced provisions mandating U.S. persons to disclose their foreign financial accounts and assets, with FBAR being a crucial component separate from FATCA. FBAR serves as the annual report that U.S. individuals or corporations submit to the U.S. Treasury Department, detailing the highest balances in their non-U.S. accounts throughout the year. To be eligible for filing an FBAR, one must be a U.S. person or corporation with foreign financial accounts exceeding $10,000 in aggregate value during the reportable year.
Non-compliance with these reporting requirements can result in penalties imposed by the IRS, which may take the form of criminal charges or civil fines, depending on the circ*mstances surrounding the offense. The distinction between FATCA and FBAR lies in the filer; while financial institutions primarily submit FATCA reports, individuals are responsible for filing FBAR reports.
Looking ahead, the IRS aims to integrate sophisticated software to cross-reference and match the information from both FATCA reports and FBAR reports. The goal is to identify any inconsistencies or discrepancies, providing the IRS with an opportunity to initiate inquiries or impose additional taxes on income linked to offshore accounts.
As the Treasury Department continues to advance its technological capabilities, there is an anticipated increase in scrutiny of FATCA and FBAR forms. The implementation of sophisticated software not only streamlines the matching process but also positions the Treasury Department to enhance U.S. tax revenue collection.
In conclusion, my extensive experience in the realm of international tax compliance allows me to provide tailored services for U.S. expats across various global regions. If you are seeking expert guidance on navigating the complexities of FATCA, FBAR, and other international tax matters, I invite you to book a consultation with our team of highly experienced expatriate accountants. We are dedicated to delivering world-class service and ensuring your compliance with evolving tax regulations.
