Although worldwide income must be reported on your tax return, it is legal to have money and/or assets overseas. Depending on the nature of the account or property abroad, it is important to understand the differences and requirements of each. U.S. citizens utilize IRS Form 8938 when reporting the ownership of specified foreign assets, and a FBAR (Foreign Bank Account Reporting TD F 90-22.1) for certain foreign bank accounts.
Form 8938 was designed to aid in tax administration, while the FBAR was designed to aid in law enforcement. The filing dates and administrative agencies are different but some of the required information may be the same.
Any United States person who has a financial interest in or signature or other authority over, any financial account in a foreign country, if the aggregate value of these accounts exceeds US$10,000 at any time during the calendar year.
United States Person: includes a citizen or resident of the United States, a domestic partnership, a domestic corporation, and a domestic estate or trust. This includes a single member LLC, which is considered a disregarded entity for U.S. tax purposes.
Signature or Other Authority: A person has signature authority over an account if such person can control the disposition of money or other property in it by delivery of a document containing their signature to the bank or other person with whom the account is maintained.
Other authority exists in a person who can exercise power that is comparable to signature authority over an account by direct communication to the bank or other person with whom the account is maintained, either orally or by some other means.
Is a U.S. resident with power of attorney on his elderly parents’ accounts in Canada required to file an FBAR, even if the resident never exercised the power of attorney?
Yes. Whether or not such authority is ever exercised is irrelevant to the FBAR filing requirement.
How do filers report their accounts to the IRS?
Complete boxes 7a and 7b on Form 1040 Schedule B, or
Box 3 on Form 1041 “Other information” section, or
Box 10 on Form 1065 Schedule B, or
Boxes 6a and 6b of Form 1120 Schedule N
AND – completing Form TD F 90.22-1.
When is the FBAR Due?
June 30th of the year following the year that the account holder meets the US$10,000 threshold. An extension to file a Federal income tax return DOES NOT extend the due date for filing an FBAR. Filers cannot request an extension of the FBAR due date.
Where do I file the FBAR?
U.S. Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621
How do I verify that my FBAR was filed?
Ninety days after the date of the filing, the filer can request verification that the FBAR was received. A request can be made by calling 866-270-0733 option 1. There is no fee for an over the phone verification.
How to amend a previously filed FBAR
- Check the Amended box in the upper right hand corner of the first page of the form;
- Make the needed additions or corrections;
- Staple it to a copy of the original FBAR; and
- Attach a statement explaining the additions or corrections.
What happens if you are required to file an FBAR and you fail to do so?
Failure to file an FBAR may potentially result in civil penalties, criminal penalties or both. If you learn that you were required to file an FBAR in earlier years, you should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be assessed if the IRS determines that the late filing were due to reasonable cause. Keep copies for your records. Records should be maintained for 5 years.
Form 8938 – Statement of Specified Foreign Financial Assets
Certain U.S. taxpayers holding specified foreign financial assets with an aggregate value exceeding US$50,000 will report information about these assets on Form 8938, which must be attached to the taxpayer’s annual income tax return.
However, if you do not have to file an income tax return for the tax year, you do not have to file Form 8938, even if the value of your specified foreign assets is more than the appropriate reporting threshold.
If you are required to file Form 8938, you do not have to report financial accounts maintained by:
- A U.S. payer (such as a U.S domestic financial institution);
- The foreign branch of a U.S. financial institution; or
- The U.S. branch of a foreign financial institution.
You must file a Form 8938 if:
1. You are a specified individual:
- U.S. citizen; or
- Resident alien of the United States for any part of the tax year; or
- Nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return.
2. You have an interest in specified foreign financial assets required to be reported.
Specified foreign financial asset:
- Any financial account maintained by a foreign financial institution, except as indicated above.
- Other foreign financial assets held for investment that are not in an account maintained by a U.S. or foreign financial institution - such as stock or securities issued by someone other than a U.S. person, or any interest in a foreign entity, and
- Any financial instrument or contract that has an issuer or counter-party that is other than a U.S. person.
3. The aggregate value of your specified foreign financial assets is more than the reporting threshold that applies to you:
Unmarried taxpayers living in the U.S.: total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than US$75,000 at any time during the tax year.
Married taxpayers filing a joint income tax return and living in the U.S.: total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than US$150,000 at any time during the tax year.
Married taxpayers filing separate tax returns and living in the U.S.: total value of your specified foreign financial assets is more than US$50,000 on the last day of the tax year or US$75,000 at any time during the tax year.
Taxpayers living abroad you must file if:
You are filing a return other than your joint return AND the total value of your specified foreign financial assets is more than US$200,000 on the last day of the tax year or more than US$300,000 at any time during the year; or
You are filing a joint return AND the value of your specified foreign financial asset is more than US$400,000 on the last day of the tax year or more than US$600,000 at any time during the year.
If you have any questions about the requirements for filing an FBAR or Form 8938 please do not hesitiate to contact us at 412-904-2693 or by emailing email@example.com.