Every tax season, and this one was no different, one of the things I feel I have to help clients unlearn and relearn, again and again, are their many misconceptions around the FBAR Form FinCEN 114 and FATCA Form 8938. These forms can be relevant to many foreign nationals living in the USA and to most US expats.
There is so much misunderstanding around these two forms!
If you have ever felt confusion around these forms, or even if you think you know everything there is to know about them, read along to clarify or confirm, as the case may be, your understanding around them.
To account for the dual facts that I started this issue of CBP late, and that I am a slow writer, we are going to address the most common misconceptions about these forms in a Q&A format.
Top 20 Frequently Asked Questions about FBAR and FATCA – Part I
- What is FBAR?
- FBAR is short for Report of Foreign Bank and Financial Accounts. The technical name of the form is FinCEN 114. FinCEN stands for Financial Crimes Enforcement Network. FinCEN is the bureau of the Department of the Treasury charged with safeguarding the US financial system from illicit use, combating money laundering, and combating the financing of terrorism. The FBAR falls under FinCEN because it is an anti-money laundering form.
The FBAR filing requirement was introduced by the Bank Secrecy Act (BSA) of 1970 and the first FBARs were filed in 1971. In April 2003, the Department of the Treasury delegated civil enforcement authority for the FBAR to the Internal Revenue Service, IRS.
The IRS civil enforcement of the FBAR has confused a lot of people since then, leading many to believe, incorrectly, that the FBAR is a tax form. It is not. The FBAR is an anti-money laundering form and its filing requirement is completely independent from any tax return filing requirement that any US person may have.
2. What is FATCA?
FATCA is the Foreign Account Tax Compliance Act, which was passed in 2010 as part of the HIRE Act. FATCA introduced requirements on foreign financial institutions, certain non-financial foreign entities, and US tax persons to report certain foreign financial assets with US beneficial owners.
Unlike BSA, the main purpose of FATCA is to combat tax evasion. Form 8938 – Statement of Specified Foreign Financial Assets was introduced as a filing requirement in 2011. Unlike the FBAR, Form 8938 IS a tax form, and as such, the IRS was charged with its enforcement from the get-go.
3. When is an FBAR Form FinCEN 114 required?
An FBAR is required when all the following conditions are met:
- The filer is a U.S. person.
- The U.S. person has a financial interest in a financial account or signature or other authority over a financial account.
- The financial account is in a foreign country.
- The aggregate amount(s) in the account(s) valued in dollars exceed $10,000 at any time during the calendar year.
For purposes of the FBAR a US person is:
- A citizen of the United States.
- A resident of the United States.
- An entity formed under the laws of the United States, any state, the District of Columbia, any territory or possession of the United States, or an Indian tribe.
Who is a considered a resident of the USA for FBAR purposes?
- Green card holders, even when they live outside the USA
- An individual who meets the substantial presence test, as explained in CBP No.19
- Individuals making something called the “first-year election”
- Individuals considered treated as U.S. residents on their first year or last year of U.S. residency.
Did you notice who is NOT considered a resident of the USA for FBAR purposes?
- Foreign spouses of U.S. citizens living abroad electing to be treated as tax residents under Section 6013(g). I will repeat this because I see foreign banks giving headaches to the wrong people about this ALL THE TIME: If you live abroad, you are not a US citizen or green card holder, but are married to one and you file a joint US tax return with your spouse, that DOES NOT make you an FBAR filer. If your foreign bank insists that you need to file an FBAR, your foreign bank is wrong. Tell them to go harass somebody else about their non-existing FBAR obligations. You can tell them Marina sent you 😉
- Individuals with work visas living in the USA who do not meet the substantial presence test. It is possible that an L-1 visa holder, for example, has a home in the USA but travels so frequently for business purposes to not meet the substantial presence test. Such a person is not required to file an FBAR.
Because the FBAR is not a tax form, the tax treatment of the US person does not determine whether the person has an FBAR filing requirement. For example, a single member LLC or a US grantor trust that is disregarded for tax purposes don’t file a tax returns, but they would still have to file an FBAR if they meet the filing requirements.
Another example is that of a US citizen with no income, such as a child, who may have an FBAR filing requirement by virtue of having a foreign bank account in their name or for their benefit. Tip for US citizens living overseas or for US immigrants with children: make sure you remember to file your child’s FBAR if they have a filing requirement.
4. Who is required to file FATCA Form 8938?
Any specified person who has an interest in specified foreign financial assets, the value of which exceed specified thresholds, is required to file Form 8938 with their annual US tax return.
How do you like all that specificity?!
OK, I am just being a little facetious….Let’s break it down:
A specified person is:
- A U.S. citizen
- A resident alien, under the green card test or the substantial presence test, for any part of the tax year
- A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return (foreign spouses of US citizens abroad: no FBAR for you, but yes on Form 8938. Sorry!)
- A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico.
- A specified domestic entity
A specified foreign financial asset is: something we will go over in detail in FAQ #8.
The aggregate specified thresholds are:
- For married taxpayers living in the USA filing a joint tax return: more than $100,000 on December 31st or more than $150,000 at any time during the year
- For “unmarried” taxpayers (but really everyone not filing a joint tax return with their spouse, whether married or not) living in the USA: more than $50,000 on December 31st or more than $75,000 at any other time.
- For married taxpayers living outside the USA filing a joint tax return: more than $400,000 on December 31st or more than $600,000 at any time during the year
- For “unmarried” taxpayers (but really everyone not filing a joint tax return with their spouse, whether married or not) living outside the USA: more than $200,000 on December 31 or more than $300,000 at any other time.
5. What is the filing deadline for these forms?
Form 8938 is part of your US tax return, so it has the same filing deadlines as your US tax return. That is, April 15 with an extension to October 15 for US resident taxpayers, and June 15 with an extension to October 15 and a potential second extension to December 15 for US taxpayers living overseas.
The FBAR, not being a tax form, was due on June 30 for the first 45 years of its existance, a deadline which could not be extended. This created a lot of headaches for many US immigrants and expats. It’s not always easy to obtain the foreign bank information required for the FBAR!
Thankfully, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changed the FBAR due date to April 15 for 2016 FBARs, to coincide with the tax return due date.
If anyone knows what surface transportation, veterans’ health care and FBARs have in common, since they are all part of the same Act, please enlighten me. The connection escapes me, but I digress…..
6. Can the FBAR be extended now?
Yes!
Actually, no.
But no in the sense that there is no form to request an FBAR extension, so it happens automatically. You have to do nothing. NADA.
For practical purposes this means that the FBAR, although in theory due on April 5 with the possibility of extension, in practice it’s really due on October 15, even when you don’t request an extension to file your personal tax return and file it in April or June.
Seems strange? I agree. But you don’t need to trust me, you can read the FinCEN announcement confirming this here.
This means that you have time to timely file your 2019 FBAR until tomorrow, if you have not filed it already. Even if you filed your tax return on July 15. Hurry!
This seems like a good stopping point for today’s CBP. We’ll continue to explore FBAR and FATCA Frequently Asked Questions next week.
Take care of one another,
Un abrazo y buena onda,
Marina