Ep 61: What Is English For "FATCA & FBAR Reporting"?
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We discuss the complexities surrounding FBAR and FATCA, two acronyms that often cause confusion and concern for foreign-born individuals.
We explain the importance of compliance with these regulations, the filing requirements for U.S. citizens and U.S. tax residents (includes foreign nationals on work visas), and the potential penalties for non-compliance.
And yes, the IRS knows about your overseas assets. We also cover the amnesty programs available for those who have missed reporting their foreign accounts.
Takeaways
FBAR and FATCA are crucial for foreign-born individuals.
Filing the FBAR form is mandatory if accounts exceed $10K.
FATCA requires reporting of foreign accounts to the IRS.
Banks report account information to the IRS under FATCA.
Non-compliance can lead to significant penalties.
Amnesty programs exist for those who missed filings.
IRS is aware of foreign accounts through intergovernmental agreements.
Rectifying non-compliance is possible and essential (But don't DIY)
Chapters
00:00 Understanding FBAR and FATCA
03:16 The Importance of Compliance
07:57 Filing Requirements for U.S. Citizens Abroad
12:25 Amnesty Programs and Penalties
14:56 Rectifying Non-Compliance
Episode Links & Resources
Ep 45: What Is English For "Streamlined Filing Procedures”?
Ep 34: What Is English For "FBAR"?
Top 5 Things To Know About FBAR Filing
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Jane Mepham, CFP (00:03.176)
FBAR, FATCA, acronyms that cause panic to foreign-born individuals. Should you be concerned about them?
And we are back with another shortie, and in today's shortie, which we are calling “What is English for FBAR and FATCA”, we're going to talk to you about what these acronyms are, why you should be concerned about them, and maybe even talk about the penalties if you don't comply.
Manasa, talk to me about it.
Financial Crimes Enforcement Network (FinCen)
Manasa Nadig, EA (00:36.805)
Boy, if I had a penny for every time a client called me in panic because they got an e-file acceptance from the Financial Crimes Enforcement Network, I would be a rich girl. But you know, you and I know this, but let's remind our listeners that FINCEN is an acronym for Financial Crimes Enforcement Network
Manasa Nadig, EA (01:05.691)
It is a bureau of the U.S. Department of the Treasury that is in charge of the collection and analysis of information about domestic and international financial transactions in order to keep an eye on money laundering or, worse, terrorist financing and other financial crimes.
10k Overseas = FBAR Filing
Jane Mepham, CFP (01:34.304)
Okay. So to comply with the Bank Secrecy Act rules and regs, and reg stands for regulations, one must file a FinCEN form 114, commonly known as the FBAR (F- B-A-R).
Okay. And this generally applies to people who have accounts at a financial institution located outside the U.S., so literally think a bank account located in another country. And the thing we want to always want to caution people about is the key number for FBAR.
And I know people come to us all the time and say, We don't have this much money, " and if any of your bank accounts hit $10 K for the year, even one day, then you do need to file the FBAR form.
And here's the other key thing. If you have, let's say two bank accounts in different countries, it doesn't matter, but the total one day hits $10 K, then you need to file an FBAR for that year. Now your account does not have to be producing any taxable income, right? There are no taxes that come from the FBAR filing.
All you're doing is just reporting, letting IRS know that you've got this bank account in a country outside the U.S. So now that we know what the FBAR is, Manasa, do you want to go into FATCA.
The Origin Of FATCA
Manasa Nadig, EA (03:15.303)
yes. But before I go to FATCA, I just want to remind our listeners that the F BAR form that Jane was talking about has to be electronically filed on that FinCEN website. You cannot send it in on paper anymore. So that's something that you need to remember.
Manasa Nadig, EA (03:42.972)
Now, yes, FATCA, differently and sometimes very funnily pronounced in many different countries, but we're just going to call it FATCA, F-A-T-C-A, stands for the Foreign Account Tax Compliance Act. This was enacted by Congress in 2010. And again, this was to make sure that taxpayers who may have been using foreign accounts to hide their assets that the government knew about those assets, right?
So the passage of FATCA required not just individuals, but also foreign financial institutions to report information to the IRS about financial accounts held by U.S. taxpayers or by US and foreign entities in which the US taxpayers had a substantial interest.
So this was more far-reaching than the FBAR. And how did they achieve this? They achieved this by entering into intergovernmental agreements or IGAs with many countries.
How Does IRS Know That You Have An Overseas Account?
Jane Mepham, CFP (05:08.352)
And so basically FinCEN and FATCA were looking to achieve similar objectives, but obviously the reporting is to different agencies. And this is something Manasa and I are constantly writing about on LinkedIn, on Substack, and on all our blogs. Now, Manasa, you know what the number one question I get from clients and prospects on this?
people will come to me and say, I have this account but IRS will never know. So how does IRS know that you have this account overseas? And you just alluded to it about the intergovernmental agreement.
Let me give you a very practical example of how they know. They know because your bank at home told IRS. Just before the recording I was just telling Manasa
I have to do this because my bank in my home country just sent me a bunch of paperwork saying, “Hey, as a US tax resident, we require you to complete these forms, because if you don't, we're going to cancel your account. And you're like, really?”
But the reason they end up doing that is that if they don't report to the IRS, (and I know they've already reported) me to IRS, they're liable to pay something like, think it's up to 30 % of some of these accounts.
So the bottom line is, don't try to hide, just report. They already know it, think of it like a school principal, you've done something or your parents, and it's like, go talk to them. You've already done it, you already know you've done this thing, or you have an account. Manasa, what do you think of that?
Bank KYC
Manasa Nadig, EA (07:00.855)
Yeah, that's funny. I like that analogy. Yeah. But also, you know what? There is something called the know your customer thing that most banks are subject to, anywhere in the world, for that matter, really. Right. And under the know your customer, they have to get all of this information from you before they can even allow you to open a bank account. So.
Jane Mepham, CFP (07:03.5)
Yeah. Yeah. Yeah.
Manasa Nadig, EA (07:27.951)
On the one hand, the bank is collecting all this information, and as soon as they know that you have something to do with the U.S., under the FATCA, they have to send all this information to the U.S. or the IRS. So suffice it to say, yeah, they know. And therefore, these
are two really important forms to file for those who are US citizens, green card holders or tax residents of the US.
Manasa Nadig, EA (07:57.232)
So even if you're here on a work visa, but if you're a tax resident of the U.S., you have to file these forms. And of course, it goes without saying, if you're a U.S. citizen or a green card holder, no matter where you live, you have to file these forms if those thresholds are crossed. knowing what we know thus far, the FATCA has been around just a little bit of history, right? If you're a history buff, Jane and I are.
Manasa Nadig, EA (08:26.587)
We love to dig into stuff. Aside, you would catch us at a museum looking stuff up. Yeah, yeah. But when the FBAR has been around, believe it or not, since the 1970s. I believe, though, the compliance was not the way it is right now, and not much was enforced back then. But FATCA, comparatively, is, “fairly new.”
How We Help Our Clients Be Compliant
Manasa Nadig, EA (08:56.611)
So, the enforcement has really been just, you know, 2010, maybe about 10 or 15 years now. So, when Jane and I work with our clients, we use an intake questionnaire that walks the client through many of these reporting requirements. We want to gather this information and make sure our clients or prospective clients don't miss any reporting requirements if they qualify.
So that's what I do, and I know what you do, Jane, but is there anything else that you could think of that maybe, you know, there are forms to file and the way you gather information?
Jane Mepham, CFP (09:44.782)
So, what I now do, and I've made it a point of saying, whether somebody becomes a client or not, when I meet a prospect, I bring this up. So as part of my intake process, I'll ask them, “Do you have assets overseas?” And if they say yes, when we talk the first time, I know it's supposed to be, we're trying to figure out if we can have a relationship.
I'll say to them, "If nothing else, the one thing I want you to take away is to understand the FBAR and FATCA." So, have you been filing this for your overseas assets? And I think when I
think about the percentages, Manasa, half of the people that I talk to haven't been filing these forms, or they've been filing some and missing out on some because they did not know.
So what I'll say is let's make sure if nothing else, whether you work with me or not, you actually get this taken care of. And so far, I know people have said they're very thankful for that kind of information. But then, now you've talked about who's supposed to file U.S. citizens, green card holders, and tax residents in the U.S.
Okay, Manasa, what about those who've moved overseas and they're still US tax residents?
U.S. Expats And Reporting
Manasa Nadig, EA (11:00.345)
Yes. So if you have moved overseas, but you are a U.S. citizen or a green card holder, you're still liable to file these forms. No, the F BAR form threshold is really low. Actually, if you think about it, it's ten thousand dollars, which means that if you live abroad and you're conducting life abroad, that ten thousand dollars is nothing.
Manasa Nadig, EA (11:29.393)
So yes, most people who live abroad would have to file that form (FBAR). FATCA thresholds are different. FATCA thresholds not only depend on whether you live in the US or you live abroad, but they are also dependent on how you file. Like, if you file single, those thresholds are different.
If you file jointly, those thresholds are different and we will put these thresholds down for you for reference in our show notes for sure. But yes, but before we go down any further though, the one thing, and maybe this is the other next big question that we need to address when we're talking about FBARs and FATCA guys and for all that is what do you do when you have forgotten, like Jane was mentioning, or you have missed reporting some foreign financial assets?
Manasa Nadig, EA (12:25.327)
The clients ask us this all the time, right? When they come to know they don't have it, then what do I do now? So there are amnesty programs available. And I don't know if people don't like hearing the word 'amnesty,' but it is what it is. It helps you come into compliance. Then there are many different types of amnesty programs.
And there are different set of threshold rules for if you live abroad or if you live in the US. And those are streamlined filing, delinquent filing, and all of that. So the thresholds again are different. The penalties are different if you lived in the US and you're misreported or you lived abroad.
Supreme Court – Bitner Versus United States - Encouraging
On a side note though, there has been a court case which is kind of encouraging. It's Bittner versus United States,in February of 2023, where the US Supreme Court held that the $10,000 penalty for non-willful failure to file the FBAR accrues per report and not per account.
So let's break that down really quickly because this is a shortie. There are penalties for not filing, and therefore the amnesty programs, right? So going back. If you haven't filed and decide not to file, you obviously can't be our client anymore.
But then, you are also facing these penalties for noncompliance. So, some court cases like this mitigate what you might end up paying as a penalty. But you know what? I wouldn't bank on that so much.
I would start working with an expert right away to ensure those accounts are in compliance with the FBAR, FinCEN, or FATCA.
Jane Mepham, CFP (14:28.12)
So, I think what you're saying, because I want to end this on a positive note, a lot of people, yeah, don't know about the FBAR and the FATCA forms and the requirements and the numbers at which you need to report. And the IRS knows this. So when we talk to people, and they haven't been reporting, all is not lost. You have a chance to rectify things.
Manasa Nadig, EA (14:33.955)
Yeah, let's do that.
Jane Mepham, CFP (14:56.642)
But once you know you need to rectify, this is what Manasa just talked about: the streamlined filing. and we actually have an episode that talked about what this streamlined filing is that we're going to link to this.
So once you know you need to have been filing, it's okay. You can come into compliance. There could be a little bit of a penalty to pay for it, but you have an opportunity to fix things and be tax compliant. So, all is not lost.
There's still a lot of hope for you. Okay. And anything else you want to add, Manasa or we're good to go.
Manasa Nadig, EA (15:32.827)
Yes, let's conclude by saying that it's very important: as soon as you know you had foreign assets that needed compliance but didn't do it, you need to get on that boat ASAP. And if you don't, there are severe penalties. And last but not the least, you really need to be working with a professional who knows what they're doing and get this show on the road, you know, for the lack of a better term. So yeah, yeah, Jane
Jane Mepham, CFP (16:10.19)
Perfect. Yeah, I think what you said is enough. So get into compliance. So I think we're good to go.
Manasa Nadig, EA (16:16.486)
Yeah.
Yes, and thank you for stopping by and thanks for listening to this Shortie and until next time, bye.
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The speakers' views and opinions discussed in this episode should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.