FATCA and FBAR – What’s the Big Deal?

FATCA and FBAR – What’s the Big Deal?

By Dudley Pierce Baker

http://CommonStockWarrants.com

 

slider-fatcaI have been an ex-pat since 1999 and enjoy a great life living outside the United States. Not only am I an ex-pat but I am also a retired IRS agent with over 29 years of service before retiring in 1996. For much of my career with the IRS I was an IRS agent – team coordinator and the lead agent on the largest corporations in the world. I have not performed any tax work for hire since my retirement and my interests lie with my various financial related websites.

As we get started let’s not forget that the tax system in the United States operates on what is referred to officially as ‘voluntary compliance’; reality is it actually operates on ‘fear.’ U.S. citizens and U.S. persons holding assets outside of the United States have two different required filings depending on the amount of dollars in question.

FBAR is the Report for Foreign Bank and Financial Accounts and essentially comes into play if you have $10,000 or more outside of the United States.

United States persons are required to file an FBAR if:

The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and

The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

FATCA, The Foreign Account Tax Compliance Act was presumably designed as a measure to crack down on money laundering and tax evaders who hide assets in offshore accounts. But the law is causing global scale headaches for banks and their clientele alike. Many Americans residing overseas are reporting banking lockout. Many foreign financial institutions have simply chosen to eliminate their U.S. citizen and U.S. person client base in order to minimize their exposure to FATCA reporting requirements, withholding fees and potential penalties, and frankly who can blame them.

“FATCA was passed in 2010 as part of the HIRE act. Starting July 1, 2014 foreign financial institutions (FFI) will be required by the U.S. government, under FATCA, to report information regarding accounts of all U.S. citizens (living in the United States and abroad), U.S. “persons,” green card holders and individuals holding certain U.S. investments to the IRS all their clients who are “U.S. persons”. FFI that do not become compliant will be subject to a 30 percent withholding on their U.S. investments when they are cashed in, which will directly impact FFI clients with U.S. holdings.

FATCA also requires U.S. citizens who have foreign financial assets in excess of $50,000 (higher for bona fide residents overseas: $200,000 dollars for single filers and $400,000 dollars for joint filers – see the IRS website for more details) to report those assets every year on a new Form 8938 to be filed with the 1040 tax return….”

Tax avoidance simply is making use of the current tax laws to one’s advantage while tax evasion is the intentional disregard for the laws, omission of income, overstating of expenses, in essence, fraud. Of course, income earned or gains derived in foreign countries are reportable as income on their U.S. tax returns even if those individuals do not receive statements from those foreign financial organizations similar to the 1099s in the United States.

The FBAR requires you to report accounts that have over $10,000 in foreign accounts with a June 30 filing date.

FATCA also kicks in with Form 8938 to be filed with the 1040 tax return for those having foreign financial assets in excess of $50,000.

“To view this article in its entirety with hyperlinks, please go to http://commonstockwarrants.com/?p=57745”

 

Ojo Del Lago
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