It is important to keep in mind that the federal government requires mandatory reporting of foreign financial accounts and assets for which you have an interest, in addition to taxes on income generated by such holdings. When preparing your federal tax return, it is essential to determine if you are required to file the Report of Foreign Bank and Financial Accounts (FBAR) or Form 8938 under the Foreign Account Tax Compliance Act (FATCA), or if you have to file both. Failure to report these foreign assets and accounts can result in significant penalties and fines. It is recommended to consult with a tax professional or accountant to ensure compliance with these reporting requirements.
What is FBAR?
The FBAR (FinCEN Form 114) is a mandatory annual filing with the Financial Crimes Enforcement Network (FinCEN) to report any foreign financial accounts or assets that meet certain thresholds. The FBAR is should be filed by U.S. citizens, resident aliens, and certain entities, including trusts and estates, that have a financial interest in or signature authority over foreign financial accounts with an aggregate value greater than $10,000 at any time during the calendar year. The FBAR filing is separate from the individual income tax return, and the deadline for filing is April 15th of each year with an automatic extension to October 15th. Failure to file the FBAR can result in significant penalties and fines. It is important to consult with a tax professional or accountant to ensure compliance with this reporting requirement.
What is FATCA?
FATCA applies to persons with taxable interests, including citizens, residents, and non-resident aliens. FBARs are required for a wider range of businesses, including local trusts, estates, and businesses with foreign financial interests. In addition, US citizens and legal entities are not permitted to enter the United States. Submit FBAR forms, but not FATCA forms.