US Expatriates : Other Annual Compliance Requirements
In 2010 the US government made financial reporting requirements even harder for many US citizens and residents throughout the world, with the introduction of the Foreign Account Tax Compliance Act (FATCA). Just when many had become familiar with FBAR (Foreign Bank Account Reporting) returns, FATCA introduced new, and largely parallel, reporting requirements. FATCA carries its own set of (significant) penalties and is filed with the tax return rather than separately.
FBAR
The FBAR requires disclosure of foreign accounts aggregating over $10,000 at any time during the year, and reports are due June 30 of the year following the year in which the account holder meets the $10,000 threshold. A failure to file an FBAR exposes an individual to a penalty as high as $10,000 per year even if the failure was merely negligent and non-willful.
FATCA
Completion of the FATCA (Form 8938), on the other hand, is required when the total value of specified foreign assets exceeds certain higher thresholds. Unless an exception applies, you must file form 8938 if, "you are a specified person that has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold."
You are a specified person if you are one of the following:
- a US citizen
- a resident alien of the US for any part of the tax year
- a non-resident alien who makes an election to be treated as a resident alien
(Note: you are considered a resident alien if you are treated as a resident alien for US tax purposes under the "green card" test).
The applicable reporting threshold also depends upon whether you are considered as living abroad. If your tax home is a foreign country, such as Australia, and you meet one of the presence abroad tests then different and higher financial thresholds apply than if you were resident in the US.
In summary, if you are not filing a joint return then you meet the reporting threshold if the total value of your specified foreign financial assets is more than USD200K on the last day of the tax year or more than USD300K at any time during the tax year. If you are married and file a joint income tax return, you satisfy the threshold if the total value of all your specified foreign financial assets owned by you or your spouse is more than USD400K on the last day of the tax year or more than USD600K at any time during the tax year.
Submitting a FATCA/Form 8938 does not replace or otherwise affect a taxpayer's obligation to file an FBAR. It has its own penalties and a failure to file could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after an IRS notification. A 40% penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.
FATCA also requires foreign financial institutions (FFI's), to report information about accounts held by U.S. taxpayers directly to the IRS. As regards expatriates, how a bank can be expected to know that an individual, particularly if they have dual nationality - is unclear, but many FFI's explicitly ask customers whether they are US citizens, including Australian banks.
FBAR and FATCA Reporting
The US Government is clearly determined to collect tax on foreign accounts wherever possible - and has imposed a (complex) level of administration and reporting on its citizens and residents abroad. For your information, please find the following FATCA forms and instructions for download:
We have also included two flow charts below which try to illustrate when an individual may have a requirements to file either an FBAR or FATCA form.
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