Do I need to report FATCA & FBAR？

Do I need to report my overseas assets and income to the IRS? 

The answer can be Yes or No, depending on your financial situation. If you are a U.S. citizen or resident alien, you may need to report based on the requirements of the Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank Accounts Reporting (FBAR).

You may hear a lot of FATCA and FBAR, but what exactly FATCA and FBAR are? What are the differences between them? Do I need to file FBAR or/and FATCA? 

Before answering these questions, let PurpleANTS explain the differences between the two and their reporting requirements.

FATCA & FBAR Reporting Requirements:

The Foreign Account Tax Compliance Act (FATCA) is used by the U.S. government to combat offshore tax evasion. U.S. expatriates with foreign accounts and assets of various income levels should be aware of this. FATCA affects: 

(i) U.S. taxpayers 

(ii) Foreign financial institutions 

For U.S. taxpayers: 

1. U.S. taxpayers with foreign accounts and assets may need to file Form 8938. 

2. FATCA requires foreign financial institutions to disclose information about U.S. citizens holding accounts abroad.

For foreign financial institutions: 

Many foreign financial institutions must report the accounts of their U.S. citizens and residents. If you fail to submit FATCA information on time, you may face penalties and interest.

Form 8938 is similar to FBAR in many ways. However, it has a higher reporting threshold and requires the disclosure of certain "non-account" assets, such as: 

1. Business and trust ownership 

2. Certain contract investments with foreign investors 

The Report of Foreign Bank and Financial Accounts (FBAR) is submitted to the Financial Crimes and Enforcement Network (FinCEN) of the U.S. Treasury Department, not the IRS. Its purpose is to prevent U.S. citizens from hiding assets overseas for tax evasion and money laundering. 

You must file FinCEN Form 114 if both of the following conditions are met: 

(i) You are a U.S. citizen, resident taxpayer, or domestic business entity 

(ii) You have signature authority or control over foreign bank and financial accounts with a total value exceeding $10,000 

If you are considering renouncing or ignoring your reporting obligations, note that the penalty for willful failure to file can be up to $100,000 or more.

FATCA & FBAR Filing Deadline:

Form 8938 (FATCA) - This form is submitted along with your U.S. tax return, so it follows the deadline for Form 1040. U.S. expatriates residing abroad automatically receive an extension or an additional extension until October 15, allowing more time to gather the necessary information from foreign financial institutions and determine your filing requirements.

FBAR Form 114 – This form is submitted separately from your tax return and is not filed with the IRS. The FBAR filing deadline coincides with your tax return deadline, and it can also be automatically extended to October 15.

Who Needs to File FATCA & FBAR and What Are the Filing Thresholds*? 

(*The filing thresholds vary depending on where you live during the tax year.)

For FATCA: 

If you live in the U.S. for the entire tax year and the value of your foreign assets exceeds either of the following, you must file Form 8938: 

(i) Over $50,000 at the end of the year ($100,000 for married couples filing jointly), or 

(ii) Over $75,000 at any time during the year ($150,000 for married couples filing jointly) 

For expatriates living abroad, the filing threshold is higher. You are not required to file unless your foreign assets exceed: 

(i) $200,000 at the end of the year ($400,000 for married couples filing jointly), or 

(ii) $300,000 at any time during the year ($600,000 for married couples filing jointly)

For FBAR: 

If you are a U.S. citizen or green card holder using personal or business foreign accounts for daily activities, you may need to file FBAR. The reporting requirements cover various types of foreign accounts maintained outside the U.S., including: 

(i) Bank accounts 

(ii) Securities accounts 

(iii) Certain foreign retirement arrangements 

FBAR filing requirements are not new, but expatriates often overlook them. Recent international enforcement efforts have raised awareness of this requirement. However, there is no need to worry—your FBAR is simply an informational document and does not impose additional taxes. However, failure to file or late filing may result in penalties.

Failed to file FATCA & FBAR - Related Penalties:

The IRS has tax agreements with over 60 countries, including China. This means the governments of these countries agree to share and provide taxpayers' financial account and asset information. As global transparency of financial accounts and assets increases, taxpayers should not take chances. Chinese Americans with foreign financial accounts or assets must proactively report them, or they may face severe civil and even criminal penalties if discovered.

FATCA Form 8938 

- Taxpayers who fail to correctly submit Form 8938 may face a penalty of up to $10,000. 

- If the form is not submitted within 90 days of receiving a notice from the IRS, an additional $10,000 fine is added every 30 days, up to a maximum of $50,000. 

- Severe cases may also face criminal penalties.

FBAR Form 114 

- Taxpayers who fail to submit or correctly submit the FBAR may face a penalty of up to $10,000. 

- Taxpayers who willfully fail to submit may face a penalty of up to $100,000 or 50% of the foreign account balance, whichever is greater. 

- Severe willful violations may result in criminal penalties.