Travel Tax Week: if FBAR is not enough, here comes FATCA

Report of Foreign Bank and Financial Accounts (FBAR) has long been a hassle for US persons with foreign bank accounts in excess of US$10,000. New for tax year 2011 is Statement of Specified Foreign Financial Assets (FATCA). Where FBAR is primarily anti-crime, FATCA is all about tax revenue. Duplication? Of course.

FATCA is also known as Form 8938 and is due with your regular tax filings. The reporting obligation actually goes back to 2011 but since the form was not published until the latter part of the year, there is a transition period. From the Instructions for Form 8938:

When and How To File

Attach Form 8938 to your annual return and file by the due date (including extensions) for that return.An annual return includes the following returns.

  • Form 1040.
  • Form 1120.
  • Form 1065.
  • Form 1041.
  • Form 1120-S.
  • Form 1040NR.

A reference to an “annual return” or “income tax return” in the instructions includes a reference to any return listed here, whether it is an income tax return or an information return.

Transitional rule for 2011.   Your obligation to file Form 8938 in 2011 is deferred to 2012 if you are an individual who satisfies all of the following.

  • You had a tax year that began after March 18, 2010.
  • You were required to file Form 8938.
  • You filed an annual return before Form 8938 was released.

See Notice 2011-55, 2011-29 I.R.B. 53. You must now satisfy your filing obligation for any such prior tax year by filing Form 8938 for such prior year with your annual return for your current tax year. If you are required to complete a Form 8938 for your prior tax year and your current tax year, attach both forms to your income tax return for the current tax year.

Note.

If you are filing Form 8938 for a prior year under this transitional rule, check the box on Form 8938 to show it is being filed for a prior tax year.

The reporting threshold depends on taxpayer filing status (see the full instructions for some exceptions):

Determining the Reporting Threshold That Applies to You

If you satisfy the reporting threshold discussed next that applies to you and no exception applies, file Form 8938 with your income tax return.

Unmarried taxpayer living in the United States.   If you are not married and not living abroad, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
Married taxpayers filing a joint income tax return and living in the United States.   If you are married and you and your spouse file a joint income tax return and do not live abroad, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
Married taxpayers filing separate income tax returns and living in the United States.   If you are married, file a separate income tax return from your spouse, and do not live abroad, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
Taxpayers living abroad.   If your tax home is in a foreign country and you meet one of the presence abroad tests described next, you satisfy the reporting threshold if you are not filing a joint return and the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.    If you are married and file a joint income tax return, you satisfy the reporting threshold only if the total value of all specified foreign financial assets you or your spouse owns is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.

Presence abroad.

You satisfy the presence abroad test if you are one of the following.

  • A U.S. citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
  • A U.S. citizen or resident who is present in a foreign country or countries at least 330 full days during any period of 12 consecutive months that ends in the tax year being reported.
In typical IRS fashion there are complicated guidelines for valuing financial assets, so study the instructions carefully.
Robert W. Wood, Forbes’ The Tax Lawyer has tenaciously covered FATCA, from the ‘maddening duplication‘ with FBAR and comparisons of the two, to some foreign banks choosing to shut out US customers rather than accept the enforcement burden the IRS has foisted on them, to the bad idea of quietly closing foreign accounts and not reporting, and more.
The New York Times has a thorough summary in For Americans Abroad, Taxes Just Got More Complicated by David Jolly.

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