Currency Conversion: Timely, Late, Amended FBAR And Form 8938

It’s that time of year when we all worry about getting material ready for preparation of United States tax returns and related information return filings. During the course of this information gathering a taxpayer may discover that some forms were completed incorrectly in the past and should be amended or, perhaps the taxpayer discovers a filing should have been done, but was not. Two very important forms for US persons having overseas accounts or assets are the so-called “FBAR” short for “Report of Foreign Bank and Financial Accounts” (FinCen Form 114) and the “Statement of Specified Foreign Financial Assets” (IRS Form 8938). International tax practitioners know how severe the penalties can be for non-filings or improper filings of these two forms.

Below is some very basic information about these forms to get you ready for tax filing time:

FBARs must be filed online at the Bank Secrecy Act E-Filing website. Do not simply use an Internet search engine to ascertain where to e-file your FBAR as these may lead you to third party online businesses offering FBAR e-filing services. It is recommended that you use the official Banking Secrecy Act website of the US Treasury, above. You will be required to complete a user application. The FBAR form is not to be attached to any tax return. It must be filed (assuming the requisite conditions are met) even if the individual is not under an obligation to file an income tax return.

Form 8938 Click here (PDF) is often referred to as the “shadow FBAR”. The Form 8938 DOES NOT replace the FBAR and it is required to be attached to the individual’s income tax return. Form 8938 is required when the total value of so-called “specified foreign assets” exceeds certain threshold amounts, which vary depending on the taxpayers’ place of residence and his tax filing status. For example, a married couple living in the US and filing a joint tax return must file Form 8938 if their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year. The filing thresholds for taxpayers who reside abroad are higher. Generally, a married couple residing abroad and filing a joint return are required to file Form 8938 if the value of specified foreign assets exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

Converting Foreign Currency to US Dollars to Determine Filing Thresholds and to Complete the Forms

The instructions to each of these Forms requires reporting of the foreign financial accounts / assets in United States Dollars. In order to complete the form, the taxpayer must first determine the maximum value of the asset during the tax year, and then convert the local currency into US dollars. Taxpayers are to use the exchange rate on the last day of the calendar year. The taxpayer is advised to use the U.S. Treasury Department’s Financial Management Service foreign currency exchange rate for purchasing U.S. dollars and sometimes the rate for the last day of the year is not posted in a timely fashion. Luckily, the December 31, 2013 rates were recently posted and can be found here.

If no Financial Management Service exchange rate is available, you must use another publicly available foreign currency exchange rate for purchasing U.S. dollars and disclose the rate on Form 8938.

When taxpayers are filing late or amended FBARs or late or amended Forms 8938, they need to use the conversion rates for the relevant tax year. The historical exchange rates for conversion to US dollars are available on the IRS website here.

In accordance with Circular 230 Disclosure

Virginia La Torre Jeker J.D., has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court. She has 30 years of experience specializing in US and international tax planning as well as international commercial transactions. She has been based in Dubai since 2001; prior to that time she worked in Hong Kong for 15 years as a US tax consultant for international law firms, major banks (including HSBC) international accounting firms (Deloitte) and trust companies. Early in her career she worked in New York with the top-tier international law firm, Willkie Farr & Gallagher.

Virginia is regularly asked to speak at numerous conferences and seminars for various institutes and commercial organizations; publishes a vast array of scholarly works in her area of expertise, been interviewed by CNN and is regularly quoted (or has her articles featured) in local and international publications. She was recently appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. She was a guest lecturer at the University of Hong Kong, LL.M Program (Law Department) and served as an adjunct Business Law professor at the American University of Dubai and at the American University of Sharjah where she also taught the legal / ethical aspects of internet law and internet based transactions.


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