Confused about the difference between FATCA and FBAR? Don’t get caught in the crossfire of incorrect filings and penalties. As an expat, it’s essential to understand the Foreign Bank Account Report and FATCA Form 8938 – the two most common forms you may need to file if you have money in foreign financial accounts. This blog post will guide you through the basics of FBAR and FATCA, provide tips for ensuring compliance, and highlight common mistakes to avoid.
WHAT IS FBAR, AND WHO IS REQUIRED TO FILE IT?
An FBAR is a report that must be filed with the U.S. Treasury Department by certain U.S. persons who have a financial interest in or signature authority over foreign financial accounts. FBAR stands for “Report of Foreign Bank and Financial Accounts.” The purpose of the FBAR is to help the U.S. government identify and combat money laundering, terrorist financing, and other financial crimes. By requiring U.S. persons to report their foreign financial accounts, the U.S. government can better track the flow of money into and out of the United States.
WHAT IS FBAR REPORTING THRESHOLD?
The threshold for filing an FBAR is generally met if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. However, there are some exceptions and special rules that may apply depending on the specific circumstances.
You’ll be required to file FBAR if all of the following are true:
● You’re a U.S. citizen, permanent resident, or domestic business entity
● You own, control, or have signature authority over a foreign bank account/s and/or other foreign financial accounts.
● The combined value of those foreign financial accounts exceeded $10,000 at any point during the tax year.
Summary – The Reader’s Digest Version …
Although FATCA was clearly motivated by the behaviour of US citizens resident in the United States, Treasury did NOT interpret the “purpose” as being limited to prevent abuses by “residents of the United States”. Rather Treasury appears to have interpreted the purpose of FATCA (very broadly) to target residents of other countries.
Introduction – The Readers’ Digest Version
This is Part 2 of a series of posts discussing the world of FATCA and how IRS Notice 2023-11 is likely to impact it. (Part 1 is referenced in the above tweet.) In Part 1 I described how Notice 2023-11 imposes significant additional obligations on both non-US banks and the IGA Model 1 governments. (This post will be best understood by first reading Part 1 and understanding the additional compliance burdens imposed on non-US banks as a result of Notice 2023-11.) The purpose of this post (Part 2) is to suggest that the overall context of FATCA, the FATCA IGAs and US citizenship taxation will incentivize non-US banks to purge US citizen clients. It is reasonable to conclude, that US citizen clients are a clear and present danger to their businesses.
Welcome To 2023 – A Year Of Heightened FATCA Enforcement
On December 30, 2022 US Treasury released Notice 2023-11. The broad purpose of the Notice is to prescribe conditions that would allow non-US banks to temporarily avoid a designation of “significant non-compliance” under the FATCA IGAs. It is important to note that Notice 2023-11 is NOT simply a “stay of execution”. It is a “stay of execution” that is conditional on both non-US banks and their governments participating in a significant escalation of FATCA enforcement on US citizens who live outside the United States.
Purpose Of This Post – The “Readers Digest” Version
FATCA is administered through the FATCA IGAs (international agreements) and not through the U.S. Internal Revenue Code (domestic law of the United States). the FATCA IGAs do NOT include a provision to change the meaning of “U.S. Person”. Rather the meaning of “U.S. Person” is permanently defined as a “U.S. citizen or resident”. There is no provision in the IGA to change this definition. Therefore, the IGAs are written so that they will ALWAYS apply to U.S. citizens regardless of whether the U.S. continues citizenship taxation.
In effect, implementing FATCA through the IGAs has had the practical impact that:
Prologue – April 26, 2017 – The Meadows FATCA Hearing
2021 – The Democrats attempt to legislate domestic bank reporting to the IRS
The Democratic Party is working hard to turn America’s domestic banks into agents/accessories of the Internal Revenue Service. Specifically the Biden administration, Senate Democrats and the House Democrats are ALL in support of the proposal (which as informally described) is to require banks to automatically report aggregate inflows and outflows to the IRS. The Biden administration and Senate Democrats support a threshold of $600. The House Democrats appear to favour a reporting threshold of $10,000. As reported here Nancy Pelosi supports this reporting initiative.
This is the fourth of a series of posts about international tax reform generally and how FATCA, CRS, citizenship-based taxation, GILTI, etc. work together.
The first three posts were:
This purpose of this post is to continue the general theme of focusing on the difference between what a law says and what the law means in application and effect. Yesterday’s post (The Pandora Papers, FATCA, CRS And How They Have Combined To Create Tax Haven USA) focused on the role that the 2010 US FACTCA law played in in facilitating the rise of Tax Haven USA. (To be clear, I am not saying that FATCA was the sole cause.) That said, the unwillingness of the USA to sign the CRS (“Common Reporting Standard”) has also played a role in the growth of the US as a tax haven.
While millions of people are obsessed with taxation there are apparently people who may (but who knows) wish to simply opt out of the discussion.
I am becoming less and less interested in the intricacies of taxation. At its core the principles of tax are really pretty simple. Tax laws exist for two purposes: (1) To redistribute assets from one person to another person (with the government taking an administrative cut along the way) and (2) to punish (sin taxes) or reward (buying a fuel efficient car) certain kinds of behaviour. Certain cultures are more tax obsessed than others. When it comes to obsession over taxation the USA is certainly a world leader. In fact, what started out as US “citizenship-based taxation” more than one hundred years ago, has created a culture of “Taxation-based citizenship” (Yes, they are different concepts).
(Reposted as a top blog on TaxConnections during 2019)
In 2018 Professor Lucy Salyer of the University of New Hampshire published “Under the Starry Flag” – a book largely about the 1868 Expatriation Act. The book describes a period in American history where Britain treated its “subjects” as having perpetual loyalty to the British Crown. To put it simply: One could NOT emigrate to America and expatriate. No matter what one did, those who were born British Subjects were destined to die British Subjects.
The above tweet links to an interview of Professor Lucy Salyer conducted on February 9, 2019. The interview is about Professor Salyer’s new book “Under the Starry Flag”. It is a fascinating (brilliantly researched) work. The publisher describes the book as:
The riveting story of forty Irish Americans who set off to fight for Irish independence, only to be arrested by Queen Victoria’s authorities and accused of treason: a tale of idealism and justice with profound implications for future conceptions of citizenship and immigration.
In 1867 forty Irish American freedom fighters, outfitted with guns and ammunition, sailed to Ireland to join the effort to end British rule. Yet they never got a chance to fight. British authorities arrested them for treason as soon as they landed, sparking an international conflict that dragged the United States and Britain to the brink of war. Under the Starry Flag recounts this gripping legal saga, a prelude to today’s immigration battles.
The purpose of this post is to continue the discussion generated by the “Open Letter To Democrats Abroad” (discussing the notion that “revenue neutrality” should be part of the “citizenship taxation” debate) and the “13 Reasons Why” (describing why Americans abroad are being forced to renounce U.S. citizenship.
Neither of those posts really described that fact that as ridiculous and unfair as “citizenship-based taxation” is, Americans abroad are “in effect” subject to a separate tax system than are Homeland Americans. A more extensive version of this post appeared at Tax Connections on March 13, 2019.
There are many instances where a U.S. citizen living abroad who earns his salary abroad, owns his assets abroad, has his pension abroad and is married to a non-U.S. spouse will pay higher U.S. taxes on income that is local to him than a comparable Homeland American would pay on income that is local to him.