How will the assets you hold in France affect your expat taxes and FBAR reporting requirements? Finding out the details about French financial assets before tax season could save you time and money.
French Financial Assets and Expat Taxes: How Are They Related?
US persons who are owners of French financial assets are subject to two informational reporting forms: FBAR (Foreign Bank Account Reporting) and Form 8938. These two reports have different reporting thresholds and different rules for which financial accounts need to be reported. There are no special rules for accounts held in France, and persons subject to reporting financial assets would follow the general rules for a US person with financial assets held anywhere in the world. Where the confusion comes in is regarding who needs to file, what are considered financial assets, and what the filing limits are.
Who Needs to Report Their French Financial Assets on the FBAR?
All US persons are subject to filing FBAR and Form 8938 if they meet certain financial thresholds. A US person is a US citizen, Green Card holder, and anyone considered a US resident under the physical presence test. There is a special election for a nonresident alien spouse married to a US person to elect to be treated as a US person. A foreign spouse that makes this election is subject to filing only Form 8938.
Which FBAR Reporting Rules Apply?
Let’s take a look at the rules for FBAR. The FBAR is a separate filing process from the income tax return, and it is required even if no income tax return is filed. The FBAR is due on April 15th each year, but for those that fail to meet this deadline, an automatic extension is granted to October 15th. There is no paperwork filed for the extension.
FBAR reporting is required if you have foreign financial accounts in which the highest aggregated balance exceeds USD 10,000 at any point during the year. The euro is converted to USD using the year-end exchange rate published by the Department of Treasury.
How Does the IRS Define “Financial Accounts?”
As defined by the IRS, the term “financial accounts” is broad and covers accounts that wouldn’t be considered accounts in France. Financial accounts include traditional banking products such as checking and savings accounts, and certificate of deposits. It also includes investment accounts, precious metal accounts, pensions schemes, life insurance policies with a cash value, earth mineral accounts, commodity futures or options accounts, mutual funds, and EFT. There is a catchall that requires the reporting of any other account, not held at a financial institution or with a person, that provides service similar to a financial institution. A foreign financial institution is any bank located outside of the US. Accounts for FBAR reporting purposes include accounts in which you own by yourself or jointly with someone else and accounts owned by foreign entities in which you own the majority.
Expats are also required to report accounts that they have signature authority over to direct funds even if they don’t have a single dollar in that account. In short, if the account is held by a bank or any place that acts like a bank, then it is reportable. Foreign social security, credit cards, and other liabilities such mortgages aren’t reportable. We recommend disclosing all accounts, even if you aren’t sure that some should be reported, since there is no harm in over-reporting. Conversely, missing a reportable financial account could result in harsh penalties or fines.
Which French Financial Assets and Expat Tax Reporting Thresholds Apply to FATCA?
Form 8938, also known as the FATCA, is filed with the income tax return. This form isn’t related to the FBAR, so filing or not filing an FBAR has nothing to do with FATCA reporting via Form 8938. Form 8938 is only required if you are required to file an income tax return. So if you aren’t required to file a return, then no 8938 is needed.
Let’s move on to filing thresholds. The filing threshold is based on your filing status and where you reside. For a person filing by themselves and living in the US, the threshold for filing is met if the value of their foreign financial assets exceeds USD 50,000 at year-end or USD 75,000 at any point during the year. For married persons filing together living in the states, the threshold is met if the value exceeds USD 100,000 at year-end or USD 150,000 at any point during the year. For people living outside of the US and filing by themselves, the threshold is USD 200,000 at year-end or USD 300,000 at any point during the year. For those living outside of the country and filing jointly, the threshold is USD 400,000 at year-end or USD 600,000 at any point during the year.
The definition of accounts for FATCA purposes is similar to FBAR reporting, but it includes only assets that you own directly. Hence, signatory accounts aren’t reportable nor are accounts owned through an entity that you control. Accounts for FATCA purposes include bank accounts, pension schemes, life insurance policies with a cash value, earth mineral accounts, investment accounts, and other accounts held by a financial institution or person acting similarly. The FATCA definition of accounts also includes assets not held at banks such as pension schemes and ownership interest of foreign companies. Foreign real estate, credit card, liabilities such as mortgages, personal assets such as cars, and foreign social security aren’t considered assets for reporting purposes.
US persons with French financial assets may have heard that specific financial assets are exempt; however, the exemption applies to the financial institution and not to you, the taxpayer. You are required to disclose the existence of all financial information, even if your bank doesn’t. Word to the wise: disclose accounts if there is any doubt in your mind since it’s far better to over-report than to under-report.
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