Foreign Bank Account Reporting (FBAR) requirements have long tripped up well-meaning expats who did not realize they had a responsibility to file – even if they were otherwise tax compliant. The associated, often-hefty FBAR fines comprise a nightmare scenario for most Americans living abroad. And unfortunately, federal courts continue to dole out the maximum penalty for those who are not compliant. Find out about the recent precedent-setting case for Foreign Bank Account Reporting penalties and how you can avoid these substantial charges.
Expats, Beware of Foreign Bank Account Reporting Penalties
If you haven’t yet heard of Alice Kimble, you might want to take note of her story. She is an American expat who was involved in a US federal court ruling in 2018 that set a pretty important precedent for US expat taxes. Alice Kimble was using an IRS program to voluntarily come forward and become tax compliant by submitting corrected tax returns and reporting previously undisclosed bank accounts in order to avoid prosecution. However, she checked the box on this form stating that she did not have foreign bank accounts when she, in fact, did.
Rather than chalk this up as an error, a US federal court decided that she was willfully hiding these foreign accounts, and in the end, found herself with almost a $700,000 penalty. This decision sets a precedent for all American expats because it shows that even expats who are (or seem to be) trying to become compliant can forget to check a box and forget to fill out a form that is not a part of the Federal Tax Return and end up in serious financial trouble. This ruling dismisses two of the prior expat tax case’s precedents for penalties for FBAR non-compliance; those two rulings relied heavily on a 1987 regulation intended to cap penalties at $100,000. However, the judge in this case decided that cap conflicted with a different ruling, and forged ahead with the maximum penalties.
What Is Foreign Bank Account Reporting?
FBAR is a reporting requirement for all expats who meet the threshold and originated in 1970 as a way to prevent tax evasion. The FBAR is not reported to the IRS along with your Federal Tax Return, however; FinCEN is the Treasury Department’s Financial Crimes Enforcement Network, and they are the group tasked with enforcing FBAR compliance. Any expat whose bank accounts total $10,000 or more must file FBAR. This means even if you have two $5,000 accounts, you must file FBAR.
Penalties for Foreign Bank Account Reporting
Penalties for not filing FBAR would include a fine of $10,000 per violation if you were non-willfully non-compliant – meaning that you didn’t know the reporting requirement existed. However, willful violations can lead to penalties up to $100,000 or 50% of account balances plus criminal penalties, where applicable.
Other Financial Reporting Requirements
Other reporting requirements exist for expats, as well, such as FATCA. The Foreign Account Tax Compliance Act (FATCA) requires that foreign financial institutions report on foreign assets held by their US account holders or be subject to withholding on certain payments, and it also requires that expats who meet the thresholds file Form 8938. The thresholds are much higher for those who reside outside the US: for unmarried individuals (or those who file as married filing single) the threshold is met if your total value of assets exceeds $200,000 on the last day of the tax year or $300,000 at any time during the year. For married expats, the thresholds double.
How Can I Become Compliant?
Fortunately, the IRS offers an amnesty program that allows expats to become caught up penalty-free called the Streamlined Filing Procedures. To use it, expats can plan to file the last three Federal Tax Returns and six years’ worth of FBARs, plus Form 14653. However, in order to qualify, you must have been non-willfully compliant.
Want to Become Compliant Today?
Avoid those menacing penalties and become compliant today. The Greenback accountants are experts in all things expat-related, and they will help you become stress- and anxiety-free in no time. Get started with Greenback today!