Articles Tagged with delinquent FBARs

Are Dual Citizens Required to File FBARs
Dual citizens, along with all other “United States persons”, must file a Report of Foreign Bank Accounts (FBAR) if the aggregate value of their foreign financial accounts exceeds $10,000 at any time during the year. This requirement applies to U.S. citizens, residents, green card holders, and those who must file taxes because they are substantially present in the United States. It also applies to legal entities, including corporations, partnerships, and trusts.

While other countries only tax their citizens on income earned within the country’s borders, the United States taxes its citizens—and other individuals who have a filing requirement—on all worldwide income from any source. This requirement, along with the FBAR filing requirements, can create problems for expatriates, immigrants, and anyone else with offshore bank accounts.

Expats who move abroad are still responsible for complying with U.S. tax law as long as they remain U.S. citizens. Even if you live abroad for the entire year, and none of your income would be taxable, you may still have to file a tax return. If you open a bank account in a foreign country, and the aggregate value of all of your foreign accounts exceeds $10,000 during the year, you must file an FBAR.

The Tax Consequences of Inheriting Foreign Assets
U.S. taxpayers who inherit foreign assets must handle the tax consequences of their inheritances with great care. In addition to taxing all worldwide income, the U.S. also includes foreign assets in the gift and estate tax calculation, which determines whether estate tax will be assessed. Heirs who receive foreign assets also have to consider their Foreign Bank Account Report (FBAR) and other foreign account reporting requirements, or risk facing significant penalties.

What Happens When You Inherit a Foreign Account?

If you are a “United States person”—including citizens, permanent residents,(individuals who hold green cards) or must file taxes due to their substantial presence in the United States—you may suddenly have an FBAR filing requirement if you inherit a foreign financial account. If the aggregate of all of your foreign financial accounts exceeds $10,000 at any point during the year, you must file an FBAR.

Considerations When Submitting Delinquent International Information Returns
The IRS procedure for submitting delinquent international information returns such as Forms 3520, 3520A, Form 5471, or Form 8938,  along with a reasonable cause statement is one of four options the IRS allows for taxpayers wish to come into compliance with their offshore filing requirements. This procedure has some benefits over the Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Procedures, but it also has its drawbacks.

The main benefit is that if the IRS accepts your reasonable cause statement and submission of delinquent international information returns, you will have all penalties waived. Both the OVDP and the Streamlined Procedures (at least for domestic taxpayers) involve paying penalties, with the OVDP requiring much higher penalties and eight years of tax returns.

The drawback is that if your reasonable cause statement is rejected, you may be responsible for the full amount of the international reporting forms penalties.