Three Common FBAR Errors made by Expats and U.S. Taxpayers
The FBAR filing deadline is quickly approaching. As the calendar has already turned to June, taxpayers living in the United States and abroad have only weeks to satisfy their potential FBAR filing obligations. The deadline to file a Report of Foreign Bank Accounts is June 30, 2016, and no extension for additional time is available. The failure to file FBAR can result in serious penalties and consequences for the taxpayer. Unfortunately, an FBAR filing is particularly complex and there is significant room for a tax layperson to make mistakes regarding the existence of a duty to file or the information disclosed on the report.
CPA Ted Kleinman has decades of experience helping U.S. taxpayers, living at home and abroad, meet their international tax obligations. He can assist with FBAR filings and all other tax duties. To schedule a consultation call U.S. Tax Help at (541) 923-0903
FBAR Filing Mistake #1: Failure to Understand How the Filing Obligation Threshold Is Calculated
The simple fact is that there is a good deal to misunderstand about the $10,000 filing threshold that triggers one’s obligation to file an FBAR. Many people make the mistake of confusing the FBAR filing obligation with the FATCA filing threshold. While both FBAR and FATCA involve the disclosure of foreign accounts there are significant differences in the disclosure threshold. That is, while the amount of foreign assets in accounts that trigger an FATCA disclosure can increase significantly due to living abroad as an expatriate and one’s tax filing status, FBAR’s $10,000 threshold always remains the same. Therefore, a taxpayer may not have an obligation to file FATCA, and assuming that this also applies to FBAR is an easy way to make a serious error.
Furthermore, people often misunderstand how accounts apply to the $10,000 filing threshold. Many people incorrectly believe that the threshold is applied on an account-by-account basis. In reality, the $10,000 filing threshold is an aggregate limit. Thus, multiple foreign accounts are added together and counted jointly against the $10,000 limit.
FBAR Filing Mistake #2: Failure to Understand how the Filing Threshold Applies to Aggregated Accounts
Even after understanding that the $10,000 threshold applies to aggregated offshore accounts and assets, there is still room for error in its application. To start, many people fail to understand the full breadth of covered accounts under FBAR. Most people understand that accounts from which they derive a beneficial interest from are accounts that are likely covered by FBAR. However, FBAR requires the disclosure not only of accounts held by an individual but also accounts where the individual holds signature authority over an account. Thus, accounts an individual may have control but no beneficial interest in may also be aggregated for filing threshold purposes. Likewise, individuals who hold a beneficial interest may not be named on the account, but do have a duty to disclose their interest.
FBAR Filing Mistake #3: Failure to Understand the FBAR Applies to Life Insurance and Retirement Accounts
Many people are aware of FBAR and the reporting requirement but fail to understand the exact breadth of the obligation. They may believe that FBAR reporting applies to only traditional financial accounts that one would open in a financial institution. However, the obligation to disclose under FBAR also applies to securities and investments, accounts that involve a broker-dealer to handle futures or options, and mutual funds. Perhaps most importantly, the obligation to file FBAR can also apply to foreign pension and retirement accounts. While certain Social Security-type programs may receive an exemption, holders of non-traditional foreign retirement and investment accounts should always verify whether a disclosure is required. If in doubt, disclosing the account is the safest course of action. Of course, expats and taxpayers also typically have an obligation to pay tax on foreign income from interest bearing and other accounts.
Foreign Accounts? Check your FBAR Compliance Before the June 30 Filing Deadline
Whether you live in the United State or abroad in a nation like China, Brazil, Ecuador, or Saudi Arabia you may have an obligation to file FBAR. Whether that obligation exists turns on whether you have foreign accounts in excess of the filing threshold. Work with CPA Ted Kleinman and U.S. Tax Help to satisfy this obligation and avoid fines and penalties. Call Ted at (541) 923-0903 today to schedule a consultation.