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FBAR and FATCA: What Virginia Taxpayers Need to Know about Disclosing Their Offshore Assets to the IRS

News, Offshore Account Update

Posted in on December 17, 2020

U.S. taxpayers with financial assets overseas have an obligation to report these assets to the federal government. While there are certain thresholds, most individuals and entities with offshore financial assets will need to report them, and failing to do so can lead to substantial penalties. In order to avoid these penalties, it is strongly advised that all U.S. taxpayers with offshore assets consult with a Virginia international tax attorney.

FBAR and FATCA: Understanding the Offshore Asset Disclosure Requirements

The obligation to report offshore financial assets to the U.S. government exists under two federal statutes: (i) the Bank Secrecy Act (BSA), and (ii) the Foreign Account Tax Compliance Act (FATCA). The BSA establishes the requirement to disclose “foreign financial accounts” using FinCEN Form 114, Report Foreign Bank and Financial Accounts (FBAR), while FATCA establishes the requirement to disclose offshore assets to the Internal Revenue Service (IRS) using Form 8938 (if not disclosed through other means).

While the obligations imposed by the BSA and FATCA overlap to a degree, certain offshore assets will only trigger the obligation to file an FBAR, while others will trigger FATCA’s filing requirements only. However, in many cases, U.S. taxpayers will need to file both an FBAR and Form 8938 by April 15 for the prior tax year.

When Is an FBAR Required?

Under the BSA, “United States persons” are required to use FBARs to disclose foreign financial accounts that have an “aggregate maximum value” of $10,000 or greater at any time during the tax year. The FBAR filing requirement applies to essentially all U.S. taxpayers, with very few exceptions. Notably, it also applies to disregarded entities that do not file their own tax returns.

When Does FATCA Apply?

FATCA requires U.S. taxpayers to report foreign financial assets (including, but not limited to, foreign financial accounts) with an aggregate value in excess of $50,000. IRS Form 8938 is the primary form used to disclose foreign financial assets under FATCA. However, various other forms can be used as well; and, if you or your business has already made a satisfactory disclosure using another IRS form (such as Form 3520 or Form 5471), then it is not necessary to also file Form 8938.

FBAR and FATCA: Understanding the Penalties for Noncompliance

As we mentioned in the introduction, failing to disclose offshore assets to the federal government can lead to substantial penalties. Both civil and criminal penalties can be imposed under the BSA and FATCA. Civil penalties can range from thousands to hundreds of thousands of dollars, while criminal penalties can include six-figure fines and up to 10 years of federal imprisonment depending on the nature of the allegations. These penalties are imposed on a per-violation basis, and the IRS can audit up to six years’ worth of taxpayers’ FBAR and FATCA filings at any time.

Speak with a Virginia International Tax Attorney about FBAR and FATCA Compliance

Do you have questions or concerns about FBAR and FATCA compliance? If so, we encourage you to schedule a confidential consultation at Thorn Law Group. To request a confidential consultation with Managing Partner Kevin E. Thorn, please call 703-752-3752, email ket@thornlawgroup.com or inquire online today.

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