What is FATCA? What is FBAR? Do they have anything in common? Should I file both of them? What is the IRS foreign compliance policy?
Many American expatriates living overseas are puzzled by new IRS foreign requirements.
Let’s review some general findings.
- Different forms. While there is some duplication between these two forms, they are quite different. FATCA is the form 8938. FBARs are the Reports of Foreign Bank and Financial Accounts (TD F 90-22.1).
- Tax Administration vs Law Enforcement. The FBAR was created as a law-enforcement tool to detect illegal financial accounts and money laundering. The FATCA was designed to aid the IRS foreign compliance policy. Form 8938 was introduced to ensure that US citizens fully comply with expat tax obligations and reporting requirements.
- Filing dates and Administrative Agencies. The FBARs must be sent directly to the Treasury Department separately from an expatriate tax return. Moreover, the FBARs must be received by June 30th. There is no extension to file the FBAR. The FATCA form 8938 must be sent with an overseas tax return by a tax return due date.
- Minimum Dollar Threshold. The FBARs must be filed if the aggregate value of foreign financial assets exceeds $10,000 at any time during the year. The FATCA disclosure threshold is much higher and it varies based upon a filing status and residence.
- Set of assets. The FATCA requires a US expatriate to report a much broader set of assets like an interest rate swap or an option or other derivative instrument etc.
- Signature authority. The FBARs must be filed if a US citizen has a signature authority over the account. However, this IRS foreign requirement is not applicable to the FATCA form 8938.
- Duplication. There is definitely some duplication between both forms. Since the FATCA form is quite new so it is crucial that the US expatriates follow future developments.
How to comply with the IRS foreign requirements?
If you are an American expatriate who is not sure about its US expatriate tax obligations, please consult a CPA that specializes in international tax law. The IRS foreign compliance updates are issued on a monthly basis so it is important to keep track of them. If you need help with your expatriate tax return, international tax experts at Artio Partners are here to help you.