Mundle Venkatraman & Associates

Foreign Account Tax Compliance Act - An overview

By: Mr. Shashank Mundle - 12th June, 2019

Share on:

Foreign Account Tax Compliance Act [FATCA] is a 2010 United States Federal law to enforce the requirement of US persons including those living outside the US to file annual reports (Foreign Bank Account Report or FBAR) on their non-US financial accounts to the Financial Crimes Enforcement Network (FINCen).

[In the context of the FBAR 'Domestic' means within US and 'Foreign' means countries other than US].

Purpose of the report:

The FBAR is used as a tool to help the IRS and Department of Treasury investigators trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.

Who is required to file the FBAR:

All U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have a financial interest in foreign financial accounts and meet the reporting threshold have to file the FBAR.

What are the thresholds to file FBAR:

The obligation to file the FBAR arises if the aggregate value of financial accounts held by an individual exceeds $10,000 at any time during the calendar year. This is the cumulative balance, i.e. if one has a combined account balance in excess of $10,000 at any one time in one or more accounts, all accounts (even if the balance is less than $10,000) have to be reported.

What is Financial Interest:

An individual is considered to have a 'financial interest' if he -

Is the owner of record or holder of legal title.
The owner of record or holder of legal title is his agent or representative.
Has sufficient financial interest in the entity that is the owner of record or holder of legal tit.

What is Signature Authority:

An individual is also required to file the report if has a 'signature authority' over any financial account.

In this context an individual is considered to have a Signature Authority if he has authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account.

Valuation of Assets for reporting:

An individual is required to disclose in the FBAR the maximum value of financial accounts maintained by a financial institution which is physically located in a foreign country.

The report is prepared by using periodic account statements and determining the maximum value in the currency of the account. These maximum values are then converted to US Dollars using the exchange rate at the end of the calendar year and the FBAR is then filed in US Dollars.

When and where is the FBAR to be filed:

The FBAR has to be filed on or before June 30 (no extensions of time are granted). The report has to be filed electronically through FinCENs BSA E-Filing System. The FBAR is not filed with a federal tax return.

Consequences of not filing the FBAR:

If the individual's violation is non-willful, the penalty can be up to $10,000. If, however, the violation is considered willful, the penalty can be up to the greater of $100,000 or 50 percent of account balances. Criminal penalties may also apply.

Some typical assets to be/not to be reported on the FBAR:

Asset description	Reportable – Yes/No
Financial (deposit and custodial) accounts held at foreign financial institutions	Yes
Financial account held at a foreign branch of a U.S. financial institution	Yes
Financial account held at a U.S. branch of a foreign financial institution	No
Foreign financial account for which you have signature authority	Yes, subject to exceptions
Foreign stock or securities held in a financial account at a foreign financial institution	The account itself is subject to reporting, but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account	No
Foreign partnership interests	No
Indirect interests in foreign financial assets through an entity	Only if ownership/beneficial interest in the entity exceeds 50%.
Foreign mutual funds	Yes
Domestic mutual fund investing in foreign stocks and securities	No
Foreign-issued life insurance or annuity contract with a cash-value	Yes
Foreign hedge funds and foreign private equity funds	No
Foreign real estate held directly	No
Foreign real estate held through a foreign entity	No
Foreign currency held directly	No
Precious Metals held directly	No
Personal property, held directly, such as art, antiques, jewelry, cars and other collectibles	No

This note is meant to be an overview of the important provisions relating to FATCA. You must not rely on the information in the report as an alternative to advice from an appropriately qualified professional. If you have any specific questions about any matter you should consult an appropriately qualified professional.

Disclaimer

The Blogs published in this website are for educational purposes only. It is meant to give you a general information and a general understanding of the topics discussed therein and not to provide you or any person any professional advice thereof. By using this website you understand that there is no professional relationship between you and Mundle Venkatraman and Associates (MVA) or with any of its partners, associates or employees. Any information available on this website should not be used as a substitute for competent professional advice.

Foreign Account Tax Compliance Act - An overview

Foreign Account Tax Compliance Act - An overview

By: Mr. Shashank Mundle - 12th June, 2019

Share on:

Purpose of the report:

Who is required to file the FBAR:

What are the thresholds to file FBAR:

What is Financial Interest:

What is Signature Authority:

Valuation of Assets for reporting:

When and where is the FBAR to be filed:

Consequences of not filing the FBAR:

Some typical assets to be/not to be reported on the FBAR:

Recent Blogs

Useful Links