2021 FBAR and FATCA Compliance: What the IRS Wants You to KnowArticles/News, Offshore Account Update
Posted on July 16, 2021 | Share
For many U.S. taxpayers who own foreign financial accounts, filing a Report of Foreign Bank and Financial Accounts (FBAR) and meeting the reporting requirements under the Foreign Account Tax Compliance Act (FATCA) are essential for avoiding unwanted scrutiny from the Internal Revenue Service (IRS). The IRS expects taxpayers to strictly comply with the FBAR and FATCA filing requirements—and to engage a New Jersey international tax lawyer to assist them when necessary. Recently, the IRS issued updated compliance guidance that all U.S. taxpayers with foreign financial accounts need to keep in mind.
5 Key Takeaways from the IRS’ 2021 FBAR and FATCA Compliance Guidance
Here are five key takeaways from the IRS’ updated FBAR and FATCA compliance guidance for 2021:
1. Assessing FBAR Compliance Obligations
The obligation to file an FBAR applies to U.S. taxpayers who have a “[f]inancial interest in, signature authority or other authority over one or more accounts, such as bank accounts, brokerage accounts and mutual funds, in a foreign country, and . . . [t] he aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.” Each individual owner of a joint account must file an FBAR (except a spouse who files IRS Form 114a)—unless one of the exceptions outlined in the FBAR instructions applies.
2. Assessing FATCA Compliance Obligations
In addition to (or possibly instead of) filing an FBAR, many U.S. taxpayers must comply with FATCA. This involves filing IRS Form 8938 by April 15. While the FBAR requirement applies to foreign financial accounts exceeding $10,000 in aggregate value, the FATCA requirement applies to “foreign financial assets” exceeding $50,000.
3. Documenting FBAR and FATCA Compliance
The IRS expects FBAR and FATCA filers to maintain documentation of compliance. This includes documentation of the accounts or other assets triggering their reporting obligations. With regard to the FBAR specifically, the IRS’ updated guidance indicates that taxpayers should minimally retain the following for five years:
- The name(s) on all reported accounts;
- The type of account and account number (or another identifier) for all reported accounts;
- The name and address of the foreign bank or other person keeping each reported account; and,
- The greatest value of each account during the reporting period.
4. Understanding the Consequences of Non-Compliance
As the IRS explains, “Those who don't file an FBAR when required may be subject to significant civil and criminal penalties.” We outline the penalties for FBAR and FATCA violations in our comparison of these two filing offshore requirements.
5. Remedying Inaccurate or Delinquent Filings
“The IRS will not penalize those who properly report a foreign financial account on a late-filed FBAR, and the IRS finds they have reasonable cause for late filing.” While this is true, the risk of the IRS finding a lack of reasonable cause is not one that most taxpayers can afford. With this in mind, submitting a voluntary disclosure will be the best course of action for remedying an inaccurate or delinquent offshore disclosure filing in many cases.
Contact New Jersey International Tax Lawyer Kevin E. Thorn
If you have concerns about FBAR or FATCA compliance, we encourage you to contact us promptly for more information. Call 201-355-8202, email firstname.lastname@example.org or inquire online to speak with New Jersey international tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, in confidence.