Well both of these financial information forms may be required annual filings. IRS wants to know how much you have squirreled away in foreign accounts.
If you are an American citizen or resident with financial accounts or assets outside the US, whose aggregate values exceed $10,000 (FBAR) or $50,000 (FATCA) respectively, you need to know the acronyms FBAR and FATCA. FBAR stands for the Report of Foreign Bank and Financial Accounts act and FATCA stands for the Foreign Account Tax Compliance Act.
Congress enacted these laws to address what they perceived as tax abuse by US persons through the use of offshore accounts. The laws require individual taxpayers and foreign financial institutions (FFIs) to report to the IRS bank account information, including the name, address, taxpayer ID number, account number, and account balance (or value).
FBAR requires individuals to report accounts whose aggregate value exceeds $10,000 at any time during the calendar year. FATCA requires individuals and FFIs to report similarly, but the value threshold is triggered when the aggregate value of a person’s assets exceeds $50,000.
While the reporting regimes for individuals under FBAR and FATCA were already in place, the regime for FFIs was scheduled to become effective January 1, 2013 by which time the IRS would have data on file for large foreign asset holders to compare with information reported by taxpayers. Shades of George Orwell.
FBAR reporting is due June 30th of the year following the year the account holder meets the $10,000 threshold. The information is reported via Form TD F 90-22.1. It is an information return filing, and not an income tax filing. Nonetheless, the penalties for failure to report are heavy-handed: Non-willful failure to file is $10,000; willful failure to file is the greater of $100,000 or 50% of the value of the foreign accounts. Orwellian and confiscatory. No penalty is assessed if the IRS determines a late filing was due to reasonable cause.
FATCA reporting by taxpayers begins in 2012 for assets held in taxable years beginning on or after January 1, 2011. Like FBAR, it is an information return filing. Taxpayers are required to file Form 8938, which must accompany their tax return. Failure to report will result in a penalty of $10,000. A penalty of up to $50,000 is assessed for continued failure to report after IRS notification. Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of forty (40%) percent.