FBAR and FATCA: What Cross-Border Business Owners Need to Know

Two Reporting Regimes, One Big Compliance Obligation

If you are a US citizen, green card holder, or US tax resident with financial accounts outside the United States, you are subject to two separate foreign account reporting regimes: FBAR and FATCA. Many cross-border business owners are unaware of one or both of these obligations until they receive a penalty notice from the IRS.

Understanding what each requires and when you need to file is not optional. It is a legal obligation that exists regardless of whether you owe any tax.

What is FBAR?

FBAR stands for Foreign Bank and Financial Accounts Report. It is filed as FinCEN Form 114 with the Financial Crimes Enforcement Network, not with the IRS. You are required to file an FBAR if you are a US person and you had a financial interest in, or signature authority over, one or more foreign financial accounts with a combined maximum value exceeding $10,000 at any point during the calendar year.

Foreign financial accounts include bank accounts, investment accounts, brokerage accounts, and retirement accounts held outside the United States. For US persons in Canada, this includes Canadian chequing accounts, savings accounts, RRSPs, TFSAs, and investment portfolios.

The FBAR is due by April 15th each year, with an automatic extension to October 15th.

What is FATCA?

FATCA stands for the Foreign Account Tax Compliance Act. It requires US persons to report their foreign financial assets on Form 8938, which is filed with their annual federal tax return. FATCA applies at higher thresholds than FBAR and covers a broader range of assets including foreign stocks, foreign partnerships, and foreign trusts, in addition to financial accounts.

The reporting thresholds for Form 8938 depend on your filing status and whether you live in the US or abroad. For US residents, the threshold starts at $50,000 for single filers. For Americans living abroad, the threshold starts at $200,000.

What are the Penalties for Non-Compliance?

FBAR penalties are significant. Non-wilful failure to file can result in a penalty of up to $10,000 per violation per year. Wilful failure to file can result in penalties of up to $100,000 or 50% of the account balance, whichever is greater, per violation per year. Criminal prosecution is also possible in cases of wilful non-compliance.

FATCA penalties start at $10,000 for failure to disclose and can increase to $50,000 for continued non-compliance after IRS notification.

How FMC Agency Can Help

We identify all of your foreign account reporting obligations, prepare your FBAR and Form 8938 filings, and ensure they are submitted accurately and on time. If you have missed filings in prior years, we can assist you in coming into compliance through the IRS Streamlined Filing Compliance Procedures, which are designed specifically for non-wilful non-filers and can significantly reduce or eliminate penalties.