Report your foreign activity (Fincen114)
With geographic mobility and technological advances, property transfers between countries are made faster and easier. The downside is that these transactions often trigger reporting obligations in the United States. If you live in the United States (even a few months a year) or live abroad with American ties (Accidental American) , you will likely be required to report some of this foreign activity in the US.
How does the US collect your foreign activity information?
The Bank Secrecy Act (1970)
In 1970, Congress passed the BSA law that requires financial institutions to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records and report transactions of more than $10,000 and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.
The Financial Crimes and Enforcement Network (1990)
In 1990, the Secretary of the Treasury established Fincen with the mission to collect and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes.
To read more on Fincen - https://www.fincen.gov/
The Foreign Account Tax Compliance Act (2010)
In 2010, Congress passed FATCA requiring all non-U.S. financial institutions to report the assets and identities of foreign persons to the US. FATCA also requires foreign persons to self-report their non-U.S. financial assets annually to the IRS.
To learn more about FATCA: https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca
To validate the tax identity of their account holder, financial institutions ask their account holder to complete the W8 / W9 forms. To find out more about the W8 / W9 forms: https://www.kbfinancials.biz/pourquoi-recevez-vous-les-formulaires-w8-w9-de-votre-banque-.html
The Intergovernmental Agreements (Recent years)
In recent years, the US Treasury has actively engaged with over 100 countries to enter into Intergovernmental Agreements (IGAs). The IGAs facilitates the exchange of tax information between countries to improve international tax compliance.
To read ore on countries with IGA: https://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx
Who must report foreign assets?
The following individuals usually have a foreign reporting obligation:
1. A United States person. This includes a U.S. citizen, U.S. resident, or a domestic entity such as a corporation, partnership, limited liability company (LLC), trust, or estate created or organized in the U.S.
2. Citizen of foreign countries- Tax treaties with the United States do not affect filing obligations. For example, if you hold a green card but live and are a citizen of a foreign country, you are still required to file a Fincen114.
3. Children - Generally, a child is responsible for filing his or her own Fincen114 even if the parents have custody of the account.
4. Married individuals - if you own a joint account with your spouse or another family member, each joint account holder must report the entire value of the account
5. Snowbirds: even if you are present in the US just a few months a year, you could meet the substantial presence test and qualify as a resident and have to file fincen114. For example if you reside in the US for 4 months for 3 consecutive years you will meet the test.
To learn more about the 183-day rule: https://www.kbfinancials.biz/s-jours-aux-etats-unis---la-r-gle-des-183-jours.html
What assets to report?
Any individual or company residing in the United States must report its foreign assets if the amount of all such investments reached $ 10,000 during the year. Foreign assets to be declared include bank accounts, SICAVs, retirement accounts, securities, life insurance, investment portfolio. You must declare foreign assets if:
1. you own the legal title of the account,
2. you are a shareholder of an entity that has foreign activity
3. you act as an agent (for example: you are a representative of a US entity with foreign activity)
4. you have power of attorney on an account (for example, you have POA on your elderly parents' accounts in Canada)
How to calculate the value to declare?
For Fincen114 each account is valued separately. The maximum statement value is identified and then converted to US dollars using the Treasury exchange rates (see link below). For accounts that do not have a statement value (such as securities and non-monetary assets), the value reported is the fair market value at the end of the calendar year. If the account was closed during the year, it should still be reported the year it was closed.
Read more on US treasury exchange rates: https://fiscal.treasury.gov/reports-statements/treasury-reporting-rates-exchange/
When to file?
The filing deadline was changed starting tax year 2016. Formerly the deadline was June 30th. Since 2016, the fincen114 reporting date matches the individual tax return (April 15th) and an extension of time to file is allowed with due dates again matching the individual due date (Oct 15th). FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required. An FBAR return must be filed electronically, no paper submission are accepted.
To learn more about the tax calendar in the United States: https://www.kbfinancials.biz/tax-calendar.html
What are the penalties for late filing?
If you do not have a reasonable cause for failing to report your foreign assets, you may be subject to a civil penalty for willful violation or involuntary (non-willfully violation ). Each unintentional violation can be subject to a penalty of up to $ 10,000 per year. The penalty for willful violation can reach the sum of $100,000 or 50% of the total balance held in the foreign account.
For more information on the fincen114 form - https://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html
If you have omitted to file your fincen114, you should correct the situation as soon as possible to suspend the statute of limitations and avoid potentially high penalties. For assistance with your foreign activity compliance, contact Karine Bauer, EA. As always, the views contained in this article are not tax or legal advice and are not a substitute for consulting with a tax professional. Karine Bauer, EA is an Enrolled Agent licensed by the Treasury Department with unlimited rights to represent taxpayers before the Internal Revenue Service. She is an experienced tax professional with more than 20 years of international experience.
Bear in mind the date of this article as tax laws change over time.
Updated on 09/19/2020