Virgin Islands, or the Northern Mariana Islands.įourth, there are meaningful differences in what qualifies as a “foreign” account for purposes of the FBAR versus Form 8938. But it does not include individuals who are residents of other U.S. territories: Puerto Rico and American Samoa. “Specified individual” includes residents of just two U.S. An individual must file Form 8938 if they are deemed a “specified individual” whose specified foreign assets meet certain monetary thresholds. For purposes of Form 8938, however, the issue is more complicated. Virgin Islands, and the Northern Mariana Islands must all file FBARs if their foreign accounts exceed $10,000 in value. Thus, residents of Puerto Rico, American Samoa, Guam, the U.S. person includes a bona fide resident of any U.S. The FBAR filing obligation applies to all “U.S. Third, there are significant differences between the FBAR and Form 8938 in terms of applicability to residents of U.S. In addition, accounts in which the taxpayer has only an indirect interest (e.g., through an entity) do not need to be reported on Form 8938. Accounts in which the taxpayer solely has a power of attorney or merely has signature authority do not need to be reported on Form 8938. For Form 8938 purposes, by contrast, only foreign accounts in which the taxpayer has a direct ownership interest must be reported. In addition, foreign accounts in which an individual has an indirect but sufficient beneficial ownership interest (e.g., a greater than 50% ownership interest in the entity that directly owns the foreign account) must be directly reported on that individual’s FBAR. For FBAR purposes, ownership interest in an account, power of attorney over an account, or even just signature authority are each sufficient for purposes of reporting the account. Second, the type of interest in a foreign account that will trigger an obligation to file an FBAR is different than the type of interest that will trigger an obligation to file Form 8938. For married taxpayers residing outside the United States and filing joint tax returns, the Form 8938 reporting threshold is $400,000 in specified foreign assets on the last day of the tax year, or more than $600,000 at any time during the tax year (but just $200,000 and $300,000, respectively, if filing separately). Married taxpayers residing in the United States and filing joint tax returns must file Form 8938 if their specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year (but just $50,000 and $75,000, respectively, if filing separate tax returns). Those thresholds increase to $200,000 and $300,000, respectively, for an unmarried taxpayer residing outside the United States. An unmarried taxpayer residing in the United States must file Form 8938 if her specified foreign assets exceed $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year. Form 8938, by contrast, has different monetary thresholds depending upon the tax filing status and location of the taxpayer. person has foreign bank accounts with an aggregate high balance of $10,000 at any point during the tax year. First and foremost are the different reporting thresholds. persons with foreign accounts should be aware that there are numerous differences between the FBAR and Form 8938. Reporting Differences between the FBAR and Form 8938 The government combined criminal prosecutions by the Department of Justice (the stick), with a formal IRS voluntary disclosure program that precluded criminal prosecution if a taxpayer voluntarily came forward, disclosed his foreign accounts, and paid back taxes and a penalty based on the value of the foreign accounts (the carrot). taxpayers regarding the issue of undisclosed foreign bank accounts. Beginning in 2009, the United States began using a carrot-and-stick approach with U.S. taxpayers, scrutiny that quickly spread to foreign banks located in other jurisdictions such as Israel, India, and the Caribbean. The IRS thereafter began scrutinizing UBS and other Swiss banks over secret Swiss accounts held by U.S. tax obligations through the use of undisclosed Swiss bank accounts. government that UBS was assisting large numbers of U.S. Yet in 2007, UBS banker Bradley Birkenfeld disclosed to the U.S. The form requires the reporting of a taxpayer’s foreign accounts, and its purpose is to discourage tax evasion committed through the use of unreported foreign accounts. In the 1970s, the FBAR (Report of Foreign Bank and Financial Accounts) was created as part of the Bank Secrecy Act. government has fought to compel taxpayers to report their interests in overseas bank accounts. taxpayers are required to report and pay taxes on their worldwide income, the U.S.
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