FBAR deadline changes and the importance of filing
What is FBAR?
FBAR is an acronym for the Foreign Bank Account Report. For over 40 years, all Americans with foreign bank or other financial accounts meeting certain requirements have had to report these accounts to the IRS, whether they live in the US or overseas. Over the last few years, enforcement has been stepped up, and the penalties for non-compliance are now steep.
Besides FBAR, all US citizens and green card holders are required to file an annual federal tax return if their income is over around $10,000 (NIS 37,000), regardless of where in the world they live or their income originates. The US is the only developed country that requires this reporting and theoretically taxation of foreign earned income of non-residents. Thankfully, there are various exemptions and mechanisms in place that prevent most expats from actually paying US taxes on their foreign earned income, such as the Foreign Tax Credit, and the Foreign Earned Income Exclusion.
Deadline changes
In previous years, FBARs were due to be filed by 30th June. Starting with the 2016 tax year though (so for filing in 2017 and subsequent years), they are due on April 15th. There is however an automatic extension available for expats until June 15th. These new filing dates bring FBARs in line with federal income tax return filing dates for expats.
Requirements
All Americans with one or more foreign financial accounts that between them have a combined total balance of a minimum of $10,000 (NIS 37,000) at any time during the tax year are required to file an FBAR for that tax year declaring all of their foreign financial accounts.
Foreign financial accounts include savings and checking accounts, overseas mutual or pension funds, stock, securities and options funds held in a foreign financial institution (such as a stock brokerage or an investment house), and foreign-issued insurance policies with a cash value.
Watching us
In recent years the IRS has become increasingly aware of individual US taxpayers living abroad financial situations, partly through signing tax information exchange treaties with foreign governments (Israel), and partly through the provisions of FATCA (the 2010 Foreign Account Tax Compliance Act) which obliges foreign financial institutions (Israeli) including banks with US account holders to provide their account information to the IRS. To date around 200,000 foreign financial institutions are complying, as if they don’t they face barriers to do business in US money markets. While this intrusion into their financial affairs has understandably irked many expats, it has given the IRS a huge amount of information regarding expats’ financial affairs.
Seek help
If you are a US citizen or green card holder who meets the criteria but you aren’t up to date with your FBARs, we strongly recommend that you take steps to become compliant. In particular you may qualify for the Streamlined Procedure, an IRS amnesty program that allows you to catch up with your tax and FBAR filing without facing any penalties if your previous non-compliance was non-wilful. If you have any doubts about your situation, we recommend that you seek advice from an expat tax specialist, as if the IRS comes to you first, you may face steep penalties.
