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Posted by BajaInsider.com on April 16, 2013

How FATCA and FBAR is affecting U.S. Expats…yes only Americans (as in U.S. Citizens living abroad) need to read this..

There are some newly enforced banking and tax laws that are affecting United States expatriates in many new ways. First of all what is an expat or expatriate? Well according to Wikipedia: An expatriate (in abbreviated form, expat) is a person temporarily or permanently residing in a country and culture other than that of the person's upbringing. The word comes from the Latin terms ex ("out of") and patria ("country, fatherland").

Furthermore when concerning the taxation of these expats Wikipedia adds: The term 'expatriate' in some countries also has a legal context used for tax purposes.

So, now we roughly know who we are in the eyes if the U.S. government and now to see what the FBAR and FATCA are all about. First, FATCA is the Foreign Account Tax Compliance Act and as stated, it is concerned with the compliance involving foreign financial assets outside of the U.S commonly referred to as “offshore accounts”. Then you say what the FBAR? FBAR refers to the new law requiring by the international banks that have foreign accounts held by U. S citizens to the Reporting of Foreign Bank and Financial Accounts (FBAR) to the Internal Revenue Service.

So there it is in a nutshell. Two newly enforced laws that, one require U.S. citizens, including dual citizens (those with a U.S. and foreign citizenship) living abroad to report their banking activity in foreign held accounts and secondly another law requiring international banks and citizens abroad to report the activity of these U.S. accounts. It has been required for many years now for the U.S. citizens living abroad to report these accounts on their tax returns but now they are setting up a method of communication by the banks to be sure this activity is reported. The laws were designed supposedly to catch the people and or organizations that are evading taxes in the U.S. or laundering money by using foreign banks.

Who must file a FBAR? Well there are two simple questions that will show you whether you must file or not. This is straight from the Internal Revenue Service FBAR page:

United States persons including Dual Citizens are required to file an FBAR if:

1.The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and

2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

There are several other exceptions for IRA accounts, Military personal, some joint spouse accounts and others. It is best that you speak to you accountant or go to the IRS site at the link below to read the actual requirements concerning the FBAR. Please be sure you understand this is not just for income or profit created abroad but for all assets that may or may not require the payment of any additional taxes.

So if all of your  foreign financial assets, bank accounts, mutual fund trusts, brokerage accounts or any other type of foreign financial accounts you may have signature power on, have an aggregate total at any time during the year of over $10,000.00 usd you must file a FBAR. The FBAR is not reported on the persons Federal Income tax filling but by filing a separate U.S. Treasury form, TD F 90-22.1.The filing date for form TD F 90-22.1 is on or before June 30th of the year following the calendar year being reported.

The actual Bank Secrecy Act creating the FBAR was passed into law over 30 years ago in 1970 yet it has lain dormant for many years. Then after 9/11 with the passage of the Patriot Act and later in 2009 there have been changes and of late it is being used to go fishing and find those that have not reported on their income, assets and accounts properly. It is stated that the fines can easily be greater than the assets held overseas.

Who must file FATCA? While requiring financial institutions to file FATCA also requires the individual to file form 8938 if they meet the following requirements:

After March of 2010 those,

U.S. taxpayers holding specified foreign financial assets with an aggregate value exceeding $50,000 will report information about those assets on new Form 8938, which must be attached to the taxpayer’s annual income tax return. There are other requirements and threshold for example for those couples joint filing.

The paragraph above is just the first of the general requirements by the IRS there are many others if you go to the link provided below. Please consult the IRS page concerning these requirements or contact your accountant to see whether you are required to file form 8938 with your tax returns. I have also provided a link below showing the comparison between filing requirements for FBAR (form TD F 90-22.1) and FATCA (form 8938).

While the intention of this article is to just inform you of the possible need for you to file if you meet these new requirements. You must research this yourself, or speak with your accountant to be sure you are filing the proper forms if required. There are additional links at the bottom of this article that will lead you to the proper U.S. Internal Revenue Service sites to assist you in your research.

These newly enforced laws have upset many of those U.S. expats for several reasons and there are petitions circulating in protest of these new laws. Part of the problem with the FATCA is that it requires foreign banks and financial institutions to file much more paperwork and many do not want to do this. It has been reported in some foreign countries already that the banks prefer not to have the responsibility and therefore will not open accounts for the U.S. citizen living abroad. Here in Mexico that has not been the case but others protest that this requirement puts an undue burden on them.

Finally I will say once again it is your responsibility to report your assets to the U.S. Internal Revenue Service and failure to do so if require, you could incur costly fines for not complying. Whether you believe it is fair or not the U.S. government is serious and with the creation of FATCA they now have another vehicle, using the foreign financial institutions, to assist in discovering who is not reporting properly. I have added the last link to a 3rd party site that shows the history of these laws as well as some serious problem and complaints people have concerning fulfilling these requirements.

I hope this article has at least given you idea of what these laws are about and to motivate you to find out concerning your own personal finances as to what you are required to do. There are several aspects to these new laws that will affect people in different ways and you can be found in non-compliance in the past years as well, so it is a good idea to follow up on this if you meet any of these requirements in the past few years.

FBAR; the IRS page concerning the requirements for FBAR:

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-(FBAR)

FATCA; the IRS page explaining compliance with FATCA:

Foreign Account Tax Compliance Act Web page.

A link that will compare the requirement of FATC and FBAR to see which you may need to file:

ttp://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements

American Citizens Abroad, a 3rd party site showing the history and problems people have had concerning these newly enforced laws:

http://americansabroad.org/issues/fbar/the-fbar-scam/

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