How to Navigate FBAR and FATCA Compliance as a U.S. Expat

Introduction

U.S. expats are required to report their foreign financial accounts and assets to the IRS and the Financial Crimes Enforcement Network (FinCEN) under the Foreign Bank Account Report (FBAR) and the Foreign Account Tax Compliance Act (FATCA). These regulations ensure global tax compliance but can be complex for individuals living abroad. Failure to comply can result in severe penalties, making it crucial for expats to understand their reporting obligations.

This article explains who must file FBAR and FATCA reports, key compliance requirements, and strategies to avoid penalties.

1. Understanding FBAR (FinCEN Form 114)

a) Who Must File FBAR?

• Any U.S. citizen, resident, or entity (corporation, partnership, LLC, or trust) with a foreign financial account balance exceeding $10,000 at any time during the year must file an FBAR (FinCEN Form 114).
• Accounts included:
  • Foreign bank accounts
  • Foreign brokerage and investment accounts
  • Foreign pension funds or retirement accounts (in some cases)
  • Cryptocurrency accounts held on foreign exchanges (potentially reportable

b) FBAR Filing Deadline

• Due April 15, with an automatic extension to October 15.
• No tax is owed on FBAR filings—it is an informational report only.

c) FBAR Penalties for Non-Compliance

• Non-willful violations: Up to $10,000 per account.
• Willful violations: Greater of $100,000 or 50% of the account balance per year, with possible criminal charges.

2. Understanding FATCA (Form 8938)

a) Who Must File FATCA (Form 8938)?

• U.S. taxpayers with foreign financial assets exceeding:
  • $50,000 (single) or $100,000 (married filing jointly) at year-end.
  • OR $75,000 (single) or $150,000 (married) at any point during the year.
• Reportable assets include:
  • Foreign bank and brokerage accounts
  • Foreign stocks, bonds, and mutual funds
  • Foreign life insurance policies with cash value
  • PFICs (Passive Foreign Investment Companies)

b) FATCA Filing Deadline

• Filed as part of the annual U.S. tax return (Form 1040).
• Must be filed even if no tax is due.

c) FATCA Penalties for Non-Compliance

• $10,000 initial penalty, with additional fines up to $50,000 for continued non-filing.
• Foreign banks and financial institutions report U.S. account holders directly to the IRS, increasing enforcement risk.

3. Key Differences Between FBAR and FATCA

4. Strategies to Stay FBAR & FATCA Compliant

• Track all foreign accounts and ensure balances are monitored.
• File both FBAR and FATCA reports if required—they are separate filings.
• Use foreign tax credits (Form 1116) to offset U.S. tax liability on foreign income.
• If non-compliant, consider the IRS Voluntary Disclosure Program to reduce penalties.

Conclusion

U.S. expats must carefully follow FBAR and FATCA reporting rules to avoid heavy penalties and compliance risks. By staying organized, filing on time, and using foreign tax credits, taxpayers can ensure compliance while minimizing tax liability. 

Tax Partners can assist expats in filing FBAR and FATCA reports correctly, navigating IRS compliance rules, and reducing tax exposure.

This article is written for educational purposes.

Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.

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