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The HIRE Act, FBAR and FATCA

By Steve Linder

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Summary: The real result of Obama's 2009 HIRE Act has been the establishment of new tax reporting requirements that can leave those holding unreported foreign assets or bank accounts in big trouble with the IRS.

US Expat Tax Issues - The HIRE Act, FBAR and FATCA

The HIRE Act: Big changes take place this year regarding reporting of foreign bank accounts and foreign owned assets by Americans. Back in 2010 President Obama signed the Hiring Incentives to Restore Employment Act (HIRE Act). We were told at the time the bill was aimed at job creation, money laundering and drug dealers. The real result has been the establishment of new tax reporting requirements that can leave those holding unreported foreign assets or bank accounts in big trouble with the IRS. The penalties and interest are high for non compliance. In 2010 the first part of the HIRE Act kicked in with the Foreign Bank Account Reporting (FBAR) requirement. Under that rule any American citizen with over $10,000 in aggregate holdings in foreign banks must report the amount each year on their tax return. The real purpose of the HIRE Act is a U.S. effort to combat tax evasion by U.S. persons holding investments in offshore accounts.

Extreme Penalties: Willfully failing to file an FBAR form by June 30 each year is an act against the treasury and the penalty is $10,000 for non willful violations but for willful violations the penalty can be up to $100,000 and 50% of the value of the non reported asset. Not only are Americans required to report and pay tax on worldwide income, we must also now report worldwide financial assets. The official form is TD F 90-22.1 As in past years, the IRS is still offering an offshore Amnesty program but each year the cost of reporting under that program invokes higher penalties and interest. This year the penalty is 12.5% and the interest is now over 20%.

FATCA: This year the second major aspect of the HIRE Act law kicks in, The Foreign Account Tax compliance Act (FATCA). Under FATCA, US tax payers must report foreign assets if valued over $50,000. Foreign financial institutions are also forced to become the compliance agent for the IRS. The IRS is requiring Foreign Financial Institutions to report the name, address, account numbers, balances and tax payer identification number on every American with deposits in their financial institution. This goes beyond just bank accounts, forcing these foreign institutions to become agents of the IRS whether they like it or not..

Forced Compliance: Financial institutions worldwide that do not comply will be subject to a 30% withholding on every transaction from a US financial institution. Foreign financial institutions will not want to lose 30% of a transaction, pretty much forcing compliance if they want to continue doing business with the US. Accounts covered include financial accounts, stocks or securities, financial interest, contracts or real estate with a value of $50,000 or more. Again the fines and penalties for non compliance are severe. The form(s) required are form 8938 or 5471 in certain cases. Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.

Written by Steve Linder – International Sales Manager for Pacific Lots of Costa Rica www.PacificLots.com.

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guest
Feb 18, 2013 08:46

FBAR reporting : Report of Foreign Bank and Financial Accounts (FBAR) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-%28FBAR%29 FATCA reportiung: Foreign Account Tax Compliance Act (FATCA) http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-%28FATCA%29

guest
Feb 18, 2013 10:05

Are you sure that the FBAR requirement kicked in for the year 2010? I believe it covered many years already before 2010. What is the real datei, if anyone knows?

guest
Feb 18, 2013 12:01

There is a real question as to whether the HIRE Act, its severe FBAR penalties, other reporting and notably the entire FATCA/new bilateral treaty schemes will actually raise much revenues in unpaid income taxes, or even in draconian fines or whether all of this will result in a further erosion of US business, not to mention possibly a lot more in enforcement expenses compared to uncovered unpaid tax liabilities. One result we see at Expatriation Copesthesia Consultants are much greater US expatriations, not from likely tax avoiders but from those fed up with the cost and aggravation of this type of unparalleled reporting. Increasingly American citizens live and work abroad and many are finding they don't need this additional burden any longer. Les Fant

Danc
Feb 18, 2013 12:50

So if I understand this? You can not have more than $10,000.00 U.S. dollars in a foreign bank at anytime and your home can not be worth more than $50,000.00 U.S. Dollars. Is that what this new law means to me ?

guest
Feb 18, 2013 21:33

I Love these new "FREEDOMS" I now enjoy as an american.

caughtintheact
Feb 18, 2013 22:35

Some good guest comments. Guest is correct that the FBAR is older than 2009 see http://www.taxlitigator.com/articles/FBar.htm., which claims that it goes back to 1970. But the Secretary of the Treasury has an option to enforce it, and thus presumably not to enforce it. It is now being enforced. Guest is also correct that it is unlikely to raise significant revenue, but there will be other impacts as foreign banks are reportedly already refusing to let Americans open bank accounts in some countries. In some countries foreigners are required to put a certain amount of money into the bank in the country where they live, and if this amount puts Americans over the threshold, the burden of proof will be on the taxpayer to prove where the money came from. For the FBAR report it will definitely put Americans over the threshold,in for example, Thailand, and that could put Americans over the threshold for the FATCA reporting as well. Given that the United States is the only country that imposes requirements like this on its citizens living abroad and imposes penalties on foreign banks, it will make it harder for American companies to do business overseas as well. As for Danc's comment, you can have as much money as you wish in foreign bank accounts. However, if the aggregate at any time during a calendar year is more than $99,999.99 then you must file an FBAR report. However if the assets in bank accounts and investments total $50,000 reported by the foreign bank are $50,000 or more, you may be liable to pay taxes on some of that money and there will be stiff penalties if you do not make a report for either FBAR or FATCA. I strongly suggest that you go to the IRS web site and read about these two requirements FBAR reporting : Report of Foreign Bank and Financial Accounts (FBAR) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-%28FBAR%29 FATCA reportiung: Foreign Account Tax Compliance Act (FATCA) http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-%28FATCA%29

guest
Feb 19, 2013 15:03

In my post below, I made an error about the FBAR report. The number should have been $9,999.99, not $99,999,99

Danc
Feb 19, 2013 16:13

I replied Bye-mail sorry! So if I understand this right . If a person was to buy a home in Belize for a $100,000 and had 9,000 in the bank that person would have to file a FATCA report with the IRS each year. But If a person was to buy a home for $30,000 in Belize and had $5,000 in the bank that person would not be required to file a FATCA report. Thanks for your last reply I tried to access that 2009 taxlitigator web site I had no luck.

guest
Feb 19, 2013 23:53

Danc, When you try the tailgater report site again, use this link http://www.taxlitigator.com/articles/FBar.htm You might have been including punctuation after the .htm. The FBAR report is separate from the FATCA report. It is as the name implies a report of the Foreign Bank and Foreign Financial Accounts that n American citizen has. As far as I can tell it has nothing to do with real estate. Having filed one it only asked for the names of the banks, the branch, address, and maximum amount in each one during the year. If you have say 3 foreign bank accounts like this: Bank Name Maximum amount in account during the year (dollar equivalent) Bank A: 3,999.99 Bank B 5,000.00 Bank C 1,000.00 Total: 9,999.99 Since the total is less than $10.000.00, you would not be required to file an FBAR report. But if the total were $10,000.00 you would have to file it. If that money comes from transferring funds from the USA on which taxes were paid in the USA (by deduction or whatever), my advice would be to add a note to the FBAR report to that effect. Before going on I suspect that the FBAR will be used as a check against the FATCA filing. In other words if you file the FATCA form(s) the IRS will have the FBAR report to seee if you reported income in all accounts. They will also have the reports from the foreign banks. The FATCA reporting requirements are at http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-%28FATCA%29 This is where real estate comes in if Linder's article is accurate. I recommend that you find the 8938 form that the FATCA requires if you exceed the limits: The IRS has this to say at http://www.irs.gov/Businesses/Corporations/InformationforUSTaxpayers "Generally, FATCA requires certain U.S. taxpayers holding foreign financial assets with an aggregate value exceeding $50,000 to report certain information about those assets on Form 8938, Statement of Specified Foreign Financial Assets. The Form 8938 must be attached to the taxpayer’s annual tax return." I recommend that you read the above link and then take a look at the 8938 form at http://www.irs.gov/pub/irs-pdf/f8938.pdf

guest
Feb 25, 2013 03:22

If I am a permanent resident in australia, working for a Australian company never to return to the USA. With the only ties to the USA being a citizen and family. No property, no financial transactions with the USA. Do I still need to pay taxes, double taxation?

Maribeth
Oct 17, 2015 15:23

What does IRS do with the info? If we are within limits, it sounds like nothing to do/worry about?? I see people renouncing citizenship over it. I'm about to buy a house in Croatia and should I reconsider?? I read an article your home could be worth under $300,000 to be 'okay'? Thanks

caughtintheact
Oct 18, 2015 09:46

Maribeth, you asked: Oct 17, 2015 15:23 What does IRS do with the info? If we are within limits, it sounds like nothing to do/worry about?? I see people renouncing citizenship over it. I'm about to buy a house in Croatia and should I reconsider?? I read an article your home could be worth under $300,000 to be 'okay'? Thanks The IRS purpose is to determine if Americans are hiding undeclared assets in banks or other financial resources abroad., and penalize people who do not declare their assets and who fail to pay required U.S. taxes on those assets. If your assets exceed the threshholds of the FBAR and FATCA and you fail to declare them, you run the risk that the foreign financial institution will report to the IRS and then you are likely to find yourself in trouble as the fines for failure to comply are pretty stiff. It would be nice to say that if you comply you have nothing to worry about, but with governments you never know what they are cooking up.

Maribeth
Oct 18, 2015 18:20

Thanks so much, that's what I figured... Additional question: It looks like with money, the limit is $10,000 total in bank accounts overseas, not $10,000 per bank account overseas. Is that right? Thank you!

caughtintheact
Oct 18, 2015 20:25

Maribeth, You asked, "Additional question: It looks like with money, the limit is $10,000 total in bank accounts overseas, not $10,000 per bank account overseas. Is that right? " If, AT ANY TIME DURING THE YEAR, the total amount of money in all bank accounts and other overseas financial holdings covered under the IRS ruling comes to $10,000 or more, you must file an FBAR. So if I have two overseas bank accounts, on 31 December containing a total of $9,999.99 and I put a dollar in it or get a dollar's worth of interest on 31 December, I am liable for submitting the FBAR. For those who don't want to file the FBAR, they have some alternatives, like using the UTMB (Under the Mattress Bank) :)

First Published: Feb 10, 2013

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