FBAR and Offshore Disclosure Q&A Session
Sep 10, 2017
In this post, the FBAR Wiz will provide answers to some of the most frequent questions related to the FBAR form, the Form 8938, and the IRS offshore disclosure process in general. To get started, see if you have an obligation to file the FBAR Form and/or Form 8938 by using the free FBAR Wiz app. 1. Do I still need to file an FBAR if I closed the underlying account? In order to comply with FATCA, FBAR, FinCEN 114, IRS Form 8938, and IRS reporting requirements overall, a taxpayer has to report their foreign financial accounts (presuming they meet the $10,000 filing threshold requirement), anytime that “the annual aggregate total of foreign accounts meets or exceeds the threshold requirements at any time during the year.” This quote comes directly from the US Treasury Department instructions. So, simply closing an overseas account does not eliminate the reporting requirement for it, as long as the account's value exceeds the filing threshold at any time during the year. This Internal Revenue Service webpage describes the filing requirements for Form 8938 and FinCen Form 114 in some detail, and provides their dollar value reporting (i.e., threshold) levels. 2. I know I need to I file the FBAR form separately. Must I file it before or after filing my main (i.e., 1040) tax return? The new filing dates for (Form 114) Report of Foreign Bank and Financial Accounts ("FBAR") for foreign financial accounts are the same as tax season filing deadlines of April 15, with an automatic extension until October 15 (no paperwork is needed for the extension) yearly. The due date for FBAR filings for foreign financial accounts maintained during calendar year 2016 is April 18, 2017. 3. Even with an automatic extension provided by the U.S. Department of Treasury, is there still a chance of receiving a late FBAR filing penalty for tax year 2017? The FBAR filing form provides reasons to select for late filing of FBAR. What option should be chosen if so? Because of the automatic October 15, 2017 extension, there is no penalty. Because of the extension, it is not late as of the date of this post (9/10/17), so you do not need to enter anything there. 4. Should I file an FBAR if I am a resident for taxes purposes only? In other words, if I am a non-resident alien? As a non-resident alien, you do not have FBAR filing requirements. Individuals residing in the United States who do not meet one of the "United States Resident" residency tests are not considered U.S. residents for FBAR filing purposes. This includes individuals living in the United States under a work visa who do not meet the "substantial presence" test, explained here. A "United States resident" using the definition of "resident alien" includes: (1) The green-card test - includes individuals who have been lawfully granted the privilege of residing permanently in the U.S. under the immigration laws. These individuals automatically meet the definition of "resident alien" under the green-card test. (2) The substantial presence test. Individuals are defined as "resident aliens" under the substantial presence test if they are physically present in the United States for at least 183 days during the current year, or they are physically present in the United States for at least 31 days during the current year and meet the specifications contained in IRC 7701(b)(3). (3) The individual files a first-year election on his income tax return to be treated as a resident alien under IRC 7701(b)(4). -OR- (4) The individual is considered a resident under the special rules in section 7701(b)(2) for first-year or last-year residency. 5. Do I have to file a tax return for an internship stipend as a non-resident alien? I completed an internship as a non-resident alien for which I received a stipend totaling $4,000 USD, received at the very start of the internship program. As a non-resident alien you would only need to file a U.S. return if your income was above the personal exemption level. For 2016, that exemption is $4,050, so with $4,000 in income you would not need to file a U.S. tax return. However, you still need to file form 8843 for 2016. You have until June 15, 2017 to file that form if you are not required to file a U.S. tax return. You should consult a CPA or tax attorney for further assistance. 6. We live and work as non-resident aliens in the United States but own one rental property in Germany. Rental income should only be taxed in Germany, right? What forms do I need to file? Given these facts, you are classified as "resident aliens." Based on the tax treaty between the United States and Germany, the income from real property is taxed in the state it is situated in, which would be Germany. Thus, you have to claim the treaty exemption on your U.S. tax return. In addition to other forms, you will need to file Form 8833 and should read the following instructions: https://www.irs.gov/pub/irs-pdf/f8833.pdf. You should consult a CPA or tax attorney for further assistance. 7. Am I a "resident alien" or "non-resident alien?" I came to the United States for the first time ever on August 19, 2015 on an H1B visa. I then went to Africa for a brief vacation from December 24, 2015 to January 17, 2016. Total number of days that I stayed in the United States: 128 days. You do not meet the substantial presence test, so you are considered a "nonresident alien" and will need to file Form 1040-NR, amongst others. OR If you anticipate that you will be staying in United States for at least 183 days in the calendar year of 2016, you can make an election to treat yourself as a resident from August of 2015, making yourself a dual-alien status - the choice is yours. You should consult a CPA or tax attorney for further assistance. For a related and equally interested blog post, check out the FBAR Wiz feature of the importance of the IRS' classification of passive foreign investment company and its significance on holders of Canadian mutual funds here.