U.S. taxpayers are not always aware that they must report their foreign accounts on an Foreign Bank Account Report (FBAR) in accordance with Foreign Account Tax Compliance Act (FATCA) requirements. If the taxpayer has reported all income (or did not have enough income to have a tax return filing requirement), but has foreign accounts that must be reported, he or she can file under the Delinquent FBAR Submission Procedures. To help understand this process, we will look at the example of Ruby, a U.S. citizen attending college in Canada.
Ruby is not working and only has a small amount of interest income from her U.S. and Canadian bank accounts. The amount she is earning is well below the threshold for having to file a U.S. income tax return.
However, she has bank accounts in Canada. Her parents periodically transfer funds to one of these accounts, which she then uses to pay her college tuition. She also shares a checking account with roommates that is used to pay their rent. Although she is not the primary account holder on the shared checking account, she does have signature authority, so its full value is considered a reportable asset for the FBAR informational return. The aggregate total of these Canadian accounts exceeded the $10,000 USD filing threshold for the FBAR for each of the two years she has been attending college in Canada.
Ruby did not miss any U.S. tax filings because she didn’t have enough taxable income, but she was required to file FBARs for two years. Fortunately, she is eligible to get caught up under the Delinquent FBAR Submission Procedures.
The Delinquent FBAR Submission Procedures use a six-year lookback period for determining which years need to be checked to see if there is an FBAR filing requirement. In our example, Ruby would need to look at the maximum balances for all of her foreign accounts for each of the last six years and file an FBAR for each year the aggregate maximum balance of these accounts exceeded $10,000 USD. In Ruby’s case, she has only two years of FBARs to file. Although penalties for failure to file an FBAR can be high, no penalties are due when a taxpayer qualifies and submits late FBAR returns under the Delinquent FBAR Submission Procedures.
No matter your past situation, it is important to stay in compliance with U.S. tax laws once you become aware of your filing requirements.
Sometimes individuals are unaware they had U.S. tax filing requirements. Once they take the appropriate steps to get back into compliance with U.S. tax laws, it is important that they continue to file any required FBARs and U.S. tax returns on an annual basis.
If you would like help getting into compliance or staying in compliance, please contact us for more information.
By Kimberly Miller