Don't Mess With Taxes

Uncle Sam is always on the lookout for people who try to evade taxes by hiding money in foreign accounts. To keep track of taxable money abroad, the federal government relies on two agencies, the Internal Revenue Service and its sister agency within the U.S. Treasury, the Financial Crimes Enforcement Network, usually referred to as FinCEN.

FinCEN requires a special filing from some of Form 114, Report of Foreign Bank and Financial Accounts, usually referred to as FBAR.

FBAR filings have long been a pain for Americans who hold assets abroad. A couple of years ago, Treasury tried to make things a bit easier by syncing up FBAR and regular tax deadlines.

But then 2020 arrived, bringing with it beaucoup tax chaos due to the coronavirus pandemic. So naturally, when the extended FBAR Oct. 15 filing deadline arrived last week, a lot of international tax folks weren't surprised when there was an issue here, too.

Yes, their FBAR filings turned into FUBAR.

Two new 2020 FBAR extended deadlines: FinCEN last week posted a series of confusing changes about further FBAR extensions. Then it revoked the revisions.

That left many taxpayers (and their tax pros) even more frustrated than usual with FBAR and worried about potentially very costly penalties.

The good news, though, is that FinCEN has clarified things (really!).

Filers required to comply with FBAR and who had an extension to do so by Oct. 15 now have until Oct. 31 to file.

And FBAR filers who live in a major disaster area get even more time. They have until Dec. 31.

Here is FinCEN's official mea culpa and deadline clarification:

On October 14, 2020, FinCEN posted an incorrect message on its Bank Secrecy Act (BSA) E-Filing website. FinCEN removed it within 24 hours. The message incorrectly stated there was a new filing extension until December 31, 2020 for all filers of Reports of Foreign Bank and Financial Accounts (FBARs). The extension until December 31, 2020, however, is intended only as an accommodation for victims of recent natural disasters covered in FinCEN’s October 6, 2020 notice. [Don't Mess With Taxes note: That's the Dec. 31 link above.]

FinCEN apologizes for the error and any confusion this has caused, and has coordinated with the IRS to address the concerns of filers who may have missed their filing deadline due to the October 14, 2020 message.

Filers who file their 2019 calendar year FBAR by October 31, 2020 will be deemed to have timely filed. As set out in the October 6 notice, FBAR filers impacted by recent natural disasters continue to have until December 31, 2020 to file their FBARs.

Foreign account filing requirements: Despite recent trends in some countries, we are a global community. And that's always been an issue with taxes.

On the individual tax side, the United States takes a cut of your money regardless of where it's earned or kept. To keep track of these financial interest, the IRS relies on the Foreign Account Tax Compliance Act, or FATCA.

FATCA requires from certain U.S. taxpayers holding financial assets outside the United States to report those holding assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets.

The Form 8938 filing with the IRS is in addition to the FBAR requirement.

FinCEN has been collecting FBAR data per the Bank Secrecy Act since 1970. This filing is required when the aggregate value of your non-U.S. financial accounts is more than $10,000 at any time during the calendar year.

Note that this is a cumulative balance, meaning if you have two foreign financial accounts with a combined balance exceeding $10,000 at any one time in the tax year, both accounts would have to be reported.

To encourage people to file required forms 8938 and FBAR, Treasury imposes steep noncompliance penalties.

Big price to pay for missed filings: You could face a maximum penalty of $50,000 for a continuing failure to file Form 8938 with the IRS.

And for FBAR, it's a Mount Everest six-figure steep penalty — $100,000 or 50 percent of the maximum value of the account(s), whichever is greater — if you willfully fail meet the FinCEN filing.

So it's no surprise that folks freaked out when they missed the Oct. 15 FBAR deadline because they thought FinCEN had granted them more time. I hope the announcement of more time has helped lower your blood pressure.

Relevant forms: The FUBARed FBAR 2020 deadline also is why IRS Form 8938  …

Excerpt of Form 8938

… and FinCEN's FinCEN Form 114, aka FBAR, which is filed electronically at FinCEN's BSA (Bank Secrecy Act) E-Filing System, … 

Screenshot of FBAR electronic filing

… are this week's day-late Tax Form Tuesday documents.

Yes, having financial assets in foreign accounts is a hassle, both from the basic financial management of them to the required tax reporting.

But if you have so much money in accounts abroad that Uncle Sam and his Treasury folks are involved, then you really can't complain!

You also might find these items of interest:

• FinCEN, FBAR and other tax costs that prompt or slow U.S. expatriations
• Inflation and housing adjustments help with taxes that Americans abroad face
• FBAR filing now due in April + more on foreign accounts & issues facing taxpayers abroad

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