Introducing the FINCEN Form 114, aka the Report of Foreign Bank and Financial Accounts (FBAR)
Here's what you need to understand...
Americans abroad will normally open a foreign bank account to make daily life easier
But when the value of that account > $10K, or a combination of foreign financial accounts >$10K, then the account must be disclosed
The $10K reporting threshold is not derived from an average daily balance, but technically is triggered if the balance just crosses $10K one time before going back to a lower average amount!
And the $10K threshold is defined in US Dollars
Say you generally hold around ¥1.2M (~$8K with today's FX rate) in the Bank of Yokohama, and the Yen suddenly gets stronger by just 20%, your ¥1.2M is now worth $10K, triggering FBAR disclosure
Once the threshold is triggered, Americans abroad must report this in two places
Filing requirement is annual, timed to the regular Expat filing deadline of June for both forms
Failure to file penalty for Form 114 (FBAR) is $10K
Could even be increased up to $100K if violation is considered "willful"
Ouch!
IRS wants Americans abroad to be compliant, so often willing to grant penalty waivers, especially if the accounts were at least disclosed on the Federal Tax Return
But what if you think this disclosure is stupid and just decide to blow it off every year?
How could the IRS possibly know about my silly little account at the Bank of Yokohama?
Introducing The Foreign Account Tax Compliance Act (FATCA)
Its true the IRS and US Treasury Dept have zero jurisdiction over foreign financial institutions
So the US Govt instead devised a series of carrots (🥕) and sticks (🥢) within FATCA
The 🥕: Please give the IRS a list of all Americans using your bank
The 🥢: If you don't give us the list, the US Treasury Dept will cut off your access to the US banking system
That access to US capital markets is worth a lot to foreign banks, hence compliance is ensured!
Given the reality of FATCA, it's not worth risking IRS penalties if your foreign bank account exceeds the $10K threshold
If you already report annually, great job!
If you have never filed, now is the time to regain compliance!
Was your foreign bank easy to work with?
Or did you need an anal probe to open an account?
I'd love to hear about it!
