When in doubt, the account should be reported to avoid the risk of substantial penalties. The federal tax treatment of an entity is not determinative of whether the entity has an FBAR filing requirement. Corporations, partnerships, limited liability companies, trusts and estates formed or organized under the laws of the United States all fall within the definition of a U. This is the case even if the owner of the LLC is foreign i. When in doubt, the entity should file to avoid the risk of substantial penalties.
The rules apply similarly to a majority partner in a partnership or majority owner of any other entity. FBAR reporting is also required regarding the foreign financial accounts of any other entity including a disregarded entity for tax purposes in which a U. Significantly, these personal filing obligations are separate from any obligation that the business entity in which the person holds a majority interest may have.
Accordingly, if the corporation, partnership or other entity is a U. Several rules related to U. First, as noted above, a U. There are other provisions to reduce US tax too, such as the Foreign Housing Exclusion , which allows expats to exclude their housing rental expenses, and the Child Tax Credit , which expat parents can claim and which can also result in a cash payment. Most expats can reduce their US tax bill to zero by claiming one or more of these provisions when they file their federal return.
Expats also have to report their foreign registered businesses, and their foreign registered financial assets subject to minimum thresholds. Expats receive an automatic filing extension until June 15th, allowing them time to file their foreign tax return first for those that have to, and they also request a further extension until October 15th if they need to.
Every year, under the law known as the Bank Secrecy Act, you must report certain foreign financial accounts, such as bank accounts, brokerage accounts and mutual funds, to the Treasury Department and keep certain records of those accounts. There are also strict, detailed rules that define which types of accounts qualify when United States Persons are calculating their total combined foreign accounts balance and so whether they need to file an FBAR or not. The result of all this is that the IRS can compare the information provided by foreign banks with that provided by United States Persons on their FBARs and so check that they are reporting all of their foreign accounts, and doing so fully and honestly.
The motivation behind both FBAR reporting and FATCA is to prevent offshore tax evasion, however they have also created a significant new reporting burden for millions of ordinary Americans who are living abroad as well as for foreign banks.
A United States Person covers three scenarios:. This of course includes millions of American expats. Foreigners as well as Americans who are resident in the United States are also considered United States Persons and so have to file an FBAR if they have foreign registered accounts that qualify.
A Foreign Financial Account for FBAR filing purposes is defined as an account registered at a foreign financial institution including accounts at foreign branches of US financial firms , that has a cash balance and which a US tax filer has a financial interest in or signatory authority over. Note that many expats have signatory authority over accounts that may not be registered in their name, such as a business bank account, or a joint account.
FBAR reporting will be done electronically, just as it would if you filed on time, with special notation confirming your participation in the program. Getting caught up is extremely important if you are behind in your FBAR filings. While there are no penalties when filing under the Streamlined Procedures, if the IRS finds out before you come forward, you will be ineligible for this program and subject to the maximum penalties. With the introduction of the FATCA legislation in , the chances of getting caught have increased, as foreign financial institutions are now required to notify the IRS of your foreign accounts.
Basically, the IRS will assume you were hiding the foreign account s , and you will be at their mercy. No one wants that! This last point is critical.
Because foreign financial institutions report directly to the IRS, the government can find out easily about your unreported foreign assets. Let us help you take care of your FBAR filing obligations hassle-free! Get started today. There are many advantages to living overseas — personal, professional, and financial — all of which are worth exploring for those from all walks of life.
However, transitioning from a domestic American citizen to a U. Not only are there changes to the income tax filing process to consider, but expats also have to think about when and how to report on their foreign financial assets, a requirement put in place through several U.
Perhaps the most common report filed by expats is the FBAR; to find out when to file this form and how to do it, keep reading as the international tax accountants at US Tax Help provide the answers you need. This can sometimes lead expats to overlook the need to file an FBAR, but know that this form is every bit as important as any other you might submit come Tax Day.
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