It’s that time of year when US taxpayers start to worry about getting material ready for preparation of US tax returns and related information return filings. Two very important forms for US persons having overseas accounts or assets are the so-called “FBAR” short for “Report of Foreign Bank and Financial Accounts” (FinCen Form 114) and the “Statement of Specified Foreign Financial Assets” (IRS Form 8938). International tax practitioners know how severe the penalties can be for non-filings or improper filings of these two forms.
Below is some very basic information about these forms to get you ready for tax filing time:
FBARs must be filed online at the Bank Secrecy Act E-Filing website. Do not simply use an Internet search engine to ascertain where to e-file your FBAR as these may lead you to third party online businesses offering FBAR e-filing services. It is recommended that you use the official Banking Secrecy Act website of the US Treasury, above. You will be required to complete a user application. The FBAR form is not to be attached to any tax return. It must be filed (assuming the requisite conditions are met) even if the individual is not under an obligation to file an income tax return. You can learn more about FBARs in my posts here and here.
Form 8938 is often referred to as the “shadow FBAR”. The Form 8938 DOES NOT replace the FBAR and it is required to be attached to the individual’s income tax return. Form 8938 is required when the total value of so-called “specified foreign financial assets” exceeds certain threshold amounts, which vary depending on the taxpayers’ place of residence and his tax filing status. For example, a married couple living in the US and filing a joint tax return must file Form 8938 if their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year. The filing thresholds for taxpayers who reside abroad are higher. Generally, a married couple residing abroad and filing a joint return are required to file Form 8938 if the value of specified foreign assets exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year. You can learn more about Form 8938 at my blog postings here and here.
The instructions to each of these Forms requires reporting of the foreign financial accounts / assets in United States Dollars. In order to complete the form, the taxpayer must first determine the maximum value of the asset during the tax year, and then convert the local currency into US dollars. Taxpayers are to use the exchange rate on the last day of the calendar year. The taxpayer must use the U.S. Treasury Bureau of the Fiscal Service foreign currency exchange rate for purchasing U.S. dollars.
Sometimes the rate for the last day of the year is not posted in a timely fashion. Luckily, the December 31, 2016 rates were recently posted and can be found here.
During the course of information gathering for the current year’s tax filing, a taxpayer may discover that some forms were completed incorrectly in the past and should be amended or, perhaps the taxpayer discovers a filing should have been done, but was not. When taxpayers are filing late or amended FBARs or late or amended Forms 8938, they need to use the conversion rates for the relevant tax year. The historical exchange rates for conversion to US dollars are available on the IRS website here.
The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.
Virginia La Torre Jeker J.D.
Virginia La Torre Jeker J.D., is based in Dubai. Virginia has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court. She has over 30 years of experience specializing in the international aspects of US tax, including FATCA. She has been quoted in the New York Times and Newsweek, and is regularly quoted in many local news articles and publications."
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