If you live in New Jersey and you own assets held in foreign countries, you may have compliance obligations under the Bank Secrecy Act. You may also have obligations under the Foreign Account Tax Compliance Act (FATCA). These are federal laws that impose reporting requirements for U.S. taxpayers who own offshore accounts and other offshore assets; and, while they overlap in coverage to a certain extent, they each impose unique compliance obligations, and many taxpayers must comply with both laws in order to avoid IRS penalties and other consequences. Here, New Jersey international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains the key differences between Bank Secrecy Act and FATCA compliance for U.S. taxpayers.
Understanding the Differences Between the Bank Secrecy Act and FATCA
Although the Bank Secrecy Act and FATCA both impose reporting obligations for U.S. taxpayers with offshore assets, they differ in several key respects. As a result, many taxpayers will need to file a Report of Foreign Bank and Financial Account (FBAR) with the Financial Crimes Enforcement Network (FinCEN) in order to comply with the Bank Secrecy Act and file Form 8938 with the IRS in order to comply with FATCA.
3 key facts about FBARs and Bank Secrecy Act compliance:
- Applicability – The Bank Secrecy Act applies to U.S. taxpayers who own foreign financial accounts that exceed $10,000 in aggregate value at any time during the applicable tax year.
- Filing – Compliance with the Bank Secrecy Act is achieved by filing an FBAR (FinCEN Form 114) with the U.S. Treasury Department by April 15 (subject to a six-month automatic extension).
- Penalties for Non-Compliance – U.S. taxpayers who fail to comply with the Bank Secrecy Act’s FBAR requirements can face civil fines of $10,000 per violation (increased to $100,000 or 50 percent of the account balance in cases of willful violations) and the potential for criminal prosecution.
3 key facts about Form 8938 and FATCA compliance:
- Applicability – FATCA applies to U.S. taxpayers who own foreign financial assets as well, but the monetary thresholds vary depending on the taxpayer’s filing status and their country of residence. For example, individual taxpayers residing in the U.S. must file Form 8938 if their foreign assets are valued at more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
- Filing – Compliance with FATCA is achieved by filing Form 8938 with the IRS at the time you file your federal income tax return.
- Penalties for Non-Compliance – Penalties for FATCA non-compliance include, “a $10,000 failure to file penalty, an additional penalty of up to $50,000 for continued failure to file after IRS notification, and a 40 percent penalty on an understatement of tax attributable to non-disclosed assets.” Criminal prosecution is a risk as well.
Schedule an Appointment with New Jersey International Tax Attorney Kevin E. Thorn, Managing Partner of Thorn Law Group
If you have questions about FATCA or FBAR compliance, or if you need to seek to remedy an offshore account reporting violation through voluntary disclosure, we encourage you to schedule an initial consultation at Thorn Law Group. To speak with New Jersey international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, in confidence, call 201-355-8202, email ket@thornlawgroup.com or request an appointment online today.
