Foreign Assets and US Tax Filing: A Comprehensive Guide To File or Not to File (FBAR/FATCA Issues)

Understanding the FBAR and FATCA Requirements

Many individuals, particularly non-resident aliens, may not be fully aware of their US tax filing obligations, even if they don’t have any US-sourced income. This is especially true for those who have foreign financial assets and may not meet the income threshold for filing a US tax return.

The FBAR and FATCA Requirements

To ensure compliance with US tax laws, it’s crucial to understand two key reporting requirements:

  1. Foreign Bank Account Report (FBAR):
    • This form is used to report foreign financial accounts with an aggregate value exceeding $10,000 at any time during the calendar year.
    • Even if you don’t have any US-sourced income, you may still be required to file an FBAR if you meet this threshold.
  2. Form 8938 (Statement of Specified Foreign Financial Assets):
    • This form is required for US taxpayers who have foreign financial assets exceeding certain thresholds.
    • For 2024, the threshold is $50,000 for single filers and $100,000 for married couples filing jointly.
    • Form 8938 must be filed along with your tax return.

The Importance of Timely Filing

Penalties for Non-Compliance:

Failing to file FBAR or Form 8938 can result in severe penalties. These penalties can be substantial, especially for willful non-compliance.

  • Willful Non-Compliance: For willful non-compliance, penalties can be the higher of $100,000 or 50% of the value of the undisclosed foreign financial assets.
  • Non-Willful Non-Compliance: For non-willful non-compliance, the penalty can be up to $10,000 per year for each undisclosed foreign financial account.

The Case of Non-Resident Aliens

A common scenario involves non-resident aliens, such as retired parents from India who have obtained a green card to live with their children in the US. While they may not have any US-sourced income, they still need to file an FBAR if their foreign financial assets exceed the $10,000 threshold. Additionally, if their foreign financial assets exceed the $50,000/$100,000 threshold, they must also file Form 8938 along with their tax return.

Why File These Forms Even Without US Income?

The US tax system has a worldwide taxation principle, meaning US citizens and residents are generally taxed on their worldwide income. Even if you don’t have any US-sourced income, you may still have US tax filing obligations, including the FBAR and Form 8938.

Conclusion

Understanding your US tax obligations, even if you are a non-resident alien, is crucial. It’s essential to consult with a tax professional to ensure compliance with US tax laws and to avoid potential penalties.

By understanding the FBAR and FATCA requirements and the severe penalties associated with non-compliance, you can take the necessary steps to file your taxes accurately and timely.

 

Your Tax Demystifying Partner
Arun Lal
AL@taxguruusa.com
703 470 6811