Annual Tax And Compliance Filing Deadlines For Americans Overseas

Heads up. If you’re an American living overseas and didn’t file a formal extension with the IRS using Form 4868, today is your tax day. You must file your annual return by midnight tonight.

If you are an American living overseas and didn’t file a formal extension with the IRS… I have to ask: Why not? Why not take advantage of every deferral the IRS allows? If you haven’t been filing for the additional four-month extension (until Oct. 15) you’re allowed as an American abroad, take my advice and start doing so next year.

All the tax preparers I know worked around the clock this past weekend.

I spent my weekend preparing for the next filing deadline we Americans face this month. This one, though, affects all Americans, living outside the United States or not, who have held US$10,000 or more in a non-U.S. bank account or accounts at any time during the preceding year.

I’m speaking of the filing deadline for the Foreign Bank Account Report (FBAR), which is due June 30. The form has to be filed online. Take a look here for instructions.

Note that you are on the hook for this form if you have signing authority over non-U.S. bank accounts that meet the value threshold even if you have no financial interest in the accounts. This category would include a U.S. employee working for a Brazilian company, for example, with signing authority for the company’s bank account. That requirement has kept more than one American I know from getting a promotion overseas.

Many think that the FBAR is a consequence of FATCA. In fact, the FBAR has been around since the 1970s. The US$10,000 threshold hasn’t been updated since the form’s inauguration. Had the US$10,000 been adjusted for inflation, the current threshold for reporting would be US$60,000.

Keeping the threshold at US$10,000 has meant that more people are obliged to file an FBAR every year. Most retirees overseas have US$10,000 or more in offshore bank accounts at least at some point during each year. Send US$10,000 or more to your foreign bank account with the intention of using that money to make a deposit on a house or to buy a car, and you have triggered the FBAR requirement for that year even if the money is in your account for just one day.

It’s a paperwork burden on the middle-class expat. And it’s only the start of the current paperwork burden we Americans overseas face today.

In addition to the FBAR, we also are required to report our foreign bank accounts on Form 8938 if we meet the asset threshold requirements for that form… which is US$50,000 for an individual. The FBAR is for foreign financial accounts; Form 8938 requires you to list all foreign financial assets. Foreign financial accounts are a subset of foreign financial assets; thus the double-reporting requirement.

I read an exchange recently between the Taxpayer Advocate Service (TAS, an independent organization within the IRS) and the IRS. When TAS asked about the redundancy in reporting requirements, the IRS replied that the two forms have different purposes and that the information solicited in each case is required according to separate laws.

It’s true. The FBAR was created under the Bank Secrecy Act of 1970 to track money laundering (among other things). Form 8938 is a consequence of FATCA, created in 2010 as the offset provision for the HIRE Act (the offset provision in legislation is what is supposed to pay for the giveaways).

Whether or not FATCA will generate enough revenue even to offset the costs of global compliance with FATCA is a hotly debated topic. The only sure thing about FATCA and Form 8938 is that they create another opportunity for us Americans to be penalized and fined for not meeting our growing filing obligations.

Form 8938 is to be filed with Form 1040 of your regular tax return, meaning that, if you’re an American overseas, you can extend the filing date for it until Oct. 15 along with the rest of your return when you file an extension form by April 15. Otherwise, today is the deadline for your Form 8938 as well as your tax return.

Remember that you’re on the hook for both the FBAR and Form 8938 if you have a bank account in another country or hold any foreign assets. Again, this is the case even if you’re living in the United States. To be sure you’re remaining compliant, I recommend that you seek professional tax advice from someone who understands these forms.

My non-American friends living in Panama, Costa Rica, Nicaragua, and Belize (that is, countries that don’t tax worldwide income) laugh at us Americans. Unless they have rental properties or other investment income back home, living overseas means these friends have no filing requirements in their countries of origin. And unless they are earning money in the foreign countries where they are living, they don’t have to file tax returns locally either. They are effectively living income tax free… and, perhaps more important in the current age, tax filing free, as well.

It’s times like this weekend, when I spent the better part of my Sunday finalizing my FBAR form, that I ask my wife to remind me why we’re still Americans.

Lief Simon

“Lief, have you seen this? This article says U.S. banks cut services not because of FATCA (FATCA never gets a mention) but because of over-zealous regulators pursuing money laundering.

“J.P. Morgan Chase, for one, has just given up and pulled out.

“Here’s the article.”

P.T.

Yes, I’m seeing more and more banks, U.S. and foreign, preoccupied by money-laundering concerns. I think we’re living in a truly post-FATCA age. We’ve entered a new anti-money-laundering age.