The FBAR (aka Form TD F 90-22.1) must be filed by all U.S. persons (United States citizens, United States residents; entities, including but not limited to, corporations, partnerships, or limited liability companies created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States) where:
- The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
- The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
I think it's fair to say that Americans and Green Card holders abroad and immigrants in the U.S. hate this form like the devil hates holy water. Up until recently practically no one knew of this filing requirement until the IRS started cracking down. The U.S. doesn't have any kind of exit procedure for those of us who leave the country and immigrants aren't clued in when they pick up their shiny new Green Cards or other residency permits. In the 20 years I've been abroad I've never (in my rare visits to the U.S. embassies in places like Paris and Tokyo) been told about this. When someone does get clued in and goes to the IRS website to learn more, the language is just not clear. Now I'm a native speaker of English but I still had to talk to two tax professionals in the U.S. before I was able to wrap my head around it. It must be 10 times worse for someone who does not speak English or has English as a second or third language. The filing date of June 30th is not the same date for filing those tax returns, the form is filed with a different U.S. government entity (Treasury Department as opposed to the IRS) and it basically duplicates the information that is filed with a U.S. tax return, Form 8938 (Statement of Specified Foreign Financial Assets.) The fines for not filing (or screwing up the form) are a monstrous 10,000 USD. You know, next time we hear U.S. homelanders talk about how bureaucratic and inefficient European countries are, I think we can safely tell them to stuff it. As one person at Isaac Brock put it, this is "Form Nation" at its worst.
Enough griping. It is what it is. That governments do dumb things is hardly new and there is no reason that the U.S. government should be any more efficient or logical or less bureaucratic than any other government on this planet. There is nothing exceptional about the U.S. in this respect.
The big question is (given the IRS crackdown and the upcoming FATCA laws): will U.S. persons comply? I suspect that more will do so this year but certainly not everyone. Some folks are refusing, others are waiting for the outcome of this year's election (and praying that Obama gets tossed) and others are just confused about what they have to do to get compliant if they just learned about the filing requirement (Stephen Mopsick refers to this as the Compliance Dilemma).
I don't have any advice to offer on this. Even the "cross-border professionals" are giving conflicting strategies (file five years, file this year and comply going forward and so on). All I can do is tell you that I did get compliant (once I finally figured out that I had to file) and give you my reasons for doing so:
Stress Relief: There are few things more stressful to a law-abiding person than being told that, because you didn't file this form, you are in BIG trouble because you broke a law you didn't know about and you might be facing fines of between 10,000 and 50,000 USD because you didn't report your "foreign" (local to you) checking accounts, saving accounts, children's college funds and so on. Lot of folks stopped sleeping well at night once they got clued in. This is a really scary situation and the fact that you have to think hard about how to tackle it and the complete lack of understanding and sympathy coming from friends, family, politicians in the U.S. just adds to the stress. I know folks who are avoiding the U.S. Embassies as though they were plague-infested territory and some have even locked their U.S. passports in a drawer and have given up all thought of vacationing in the U.S. and seeing the family for the foreseeable future. I came to the conclusion that I didn't want to live like that and so, on the advice of a U.S. CPA with some experience in these matters, I just filed the damn things. Did I do right? No idea but I made a good faith effort and I sleep a lot better these days.
Buying Time: If you are stuck on the fence and not sure what to do, doing the best you can and filing something gives you all of next year to figure out your strategy going forward. However, any decision based on incomplete information under stress is probably not going to be in your best interests so this may be a good time to find a reputable International Tax attorney and start the process of figuring out what you need to do next. The situation is a lot more complicated than just FBAR compliance - there are issues of asset management, inheritance and taxes to be addressed. Reading the articles and comments scattered around the Internet, you'll find that people's experience with "cross-border professionals" really varies. Something, I think, that would be very helpful, is some kind of list of tax professionals that folks in this situation have consulted and would recommend to others. Buying time also gives those U.S. citizens who have wavered for years about getting citizenship in their host countries, an opportunity to apply and hopefully have it granted - something that greatly expands one's options going forward.
Expanding Options: Speaking of options, having that second passport and being compliant with the U.S. tax and reporting requirements makes the situation much more favorable if you are thinking about renouncing or relinquishing U.S. citizenship. In principle, you must have 5 years of compliance behind you before you renounce. So maybe it's time to get it done already so you can start singing, "Should I Stay or Should I go?" If you are compliant (and you are under the threshold for being a covered expatriate) then you can say "Sayonara" to the U.S. any time you like. Perhaps you will decide not to renounce but wouldn't it be nice to be in a position to be able to do it with a minimum amount of hassle? That was my reasoning anyway.
Sheer Perversity: An awful lot of Americans and Green Card holders abroad do not make enough money in their host countries to pay U.S. taxes even if they do have to file. Not a dime. If even half of just the U.S. citizens abroad do decide to file FBARs, that's around 3 million pieces of paper shooting straight toward Detroit where they will have to be received, processed and, I'm assuming, keyed into an information system. The time and personnel that this requires is paid for almost entirely by homelanders (people living in the U.S.) It's their tax dollars at work - not the tax dollars of a minimum wage English teacher living in Grenoble, France. Something about the vision of some poor data entry clerk in the U.S. keying in information about the younger Frenchling's savings account (she was a good girl this year and she has almost 700 Euros saved up) just makes me smile. It is such a waste of resources and, while one bank account isn't much, multiply this by 6 million people or more and all their savings, checking and other accounts that they need in order to pay rent, buy food and get paid in their host countries and that adds up to a lot of man hours.
So there is a perverse reasoning here that says if homeland Americans really want us to comply and prove that we aren't using our bank accounts for nefarious purposes, then they deserve to get the information that they seem to want good and hard. Let's call this "Feeding the Beast" - something that was done to good effect by this gentleman.
That is a mildly funny take on it but there is one aspect of this that isn't funny at all. There are people in the U.S. who have parked their money abroad to evade taxes - these are the true "tax evaders.". There are also terrorists, drug dealers and the like who have foreign bank accounts that are being used to launder money and who, through their activities, just generally make life more miserable for all of us wherever we live. When U.S. law requires the Treasury department and the IRS to process and wade through (assuming everyone get compliant) tens of millions of forms a year, the vast majority of which are just basic local bank accounts, then it seems to me that their job just got a whole lot harder and that doesn't make the U.S. (or the rest of the world) a safer place. And that is something that doesn't make me feel better about the FBAR.
I just read on the IRS website that there is now an electronic filing system for the FBAR. More info here. I took one look at the site and saw the words "BSA E-Filing system - Financial Crimes Enforcement Network". Oh my. I don't think I want anything to do with that and I will just file a paper copy....