The FBAR and FATCA obligations with respect to French bank accounts are extensive and can often be quite burdensome for US owners of these accounts. This is one of the main reasons why France has been consistently one of the top sources of clients for my firm with respect to offshore voluntary disclosures. In this essay, I would like to discuss the FBAR and FATCA obligations of individual US taxpayers who own French bank accounts.
Who Needs to Report French Bank Accounts to the US Government?
It is important to understand that, with respect to individuals, all US tax residents must comply with their FBAR and FATCA obligations concerning their French bank accounts. US tax residency is defined broadly to include US citizens, US “green card” holders, any individual who satisfied the Substantial Presence test and individual who declared himself a US tax resident on his US tax return. This is the general rule; important exceptions exist and it is the job of your international tax attorney to determine whether you are eligible for any of these exceptions.
FBAR Obligations With Respect to French Bank Accounts
US tax residents must file FBARs with respect to their French bank accounts as long as they meet the filing requirements of this form.
FBAR’s current official name is FinCEN Form 114, the Report of Foreign Bank and Financial Accounts. It is one of the important and dangerous information returns that exists in the United States. Let’s understand a little bit better why this is the case.
FBAR must be filed by a US person as long as the aggregate highest balance on this person’s foreign bank and financial accounts (including signatory authority accounts, not just accounts owned individually or jointly) is in excess of $10,000. As used here, “US person” is almost identical to the definition of a US tax resident.
The term “account” is defined much broader for FBAR purposes than how this term is commonly used in our society. It includes not only the regular checking and savings accounts, but also investment accounts, life insurance policies with a cash surrender value, precious metals accounts, earth mineral accounts, et cetera. In other words, if there is a custodial relationship between the financial institution and the US person’s foreign asset, it is very likely that the IRS will determine that an account exists for FBAR purposes.
Now, we can appreciate why FBAR is such a dangerous form – it has very low eligibility requirements. The combination of a low filing threshold of just $10,000 and a very broad definition of “account” makes it very likely that a US owner of French bank accounts will need to file this form.
Moreover, not only is it easy to trigger the FBAR requirement, but the FBAR penalties are outrageously high. Not only are there potential criminal penalties, but there are also significant civil willful penalties (up to $100,000 adjusted for inflation per account per year or 50% of the value of the account per year, whichever is higher) and civil non-willful penalties (up to $10,000 adjusted for inflation per account per year). In other words, the FBAR penalties can have a devastating impact on the economic well-being of an owner of French bank accounts.
The low filing threshold, broad definition of account and draconian penalties make FBAR the most dangerous form with respect to French bank accounts; an utmost effort must be made to file FBARs timely and correctly.
FATCA Form 8938 Obligations With Respect to French Bank Accounts
FATCA Form 8938 is the broadest (in terms of the assets covered) information return in the US tax code with respect to reporting of foreign assets. This form is filed with a taxpayer’s US tax return (unlike FBAR) and requires US persons to report all of their Specified Foreign Financial Assets (“SFFA”).
SFFA includes a huge array of foreign financials assets, including foreign bank and financial accounts (however, signatory authority accounts are not reportable on Form 8938) and “other” foreign financial assets. Among these “other” assets are bonds, stocks, ownership interest in a closely-held business, beneficiary interest in a foreign trust, an interest rate swap, currency swap; basis swap; interest rate cap, interest rate floor, commodity swap; equity swap, equity index swap, credit default swap, or similar agreement with a foreign counterparty; an option or other derivative instrument with respect to any currency or commodity that is entered into with a foreign counterparty or issuer; and so on.
Moreover, in addition to SFFA, Form 8938 requires US persons to report their foreign income related to SFFA directly on the form. In other words, FATCA Form 8938 directly incorporates the worldwide income reporting requirement.
The filing threshold for Form 8938, while lower than that of FBAR, is still not high. For example, if a taxpayer lives in the United States, he will need to file Form 8938 if he has SFFA of $50,000 ($100,000 for a married couple) or higher at the end of the year or $75,000 ($150,000 for a married couple) or higher during any time during the year. A very large portion of the French immigrants to the United States meet these thresholds.
Let’s go over the main penalties. First, Form 8938 has its own $10,000 failure-to-file penalty which may go up to as high as $50,000 in certain circumstances. Second, Form 8938 noncompliance will lead to an imposition of much higher accuracy-related penalties on the income tax side – 40% of the additional tax liability. Third, Form 8938 noncompliance will limit the taxpayer’s ability to utilize Foreign Tax Credit.
Finally, since Form 8938 is integrated within a taxpayer’s US tax return, the failure to file Form 8938 will keep the Statute of Limitations open potentially on the entire tax return for three years after the form is ultimately filed (and, potentially forever if the form is never filed). This means that the IRS may be able to go back much further than the general three-year statute of limitations in order to audit past tax returns.
Contact Sherayzen Law Office for Professional Help With the US Tax Reporting of Your French Bank Accounts
If you have French bank accounts, you should contact Sherayzen Law Office for professional help. As you can see, both FBAR and FATCA requirements concerning French bank accounts may be quite complex and difficult to meet. Moreover, the failure to comply with either of these requirements may result in the imposition of heavy IRS penalties.
Sherayzen Law Office has extensive experience with respect to reporting French bank accounts in the United States. Furthermore, we have successfully conducted numerous offshore voluntary disclosures in order to remedy past tax noncompliance with respect to these accounts. We can help You!