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FBAR Penalties for U.S. Expats in Thailand
What is FBAR?
An FBAR (Foreign Bank Account Report) is required to be filed by U.S. citizens, permanent residents and legal entities with an interest or signature authority over foreign financial accounts that have an aggregate balance exceeding $10,000.
Foreign financial accounts include but are not limited to banks accounts, brokerage accounts, mutual funds, life insurance policies with cash value, and indirect interests in foreign financial assets through an entity. The FBAR is separate from your income tax filing, and the due date is June 30th of each year. Extensions are not allowed. FinCen Form 114 can only be filed electronically.
There are two types of FBAR penalties applicable: Non-Willful and Willful. It should be noted that the penalties are assessed per account, and not per FBAR. Additionally, the FBAR penalties are assessed for each year there is a violation. For example, if you have 3 accounts that have not been reported for 4 years, there could be 12 separate penalties assessed. Each year you didn’t file is a separate violation.
Criminal penalties for FBAR violations are even more intimidating, including a fine of $250,000 and 5 years of imprisonment. If the FBAR violation occurs while violating another law the penalties are increased to $500,000 in fines and/or 10 years of imprisonment.
The IRS looks at such issues – how other accounts are treated, etc., in determining when and if penalties are to be applied, with particular attention paid to willfulness as a factor in whether a penalty is warranted.
Penalty for failure to file a Statement of Specified Foreign Financial Assets (Form 8938)
A Statement of Specified Foreign Financial Assets is included with your income tax filing. All U.S. persons who receive financial gains from foreign financial accounts that have an aggregate balance exceeding certain thresholds are required to file Form 8938. The maximum penalty for failing to file Form 8938 is $60,000 for each foreign asset that you failed to report.
FATCA & U.S. Expats in Thailand
FATCA is causing much anxiety among U.S. expat communities around the world. Roughly 110 countries are either on-board with FATCA or have active discussions with the United States. FATCA stands for Foreign Account Tax Compliance Act. Under FATCA, foreign banks are required to report account information owned by U.S. citizens to the IRS.
As of June 24, 2014, local Thailand banks will have to report account information of U.S. taxpayers to the tax authority in Thailand. This information will be sent directly to the IRS.
Thailand did not meet its June deadline to forge a Foreign Account Tax Compliance Act Model 1 intergovernmental agreement. However, Thai financial institutions have entered into voluntary contractual agreements with the U.S. IRS and have agreed to the terms of the FATCA.
Thai financial institutions including banks, custodial institutions and life insurance companies—either have to chose to participate in the program by registering with the IRS and agreeing to the terms of FATCA or face a withholding tax on any U.S. source income they receive.
How does FACTA impact Expats with Thailand bank accounts?
Expats living in Thailand or abroad are required to report the foreign earned interest on their U.S. income tax return. Before FATCA, the reporting of foreign earned interest was based on an honor system. With FATCA, IRS computers will receive your account information, and will reconcile it against your tax return. Identifying delinquent taxpayers will become an automated process.
The social security number is the critical information captured on the W-9. With this information, the IRS can match foreign bank account information with a U.S. tax return. There is no legal requirement to complete the W-9. However, your Thailand bank will probably close your account if you do not comply.
In addition to reporting foreign earned interest, you may need to file informational reports FBAR and Form 8938.
A final word: It is absolutely in your best interest to become tax-compliant in order to avoid paying huge fines and face possible jail time due to FBAR penalties. When in doubt, speak to a legal professional experienced in expatriate tax matters.
For more information on FBAR Representation, click here.