FATCA & FBAR: How to Avoid Costly Mistakes When Reporting Foreign Bank Accounts

Managing foreign bank accounts comes with added responsibility—especially when it comes to U.S. tax compliance. The Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank Account Report (FBAR) impose strict reporting obligations on U.S. taxpayers with financial accounts abroad. Failing to comply can result in hefty penalties, audits, and even criminal charges in extreme cases. In this article, we’ll break down the key differences between FATCA and FBAR, common mistakes to avoid, and tips to ensure full compliance.

FATCA vs. FBAR: What’s the Difference?

Though often confused, FATCA and FBAR serve different purposes and have separate reporting requirements.

• FBAR (Foreign Bank Account Report)
  • Who Must File? U.S. persons (citizens, residents, and certain entities) with foreign financial accounts exceeding $10,000 at any time during the year.
  • Where to File? The Financial Crimes Enforcement Network (FinCEN) via FinCEN Form 114.
  • Due Date: April 15 (automatic extension to October 15).
  • Penalties for Non-Compliance: Up to $10,000 per violation for unintentional errors; higher penalties (or criminal charges) for willful violations.
• FATCA (Foreign Account Tax Compliance Act)
  • Who Must File? U.S. taxpayers with foreign financial assets exceeding certain thresholds (e.g., $50,000 for individuals, higher for married couples and expats).
  • Where to File? The IRS via Form 8938, attached to the taxpayer’s annual tax return.
  • Due Date: Follows the standard tax filing deadlines (April 15 or October 15 with an extension).
  • Penalties for Non-Compliance: Starting at $10,000 per failure to disclose, with additional penalties for continued non-compliance.

Common Mistakes to Avoid

Even well-intentioned taxpayers can fall into compliance traps. Here are some of the most frequent mistakes when filing FBAR and FATCA reports:

1. Failing to File Due to Lack of Awareness
   • Many taxpayers don’t realize that their foreign accounts must be reported even if they don’t generate income.
   • If the total balance of all foreign accounts exceeded $10,000 at any point in the year, FBAR reporting is required—even if it was just for one day.
2. Underreporting or Misreporting Account Balances
   • The IRS and FinCEN require accurate maximum account balances, not estimates.
   • Exchanging foreign currencies incorrectly can lead to underreporting—make sure to use IRS-approved exchange rates.
3. Believing Foreign Banks Will Keep Information Private
   • Under FATCA, foreign banks are required to report accounts owned by U.S. persons to the IRS.
   • If you don’t report your accounts, there’s a high chance the IRS will find out through automatic reporting agreements with foreign financial institutions.
4. Failing to Report Jointly-Owned or Signature Authority Accounts
   • Even if the foreign account is jointly owned (e.g., with a spouse, parent, or business partner), each U.S. taxpayer must report their share.
   • If you have signature authority over a foreign account (even if it’s not yours), you may still have an FBAR filing obligation.
5. Assuming Crypto Accounts Are Exempt
   • While cryptocurrency holdings aren’t currently subject to FBAR, some foreign crypto exchanges offer traditional banking services, making them reportable.
   • The IRS is expected to expand reporting requirements to include foreign-held digital assets, so staying compliant now can prevent future issues.

How to Stay Compliant & Avoid Penalties

To ensure compliance and avoid costly mistakes, follow these best practices:

• Keep Detailed Records: Maintain copies of bank statements, account numbers, and any correspondence with foreign financial institutions.
• Use IRS-Approved Currency Exchange Rates: Report account balances accurately based on official IRS exchange rates.
• Consult a Tax Professional: Given the complexities of FATCA and FBAR, working with a tax attorney or CPA with expertise in international taxation can help.
• File On Time: FBAR and FATCA filings must be submitted annually—mark your calendar to avoid penalties.
• Consider the IRS Streamlined Filing Program: If you accidentally failed to file in past years, the IRS offers a Streamlined Offshore Voluntary Disclosure Program, which can reduce or eliminate penalties if you come forward voluntarily.

Final Thoughts

FATCA and FBAR compliance is a serious matter, but with proper awareness and planning, you can avoid unnecessary penalties and scrutiny from the IRS. If you’re unsure about your reporting obligations, now is the time to seek professional guidance and ensure your foreign financial accounts are properly disclosed.

If you have any questions or need help with your FATCA or FBAR filings, contact our office for expert assistance. Protect your financial future—don’t leave compliance to chance!