We all know that knowing your blood pressure, cholesterol and A1-C numbers are vital to your health and well being. You could live a long life without knowing these numbers, but that is only because you are lucky and not because you are wise. In today’s complex world, it is very important to understand FBAR and FATCA. These are vital for your financial health and well being.
What is FBAR?
The United States government requires all U.S. Citizens and Permanent Residents to declare their Foreign Financial Assets on an annual basis. This information is collected by the Internal Revenue Service and Department of Homeland Security. The reporting threshold is a total of $10,000 that is held in foreign banks and securities (such as mutual funds and bonds). This information is to be reported annually on a form also known as Fin.Cen.
Many people of India Origin have not complied with this law and now face severe civil and criminal penalties. The penalties used to be 27.5% to over 100% of the value of the assets, but now there is a special amnesty program that reduces the penalty to 5%. There are, however, special conditions that must be met to qualify for this amnesty. The most important aspect is to prove that your neglect to comply was not willful (intentional).
What is FATCA ?
Since many people did not comply with the reporting requirement outlined above, the U.S. government passed a law that required the financial institutions to report your holdings directly to the Internal Revenue Service. This law was passed in 2014 and is known as FATCA (Foreign Account Tax compliance Act). If the IRS contacts you because they have received information from your bank or financial institution, you are generally in deep trouble. There is a fine for every day that you do not respond to the IRS letter. Further, if your bank in India does not comply with the IRS, it may be placed on a dirty banks list, which has bad consequence for the bank.
What is Form 8938?
This is a part of your Schedule B on the annual 1040 reporting of your annual taxes to the IRS. On this form, you are required to report any income received in a foreign country. All interest in NRO, NRE and savings accounts in India must be reported. All dividends and Capital gains must be reported, both from sale of securities and real property. If you own any real estate that produces income, that income must be reported.
What must be done if you are delinquent?
The main thing is to act quickly. The penalties are much lower if you report this information vs. if the IRS contact you. The actual actions vary depending on the facts of the individual situation.
A resident of Texas for over 40 years, Ranvir Mohindra has been involved with many issues that are relevant to the South Asian community living in the United States. Whether you have money in India that you did not report or have inherited an ancestral property, there are new rules of compliance. Mr. Mohindra’s expertise is built on personal experiences and access to tax and legal professionals, both in Houston and in India, who can provide additional support to bring you in compliance and protect your assets. He can be reached at 713-805-0915 or firstname.lastname@example.org