SadInStates

When we moved back to the UK and opened up a bank account we just showed them our British passports, so here's probably a very silly question.

How will financial institutions be able to tell if an individual is a USC, when they have to start reporting to the IRS on 1st January 2014?

Obviously some will be easily identified by either their place of birth on record, or if they showed a US passport when they opened their account, but what about those USC (like us) who were born in Britain, still sound British, and had British ID?! Even a previous address in the US doesn't mean that person is a USC.

I just can't get my head round how it's going to work!

ldollard

unless i'm mistaken, its up to you to report your earnings if they are above the predescripted threshold using this form. http://www.irs.gov/pub/irs-pdf/f8938.pdf

Not the UK bank.

You attach that form to your tax return.

JAJ

In theory, the bank is supposed to search its records for evidence of U.S. status. The level of detail to which the bank is supposed to look is dependent on the account balance.

As someone else has said, regardless of what the bank does, you need to report the account yourself (assuming you are a U.S. citizen) if your balance exceeds the filing threshold. There are two different forms, form 8938 (FATCA) and TDF-90 (FBAR). They have different exemption thresholds and filing deadlines. Be familiar with both.

penguinsix

There are two angles here: one, what the bank is required to do, and two, what you are required to do.

Guidance has been issued by the UK government here:
http://www.hmrc.gov.uk/drafts/uk-us-...ance-notes.pdf

Section 4 deals with self-certification in new accounts, and section 5.4 deals with some of the methods banks will use to determine if an account should be investigated further. For future accounts with UK banks, don't be surprised if the new forms ask you for your 'tax residence' or more blatantly ask "are you a US resident for tax purposes?" Section 5 deals more broadly with the electronic searches they propose conducting for existing accounts.

http://www.hmrc.gov.uk/drafts/uk-us-...ance-notes.pdf

But besides all this, at a personal level, you are required to report an account that falls within the FATCA reporting requirements, as well as required to file an FBAR report (if you qualify for FATCA, you basically qualify for FBAR). The penalties for non-reporting can be severe.

I think the last few years of FBAR have shaken things up a bit. For years, decades even people were like "how would they ever know". Now that the US is moving very forcefully to get data from other countries, people are in a bit of a panic to get uptodate on past-due FBARs. Now with FATCA and a new set of penalties, many folks aren't doing the "how would they know" but just going ahead and filing.

SadInStates

Thanks for the links. I didn't know that we had to file FATCAs too! Do we do that at the same time we file FBARs, and to the same place?

Another question the HMRC link threw up was what they mean by 'aggregate' balance.
It implies that all accounts held by should be reported if they jointly go over the threshold, even though they have separate account numbers.

Eg accounts held in Bank Z.
Account abc has $20k and
account pqr has 35k
Individually they don't require reporting to FATCA, but jointly they do. And the example in the link also included accounts held both individually and jointly with a spouse.

I thought separate accounts within the same institution were treated separately and would only need to be disclosed to either FBAR or FATCA if the balances went over the thresholds within each particular account?

So in the above example would I need to disclose to FATCA or not?
And likewise, if the totals added to over $10k, to FBAR?

There was also a little example similar to above, but where the accounts were held in different institutions!

My confusion is also compounded by reading on another forum where someone said you have to disclose all accounts including those with zero balances!

penguinsix

Let's talk just about FBAR because it's been around longer and the procedures are more in place. FATCA just went into force this year so I'm not familiar with all the rules.

For FBAR, it's "aggregate" account balance. Basically, if you have > $10,000 in foreign bank accounts, you have to file and report ALL overseas bank accounts. Once you cross the threshold, everything gets reported.

Example 1:
Acct 1: $5,000
Acct 2: $6,000

Total aggregate balance, $11,000. Report the details of Account 1 and Account 2.

Example 2
Acct 1: $20,000
Acct 2: $1.56
Acct 3: $100
Acct 4: .53¢

Report Account 1-2-3-4 because you were over $10,000 in aggregate.

Example 3:
Acct 1: $4,499.
Acct 2: $5,000.

Do not need to report either because balance is $9,999.

I'm not familiar with FATCA in as much depth, but I suspect the aggregation rules would apply the same as they do with FBAR.

Please note that if you are an overseas resident, meeting either the Bona Fide test or the Physical Presence test, then the FATCA minimums are much higher. I think it's $200,000 instead of $50,000 (or something like that--please double check).

http://www.irs.gov/Businesses/Corpor...l-Assets”%3F

p.s. you are far from the first person to think it was each individual account--don't be too stressed--many people have run into the same confusion.

theOAP

In some cases, it may not work, even with searches by the UK banks on 'US indicia'. Some 'accidental Americans' may be difficult to detect by the bank, but the individual will still have an obligation to file even though they have no clue that they have a US tax and FBAR reporting responsibility. There may be a surprising outcry once the first individuals are identified, and the UK media get hold of the story. But by then, it will be too late.

On the other hand, some innocent Brits could come under suspicion. One of the 'indicia' is regular deposits into a US bank account from a UK account. If Brit parents have a child studying in a US university, and make regular payments to support the child via a US account, the bank may be forced by FATCA rules to question their US link. They will be able to explain the situation to the bank (and HMRC), and not have to file a FATCA form, but it's still an inconvenience.

Although the purpose of the law is good, to detect tax evasion, the drafting and enforcement of the regulations could lead to some absurd situations.

theOAP

For both FBAR and FATCA (form 8938), the aggregate includes more than just bank/building society accounts.

FBAR will include some types of UK pension schemes, debit cards, etc.

FATCA will include all UK pension schemes (but not the UK State pension) and various other financial 'assets'.

SadInStates

So what happens about all the FBARs filed incorrectly? We were about to do just that with our first FBAR! We also thought it was only those living abroad who had to file them, so didn't do it for 2011 which is when we first heard about them.

The more I read, the scarier it becomes, and I feel sick to my stomach.

SadInStates

So are we even supposed to be filing FATCAs yet or is that from 1 Jan 2014?
And if so, how far back do they need to go?

theOAP

The first year for an individual to file form 8938 (FATCA) was for US tax year 2011. Some had to file a few months earlier, but it's doubtful you were one.

penguinsix

The issue of what to do about failure to file past FBARs really depends on your personal circumstances, and more appropriately, whether or not there is any tax due on that money.

For example, you have a UK bank account(s) that pushed you over the $10k limit. You didn't file, but the money that went into these reports was part of your US income and you did pay taxes on it.

vs.

You had a UK bank account and you got a windfall of money in the UK that you put in there and didn't report as income.

Honestly, past-due FBARs are probably not a DIY sort of thing. You might want to contact some of the US-UK tax and accountant folks that work in London for some guidance. If there is no tax due, it's generally just a paperwork shuffle with a bit of an apology and a "don't do this again" kind of warning. If there is tax due on the money, then you could get into the world of tax penalties on undeclared income.

http://www.forbes.com/sites/robertwo...he-first-time/

You may want to talk to the US expats in the UK website. They have a forum specifically for tax related issues (including FBARs)

http://talk.uk-yankee.com/index.php?board=11.0

JAJ

Nothing, usually. As long as taxes have been paid, it's highly unlikely there will be any problem. There's a lot of scaremongering out there but not one single reported case where penalties were levied, except where people unnecessarily self-reported into the voluntary disclosure program.

Choice is either to file FBAR going forward correctly and do nothing else, or amend/file FBARs for prior years. If taxes have been paid, there's nothing to worry about.

Hotscot

And of course I've been asking about FATCA on another thread. I've spoken to two tax attorney's already and they're still unsure if I should be reporting my non trading investment in a manufacturing multinational based in France.

I'm tempted to report it to avoid non-filing penalties but it's causing a lot of confusion even with experienced professionals.

penguinsix

It's an eff'ing nightmare. People are unsure whether all sorts of things can be considered "foreign accounts." I even saw a heated discussion about Oyster Cards once--did it count as an 'account' for FBAR purposes (the IRS had to actually issue guidelines about things like that)