The Association of Americans Resident Overseas – AARO – recently conducted a 4 month survey to see how Americans with offshore financial accounts were adapting to the mandatory electronic FBAR filing regimen. For decades, U.S. taxpayers with offshore accounts had to paper file FBAR reports each June. Now, FBARs must be filed electronically.
Short for Report of Foreign Bank and Financial Accounts, an FBAR must be filed for every offshore account when the aggregate balance of those accounts exceeds $10,000 (in U.S. dollar equivalents). Last summer, the AARO decided to survey members about their experience with the new electronically filed FBAR form. Although 247 people responded, we don’t know how accurate the results are and if they are reflect the views of tens of thousands of Americans who still have not reported their offshore holdings.
Of the 247 taxpayers that completed the survey, only 218 filed an FBAR. In our experience, most expats living abroad have reportable foreign accounts, suggesting that compliance rations are still low. Perhaps more telling, 16 of those folks had just filed their first FBAR. Because the survey was aimed at folks who had filed FBAR forms, we don’t really know the percentage of taxpayers that are still noncompliant.
Did people timely file? Not always. The survey found that 26 of the 218 FBAR filers did so late.
Of those that did file, many used the service of an offshore tax service. (Although we can file FBAR forms for clients, it is normally much more cost effective to self file.) For those who want to avoid the hassle and use an economical offshore service, we send folks to Greenback Tax Services.
Taxpayers who completed the survey had a wide variety of complaints from privacy concerns to problems with the electronic filing system to concerns about the necessity for even reporting foreign accounts.
Included on the list of recommendations by the AARO is a suggestion to raise the filing threshold from $10,000 to $50,000. We agree and suggest the threshold be pegged to the consumer price index. $10,000 in 1970 dollars equates to $60,864 today.
A second suggestion by the AARO is to exclude “same country” accounts. The AARO thinks that taxpayers who can show they are fiscally domiciled in another country and have accounts in that same country should not be required to report those accounts because the host country is already “fully aware” of the accounts. While we agree that the entire offshore reporting regimen needs to be improved, this suggestion isn’t likely to pass. Uncle Sam doesn’t care what the host country knows; it wants to know what foreign assets belong to Americans.
What does it all mean? First, the survey isn’t very useful to determine how many millions of Americans remain out of compliance. Because participants were drawn from the pool that had already filed FBAR. We presume the compliance rate remains quite low.
Second, people are using expensive providers to prepare and file their FBAR forms. Although our tax practice concentrates on unfiled FBAR form, we think most folks can learn to eFile within an afternoon. If you are going to use an expat tax service, check around. Rates vary tremendously along with the quality of service.
Finally, we a bit surprised to find so many folks were late in filing. Given the huge civil penalties and aggressive enforcement efforts, the best practice is to always file timely.
Have one or more years of unfiled FBAR reports or not sure of your offshore filing obligations? Give us a call. Our initial consultation is without charge and most services can be provided on a flat fee basis. For more information, contact attorney Bethany Canfield at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in confidence.