The U.S. government is aggressively seeking intergovernmental agreement (IGA) with countries around the world to improve international tax compliance. That means that financial institutions in ING countries will soon begin reporting to the IRS the names, tax identification numbers and balance information of American citizens with foreign financial accounts (e.g., bank, brokerage, mutual fund). In all probability, Nicaragua is unlikely to sign an IGA with the United States anytime soon. Nevertheless, U.S. expats are subject to certain reporting requirements.
U.S. expats with aggregate balances in foreign financial accounts above specific thresholds are required to file certain informational reports. There are two such reports. The first is called FinCen 114 (formerly known as FBAR). The USD threshold is met if the aggregate balance (combining all the accounts) exceeds $10,000 at any point during the year. This low amount impacts a large percent of expats around the world.
The second report is Form 8938 (FATCA). The threshold is much higher. For expats filing an individual tax return, it is $200,000 aggregate balance on the last day of the year, or $300,000 aggregate balance at any point during the year. For expats who are married filing jointly, the threshold is twice the amount.
The penalties for failing to disclose are rather severe. With the FinCen 114, failure to report carries a penalty up to $10,000. Willful non-compliance potentially raises the penalty up to $100,000, or 50% of the taxpayer’s foreign assets (whichever is greater). With FATCA, The maximum penalty for failing to file Form 8938 is $60,000 for each foreign asset that you failed to report (even more severe than for the FBAR).
Disclaimer: The answers provided in this article are for general information, and should not be construed as personal tax advice. Tax laws and regulations change frequently, and their application can vary widely based on the specific facts and circumstances involved. For more information, visit: HolaExpat.com