Why are we required to file FBAR

Jan 1, 2014

So who’s the bad guy?

Thomas Jefferson explained the purpose of the government to “enable the people of a nation to live in safety and happiness. Government exists for the interest of the governed, not for the governors”. From first glance, it would seem that Thomas Jefferson would be a staunch opponent of current overseas compliance regulations. While in existence for years, the IRS’s recent focus on US citizens abroad to timely report all of their financial accounts appears to be solely for the “governors” interest while placing undue and unnecessary hardships on the “governed”.

Most taxpayers are quick to criticize the United States’ Big Brother approach and attack the IRS’s full disclosure requirements and compliance enforcements. “What right does the IRS have to know what’s in my bank?” and “Why does the IRS even care what accounts I have?” are two of the most common questions you hear in an expatriate US tax office. There is an interesting distinction between these two questions – the first is an exclamation of frustration, challenging the assertion that the US government has a right to an individual’s financial information, and is part of a much larger debate. The second question, however, is much simpler and more easily justified. Why should a US citizen living overseas whose annual salary is less than minimum wage be required to find their small bank balances and to gather up any irrelevant pension accounts for annual reporting to the IRS? Or in the words of many clients, “I’m so poor! What does the IRS really think I am hiding?” Or in accountancy terms, why aren’t these people deemed immaterial?

Congressional Research Service reports that U.S. citizens hiding money in foreign accounts cost the United States around $70 billion per year. Over a decade, tax losses total nearly $1 trillion! From this perspective, it is quite understandable that the IRS has increased enforcement of offshore disclosure requirements. In the words of Thomas Jefferson, the IRS has the responsibility to protect “the interest of the governed” by placing compliance regulations on those who are hiding money overseas and effective stealing hundreds of billions of dollars from innocent U.S. taxpayers.

However, this only addresses half the problem. While the FBAR requirements can be justified in theory, they still place an enormous burden on the average American taxpayer living overseas. Clearly there needs to be some sort of distinction between individuals living paycheck-to-paycheck and those fraudulently hiding millions of dollars in offshore accounts – both of whom are currently grouped together as illegally hiding money overseas.

Interestingly enough, one partial solution to this problem might come in the heavily criticized FATCA regulations. Currently, taxpayers are required to “double report” foreign financial accounts on both FBAR and FATCA; however it is very possible in the future that FBAR would be replaced entirely by FATCA. This change would drastically increase the filing threshold for those living overseas from the current $10,000 FBAR requirement to between $200,000 and $400,000. While many “innocent bystanders” will still be left with reporting requirements simply for having a financial account outside of the United States, the increased threshold would alleviate the pain to the lowest risk category of taxpayers, and be a step in the right direction towards protecting the safety of individuals from fraud while not impeding in their happiness of being able to live as a nation. Which according to Thomas Jefferson is the exact purpose of a government.

 

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Many taxpayers receive identity verification notices from the IRS, and in most cases, the process is straightforward and can be resolved without much difficulty.

You have the following options to verify your identity:

Option 1: Verify through the IRS using your ID.Me account

 


Option 2: Use the IRS Document Upload Tool

    • Please note when they ask for the access code answer "no" and put in the notice/letter type 5447C

    • Alternatively, we can upload the documents on your behalf. (Please note additional fees apply.)

For both options 1 and 2:

    1. Allow at least 30 days to process.
    2. You can then check your status on IRS Where's My Refund or request that we pull your transcript.


    Option 3: Call the IRS

      1. Phone number: 1-267-941-1083

      1. When calling the IRS please note that there could be long wait times. We recommend the best time to call is as close to 1PM Israel time as possible, when the lines first open.

    When speaking with the IRS agent:

      • Let them know you are calling in response to a Letter 5447C letter for tax year 202x.

      • Provide the control number as it appears on the first page of the letter.

      • Be prepared to answer any question they ask from the first 2 pages on both tax returns, including:

          • complete address

          • filing status (Head of Household /Married Filing Separately / Married Filing Joint/ Single)

          • refund amount.

      • If you are unsure of an answer you may ask the agent where it can be found on the return.

      • Know the dates of birth for you and the children on the return

      • Know your mother's maiden name

      • If they ask about W-2 income, tell them since you live outside of the US your income isn’t reported on a W-2, but rather the equivalent form 106 instead.

    They hopefully will not ask any more financial questions.

    If your identity is successfully verified during the call, the IRS will typically inform you immediately. Your refund should then be released within approximately 6-9 weeks.


    Documents Required in All Cases

    Regardless of the verification method you choose, you will need:

      • a copy of the 5447C letter you received

      • the first 2 actual 1040 pages of your 202x and 202x tax returns

    Additional Documents for ID.me or Document Upload Verification

    If you are verifying online through ID.me or using the IRS Document Upload Tool, you will also need:

    Two clear copies of acceptable identification, as listed in the IRS letter (for example passport and license).