Purpose of FBAR

This is an incredibly basic question, but can I check the purpose of the FBAR? Is it to make sure we are reporting all our savings, etc? My question is this - I'd like to put some savings in an ISA. As long as I report the interest on my 1040, would I be penalised for having more than 10000 in my accounts? My husband (NRA) has maxed out his ISA, and it feels stupid to not take advantage of my own chance to get a slightly better savings account then leaving it in a standard account in his name (we have separate accounts). We're trying to save for a house deposit.

Thanks!

According to one source, this is the purpose:

The FBAR rules were established to provide investigators with leads and information required to track down and prosecute criminal activity, tax evasion, money laundering, and international terrorist activities. In addition to tracking illicit funds and unreported income the information provided is invaluable to intelligence and counterintelligence annalists to protect against international terrorism.

You're not penalized for having more than $10K in your accounts - that's just the aggregate value that trips the need to file the FBAR. Just be careful about ISAs. I don't know much, but I've read on here that it should only be a cash ISA. Someone else with more knowledge will likely jump in.

Hi
I am new to this so looking for some guidance.  My husband is a UK citizen and returned to the UK late last year.  He started working in January 2014. 
I (hopefully) will be relocating to the UK from the US (I am a US citizen) and starting work next month.  I have been unemployed here in the US since September of last year. 

I filed my US taxes for 2013 and as always, I file married / joint and usually it is just my income as my husband is considered a resident alien in the US and has no income.  We use an ITIN number for him. 

Now things have obviously reversed.  He is working in the UK and I am not working in the US but plan to start working in the UK. 

I know I need to file a US tax return whether I am working or not and I can only assume that we need to show my husband's UK income, correct?  Are they going to "double tax" him because he is married to a US citizen?  I ask, because I think we need to file married / joint for the US even though I have no income but because we are looking to submit a FLR (M) in 2 1/2 years in the UK and I think it might look weird if I do not include him on my US tax return after all of these years of doing so. 
And I wanted to clarify the FBAR.  When I open a bank account in the UK will I automatically have to submit an FBAR or is it only if I have 10,000 in it at any one time? 

Did I just make that confusing? (LOL).  Any help would be appreciated.  Can provide more clarification if my question is worded wrong.   Cheers Annie

Hi TAnne1 -

(This is not professional advice - do your own research, satisfy yourself, and go from there.)

FBAR filing is only required when the aggregate value of all foreign financial accounts (your own or an AC for which you have signature authority) exceeds $10,000 at any point in time during the year. It can kick in in funny ways - transferring money from 1 UK account to another can make it appear that you have >$10K for a nano-second on a given day, when in fact you don't. For example - you have $6K in an account, but decide to open account #2, and transfer $5K - there is a moment in time when AC #1 says $6K and AC #2 says $5K....and that means filing a FBAR. Seems silly (and it is), but that's one simple explanation for the 'when do I need to file?' rule.

If your foreign accounts (including ISA) don't exceed the $10K amount, then you don't need to worry about it.

You need to re-think how you file your US tax return, and part of that will be based on your husband's US status, and whether he still holds a green card (or has given it up). Typically, if the UK spouse has NO income from the USA (and that includes interest on a joint AC), does NOT have a green card, and is NOT a US resident, then your filing status would be 'married filing separately' as it's usually not to your advantage to include his income. If you meet the requirements, you can claim an exemption for him, which is made easier since he has an ITIN.

The UKVI will not care how you file a US tax return, or even whether you do or not. That's not a document they ask for or would even understand. Don't worry about that w/r/t the future FLR(M) application.

If your husband is NOT subject to US filing requirements and you have no income or your income is below the filing threshold, you don't need to file a US return, though it may be to your advantage to do so.

A couple of the tax professionals will likely jump in here and quote a lot of stuff, some of which will sound really scary. There's various rules/scenarios for green card holders that are no longer resident aliens that might apply to your situation; read and research and go from there. Don't over think everything, but don't put it off until next April either  . Also, don't assume that you need to pay for dual qualified tax preparation services. Most of us have situations that don't require that expenditure.

Vadio

Thank you so very much.  That eases my mind quite a bit.  I really appreciate all of your information.  I will most likely file a return regardless because at the moment I am a student.  I was able to get my studies transferred to an online program of study and can continue them even when I am in London.  I believe I get some type of credit for being a student so will research that before I file.

Again, thank you so much.  Cheers Annie

In the interests of accuracy, let me point out that Vadio is wrong about the calculation of the $10K FBAR threshold. Read the instructions for Financial Crimes Form 114 (formerly the FBAR form)

http://www.fincen.gov/forms/files/FBAR%20Line%20Item%20Filing%20Instructions.pdf

It says:

Step 1. Determine the maximum value of each account (in the currency of that account) during the calendar year being reported. ...

Step 2. In the case of non-United States currency, convert the maximum account value for each account into United States dollars. ...

If the maximum account value of a single account or aggregate of the maximum account values of multiple accounts exceeds $10,000, an FBAR must be filed.


So it's not, as some people say, a matter of whether you have a total of over $10K at any time during the year. You might never come near that. For example, suppose you had $4k in one account in February and $6k in another account in October, then you've hit the threshold.

to repeat what I said -

FBAR filing is only required when the aggregate value of all foreign financial accounts (your own or an AC for which you have signature authority) exceeds $10,000 at any point in time during the year.

Perhaps it was stated badly, but I believe that's just another way of saying:
aggregate of the maximum account values of multiple accounts exceeds $10,000, an FBAR must be filed.

to repeat what I said -

FBAR filing is only required when the aggregate value of all foreign financial accounts (your own or an AC for which you have signature authority) exceeds $10,000 at any point in time during the year.

Perhaps it was stated badly, but I believe that's just another way of saying:
aggregate of the maximum account values of multiple accounts exceeds $10,000, an FBAR must be filed.

It is not the aggregate value ... at any point in time. Weller is correct. It is the total of the maximum values of each individual account at any point in time. The maximum of one account may be in April, for another it may be October.

http://www.fincen.gov/forms/files/FBAR%20Line%20Item%20Filing%20Instructions.pdf

From page 4, paragraph 2 under General Instructions:

Who Must File a FBAR. A United States person that has a financial interest in or signature authority over foreign financial accounts must file a FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. See General Definitions, to determine who is a United States person.

If anyone is possible confused due to an inappropriate use of "point in time" rather than "at any time", then I humbly admit that I was incorrect.