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Dear Tax Talk,

My dad has no income and thus does not file tax returns in the U.S. He does have a few CDs, or certificates of deposit, in a bank in India worth $48,000 to $52,000 (depending on the currency conversion rate). The interest will be posted upon maturity in 2017. Does he need to fill out the FBAR and FATCA? Will there be a penalty? Thank you much!

— Sejal

Dear Sejal,

If your father is a U.S. citizen or resident, he will be required to file the FinCEN Form 114 (formerly known as the “FBAR,” or Foreign Bank and Financial Accounts) since the value of the account exceeded $10,000 during the year.

The Financial Crimes Enforcement Network, or FinCEN, requires that any “U.S. person,” defined as either a U.S. citizen or resident, who has “financial interest in or signature authority over a foreign financial account” must file what was formerly the FBAR if the “aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.”

Since your father’s account balance exceeds this threshold, he would have to file the FBAR for tax year 2015 by June 30, 2016, which is just around the corner. Penalties for not filing can be $10,000 or more, depending on if the failure-to-file is deemed to be “willful” or not, so it is imperative to be in compliance. It is not completely clear from your question whether your father is a U.S. citizen or not, so that plays a part in his filing requirements, as well.

The FBAR must be reported on an account-by-account basis. However, the $10,000 threshold is an aggregate threshold, so even if you have several accounts under $10,000 each, but they sum to more than $10,000 in the aggregate, you are required to report all of the accounts. The form must be electronically filed and can be done at the BSA e-filing website.

What’s the FATCA?

The FBAR is different from FATCA, which is the “Foreign Account Tax Compliance Act.”

Whereas the FBAR is a required financial filing that your father, the taxpayer, needs to prepare, FATCA refers to the Act enacted by the U.S. Congress in 2010 that requires foreign financial institutions to report to the IRS information about accounts held by U.S. taxpayers. Therefore, the institution that holds your father’s bank account is obligated to report the account balance of any U.S. persons, including your father.

These regulations are enforced by the IRS and the foreign bank accounts have become easier to track, given the new, more stringent, bank reporting requirements of FATCA.

As for the interest, that will be reported the same as any other interest, meaning that it will be included on your father’s Form 1040 tax return. You mention that this is being paid upon maturity in 2017, so the interest will need to be included on his 2017 Form 1040 tax return.

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Thank you for the great question and all the best to you and your father.

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