If you move abroad and build up your savings in foreign bank accounts, the financial institutions you bank with may send the IRS information about your holdings.
The United States’ intergovernmental agreement (IGA) with India is a Model 1 IGA. To comply with FATCA, foreign financial institutions (FFIs) in India must report information on accounts linked to U.S. taxpayers to their national taxing agency, which must then send that information to the IRS. This is how the IRS stays up to date on Americans’ financial holdings and assets overseas and confirms which taxpayers must file Form 8938 to comply with the Foreign Account Tax Compliance Act (FATCA). Our tax accountants can ensure you stay compliant with all reporting requirements for offshore accounts to avoid costly penalties.
Call (541) 362-9127 to speak with the tax CPAs for American expatriates at US Tax Help about your filing requirements.
What Type of IGA Does the United States Have with India?
The United States has a Model 1 intergovernmental agreement with India. This dictates how foreign financial institutions in India report information about accounts linked to U.S. taxpayers to the IRS, as required by the Foreign Account Tax Compliance Act.
Under a Model 1 IGA, FFIs report information about U.S.-affiliated accounts to their national taxing agency. The Indian Revenue Service would then hand that information over to the American government. Under Model 2 agreements, foreign financial institutions give data and information to the IRS directly instead of passing it through their country’s taxing agency.
Model 1 IGAs are the most common type, with the majority of the over 100 countries that have IGAs with the United States using this model.
In general, the type of intergovernmental agreement a country has with the IRS is not hugely significant to American taxpayers who maintain offshore accounts there. What matters most is that the country where your financial assets and bank accounts are concentrated has an IGA in place with the United States at all. Most do, so anticipate the foreign financial institution you bank with to regularly send information about your accounts and finances to the IRS. The IRS will expect the information it gets from you on Tax Day to align with the information it gets from your FFI.
What Does India Having an IGA with the United States Mean for Expats?
If you expatriate to India from the United States, the fact that it has an IGA with the U.S. means it will give the IRS details about your foreign financial accounts. The information an FFI discloses should align with the details you disclose on Form 8938. Otherwise, you could incur substantial financial penalties from the IRS.
Because India has an IGA with the United States, the IRS will likely be aware of your foreign bank accounts and other financial assets before you disclose them on Form 8938 by Tax Day. The IRS is largely looking to see if you confirm what they already know. Accuracy on Form 8938 is crucial for FATCA compliance and to avoid financial penalties, and our tax CPAs for American expatriates can ensure this when assisting you with your tax return and any mandatory forms.
It could impose harsh penalties if the IRS realizes you have not complied with FATCA for recent tax years. The initial consequence for failing to file Form 8938 is $10,000, but it could increase to $50,000 if taxpayers ignore notices from the IRS about their non-compliance. Getting notices from the IRS when living in India can be difficult, delaying when taxpayers learn of the issue. By that point, the IRS might have already imposed a financial penalty.
Many people expatriate without fully understanding how their tax and reporting liabilities change. Even non-willful FATCA violations can lead to financial consequences. In fact, they likely will, as countries with IGAs with the United States are incentivized to honor them. Foreign financial institutions in India that don’t comply with FATCA can also be penalized, possibly facing a 30% withholding on U.S. income.
In short, India’s IGA with the United States means that the IRS will likely know about your financial holdings and assets, even if you fail to report them on Form 8938.
Does the IGA Between the United States and India Cover FBAR Violations?
IGAs under the Foreign Account Tax Compliance Act do not cover reporting to the IRS to monitor taxpayers’ FBAR reporting responsibilities. However, if an FFI in India reports your bank account balance to the IRS and you do not then file an FBAR, that would indicate a discrepancy to the IRS that it may investigate further.
Filing Reports of Foreign Bank and Financial Accounts became mandatory long before FATCA was passed in 2010. The reporting thresholds for filing FBARs are far lower than filing IRS Form 8938. Expats living in India must disclose their specified foreign financial assets if they exceed $200,000 on the final day of the tax year or $300,000 on any day during the tax year. Expats who live in India must file an FBAR if their foreign bank accounts exceed $10,000 at any time.
Under India’s IGA with the United States, it sends information to the IRS about U.S.-linked accounts, regardless of their amounts. This could tip the IRS off about your FBAR filing responsibility, even if your foreign accounts never reached the threshold for Form 8938 filing.
The penalty for non-willful FBAR violations is also $10,000, though it increases substantially if the IRS believes you intentionally did not submit an FBAR for that year. Our tax CPAs can help avoid FBAR penalties by submitting the appropriate forms and information to the Financial Crimes Enforcement Network by Tax Day.
Call Our Tax Accountants for Expats Living in India
Call (541) 362-9127 to learn more about the services our tax CPAs for American expatriates at US Tax Help provide.