AARO has always supported tax compliance and elimination of tax fraud. It therefore recognizes the need for financial reporting.
But as a 2019 GAO report (Foreign Asset Reporting, Actions Needed to Enhance Compliance Efforts, Eliminate Overlapping Requirements and Mitigate Burdens on US Persons Abroad [GAO-19-180], April 2019) made clear, current requirements are poorly targeted and probably ineffective.
Notably, reports on foreign financial accounts are required on three separate administrative forms: Form 8938 (filed by account holders) and Form 8966 (filed by foreign financial institutions), both required by FATCA, and FinCen 114 (“FBARs), required by the Bank Secrecy Act. Awareness of these reporting obligations is often poor, especially as regards FBARs since the filing threshold is low and they are filed separately from tax returns.
This can easily lead to non-compliance, often inadvertent, which in turn exposes holders of foreign financial accounts to very large FBAR-related fines.
AARO has recommended that financial reporting requirements for Americans resident overseas be consolidated and drastically simplified (see position paper on Financial Reporting Requirements) and that the disproportionate penalties for violations be eliminated.
The natural way to do this is to replace the existing reporting regime with the Common Reporting Standard (eliminating the FBAR), since this is already widely used internationally. Accounts located in overseas Americans’ countries of residence should not be considered as “foreign” accounts and should be exempted from all reporting.
