Can a Tax Treaty Help You Avoid Filing FBAR - Golding and Golding (Board-Certified in Tax) 2023

The IRS takes the position that a treaty cannot be used to challenge FBAR filing requirements. In our prior FBAR treaty article from back in 2022, we explain the IRS’ position under their Publication 5569 and Practice Unit Guide. But, in 2023, a new court case challenged the IRS’ position about treaty rights and FBAR rules. There is currently a very important case brewing at the federal court level (Aroeste v US) involving a nuanced FBAR foreign account penalty conundrum. In general, there are three categories of individual taxpayers who have to file FBAR: US Citizens, Lawful Permanent Residents, and Foreign Nationals who meet the Substantial Presence Test. But what happens if a taxpayer resides overseas and makes a treaty election to be treated as a foreign person so that they are not considered a US person for tax purposes? In other words, if someone is a permanent resident of the United States but claims treaty benefits to be treated as a foreign person, are they still considered a US person for FBAR filing purposes? Let’s take a look at what the court says.