Authored by: Robert M. Gordon, Managing Director
Jose Paz, Manager
The United States government's crusade to locate foreign assets held by U.S. taxpayers is in full swing. In the past few years, the IRS has recovered billions of dollars in unpaid taxes as a result of their efforts. The main components of the campaign are the Report of Foreign Bank and Financial Accounts (“FBAR”), and the Foreign Account Tax Compliance Act (“FATCA”). If you are a U.S. taxpayer with financial ties abroad, you must be sure to investigate the filing requirements and disclose the necessary offshore assets by the June 30th deadline.
Taxpayers must submit the FBAR Form 114, Report of Foreign Bank and Financial Accounts to the U.S. Treasury Department by June 30. This form must be filed by every U.S. taxpayer who has an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during the calendar year. “Foreign financial accounts” include foreign bank or securities accounts, commodities futures and options accounts, mutual funds, and life insurance and annuity policies with a cash value.
If you meet the filing criteria, you must report the maximum value of financial accounts maintained by a financial institution physically located in a foreign country. Although the FBAR resembles a tax filing, it is not; rather, it is filed separately from your tax return, directly with the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the Department of the Treasury. No extensions are granted to the June 30 filing date.
Penalties for failure to file FBAR Form 114 can range up to $10,000 if the failure to file is inadvertent, and up to the greater of $100,000 or 50 percent of account balances if the failure to file is intentional. Criminal penalties may also apply.
FATCA is a second set of disclosure requirements separate from FBAR. FATCA requires foreign financial institutions to withhold 30% of certain payments made to U.S. taxpayers unless specified disclosures are made. One of these is that certain taxpayers may also have to complete and attach Form 8938, "Statement of Specified Foreign Financial Assets" with their annual Federal income tax return. A taxpayer must report the maximum value of the specified foreign financial assets—including financial accounts with foreign financial institutions and certain other foreign non-account investment assets—on the Form 8938.
CAUTION: The FATCA Form 8938 requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR Form 114.
The penalty for failure to file Form 8938 is up to $10,000; an additional $10,000 penalty can be imposed for each 30 days of non-filing after the IRS issues a notice of a failure to disclose. The maximum potential penalty is $60,000.
The law, sir, is like a net. Little fish slip through it. Great fish crash through it. And all the rest are hopelessly entangled in it. - Anonymous
The law, sir, is like a net. Little fish slip through it. Great fish crash through it. And all the rest are hopelessly entangled in it.
Taxpayers must ensure that they check all filing requirements if they hold any foreign assets, and ensure that they submit the correct forms to the correct agencies. Hefty penalties can be incurred without due care. If there is any uncertainty regarding the treatment of foreign assets, you should check with your tax advisor.
True Partners Consulting LLC has a team of experienced tax professionals to assist U.S. taxpayers to comply with the mind-numbingly complex filing requirements connected to the ownership of foreign financial assets. Always sensitive to our clients’ resource constraints, we offer the most cost-effective solutions.
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