Disclosing Your Foreign Assets: Uncle Sam Wants More Information

Posting by Dan Bottner and William Thomas

Picking up right where we left off, remember the Foreign Account Tax Compliance Act (FATCA) was part of the Hiring Incentives to Restore Employment (HIRE) Act from 2010.  One of the goals of this Act was to develop a framework for the IRS to ensure disclosure of foreign (or off-shore) assets held by individuals and companies.  Not to mention, off-shore asset disclosure has become a theme within our own blog.

There are many guidelines outlined in the Act set to take effect over the next few years.  As a step towards the implementation of these disclosure requirements, the IRS has released a *new* tax form due with your 2011 individual income tax return.  Other U.S. entities will most likely be required to file this particular form in future years, among various other foreign disclosure forms as more FATCA guidelines are put into practice.

The *new* form is called the Statement of Foreign Financial Assets, otherwise known as Form 8938.  Granted, the individual taxpayers who may be required to file this form are already familiar with foreign asset disclosure forms such as the Foreign Bank Account Form (TDF 90-22.1). The important take away is to know the two forms mentioned are mutually exclusive and you may have a requirement to file both forms in a given tax year.

So, what is Form 8938 and do you need to file? 

Essentially, Form 8938 is for those taxpayers who have a total value of specified foreign assets exceeding certain thresholds.  The minimum value for these assets held by U.S. taxpayers is $50,000 (USD) for single filers or $100,000 (USD) for married couples filing joint.  Some examples of these specified foreign assets include financial accounts held by a foreign financial institution, interests in foreign entities, and other foreign investment assets that are not otherwise maintained by a US institution.  The Statement of Foreign Financial Assets is due to be filed with your individual income tax return, including extensions. The Foreign Bank Account Form (TDF 90-22.1) is still due June 30.

Why all the fuss about these assets? 

First, the penalties are too substantial to ignore.  Penalties for not filing Form 8938 requirements are very similar to other foreign disclosure forms with base penalties beginning at $10,000.  The penalties exponentially increase to $50,000 for continued failure to comply after the IRS notification.

Second, the IRS is in continuous pursuit of tax evaders and will punish those who attempt to hide assets overseas.  Soon Uncle Sam will require the Foreign Financial Institutions to submit information regarding accounts held by US Taxpayers, thus, further encouraging all taxpayers to comply with the guidelines of FATCA.

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