Tax Alert! Foreign Account Filing Requriements
TAX ALERT Foreign Account Filing Requirements
We wanted to make you aware of two foreign account filing requirements related to foreign assets. The penalties for non-filing of these forms are severe. In addition, there may be assets you own that you would not expect to trigger such a filing, such as a whole life insurance policy with a foreign carrier. Both forms are due on June 30 th following the calendar year to which they apply.
Form 114 (FBAR)
Each U.S. person who has a financial interest in or signature authority over foreign financial accounts must file a Foreign Bank Account Report (FBAR) on Form 114 if the aggregate value of the accounts exceeds $10,000 at any time during the calendar year. A foreign financial account is a financial account located outside the U.S. An account maintained with a branch of a U.S. bank that is physically located outside of the U.S. is a foreign financial account. A financial account includes a securities, brokerage, savings, demand, checking, deposit, time deposit, debit card account, prepaid credit card or other account maintained with a financial institution. A financial account also includes a commodity futures or options account, an insurance policy or annuity policy with a cash value, and shares in a mutual fund or similar pooled fund. Certain foreign retirement funds or deferred compensation arrangements may require reporting if they consist of a separate account for the benefit of an individual.
The penalties for failure to file a FBAR are onerous. The civil penalties for a non-willful violation may not exceed $10,000 per violation. Civil penalties for a willful violation may not exceed the greater of $100,000 or 50% of the amount in the account at the time of the violation. The criminal penalty for willful violations is a fine of not more than $250,000, or imprisonment for not more than five years, or both.
Form 8938
An individual must file Form 8938 if he or she has an interest in one or more specified foreign financial assets having an aggregate fair market value (FMV) exceeding either $50,000 on the last day of the tax year or $75,000 at any time during the tax year ($100,000 and $150,000, respectively, for married individuals filing a joint annual return). These limits are increased for individuals living abroad. An individual isn’t required to file Form 8938 for any tax year for which an annual return is not required.
Specified foreign financial assets include financial accounts maintained by foreign financial institutions and other assets not held in accounts maintained by financial institutions, such as stock or securities issued by non-U.S. persons, financial instruments or contracts with issuers or counterparties that are non-U.S. persons, and interests in certain foreign entities such as a partnership or estate. Foreign real estate directly held by the individual is excluded from the definition. Since the requirements overlap with those of the FBAR, individuals may have to file both forms for the same asset.
The penalty for failing to report specified foreign financial assets for a tax year is $10,000. However, if this failure continues for more than 90 days after the day on which the IRS mails notice of the failure to the individual, additional penalties of $10,000 are imposed for each 30-day period (or fraction of the 30-day period) during which the failure continues after the expiration of the 90-day period, with a maximum penalty of $50,000.
If you want to file, or are uncertain whether you are required to file either form for the current year or for a past year, please give us a call to discuss your situation and the best way to proceed.
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
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