Reporting Foreign Assets
- FBAR/FinCEN Reporting. Disclosure requirements for foreign assets.
- FBAR is a Foreign Bank Account Report. The key is that taxpayers must report.
- Form 8938 must be included in the federal return in addition to the FBAR. This includes all foreign securities not just foreign bank accounts.
- Other forms may include forms for trusts, such as Form 3520 and Form 3520A for foreign trusts, Form 5471 for CFC = controlled foreign corporations, etc.
- The government wants this information to track assets for income and estate tax purposes and to prevent evasion or avoidance with foreign assets.
- The reports require listing account information, e.g. Name and address of the bank, aggregate highest amount in the account on a cumulative basis for the year.
- May taxpayers are unaware of the reporting requirements.
- Green card holders and US citizens living abroad are subject to these reporting requirements and often are not aware that applies to them.
- Another common situation where taxpayers miss filing the require reports is when a US citizen receives an inheritance of a foreign asset and simply does not know that these reporting requirements apply to them.
- Taxpayers should be certain to disclose relevant information on foreign accounts to their tax preparers. This should include accounts where you have a direct or indirect financial interest. An indirect financial interest could be an account that someone, e.g. a broker, is holding an account for you as a nominee and you are the beneficial owner. Also, accounts for while you merely have signature authority also have to be reported. An example of this is you are an officer of a company that has a foreign account and since you can sign checks or can move the funds, you have signature authority and have to report the account. If you have a power of attorney or are a trustee, you may also have to report on behalf of the beneficial owner who would also have to report.
- Penalties are significant, e.g. $10,000/per form, per year. If there is fraud, the penalty could be 50% of the account balance. Over 5 years you could owe 250% of the value of account.
- If you failed to report or even think you may have, call your tax adviser and address the issue immediately. If the failure to report was mere oversight and due to willfulness, call your tax preparer immediately. It is far better for you to disclose to the IRS then for the IRS to identify you. There may be a possibility of a streamlined filing and avoiding penalties. If the oversight was willing, not a mere oversight, hire legal counsel to maintain privilege.
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