Taxpayers have long been required by the Bank Secrecy Act to report certain foreign accounts. Now, there is a new reporting requirement in the Foreign Account Tax Compliance Act of 2010.
The Foreign Account Tax Compliance Act (FATCA), enacted in 2010, requires certain U.S. taxpayers to report their interests in specified foreign financial assets. The reporting requirement may apply if the assets have an aggregate value exceeding certain thresholds. The IRS has released Form 8938, Statement of Specified Foreign Financial Assets, for this reporting requirement under FATCA.
For now, only specified individuals are required to file Form 8938, but specified U.S. entities will eventually also have to file the form. Taxpayers who do not file a federal income tax return for the year do not have to File Form 8938, even if the value of their foreign assets exceeds the normal reporting threshold.
Individuals who have to file Form 8938 include U.S. citizens, resident aliens for any part of the year, and nonresident aliens living in Puerto Rico or American Samoa.
Reporting applies to specified foreign financial assets. Specified foreign financial assets include:
- A financial account maintained by a foreign financial institution;
- Other foreign financial assets, such as stock or securities issued by a non-U.S. person, or an interest in a foreign entity.
The aggregate value of the individual’s specified foreign financial assets must exceed specified reporting thresholds, as follows:
- Unmarried U.S. taxpayers, and married U.S. taxpayers filing a separate return – more than $50,000 on the last day of the year, or more than $75,000 at any time during the year;
- U.S. married taxpayers filing a joint return – more than $100,000 on the last day of the year, or more than $150,000 at any time during the year; or
- Taxpayers living abroad: if filing a joint return, more than $400,000 on the last day of the year, or more than $600,000 during the year; other taxpayers, more than $200,000 on the last day of the year, or more than $300,000 at any time during the year.
Taxpayers who report assets on other forms, such as Form 3520, do not have to report the asset on Form 8938, but must use Form 8938 to identify other forms on which they report.
Reporting applies for tax years beginning after March 18, 2010, the date that FATCA was enacted. Most taxpayers, such as those who report their taxes for the calendar year, must start filing Form 8938 with their 2011 income tax return.
The penalty for failing to disclose the required information in a timely manner is $10,000. If the failure to disclose continues for more than 90 days after the IRS notifies the taxpayer of a failure to report, the taxpayer must pay an additional $10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of the 90-day period. The maximum penalty is $50,000. However, no penalty is imposed if the failure to disclose is due to reasonable cause, and not due to willful neglect. The IRS has cautioned that the fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer if the taxpayer discloses the required information is not reasonable cause. In addition, penalties for underpayment and fraud may apply as well as criminal penalties.
Because of the complexity and substantial penalties associated with these new requirements, it is important that you have a complete understanding of your obligations if you have an interest in a specified foreign financial asset. Please call our office for more information.
Other Required Filings
U.S. taxpayers who own a foreign bank account, brokerage account, mutual fund, unit trust, or other financial account may also be required to file a Form TD F 90-22.1, Report of Foreign Bank and Financial Authority (FBAR), if:
The taxpayer has financial interest in, signature authority, or other authority over one or more accounts in a foreign country, and the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.
The FBAR form is filed seperately from your US income tax return and is due by June 30.
The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR.
If you have any questions about Form 8938, please contact our office.