For many people, taxes can be a daunting process. When you add on the stress of having to report income earned from foreign accounts, pursuant to Federal Law, the process can be downright stressful and a hassle.
It was Not My Intent to Fail to Report My Foreign Accounts and Assets
It’s not uncommon for some people to make a mistake when it comes to reporting their income from foreign sources. For the most part, most people do not try to hide their foreign accounts or assets. But filling out the Foreign Bank Account Report (FBAR) incorrectly, receiving bad tax advice, being unaware of foreign compliance requirements, and just forgetting to report foreign income can be detrimental.
In fact, the penalties for not reporting foreign assets and accounts can be hefty, leading to even more chaos, expense, anxiety, strife, and even jail time.
Here are the Answers to Some Commonly Asked Questions Regarding Tax Law, Foreign Assets, and Foreign Accounts
What Constitutes a Foreign Account or Foreign Asset?
Some examples of Foreign Accounts and Foreign Assets include:
- Savings
- Checking
- Deposit and Brokerage Accounts held with a bank or broker-dealer
- Stocks and Securities issued by a foreign corporation
- Note, Bond, Debenture issued by a foreign person
- Interest rate and currency swaps
- Foreign Partnership interest
- Interest in a foreign retirement or deferred compensation plan
- Interest in a foreign estate
- Interest in a foreign-issued insurance contract or annuity with a cash-surrender value
- Mutual fund
- Trust
*Some examples of forms that may need to be filed: FinCEN Form 114 (FBAR Foreign Bank Account Report); Form 8938 (Statement of Specified Foreign Financial Assets); Form 8665 (Return of U.S. Persons With Respect to Certain Foreign Partnerships; Form 5471 Information Return of U.S. Persons with Respect to Certain Foreign Corporations; Form 5472 (Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business); Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts); and Others.
Who is Accountable for Reporting Foreign Accounts and Assets?
- Any U.S. taxpayer with a financial interest in any foreign account or foreign financial asset.
- Any U.S. taxpayer with a signature authority over any foreign account or foreign financial asset.
- Any U.S. taxpayer who has incurred income due to having a vested interest in the financial interest of any foreign account or asset.
* tax payers can be individuals, trusts, estates, domestic entities, or a majority owner of a business
Who must Report Foreign Financial Accounts/Assets?
- Persons (citizens and resident aliens) with foreign assets or accounts of $10k or more anytime of the year.
*This applies to singles or married filing separately
What are the Penalties for Failure to Report Foreign Financial Accounts?
- FBAR (FinCEN Form 114) filing requirement
- Non-willful violations, (not reporting financial assets because you didn’t know you had to) can result in up to $10,000 in penalties per violation.
- Willful violations (failing to report financial assets on purpose) can result in up to $100,000 in fines or 50% of account balances for each violation with possible criminal charges.
- Note: These penalties are subject to adjustments for inflation
- For violations occurring after August 1, 2016, whose associated violations occurred after November 2, 2015, the IRS may assess an inflation-adjusted civil penalty not to exceed $12,459 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the inflation-adjusted penalty may be the greater of $124,588 or 50 percent of the balance in the account at the time of the violation, for each violation.
What are the Penalties for Failure to Report Foreign Financial Assets?
- Form 8938 filing requirement
- Fines up to $10,000
- Fines up to $10,000 for every 30 days after IRS issues a Failure to Disclose document
- Possible criminal charges
- Note: These penalties are subject to adjustments for inflation
What if I Disclosed Income but Failed to File Foreign Tax Forms?
You may be able to amend your prior tax return.
When is the Deadline for Filing my FBAR?
The deadline for filing is April 15, with an extension available to October 15.
Are there any Federal Programs to Help Me?
We can discuss the IRS and Treasure Programs that may be available to you to reduce or eliminate penalties. See my website for more information.
I Think I May Need Tax Law Representation. How Can You Help?
For anyone with foreign accounts or assets, it’s beneficial to seek the advice of a professional tax attorney. There are filing exceptions to the reporting requirement, and you might have to report even if you do not earn income.
A tax accountant is not sufficient. You need the advice of a certified tax attorney who will keep all communication confidential while advocating for your needs.
As a Tax Attorney, I can guide you through the reporting process, scrutinize past returns, and serve as your advocate to help diminish or avoid the penalties and criminal prosecution that can be imposed.
If you have failed to report foreign accounts or assets and need someone to represent you, let’s connect.
