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Foreign Accounts, Tax Compliance and Fines, Oh My!

November 7, 2013
Ritva Williamson, CPA - Stephenson & Warner Inc.,

In 2009 the government estimated that about 8.5 billion in taxes is being evaded during a period of 10 years by individuals with foreign accounts and business holdings.  To alleviate the problem of tax evasion The Foreign Account Tax Compliance Act (FATCA) was enacted in 2009 and it became law in March 2010.  This act targets non-compliance by U.S. taxpayers with foreign accounts and holdings. These foreign assets are reportable on Form 8938.

This reporting requirement is in addition to the more commonly known Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1.  This form must be filed by every U.S. person that has a financial interest in or signature authority over a foreign financial account that exceeds $10,000 at any time during the calendar year.  This form must be received by the Department of Treasury on or before June 30th.  The filing date is not flexible and will not be extended. A person who fails to file this report may be subject to a civil penalty not to exceed $10,000.  Effective July 1, 2013, electronic filing of this form became mandatory.

Some U.S. persons may have to file both forms. http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements

The Form 8938 is attached to the annual income tax return (Form 1040).  However, a taxpayer who does not have to file an income tax return does not have to file Form 8938, regardless of the value of their specified foreign financial assets.

What are these specified foreign financial assets you ask?  The IRS has listed them on their website.  http://www.irs.gov/Businesses/TypesofForeignAssetsandWhetherTheyareReportableonForm-8938

The filing requirement is based on aggregate value of these assets.  The thresholds vary depending on taxpayers’ marital status, filing status, and whether the taxpayer is living abroad or in the U.S.  

For instance, an unmarried taxpayer living in the U.S. is required to file Form 8938 if the total value of the foreignspecified assets exceed $50,000 on the last day of the tax year or were more than $75,000 at any time during the year.If this same taxpayer is living abroad, the thresholds are $200,000 on the last day of the year or $300,000 at any timeof the year.  For married taxpayers filing joint returns the thresholds are twice as much.

Failure to comply may result in a penalty of $10,000 and a penalty up to $50,000 for continued failure.

If you suspect that you may be required to file either one of the forms, please contact us for more detailed information.   A telephone call may keep you from getting tangled up in the IRS’ web.