Tax forms and deadlines for reporting foreign financial assets

May 05, 2013 (Press-News.org) Tax forms and deadlines for reporting foreign financial assets

An inheritance that includes a savings account at a foreign bank may not seem any different from a US Bank checking account. Or if you have married a Norwegian man or woman who is now a U.S. citizen and you have a joint account in Norway that you access when you travel to visit friends and family, you may not think twice.

Depending on the amount of assets in a foreign bank account, you may need to disclose the account on one or even several forms.

FBAR

The Bank Secrecy Act requires that a United States person - this includes a citizen or resident of the U.S., domestic corporations, partnerships or estates and trusts - with foreign financial assets must file a Report of Foreign Bank and Financial Accounts or FBAR form.

The filing is only required if the aggregate value of the account(s) is more than $10,000 any time during the prior calendar year. A person with signature authority, such as through a power of attorney for an elderly relative, over an offshore account is also required to file the disclosure.

For those who did not realize the requirement and failed to submit this form with their tax return prior to April 15, there is still time. The deadline for filing the FBAR form is June 30.

The penalties for failing to file a FBAR are draconian and could include a fine up to $10,000. If there is evidence that the failure to timely file was willful then a civil penalty up to 50 percent the value of the accounts or $100,000 is possible. A willful failure to file is also a crime punishable by prison time.

If you have a foreign account but did not file a FBAR in prior years, there is a program called the Offshore Voluntary Disclosure Initiative (OVDI). This program allows a taxpayer to voluntarily disclose a foreign account and pay a penalty up to 27.5 percent of the value of the account. However, this program is no longer available if the IRS is already investigating your foreign accounts.

Form 8938

Under the Internal Revenue Code, foreign financial accounts and assets need to be reported along with the taxpayer's return on Form 8938. To make matters more confusing the asset amounts are different from the FBAR and vary based on where you live.

Taxpayers living in the United States must report foreign accounts that have at least $50,000 as of December 31 or more than $75,000 any time during the year. U.S. citizens living abroad must file Form 8938 if the value of their foreign accounts is more than $200,000 on December 31 or went above $300,000 at any time during the prior tax year.

The filing deadline for Form 8938 is April 15. Failure to file this form also comes with penalties, such as a $10,000 civil penalty for each month of noncompliance up to $50,000 per tax year. Criminal prosecution is possible for willful failure to report income and pay taxes due on it.

If you have assets or accounts at a foreign bank, contact an experienced tax attorney for more information on making a complete disclosure. In addition, before taking advantage of the OVDI program consult an attorney for guidance.

Article provided by Robert J. Fedor, Esq., L.L.C.
Visit us at www.fedortax.com