If you have foreign bank and other financial accounts or securities from non-U.S.-based companies, you may need to report these items to the IRS. The Foreign Account Tax Compliance Act requires certain U.S. taxpayers who have interests in “specified foreign financial assets” (SFFAs) to provide information using Form 8938, “Statement of Specified Foreign Financial Assets.”
Four of the most important Foreign Account Tax Compliance Act facts:
1. SFFAs are specific. Some of the assets the IRS considers to be SFFAs include foreign financial accounts and instruments, as well as foreign stocks and securities. While you will likely have to report to the IRS on these, other types of foreign assets do not need to be reported. These include financial accounts maintained by U.S. payers, such as the U.S. branches of foreign financial institutions or the foreign branches of U.S. financial institutions.
2. Penalties for failing to report can be hefty. Penalties for failure-to-file start at $10,000. An additional penalty of up to $50,000 can be imposed if you continue not to report after being notified by the IRS. The statute of limitations is lengthy, extending to six years if you don’t include gross income from a foreign asset of more than $5,000 on your tax return.
3. Not everyone with foreign financial assets needs to report. If you aren’t required to file a U.S. income tax return for the year, you don’t need to file Form 8938. Even if you are required to file a return, Form 8938 isn’t required unless:
- You’re a single filer or file separately from your spouse and held SFFAs of more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year; or
- You’re married and file jointly and held SFFAs of more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.
The thresholds are higher for U.S. taxpayers living outside the United States. Other details, exceptions and restrictions may apply.
4. It’s complicated. If you hold financial assets outside the United States, it’s worth reviewing them to determine whether or not you’re subject to the FATCA reporting requirements, bearing in mind that the law is complex.
Don’t Forget Your FBAR Filing This June, Too
In addition to Foreign Account Tax Compliance Act reporting, you’ll also want to keep in mind that FBAR (Report of Foreign Bank and Financial Accounts) filings for each U.S. resident in your family (including minor children) with accounts in their own names who held at least one foreign financial account in excess of $10,000 (combined for all accounts) during 2015, will need to file a Form 114 by June 30, 2016. All foreign financial accounts including bank accounts, mutual funds, and brokerage accounts, must be reported. Because penalties for failing to comply can add up (up to $10,000 per violation) and no extensions are permitted, you should bear this fast-approaching deadline in mind.
To help determine whether or not FBAR filings pertains to you, please reference the comparison chart, here https://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements.
However, to be on the safe side, if you are still unsure whether FBAR filings pertain to you, it is best to file Form 114, just in case.
Because this form is not a tax form, it does not get filed with the IRS but must be electronically filed with the U.S. Department of the Treasury, instead.
It’s important to note that for 2016, the FBAR deadline is changing and forms will be due on or before April 15, 2016 with a six month extension available to coincide with the individual income tax deadlines.
If you need assistance making the proper Foreign Account Tax Compliance Act determinations or assistance with FBAR filings, please contact your Untracht Early advisor.