The Internal Revenue Service has reopened the Offshore Voluntary Disclosure Program (OVDP) which allows a US person to disclose all foreign accounts and other assets with the IRS to avoid criminal prosecution of international tax evasion. Please refer to the 2012 Spring Edition of the BCS Client-Tell for more information on the new OVDP.
Any US person that has a financial interest in or signature authority over a foreign financial account where the aggregate value of the account exceeds $10,000 at anytime during the calendar year is subject to additional annual filing requirements.
The Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1 (FBAR), is due on or before June 30, following the calendar year and this deadline may not be extended. Corporations, partnerships, trusts, or estates along with individuals are subject to FBAR. Failure to file this form could result in a failure-to-file penalty of $10,000. In addition, the taxpayer may be assessed back taxes, late filing interest, late filing penalty and possibly an accuracy related penalty for the underpaid tax on any foreign income omitted on Form 1040.
A new separate requirement was released from the IRS which is in addition to FBAR. Form 8938 requires taxpayers to report specified foreign financial assets on their annual Form 1040 by the April 15 due dates which may include an extension. Currently, Form 8939 is only required by individuals, although the IRS speculates that entities such as corporations or partnerships may be subject to filing requirements in future years.
Some examples of specified foreign financial assets are securities, bonds, or other foreign financial accounts. A single taxpayer living in the US is subject to filing Form 8938 if the value of the taxpayer’s specified assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year. Married taxpayers living in the US are subject to the filing requirement if they have a value of the specified assets which exceeds $100,000 on the last day of the tax year or more than $200,000 at any time during the year.
Failure to file Form 8938 could result in a failure-to-file penalty of $10,000 plus another $50,000 of failure-to-file penalties if the IRS notifies a taxpayer to file and the taxpayer fails to do so. In addition, the individual could be assessed back taxes, late filing interest, late filing penalty and an accuracy related penalty for the underpaid tax on any income omitted on Form 1040.
This article covers the basic guidelines on annual requirements for foreign accounts, if you have any questions related to foreign accounts please contact our office. As always we will try to keep you up to date on changes related to foreign disclosure along with all other tax matters.