Tax Alert – Foreign Accounts and Financial Assets: New Reporting

If you have an interest in certain foreign accounts and financial assets, IRS Form 8938, Statement of Specified Foreign Financial Assets, must be attached to your 1040 for 2011. This is a new filing requirement, in addition to the now well-known “FBAR” form which still must be filed separately from your tax return.

We hope you know that if you have any beneficial interest or signature authority with respect to a foreign bank you must report that account to the US Treasury annually on a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, (FBAR). There is a $10,000 a year penalty for negligent failure to file. Intentional failure to file can result in much larger penalties, up to the full balance of the undisclosed accounts. The FBAR form is filed separately from the Form 1040, sent to a different address, and due by June 30. The due date cannot be extended.

This new Form 8938 also requires disclosure of the foreign bank accounts but requires reporting of other financial assets as well. The form cross references several other forms which are required to disclose holdings in foreign controlled corporations, foreign partnerships, foreign passive investment companies, and other similar entities. While there is no penalty for failure to file the Form 8938, the statute of limitations will not start to run against the IRS with respect to the related matters until it is filed.

There are certain minimum foreign holdings required before the forms must be filed. The FBAR requires a high balance of $10,000 for all foreign accounts added together. The Form 8938 requires a single taxpayer to have a year end balance of $50,000 or more or a high balance during the year of $75,000 or more before he/she must file the Form 8938. The numbers double for a married couple filing a joint return.

Why is this information important? We call this to your attention because some tax return preparers overlook these additional reports and forms. Some tax return preparers are not even aware of the FBAR or do not consider it part of their engagement when they agree to do your Form 1040. If you have foreign accounts, assets or investments and your return preparer does not prepare the FBAR or attach the Form 8938, you are ultimately responsible for the consequences.
Please contact Tim Maximoff if you have any questions.