Last Minute Tax Alert — Foreign Assets

Because the IRS penalties for failing to disclose are so severe, we think these reminders bear repeating:

• A bank account or investments account in a non-US bank or brokerage firm with a combined total of $10,000 or more must be disclosed to the IRS both on Schedule B of Form 1040 and on FBAR Form TD F 90-22.1. The FBAR is filed separately from the 1040 and is due by June 30 – and cannot be extended.
• For certain other investment assets, Form 8938 may need to be filed with the 1040, which overlaps with some of the FBAR reporting requirements.
• Disclosure of foreign income and interests in foreign trusts is complex; disclosure and tax computation are required on Form 3520.
• Disclosure of gifts from foreign sources:
  • Any gift from a non-US person in excess of $100,000 in any year must be disclosed on Form 3520.
  • Total gifts from non-US partnerships or companies and certain related persons in excess of $14,723 must be disclosed on Form 3520.

What are some possible penalties?

• Failure to timely file an FBAR carries a $10,000 penalty if the failure was merely non-willful neglect.
• Failure to file Form 8938 may be a $10,000 penalty.
• Failure to file Form 3520 may carry a penalty of $10,000 or may be a percentage of the undisclosed foreign trust balance (up to 35%) or undisclosed foreign gift.

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This Legal Update is provided as an educational service by Hoge Fenton for clients and friends of the firm. This communiqué is an overview only, and should not be construed as legal advice or advice to take any specific action.