by Brighton Ranney, Tax Strategies
At the beginning of the year you probably heard a lot of news about foreign bank account reporting requirements, FBAR and FATCA, and wondered if it affected you.
If you have foreign income and/or foreign taxes paid that are included on your brokerage statement, then rest easy—these items do not require special filings with the government.
However, if you have a financial interest in or signature authority over a foreign financial account,there are two disclosure forms you should be aware that you may need to file.
FBAR – Report of Foreign Bank and Financial Accounts
The first is the Report ofForeign Bank and Financial Accounts, or FBAR. This form is required when you have a financial interest in or signature authority over a foreign financial account and the aggregate of all your foreign financial accounts was over $10,000 at any time during the calendar year. This includes foreign financial accounts where you are the executor or trustee, as well as personal accounts.
This form is filed separately from your federal tax return on FinCEN Form 114 (formerly TD F90-22.1). The 2013 form is due by June 30th, 2014. There are no extensions of this due date. Starting onJuly 1, 2013, a new requirement was set for FBARs to be electronically filed.Be sure not to miss this deadline, as there may be penalties of $10,000 per violation for not completing an FBAR when required. The largest penalties may be the greater of $100,000 or 50% of the value of the foreign accounts.
Foreign financial institutions face a 30% penalty tax for not complying with the new US reporting requirements, so you should expect your bank to disclose your account information to the US government.
FATCA – Foreign Account Tax Compliance Act
The second requirement is part of the Foreign Account Tax Compliance Act (FATCA). Form 8938, Statement of Specified ForeignFinancial Assets, is used to report foreign financial assets. Form 8938 is attached to your federal income tax return and is due by the due date of your federal income tax return,including any extension.
There are separate filing requirements for this form. In general,your foreign financial accounts must be reported if the total value on the last day of the tax year was $50,000 or if the total value was more than $75,000 during the tax year (these totals are $100,000 and $150,000 if you are married taxpayers that file a joint income tax return).
This form also has a $10,000 penalty for a failure to disclose. If the IRS notifies you of a failure to disclose, there is an additional penalty of $10,000 for each 30 days it takes you to file and make the appropriate disclosures. Criminal penalties may also apply related to either filing requirement.
If you have a financial interest in or signature authority over a foreign financial account please be sure to speak with your tax professional about the complete filing requirements. This post is intended to make you aware of when you might have a filing requirement so you may avoid the large penalties associated with noncompliance.