Expanded Foreign Reporting Requirements for 2011 Tax Filings
Individual taxpayers who own foreign financial assets should be aware that there are new and updated filing requirements.Individuals who have financial interests in foreign bank accounts, securities or other foreign assets may now be subjected to filing requirements with both the IRS and the U.S. Treasury. Each of these organizations has separate reporting thresholds and forms in order to comply with the foreign reporting requirements.
|SUMMARY||Form TD F 90.22-1||Form 8938 — New for 2012|
|Reporting Threshold||$10,000 value at any time during the calendar year||$50,000 value on last day of tax year or $75,000 value at anytime during the tax year (thresholds increase with married filing status)|
|Financial Interest||Owner or holder of legal title of account or have authority to control disposition of assets in the account||Gains/losses, proceeds/distributions etc. from holding or disposing of the asset or account|
|What to Report||Maximum value of account||Maximum value of asset|
|Due Date||Must be received on or before June 30th||With tax return|
|Penalties||Non-willful: up to $10,000, Willful: greater of $100,000 or 50% of account value; criminal penalties may also apply||Up to $10,000 for initial offense, $10,000 additional every 30 days up to $60,000; criminal penalties may also apply|
IRS Form 8938
For tax years beginning after March 18, 2010 (effectively the 2011 calendar year), the IRS has developed Form 8938, Statement of Specified Foreign Financial Assets. This form is required for those who have a financial interest in financial assets that are worth $50,000 or more at the end of the tax year or had a value of $75,000 or more at any point during the year (These thresholds increase for those who are married or are living abroad.)
The IRS defines a financial interest as receiving any gains, losses or distributions from holding or disposing of the account or asset that would be required to be recorded on an income tax return. For this form, specified foreign financial assets includes financial accounts held in foreign accounts, securities issued by non-U.S. persons, interests in foreign partnerships, and other foreign assets not held in financial institutions. Form 8938 is required to be filed with the individual’s timely filed income tax return including extensions. Failure to comply with the requirements of Form 8938 may result in penalties. Those who fail to disclose a foreign financial asset can be fined up to $10,000 at the time of the discovery by the IRS. If failure to disclose continues, additional fines may be imposed. Taxpayers who willfully fail to file Form 8938 also face potentially criminal penalties.
U.S. Treasury Form TD F 90.22-1
The U.S. Treasury also requires the filing of Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts. This form is required for those with financial interest or signature authority over a foreign bank account in which the value exceeds $10,000 at any time during the calendar year. A financial interest includes owners of the account and anyone who has the authority to control the disposition of the assets. If a taxpayer is required to file this form, the maximum value of the financial account during the year must. Form TD F 90-22.1 must be received by the U.S. Treasury on or before June 30th.
Failure to comply with the Treasury requirements could potentially result in civil and criminal fines. Individuals willfully not reporting a foreign financial account may be faced with a fine equal to the greater of $100,000 or 50% of the unreported account balance. In addition to monetary penalties, criminal penalties of up to $250,000 or imprisonment for up to five years, or both can be assessed to those who willfully avoid reporting. If the individual failed to report in a non-willful manner a fine of up to $10,000 can be assessed.
Individuals who have previously failed to file Form TD F 90.22-1 for years prior to 2011 can become compliant by filing late returns and reporting income associated with the foreign accounts. The IRS currently has a voluntary disclosure initiative in effect to assist taxpayers with this process. (An individual should seek tax advice before approaching the IRS.)
Based on the requirements of the IRS and U.S. Treasury, it may be necessary for individuals to file both Form 8938 and Form TD F 90.22-1. It is imperative that taxpayers access their holdings in foreign assets and accounts to determine if they are affected by these updated regulations.
If taxpayers are uncertain about whether they are or will be required to file either of these forms they should consult their Marcum Tax Advisor.