April 25, 2017

Foreign Asset Filing Requirements: Are You in Compliance?

Do you own a bank account in another country or hold an interest in a company or partnership based outside of the United States? Do you have signature authority on foreign bank accounts that you oversee? Foreign assets such as these come with filing responsibilities that should not be overlooked.

Although there is no tax due with these filings, failure to report either direct or indirect ownership in foreign assets could result in at least $10,000 in fines and criminal penalties.  The IRS has continued to enforce foreign asset reporting and has provided some updates concerning new due dates and filing requirements.  Although we carefully review each client’s situation as we prepare annual filings, a general understanding of the various reporting obligations will help you provide us the necessary information to report these items correctly and avoid penalties.

There are two main foreign filings to consider:

FinCEN Form 114:  Report of Foreign Bank and Financial Accounts (FBAR) 

Who Must File:

U.S. citizens, U.S. residents, trusts, estates, and domestic entities that have a financial interest in or signature authority over foreign financial accounts, and the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year.

Updated Due Dates:

The due date for tax year 2016 for Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”) has been moved from June 30, 2017 to April 15, 2017.  Taxpayers are also allowed an automatic six-month extension for this filing season until October 15, 2017. The due date for citizens and residents who are out of the country is June 15, 2017.

Form 8938:  Statement of Specified Foreign Financial Assets:

Who Must File:

U.S citizens, U.S. residents, and certain non-resident aliens that have an interest in specified foreign financial assets; and you meet the threshold reporting requirements described below.

New Entity Reporting Obligations:

Form 8938 is generally required for US single individual taxpayers who had more than $50,000 of foreign assets on the last day of the tax year or more than $75,000 at any time during the year. For married taxpayers, the reporting thresholds are doubled to $100,000 in assets on the last day of the tax year or more than $150,000 at any time during the year.

For tax year 2016, certain entities may also be required to report their foreign financial assets if their values exceed $50,000 on the last day of the tax year or exceed $75,000 at any time during the tax year. Entities that meet the requirements below may now be required to File Form 8938:

  • Closely Held Domestic Corporations or Partnerships – A corporation or partnership may be required to file Form 8938 if 80 percent of the entity is owned directly, indirectly or constructively by a US person AND less than 50 percent of the entity’s annual gross income is active business income.
  • Domestic Trusts – A trust will be required to file Form 8938 if a US person is a beneficiary of the trust for the current taxable year. However, a trust will be excepted from filing Form 8938 if the trustee is one of the following: a bank examined by the FDIC, a financial institution registered with the SEC, or a publicly traded corporation. In addition, the trustee must have supervisory authority or a fiduciary obligation over the assets held by the trust and the trustee must file annual returns by the due date.

The rules regarding foreign asset reporting are complex. If you feel that you may be subject to these requirements or have any questions about your foreign assets, please contact our office and we will be happy to assist with your specific compliance needs.