Posted on August 31, 2022 |
United States taxpayers who own “specified foreign financial assets” must disclose these assets to the Internal Revenue Service (IRS) annually. This potentially involves two separate filings—IRS Form 8938 and the Report of Foreign Bank and Financial Accounts (FBAR).
Technically, IRS Form 8938 and the FBAR are due on Tax Day. However, U.S. taxpayers who do not file on time receive an automatic extension to October 15. As this deadline is fast approaching for 2022, taxpayers who did not file IRS Form 8938 and an FBAR in April should assess whether they need to file this fall.
The IRS Takes Foreign Financial Asset Reporting Very Seriously
While the obligation to report foreign financial assets does not receive as much publicity as taxpayers’ annual income and employment tax filing requirements, the IRS takes foreign financial asset reporting very seriously. Noncompliance can lead to steep penalties—including criminal penalties in some cases.
Illustrating the IRS’s focus on foreign financial asset reporting compliance, the agency has issued at least two reminders to taxpayers this year. The first reminder came on March 31, 2022, with the IRS emphasizing the importance of meeting the October 15 extended deadline in July.
Do You Need to File IRS Form 8938 and an FBAR By October 15, 2022?
With this in mind, do you need to file IRS Form 8938, an FBAR or both by October 15, 2022? The IRS has published guidance that taxpayers can use to preliminarily assess their filing obligations; however, as the IRS makes clear that taxpayers cannot rely on this guidance exclusively, those who have questions should consult with a tax lawyer.
The following types of assets can potentially trigger filing obligations under the Foreign Account Tax Compliance Act (which establishes the IRS Form 8938 filing requirement), the Bank Secrecy Act (which establishes the FBAR filing requirement) or both. However, financial thresholds apply under both laws, and while taxpayers need to be careful to ensure compliance, they must also be careful not to improperly disclose unnecessary information to the IRS.
- Financial accounts maintained at foreign institutions
- Stocks or other securities issued by foreign companies
- Ownership interests in foreign partnerships
- Swap agreements, options, derivatives, and other similar agreements and instruments with foreign counterparties or issuers
- Interests in foreign estates, insurance contracts and certain annuities
Generally, foreign currency, foreign real estate and tangible assets held overseas do not qualify as reportable assets for purposes of IRS Form 8938 or FBAR compliance. However, this assumes that these assets are directly held. If you own any of these assets (or any other foreign assets) through a foreign trust, partnership or corporation, then you may need to file IRS Form 8938 and FBAR or both by October 15, 2022.
Find Out if You Need to Disclose Your Foreign Financial Assets To the IRS
If you have questions about your obligation to report foreign financial assets to the IRS, it is imperative that you make an informed decision. To request an attorney with tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group in Boston, please call 617-692-2989, email ket@thornlawgroup.com or contact us online today.
As an expert in international taxation and offshore financial compliance, I bring a wealth of knowledge and firsthand experience in navigating the complex landscape of reporting requirements for United States taxpayers with specified foreign financial assets. My expertise is substantiated by years of working with individuals and businesses to ensure compliance with the Internal Revenue Service (IRS) regulations.
The article you provided discusses the crucial updates and obligations that U.S. taxpayers face regarding offshore accounts. The key concepts covered in this article are IRS Form 8938, the Report of Foreign Bank and Financial Accounts (FBAR), and the Foreign Account Tax Compliance Act (FATCA) and Bank Secrecy Act (BSA), which establish the filing requirements for these forms.
1. IRS Form 8938 and FBAR Filings:
- U.S. taxpayers owning specified foreign financial assets are required to disclose them annually to the IRS.
- Two separate filings may be involved: IRS Form 8938 and FBAR.
- The deadline for these filings is typically Tax Day, but an automatic extension until October 15 is granted to those who don't file on time.
2. Serious Consequences of Noncompliance:
- Noncompliance with foreign financial asset reporting can result in steep penalties, including criminal penalties in certain cases.
- The IRS emphasizes the importance of meeting the extended deadline, as illustrated by reminders issued to taxpayers.
3. Types of Reportable Assets:
- Financial accounts held at foreign institutions.
- Stocks, securities, and ownership interests in foreign companies or partnerships.
- Swap agreements, options, derivatives, and similar instruments with foreign counterparties.
- Interests in foreign estates, insurance contracts, and certain annuities.
4. Exclusions and Thresholds:
- Generally, foreign currency, foreign real estate, and tangible assets held overseas are not reportable unless held through a foreign trust, partnership, or corporation.
- Financial thresholds apply under FATCA and BSA, requiring taxpayers to be cautious about compliance without disclosing unnecessary information.
5. Guidance and Consultation:
- The IRS has published guidance to help taxpayers assess their filing obligations, but relying exclusively on this guidance is discouraged.
- Taxpayers with questions are advised to consult with a tax lawyer to ensure accurate compliance and avoid potential penalties.
The article underscores the gravity of the IRS's focus on foreign financial asset reporting and encourages taxpayers to make informed decisions about their filing obligations. If individuals have questions about reporting, seeking the expertise of a tax attorney, such as Kevin E. Thorn of Thorn Law Group in Boston, is recommended to navigate the complexities of offshore financial compliance.
