Reviewing Your Foreign Accounts: Late Filing Before Penalties

Reviewing Your Foreign Accounts: Late Filing Before Penalties

Reviewing Your Foreign Accounts: Late Filing Before Penalties

U.S. Taxpayers who have foreign accounts, assets, and investments may have several international reporting forms to file each year in addition to filing their IRS Form 1040. While there are many different international reporting forms that the taxpayer may have to file, two of the most common foreign IRS tax forms are the FBAR and Form 8938. For the FBAR and Form 8938, Taxpayers are required to report the maximum account value for each of their accounts and assets. While the failure to file these forms timely may result in fines and penalties, the IRS has also developed various foreign account and asset amnesty programs to assist taxpayers with safely getting into compliance.

Before a taxpayer can determine whether or not they have a filing requirement, it is important that they review their information carefully. Let’s take six important steps to take to determine if there is a reporting requirement.

This is an update to a previous article Golding and Golding authored in 2017.

Do You Have Foreign Accounts or Assets?

The first question to contend with is whether the taxpayer has foreign accounts and assets that are required to be reported for international informational return purposes. Typically, the types of foreign accounts and assets that are reportable include bank accounts, investment accounts, mutual funds and ETFs, pension plans, and foreign life insurance policies that have a surrender value.

*There are other types of accounts and assets the taxpayer may have to report as well, but the accounts/assets listed above are the most common.

What Other Types of Foreign Investments Does the Taxpayer Have?

While foreign accounts and assets are two main categories of investments that taxpayers may have to file, several other types of investments require the taxpayer to file other foreign tax forms beyond the FBAR and Form 8938. For example, if the taxpayer has a foreign trust, they may have to file a Form 3520/3520-A; if they have a foreign corporation, they may have to file Form 5471, and if they have passive foreign investment companies, then they may have to file Form 8621. (The latter may also include foreign ETFs and mutual funds).

What is the Maximum Value of the Foreign Accounts and Assets?

The taxpayer should next determine the maximum value of each account and asset for the year. It is important to note that not all foreign financial institutions will provide exact information, so taxpayers must do their own diligence to try to determine what the maximum value is. Once the taxpayer can determine what the maximum value is, they should aggregate the total maximum values per category.

Which Forms Does the Taxpayer Have to File?

Next, the taxpayer should determine which forms they have to file for the year. It is important to note that not all of the foreign information reporting forms have the same threshold requirements.

For example, the FBAR has a relatively low threshold requirement. In contrast, the Form 8938 has a higher threshold requirement, and the Form 8938 threshold requirements may vary depending on whether the taxpayer is filing single or married filing separately, or if they file jointly. Sometimes an asset or account may be reported on both the FBAR and Form 8938.

Reviewing the Specifics of each Foreign Information Form

Once the taxpayer determines which forms they must file, they must determine the specifics of the form. For example, if the taxpayer only has foreign bank accounts, then they may only have to file the FBAR and Form 8938. While filing these two forms can be cumbersome, they are not as difficult as some of the other foreign tax forms. However, if the taxpayer also has to file a Form 3520/3520-A, for example, because they own a foreign trust, then the reporting can be much more complicated

Is the Taxpayer Out of Foreign Reporting Compliance?

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.