Understanding Foreign Asset Reporting

US tax code can be very confusing. This is especially true when it comes to reporting foreign assets. The IRS has a number of complex regulations regarding foreign assets and how they are reported, any of which can cause headaches for those filing. To give you some insight into the FBAR and other relevant forms, here is Ayar Law’s guide to foreign asset reporting requirements.

Foreign Asset Reporting Forms

The Internal Revenue Service has a variety of forms when it regards foreign asset reporting. The most common of these forms are:

• Form 3520 – Foreign Trust and Gifts
• Form 3520-A – US Owner of a Foreign Trust
• Form 5471 – Foreign Corporation
• Form 8865 – Foreign Partnership
• Form 8621 – Passive Foreign Investment Company
• Form 8938 – Specified Foreign Assets
• FBAR – Report of Foreign Bank and Financial Accounts (also known as FinCen 114)

The forms which are most commonly associated with tax problems are form 8938 and FBAR. Form 8938, also known as FACTA, differs from FBAR in that form 8938 is for those entities that have an interest in specified foreign financial assets that are valued at more than $50,000 on the last day of the tax year, or more than $75,000 at any point during the year. FBAR, on the other hand, is required of all US citizens and resident aliens who have fiscal foreign accounts which exceed more than $10,000 at any point during the year.

What Foreign Assets Must Be Reported?

Generally speaking, the IRS requires that all of your foreign assets are reported. As penalties are exceptionally high, especially when it comes to the FBAR, it is essential to keep track of all your accounts and report them. It does not matter if you have one account or twenty – if your combined accounts total more than $10,000 you must report them to the US government.

If you have money offshore, it is essential that you properly report this to the US government. In addition, you must also be sure to report any foreign income from said offshore money as earnings on your US tax return.

Regardless of which country your assets reside in, be it a tax haven or countries where passive income isn’t reported (like in certain nations in Asia), US tax regulations require all assets totaling more than $10,000 to be properly reported to stay in compliance.

Failing to comply with the US tax codes concerning foreign asset reporting is a serious matter. If you knowingly or willfully hid foreign assets from the US government, you may become to subject not only to stiff fines and penalties, but also a criminal investigation by the Department of Justice and IRS.

Have tax questions about foreign bank accounts?

Contact Tax Lawyer Venar Ayar