The following information has been provided to assist in increasing your awareness of potential taxpayer obligations with respect to non-U.S. located (i.e., offshore) bank, financial accounts, and/or specified foreign financial assets.
The Internal Revenue Service has increased its scrutiny of offshore accounts, assets, and foreign income, and has been successful in breaking some longstanding foreign bank secrecy laws to gain access to the identities of U.S. taxpayers who have foreign financial accounts and/or assets. Further, the IRS has imposed notification responsibility of the foreign account and asset reporting requirements upon tax preparers.
For U.S. citizens or residents of the U.S., as well as domestic businesses including trusts, corporations and partnerships, any income earned on foreign financial accounts, whether located in the U.S. or located outside of the U.S., is required to be reported on your U.S. income tax returns. Foreign financial accounts include: bank accounts, securities accounts, savings accounts, time deposits located in a foreign country, debit cards and prepaid cards charged to or backed by foreign financial accounts.
It is possible that this requirement will affect you, even though you may not believe you own "anything foreign". Some of the financial assets that must be reported include:
- Financial accounts maintained at foreign financial institutions;
- Foreign retirement accounts;
- Direct ownership of stock in a foreign corporation (outside of a financial institution);
- Foreign life insurance products;
- Foreign partnership interests, such as foreign hedge funds and foreign private equity funds;
- Foreign deferred compensation arrangements; and,
- Beneficial interests in foreign trusts or estates.
Please refer to your individual income tax engagement letters for additional information relating to foreign financial reporting requirements that may apply to you.
For foreign bank accounts, Treasury Department Form 114 must be filed by June 30 each year following any calendar year in which you have foreign financial account ownership, or signature or other authority over, a financial account(s) located in a foreign country with an aggregate value exceeding $10,000 at any time during the calendar year. Form 114 is filed separately from your tax returns. The 2015 form will be due by June 30, 2016. June 30, 2016 is a firm deadline - there is no extension available for this filing. Note that for the 2016 calendar year, the deadline for Form 114 has changed to April 15, 2017. Also beginning for the 2016 calendar year, there will be an opportunity to extend the due date of Form 114.
For certain foreign financial assets, there are various thresholds above which the Form 8938 reporting requirement kicks in. Some taxpayers will be required to report if they have foreign assets and foreign accounts with an aggregate value of $50,000 or more.
As briefly noted above, some foreign financial reporting, such as Form 8938, is required to be attached to the taxpayer’s income tax returns annually, while reports required to be filed with other regulatory agencies, such as Form 114, have separate filing requirements and due dates.
If you believe that you may have had access, authority, ownership, rights to, and/or some other from of connection to foreign financial account and/or asset which may be required to be reported and you have not completed certain U.S. income tax or other informational filings, please contact us immediately.
Please note that there are very significant penalties (both civil and criminal) for failing to report offshore income and failing to file all required information reporting forms. These penalties can amount to tens of thousands of dollars on even a small account.
Accordingly, as tax practitioners, we may need to ask you more questions to assist you in preparation of your annual tax returns.
As always, please let us know if you have any questions or concerns regarding this matter by contacting the office via telephone or email. We would be happy to discuss these rules with you and how they apply to your situation.
Updated January 26, 2016