Hyden, Miron & Foster, PLLC Law Blog

Saturday, November 11, 2017

What You Need to Know When You Hold Assets in Foreign Financial Accounts

There’s nothing illegal about keeping assets in foreign accounts, and for many investors, businessmen, and other international citizens it’s a smart financial decision. But the federal government has some rules about foreign financial accounts, and if you don’t follow them you can land yourself in some very hot water. The best way to approach foreign financial matters is to coordinate with a foreign account tax compliance lawyer before you do anything. In the meantime, here are some key points to understand about foreign account issues.

  • FATCA may require you to report information about your assets to the federal government

The Foreign Account Tax Compliance Act, or FATCA, requires U.S. taxpayers who hold more than a certain amount of financial assets in foreign accounts to file a Form 8938 when they file their taxes.  The current amount that triggers the reporting requirement for taxpayers living in the United States is $50,000 at the end of the tax year, or $75,000 at any point in the year.  For taxpayers living abroad, the limits are $200,000 at the end of the tax year, or a value of more than $300,000 at any time during the year.  For married taxpayers who file their taxes jointly, these limits are doubled.   

  • FATCA’s Form 8938 requirement is separate from the FBAR requirement

In addition to requiring taxpayers to report information to the IRS for tax purposes, the Bank Secretary Act requires some taxpayers to report information about their accounts directly to the U.S. Treasury’s Financial Crimes Enforcement Network on an FBAR, or Report of Foreign Bank and Financial Accounts.  Taxpayers (and corporations) are required to file an FBAR if they have foreign financial assets whose value exceeded $10,000 at any point during the year.

  • Failure to comply with reporting requirements can be costly

Penalties for failing to comply with the federal government’s foreign asset reporting requirements are severe.  The current penalty for failing to comply with the FBAR requirement can be a fine of up to $12,459.  In cases where the government decides the failure was intentional, the penalty can go up to either $124,588 or half of the balance in the account at the time of the violation…for each violation.  

Similarly, failure to file a Form 8938 can result in a penalty of up to $10,000, with an additional penalty of up to $50,000 if you continue not to file after the IRS has notified you to do so.  Moreover, reporting fewer assets than you truly own can result in a penalty of up to 40% of the assets’ value.  It is possible to avoid a penalty by arguing your case to the IRS and showing that there is a reasonable cause for your failure to disclose assets rather than willful neglect, but doing so can often be time consuming and expensive.

  • There is a program to avoid prosecution for past mistakes

There is currently a program called the Offshore Voluntary Disclosure Program that allows taxpayers to avoid prosecution for previous attempts to avoid taxation by failing to report foreign financial assets if they now voluntarily report those failures and agree to repay the overdue taxes in addition to a penalty.  For taxpayers who comply with the program’s requirements, the IRS will not recommend prosecution to the Department of Justice.

The world gets smaller every day, and as it does more and more Americans are expanding their presence overseas.  In many cases, that means holding foreign financial assets.  While there’s nothing wrong or illegal about that, complying with the federal rules can be complicated, and mistakes can be expensive.  Our firm has been helping clients manage their foreign accounts for decades, and our attorneys have built up a mountain of experience dealing with the IRS.  If you have questions about your offshore accounts and would like to speak with an attorney, call us today to arrange a case consultation with an experienced FATCA attorney at Hyden, Miron & Foster, PLLC.


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