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Reporting Foreign Financial Assets

Certain international tax reporting requirements apply to individuals who hold “specified foreign financial assets” valued in excess of $50,000. If the aggregate value of all foreign financial assets in which an individual has an “interest” exceeds the statutory amount, then the individual must include a statement about the asset(s) with his or her income tax return (1). For these purposes, a specified foreign financial asset can refer to any stock or bond issued by a person other than a U.S. person, a financial instrument issued by a non-U.S. person, or any other interest in a foreign entity (2). It can also refer to any financial account maintained by a foreign financial institution. The services of a qualified international tax attorney may be required by most U.S. person’s who do not have previous experience with these reporting requirements. However, ultimately it is the responsibility of the taxpayer to ensure the accuracy and completeness of reporting requirements and therefore it is recommended that the following information is well understood by any taxpayer it applies to.

What Must the Taxpayer Include in the Statement?

To satisfy the reporting requirement related to the taxpayer’s interest in specified foreign financial assets, the statement must include certain information. Specifically, the taxpayer’s statement must identify the financial asset in a different manner depending on the type of specified foreign financial asset involved. If the asset is an account, the statement must identify the name and address of financial institution where the account is maintained. The statement must also provide the account number. If the asset is a stock or security, the statement must contain the name and address of the issuer of the stock or security, as well as information concerning the class or issue of the stock or security. Finally, if the asset is another instrument, contract, or interest, the taxpayer’s statement must contain the names and addresses of the issuers of the instrument or counterparties to the contract (3).

What are the Penalties for Failing to Report Specified Foreign Financial Assets?

Failure to provide a statement as required by IRC § 6038 can result in a penalty of $10,000. The initial penalty may increase if the taxpayer continues to fail to furnish the information after notice from the IRS. Once the taxpayer receives written notification from the IRS regarding his or her failure to properly report specified foreign financial assets, the taxpayer has 90 days to provide the required information. Failure to complete the statement within 90 days will result in an additional penalty of $10,000 for every 30-day period. The additional penalties can never exceed $50,000 (4). However, a taxpayer can escape the penalty by showing that the failure to properly comply with the reporting obligations was “due to reasonable cause and not due to willful neglect,” but the “fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer (or any other person) for disclosing the required information is not reasonable cause.” (5)

How a Tax Attorney Can Help with Reporting Foreign Financial Assets

If you have foreign accounts or interests in specified foreign financial assets, you may have reporting obligations of which you are not even aware. In order to fully understand and evaluate the options available to you and your complicated tax situation, you should consider working with an experience tax attorney.

The Tax Lawyer - William D. Hartsock has been successfully helping clients comply with U.S. International Tax Laws and deal with issues related to worldwide taxation since the early 1980s. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circumstances of their case. To schedule your free consultation simply fill out the contact form found on this page, or call (858) 481-4844.

References:

  1. IRC § 6038D(a).
  2. IRC § 6038D(b)(2).
  3. IRC § 6038D(c).
  4. IRC § 6038D(d)(2).
  5. IRC § 6038D(g).

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The Tax Lawyer - William D. Hartsock, Esq. – San Diego Tax Attorney

Author: William D. Hartsock, Esq

A "Certified Tax Law Specialist" for over 37 years, Mr. Hartsock is one of the most trusted and respected tax attorneys in Southern California. Call today to discuss the facts of your case and learn about your options. Mr. Hartsock offers free consultations and all conversations are protected under attorney-client privilege; meaning that no information shared with a tax attorney will be shared with the IRS or California Franchise Tax Board.