U.S. International Tax Law Disclosure Requirements

Depending on whether you are a U.S. Citizen or Resident, you have various reporting and disclosure requirements to the IRS on your U.S. source and worldwide income. In this article we will take a look at a few of the most common and most important international tax reporting requirements.

Disclosure of Foreign Bank Accounts

If you have a financial interest or signatory power over a foreign financial account, then you are required to file a Report of Foreign Bank Account and Financial Accounts (FBAR), also known as FinCEN Form 114. This reporting obligation applies to bank accounts, brokerage accounts, mutual funds, trusts, or other financial accounts. American Citizens Abroad, What is FBAR?, http://americansabroad.org/issues/fbar/.

What is the FBAR Filing Requirement?

The FBAR (“Foreign Bank Account Report”) form is an informational form that lists a taxpayer’s foreign accounts. Taxpayers who have an interest in, or signatory authority over a foreign financial account, and the aggregate value of those accounts exceeds $10,000 at any time during the calendar year are required to file an FBAR. The form lists the existence of foreign bank accounts, investment accounts, mutual funds, retirement and pension accounts, securities and brokerage accounts, debit card and prepaid credit card accounts, and life insurance policies or annuities accounts.

Form 8939 Disclosure Requirements for U.S. Citizens and Residents

In addition to the FBAR requirement, U.S. Citizens and Residents also must report to the IRS the existence of specified financial assets with an aggregate value of over $50,000. These specified assets must be reported to the IRS using a Form 8939 attached to the individual tax return. Internal Revenue Service, Information for U.S. Taxpayers on Form 8938 Requirements, http://www.irs.gov/Businesses/Corporations/InformationforUSTaxpayers.

What are Specified Financial Assets under Form 8939?

For your Form 8939 reporting obligation, certain assets are considered specified financial assets which you must disclose to the IRS, but others do not constitute specified financial assets for these purposes. Financial accounts held at foreign financial institutions are specified financial assets, but accounts held at a foreign branch of a U.S. institution are not specified financial assets for the purposes of Form 8939 reporting. A foreign financial account or asset for which you have signatory authority may not be a specified asset under Form 8939, but it may trigger your requirement to file a FBAR form with the IRS. Foreign stocks and securities are specified foreign assets, as are foreign mutual funds, foreign partnership interests, foreign hedge funds, and foreign private equity funds. Internal Revenue Service, Types of Foreign Assets and Whether They are Reportable on Form 8939, http://www.irs.gov/Businesses/TypesofForeignAssetsandWhetherTheyareReportableonForm-8938.

What are the Repercussions of Not Filing a Form 8939?

If you are required to report foreign financial assets on Form 8938 but fail to do so, you may incur a penalty of $10,000. If you receive notification from the IRS about your failure to file the Form 8938 but you continue to fail to file the required form, you may be subject to a penalty of up to $50,000. Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.

How a Tax Attorney Can Help with You Financial Assets

If you are a U.S. Citizen or resident with foreign financial assets, you may have certain reporting and disclosure requirements to the IRS. In this situation, you may need the assistance of a knowledgeable tax attorney to help you evaluate all aspects of your situation.

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.