A Simple Tax Guide For Taxpayers with Overseas Accounts

Taxpayers with Overseas Accounts

For many U.S. taxpayers who have overseas investments such as:

• • • Stock accounts

    • Mutual fund accounts

    • Business Entities

    • Trusts

    • Life insurance policies, and/or

    • Checking and Savings accounts

they may have certain international information reporting requirements each year to disclose this information to the Internal Revenue Service. There are many different types of tax forms that a person may have to file when they have to report foreign accounts and assets. Some of the more common international reporting forms include the FBAR and Form 8938. The international tax law specialist team at Golding and Golding has written hundreds of articles about the different nuances involving foreign account reporting, but we wanted to take a moment to update taxpayers about five of the most important facts they need to be aware of when it comes to foreign account reporting.

A Simple Tax Guide For Taxpayers with Overseas Accounts

Multiple Forms for the Same Foreign Account

Depending on the type of specific foreign accounts that the taxpayer owns, just filing one international reporting form may not be enough. Some types of foreign account reporting require the taxpayer to lodge several forms with the Internal Revenue Service and FinCEN to disclose their foreign account information.

Different Thresholds for Different Forms

Not all international tax forms are created the same. Some tax forms have a higher threshold while other tax forms may have a lower threshold (for the same type of foreign account or asset). Likewise, some forms may have different thresholds depending on the status of the taxpayer. For example, the Form 8938 threshold will vary depending on whether or not the taxpayer is filing jointly or not and whether or not the taxpayer is a United States resident or a foreign resident.

Not all Due Dates and Filing Deadlines are the Same

The different international information reporting forms may also have different due dates and deadlines. For example, Form 3520 which is used to report foreign gifts and trusts is due when the taxpayer’s tax return is due — which is usually April. Conversely, Form 3520-A — which is used to report the ownership of foreign trusts — is typically due on March 15th although the taxpayer may file an extension. It is important to note that for some forms such as Form 3520-A, the taxpayer files an extension on Form 7004 and not a general extension using IRS Form 4868.

Exceptions and Exclusions May Apply

Many exceptions and exclusions apply to foreign accounts and other asset reporting. For example, if a person has a foreign trust they may have to report it (and the accounts) on both the FBAR and Form 3520. But for example, when a taxpayer has an RRSP specifically in Canada, it is exempt from being reported on forms 3520 and 3520-A in conjunction with the Revenue Procedure 2014-55. Likewise, while the individual ownership of a foreign rental property is not reportable for FATCA, if instead the home is owned within a foreign entity come and then the entity may have to report on Form 5471 or Form 8938.

Penalties and Abatement

Failure to file the international information reporting forms timely may result in IRS fines and penalties.  While some of these foreign account/asset penalties can be very high — such as the Form 3520 penalty and the willful FBAR penalty — the IRS has also developed various offshore amnesty programs to assist taxpayers with safely getting into compliance. With these programs, oftentimes the penalties can be minimized or eliminated. And, if penalties were issued, the taxpayer may qualify for a penalty abatement.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.  Contact our firm today for assistance.