- Additional Foreign Asset Reporting Required
- December 26, 2011
- Law Firm: Day Pitney LLP - Hartford Office
U.S. citizens and residents (including individuals who hold a green card or otherwise meet the physical presence requirements under the tax laws) are already required to file returns and pay tax on their worldwide income. They are also required to file the Report of Foreign Bank and Financial Accounts (FBAR) to report their financial interest in, or signature authority over, foreign financial accounts. In addition, they have other reporting requirements if they have an interest in foreign entities, including foreign trusts and corporations.
U.S. persons must also now comply with an additional filing requirement for foreign assets. The Foreign Account Tax Compliance Act (FATCA), enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act, created a new filing requirement for U.S. taxpayers who hold foreign financial assets with an aggregate value exceeding $50,000. These U.S. taxpayers must report certain information about those assets on new Form 8938 which must be attached to their annual income tax return. Reporting applies for assets held during the 2011 taxable year. However, under Notice 2011-55, the reporting is temporarily suspended pending the release of the final Form 8938 and instructions.
Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty of up to $50,000 for continued failure after IRS notification). In addition, underpayments of tax attributable to undisclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent. If you may be affected by this new filing requirement and have questions about complying with it, please let us know.