The IRS and federal government are concerned about the “tax gap,” defined as the difference between what a particular taxpayer pays the IRS each year and what he or she should pay. Some estimates calculate the tax gap to be as much as $300 billion dollars annually. The debt crisis has shown the need to close loopholes in the tax code and elsewhere as a means of realizing revenue. To address this, recent laws now require filers in Massachusetts and across the country to report foreign financial assets which exceed $50,000.
In 2010, a new federal law was enacted called the Hiring Incentives to Restore Employment Act (HIRE). Section 6038D of that law deals with annual reporting for foreign bank and financial accounts (FBAR). Each federal filer with more than $50,000 in foreign assets must now complete a separate schedule, providing the IRS with certain information concerning foreign assets.
Filers must now disclose assets kept in a foreign bank (with bank name, address and account number), as well as foreign stocks and securities (with name address and identifying information). Any other foreign instrument, contract or interest must also be listed (again with identifying information). With each required disclosure, filers must provide the highest value of the asset during the tax year.
The federal government hopes this information will deter willful tax evasion. It also recognizes that some of the tax gap is simply due to the complexity of the tax code. Many taxpayers are overwhelmed when it comes to gathering and reporting required tax information. A Massachusetts attorney familiar with tax law at both the state and federal levels may offer some support and guidance to those looking to meet reporting requirements and preserve their hard earned assets.
Source: The Boston Globe, “IRS requires disclosure of foreign financial assets,” Jamie Downey, August 4, 2011.