U.S. citizens are taxed on worldwide income. To collect on these taxes, the IRS requires annual reports disclosing foreign financial assets. What triggers the reporting requirements? It varies on the type of asset and amount in an account.
Consider not only the taxes but also reporting fees when reviewing the returns on foreign investments. While they may still make up a component of a diversified portfolio, mistakes can prove costly and lead to significant losses.
We’ve covered the Report of Foreign Bank and Financial Accounts (FBAR) quite a few times in this blog. Our most recent post on the topic in December looked at how willfulness increases penalties.
This filing deadline for this form moved to April 15 in 2017. Unlike other tax forms this one is filed with the U.S. Treasury Financial Crimes Enforcement Network instead of the IRS. The bar is low and any foreign accounts with cumulative assets of $10,000 need to be disclosed.
For example, if you sold a property you inherited from a relative in Germany and the proceeds were deposited in a German bank, you would need to file a FBAR. This is the case even if those assets were wired back to a American bank within an hour or several days.
Foreign pensions are another type of account where errors often occur. These pensions may have sizable assets.
Foreign accounts with significant assets (generally more than $50,000 or more at any point in the year) must be reported on an FBAR and also form 8938 – filed with the IRS.
Owning foreign securities directly may be another situation that requires close review to ensure proper reports are filed.
Programs exist – the Streamlined Procedure, the Offshore Voluntary Disclosure Program (OVDP) and Delinquent Informational Return Submission Procedures – that may help limit possible penalties. Speak with a tax attorney first to find the best strategy to return to compliance.