More taxpayers and their CPAs are beginning to realize that there are serious requirements to divulge the existence and status of their financial investments held overseas. The introduction ten years ago of IRS Form 8938, Statement of Specified Foreign Assets, along with the long-standing Report of Foreign Bank and Financial Accounts (now commonly referred to as “FBAR”) are increasingly in the news as the IRS has stepped up its enforcement efforts.
These days the more common FBAR Form 114 (once familiarly known as the TD F 90-22.1) is filed annually on-line through FinCEN’s BSA E-filing System. Though a bit time-consuming in initial set-up and registration, it proves to be a fairly simple reporting operation in practice. If taxpayers are too intimidated to use the system themselves, it is easy to give their CPAs or attorneys authorization to file for them by signing the “114a” report which is only used as internal documentation; it is not filed with FinCEN.
The FBAR must be filed by U.S. persons (i.e., citizens, residents, LLCs, corporations, partnerships, estates and trusts) with a financial interest or signature authority over at least one financial account located outside of the United States that has/have at least $10,000 in aggregate value at any time during the year. Form 114 is due to be filed by April 15 each year, with an automatic extension allowed until October 15. Penalties for failure to file the FBAR timely begin at $10,000 and only go up from there depending on circumstance.
Form 8938 on the other hand must be filed, in general, as an attachment to your annual U.S. tax return by U.S. citizens and resident aliens who meet certain thresholds of financial investment (e.g., the trigger for married taxpayers living in the United States filing a joint return is either $100,00 on the last day of the year, or $150,000 at any time during the year). The types of investment subject to this reporting are wide-ranging and beyond the scope of this blog. Penalties for noncompliance are also severe, beginning at $10,000 and increasing for each additional 30-day period of noncompliance.
Many taxpayers and CPAs notice that there is some overlap in these two reporting requirements. The reason is that Form 8938 is from the IRS and is therefore under United States Code Title 26, whereas FinCEN’s FBAR is authorized under USC Title 31’s Money and Finance Code.
Noncompliance for these forms can be resolved by coming forward to self-report a delinquency for either of these two reporting requirements and making a strong reasonable cause argument. Penalties can be completely abated (generally easier with the FBAR than the 8938), but you’re in far better position to do so if you self-report than get hit with an IRS Notice first. We at McGuire Sponsel are experienced in these matters and assist clients continually.
If you have any questions about our team or any global business issue, do not hesitate to reach out.
Mark O’Dell has a wealth of skill and knowledge in the areas of international corporate taxation and mergers and acquisitions. He brings more than thirty years of experience to the table as a corporate tax director and/or corporate tax manager for several publicly-traded multi-national companies, both U.S. and foreign-owned.
As a Principal for McGuire Sponsel, one of O’Dell’s primary focuses is overseeing the growing IC-DISC practice.