Have bank accounts or other financial interests outside the United States? To avoid severe penalties from the IRS, you may need to take action now to stay in compliance with a new form due June 30, 2014. Here’s what you need to know about the new reporting requirement and the arsenal of other reporting requirements that the IRS has developed over the past several years to deter U.S. income tax evasion.
The New FinCEN Form 114
Now commonly referred to as “FBAR” and formerly known as Form TDF 90-22.1, the new FinCEN Form 114 must be electronically filed on or before June 30, 2014.
Who does this apply to?
U.S. persons (the term “U.S. person” applies to individuals or businesses) with a financial interest in a bank account or other type of financial account located outside the United States. Reporting also applies to individuals who don’t have a financial interest in the bank account or other type of financial account, but who have signature authority for that account.
There are a number of exceptions for filing the annual FBAR, but here’s how you can determine whether this filing requirement applies to you: if the U.S. dollar value in a bank account or other financial account – or the combined value in several of these types of accounts – located outside the U.S. exceeds $10,000 at any point during 2013, an FBAR report is required to be electronically filed by the deadline. Paper filing is no longer an option.
What’s the penalty for non-compliance?
A U.S. person who is required to file an FBAR, and who fails to properly file a complete and accurate FBAR, may be subject to a civil penalty of $10,000 per violation. If the failure is deemed to be willful, the penalty increases to the greater of $100,000 or 50% of the account balance. In some cases, criminal penalties can apply.
Other International Reporting Requirements by U.S. Persons
U.S. citizens and residents with assets in off-shore accounts and U.S. businesses with foreign affiliates and/or foreign transactions and foreign businesses with U.S. affiliates and/or U.S. transactions are subject to a cache of IRS reporting requirements.
A sample of these forms follows.*
- Form 8938 – Statement of Specified Foreign Financial Assets
- Form 5471 – Information Return of U.S. Persons with Respect to Certain Foreign Corporations
- Form 5472 – Information Return of a 25% Foreign-Owned U.S. Corporation
- Form 8865 – Information Return of U.S. Persons with Respect to Certain Foreign Partnerships
- Form 8858 – Information Return of U.S. Persons with Respect to Foreign Disregarded Entities
- Form 3520 – Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts
- Form 1040-NR – U.S. Nonresident Alien Income Tax Return
- Forms 8804 and 8805 related to U.S. federal income tax withholding requirements when a U.S. partnership has a foreign partner
- Forms 1042, 1042-S and 1042-T related to U.S. federal income tax withholding requirements for payments made to a foreign persons
- Form W-8 series related to withholding requirements for payments made to foreign persons
Contributed by Debby H. Wells, manager, RKL’s Tax Services Group. Debby has over 20 years of public accounting tax-related experience. She specializes in middle-market federal and multi-state corporate and pass-through entity tax planning and compliance. She also provides tax outsourcing services to public companies and private businesses to aid them in computing quarterly (and annual) income tax accounting provisions for their financial statements.
* This list is not all-inclusive.