In recent years, the IRS has been pushing a compliance initiative for reporting foreign assets. There are three basic areas of compliance you should know of. First, when you file your Form 1040, you must accurately answer the questions found on Schedule B, which ask about interests in or signatory authority over foreign accounts.
Second, if you have foreign assets, you may need to file Form 8938, Statement of Foreign Financial Assets. Third, you may also need to file Treasury Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (“FBAR”).
Confusingly, you may need to file all or only some forms depending on the interest you have in a foreign asset, the asset itself, and the value of the asset. And frustratingly, there are many other forms you may need to file to comply with the foreign asset reporting requirements.
If you have a good tax preparer, he or she should have filled out all the forms. But the tax preparer will only know what forms to fill out if you make a full disclosure of foreign assets. If you prepare your own tax returns, it’s possible you did not even realize what forms needed to be completed. There are even situations where you do not even realize you have a filing requirement because a relative has added your name to a foreign account, unbeknownst to you.
If you have not been filing all the forms needed, you are exposed to draconian penalties that can sometimes exceed the value of the asset today. There are various disclosure programs you can enter to comply with the federal reporting requirements. Each program has its benefits and drawbacks. This needs to be communicated to you clearly so you can make an informed decision on how to proceed.
I have helped many taxpayers successfully disclose their foreign assets with no additional repercussions by the IRS. I have also helped the unfortunate taxpayers who did not disclose their assets in time and were audited for their failure to properly disclose.
Every case is different, and a good tax attorney will inform you of all options and the potential drawbacks each option has.
Speak to an attorney about disclosing your foreign assets.