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Bar Association of San Francisco Member Benefits: Publications

New Reporting Requirements - A Foreign Concept For Many Taxpayers

 

By Dave Porter, Law Offices of David B. Porter

 

The Internal Revenue Service is imposing more and more reporting requirements on taxpayers in order to try to verify that U.S. citizens and residents are reporting their worldwide income and paying the correct tax.

Most taxpayers know by now that there is a reporting obligation to file a Form 90-22.1 Report of Foreign Bank and Financial Accounts (FBAR) if they have foreign accounts with an aggregate value of more than $10,000 during the calendar year.

Now, there is an additional reporting requirement for U.S. taxpayers with foreign accounts. As part of the Foreign Account Tax Compliance Act of 2010, a new form — Form 8938 Statement of Specified Foreign Financial Assets— is required to be filed by many taxpayers with their income tax returns.

The new act requires an individual living in the U.S. who holds any interest in a specified foreign financial asset, including an account maintained at a foreign financial institution, to report certain information to the IRS if the aggregate value exceeds $50,000 on the last day of the year, or $75,000 on any day of the year. There are other thresholds for married individuals and those living abroad.

There are overlaps between the information to be reported on Form 8938 and the FBAR. However, Form 8938 does not replace the FBAR. Taxpayers may now be required to file both forms!

Presently, only individuals must file Form 8938. Domestic entities are not required to file Form 8938 yet, although they remain subject to the other numerous information reporting forms.

A $10,000 penalty applies for failure to file a Form 8938, and the penalty is increased by an additional $10,000 (up to a maximum of $50,000) for each 30 day period the failure continues after the IRS mails a notice about the omission.

If Form 8938 is not filed or a foreign financial asset is not reported on Form 8938, then the statute of limitations to audit those items does not begin to run.

We have a self-reporting income tax system, and the IRS needs people to fess up. On January 9, 2012, the IRS announced that it has reopened the offshore voluntary disclosure program (OVDP). The previous two programs resulted in the collection of more than $4.4 billion for the IRS. The penalties under the OVDP have been increased, but there is currently no deadline to apply for the OVDP.


 

Dave Porter is a tax controversy attorney in San Francisco. He can be reached at dave@porterlawweb.com.

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