Taxpayers with foreign financial accounts may have several different reporting requirements, depending the type of account and the amount of funds in the accounts. The first of these requirements comes from the 1040 tax return, specifically Schedule B.
Schedule B requires the disclosure or any interest or dividends received by the taxpayer, including interest from foreign accounts. Part III specifically asks about foreign accounts, including whether the taxpayer had an interest in signature authority over any foreign financial accounts, and whether the taxpayer has a Foreign Bank Account Report (FBAR) filing requirement or received a distribution from a foreign trust. A failure to answer these questions honestly could result in tax fraud penalties, and possibly lead to other penalties related to a failure to file FBARs.
Foreign Bank Account Reports (FBARs)
Once Schedule B is completed, a taxpayer must figure out whether they are required to file an FBAR. In general, if the aggregate value of your foreign accounts exceeded $10,000 at any point during the tax year, you need to file an FBAR. The penalties for FBAR non-compliance are severe, and can be up to the greater of $124,588 or 50 percent of the balance in the account at the time of the violation, for each willful violation.
Separate from the FBAR requirements are the reporting requirements for specified foreign assets on form 8938.
Form 8938, Specified Foreign Assets
Form 8938 has slightly different requirements than FBARs when it comes to specified individuals and foreign accounts, and also has different threshold amounts. The thresholds vary based on the filing status of the taxpayer, and whether they live in the U.S. or abroad.
For taxpayers living in the U.S., the following thresholds apply:
- Unmarried taxpayers must file form 8938 if the aggregate value of the specified foreign financial assets (SFAs) exceeded $50,000 on the last day of the tax year, or $75,000 at any point during the year
- Married taxpayers filing jointly must file form 8938 if the value is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year
- A married taxpayers filing separately must file his/her form 8938 if the total value of his/her SFAs is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
For taxpayers living overseas, the following thresholds apply:
- Unmarried taxpayers or married taxpayers filing separately must file form 8938 if the value of the specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year
- Taxpayers filing jointly must file form 8938 if the value of their specified foreign financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
If you have questions about you foreign asset reporting requirements, talk to a tax attorney. For more information, download our free special report, Nine Questions You Should Be Asking About the IRS Streamlined Filing Compliance Procedure for Unreported Foreign Accounts.