Foreign Asset Reporting Roundup
A Note from the Editor
Stan Rose, Director, Tax Practice
Many U.S. residents have business and personal dealings outside of the country and it is common for them to have cash held in foreign bank accounts, shares of a closely-held foreign corporation or revenue-generating foreign real estate. Each of these scenarios may require the filing of informational forms with the IRS or Treasury Department, such as Forms FinCen 114, 5471 and 8938. The consequences of not filing can be nothing short of obscene, with penalties that vary from $10,000 to 50% of the value of the foreign holdings per year. Also, criminal charges may result, and the IRS has stepped up enforcement of these filings. (They even changed the name of one form from the benign TD F 90-22.1 “Report of Foreign Bank and Financial Accounts” to “Financial Crimes Enforcement Network” (FinCEN) Form 114, so now even law-abiding citizens have to file a form that alludes to criminal acts!) The Taxpayer Advocate Service is a division of the IRS that polices the rest of the IRS, much like an internal affairs division polices police officers. The Taxpayer Advocate, in multiple reports to Congress, has lambasted IRS treatment of taxpayers in this area, including the requirement of duplicative filings (one asset can require two forms) and their rollout of confusing compliance programs (like those discussed in Isaiah Warren’s article in this month’s newsletter). Also, the Advocate points out that these programs seem to unfairly punish the innocent little guy (my words). Unfortunately, these ridiculous penalties often hurt those who didn’t underreport any income at all, but simply overlooked the filing of a form merely listing the existence of a foreign asset – sometimes a relatively modest one. Instead, these harsh penalties should be reserved to punish those who deliberately omit foreign income from their returns.
Here is a roadmap for more information:
- How to come clean on delinquent foreign filings? See Isaiah Warren’s article in this newsletter.
- What assets trip the filing requirements? What forms are required? See Kayla Bartlett’s June 2013 article here.
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