Foreign Asset Reporting for Individuals

Ownership of foreign assets comes with a myriad of tax reporting considerations, many of which come with steep penalties for non-compliance.

Individuals who own certain foreign assets need to be aware of Form 8938 (Statement of Specified Foreign Financial Assets) which carries potential civil and criminal penalties for non-compliance.  The potential failure to file penalty is $10,000 and there is an additional penalty up to $50,000 for continued failure to file after notification by the IRS.

The form must be filed by “specified individuals” with “specified foreign financial assets”.  The definition of these terms are broad and are included in the instructions to Form 8938.  Common example of a filing requirement: Married taxpayers file a joint income tax return and own a foreign bank account with the total value in the account being more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.  This is one of many circumstances that would render a filing requirement.

Currently, this form is only required to be filed by individuals, however, the IRS has stated in proposed regulations that it intends to broaden the filing requirements to include domestic entities formed to hold specified foreign financial assets exceeding the appropriate filing threshold.

If a taxpayer meets the filing requirements, Form 8938 is to be filed with the taxpayer’s annual U.S. tax return.  If the taxpayer is not required to file an income tax return, then Form 8938 is not required.

Please contact us if you have any questions regarding reporting of foreign financial assets.