With April 15 now less than a week away, millions of Americans are scrambling to file their state and federal income tax returns before the 2019 deadline passes. However, a tax return might not be the only form you’re responsible for filing this April. If you have offshore assets or bank accounts, you could be among the thousands of Americans who are required to file Form 8938 (Statement of Specified Foreign Financial Assets) with the IRS. You might also be required to file FinCEN Form 114, otherwise known as the “FBAR” (Foreign Bank Account Report), with the Financial Crimes Enforcement Network (FinCEN): a separate branch, independent from the IRS, within the Department of the Treasury. Failure to comply with either of these requirements is a dangerous move that can lead to high fines, an intrusive foreign account tax audit, or even a criminal tax investigation. Increasing this danger are certain provisions of the Foreign Account Tax Compliance Act (FATCA), which not only requires certain taxpayers to file Form 8938, but furthermore, establishes high fines for offshore banks that fail to “blow the whistle” on U.S. customers. Due to this aspect of FATCA, banks around the globe have extremely strong financial incentives to cooperate with the IRS – and for the taxpayer who is unprepared, this can mean disaster.
A host or other foreign information and income tax filings could also be required if you own an offshore business, own shares in an offshore entity, Pension Plan, offshore investments or a foreign trust. Noncompliance with these requirements can simply be a financial game ender and can put your very liberty at risk.
With some exceptions, you are generally required to file Form 8938 if you are a U.S. citizen, a resident alien, or a nonresident alien (known as a “specified individual” in IRS parlance) whose offshore assets exceeded certain monetary thresholds on the final day of the tax year. These disclosure thresholds range from $50,000 (applicable to single filers and married taxpayers who are filing separately) to $600,000 (applicable to married taxpayers who are filing jointly).
Failure to file Form 8938 – a federal (and aggressively enforced) requirement for taxpayers who meet the aforementioned criteria – is punishable by fines of up to $10,000 per violation, plus an additional $10,000 for every month the taxpayer’s noncompliance continues. These fines are capped at $50,000, but can be compounded by other civil penalties for failure to report foreign accounts.
At $10,000, the FBAR reporting threshold is significantly lower than the FATCA reporting threshold. For this reason, some taxpayers believe that, because they have already filed Form 8938, they are relieved of the duty to file an FBAR.
Unfortunately, this is not an accurate understanding of the law. FBAR filing requirements stem from the Bank Secrecy Act (which has been in effect since 1970), whereas the requirement to file Form 8938 has its basis in FATCA (which was not enacted by Congress until 2010). The FBAR can only be filed online, and must be submitted directly to FinCEN – not to the IRS. Form 8938, on the other hand, is an IRS form and should be attached to your income tax return.
If you have a foreign checking or savings account, you may soon receive a FATCA letter from your bank (assuming you have not already). This letter will state that the bank has supplied the U.S. government with financial information concerning your account, and likely, will also prompt you to supply additional data – for instance, by completing and submitting a Form W-9 (Request for Taxpayer Identification Number and Certification).
As is true of all IRS correspondence, ignoring the issue will not make it disappear. On the contrary, failure to respond will merely put you at risk for having your account frozen or otherwise compromised.
That being said, it is extremely unwise to engage with the Internal Revenue Service (or, for that matter, FinCEN) before consulting an experienced IRS lawyer. Depending on when and why you failed to report the account(s), the IRS could impose debilitating penalties – or even target you for a criminal tax or foreign information reporting investigation. While there are many ways to resolve the issue and, potentially, reduce civil or criminal penalties, it is critical to approach the issue strategically, after weighing all of the options available to you.
For more information about FATCA letters, you may be interested in our previous articles on:
Beware of FATCA scammers and fraudulent tax preparers when seeking tax guidance this April. Make sure you work with a reputable and experienced FinCEN Form 114 attorney, like the international tax lawyers at the Tax Law Office of David W. Klasing. We can prepare your tax forms, represent you in FBAR audits or criminal tax matters, and, if you have undisclosed foreign accounts, help you explore strategic paths back toward successful tax compliance. To discuss your FBAR or FATCA tax needs confidentially in a reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call our FBAR tax attorneys today at (800) 681-1295.
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