A quiet update to the IRS website that was discovered by the tax professionals at the Tax Law Offices of David W. Klasing has provided tremendous opportunity for our clients. The update, which specifies what need and needn’t be reported on Form 8938 (Statement of Specified Foreign Financial Assets) and FinCEN Form 114 (FBAR), clarifies that social security benefits from a foreign jurisdiction are not assets that must be disclosed to the federal government as part of the strict FBAR requirements.
As of last week, it was the position of the Service that social security-type payments were like foreign trusts, of which the U.S. taxpayer receiving periodic payments was the beneficiary. Based on that view, U.S. taxpayers were required to include the payments (much like they would a foreign trust) on their Form 8938 and FinCEN Form 114. But as we have discovered, that is no longer the case.
The IRS justified their previous position by taking the stance that, much like a beneficiary of a foreign trust, a U.S. taxpayer that receives guaranteed periodic payments from a social security account has an interest in the account that requires reporting under FBAR and other disclosure laws. The willful failure to disclose the account(s) can result in an IRS criminal investigation leading to felony criminal charges and huge fines and penalties. Furthermore, the U.S. government hasn’t been shy in going after anyone and everyone for failure to disclose such accounts.
Lastly, this change in stance by the Service may allow for different income tax treatment with regard to foreign social security benefits. Before this news, the IRS sometimes required taxpayers to pay taxes on income in a social security account even if the money was not actually paid to the taxpayer unless exempted via Tax Treaty. It appears that this type of treatment of social security benefits may be a thing of the past.
At the Tax Law Offices of David W. Klasing, it is our goal to put you in the best financial position possible. This new breaking news will allow us to reach that goal with more ease and efficiency. If you have interest in a social security account in a foreign country, come and see us as soon as you can. The time to take advantage of this new development is now. We will do everything in our power to put you in the best financial situation possible while working within the bounds of the law. Contact the Tax Law Offices of David W. Klasing today at 800-681-1295 for a reduced-rate consultation.