Take Your Offshore Tax Obligations Seriously

Do you have an interest in any kind of foreign financial accounts? If so, it is important that you know the tax filing requirements that apply to U.S. citizens, resident aliens and certain non-resident aliens. According to IRS Commissioner John Koskinen, “Taxpayers here and abroad need to take their offshore tax and filing obligations seriously. Improving offshore compliance has been a top priority of the IRS for several years, and we are seeing very positive results.”

Those results amount to an 8 percent increase in the number of reports filed in the last year, and a remarkable 17 percent increase over the last five years according to information provided by the Treasury Department’s Financial Crimes Enforcement Network, or FinCen.  This growth in compliance means that the reporting requirements regarding offshore taxes are being better communicated and awareness of the rules has improved.

Do You Know your Foreign Account Filing Requirements?

There are two forms whose growing number of submissions represent improvement in the eyes of FinCen. These are Form 114, Report of Foreign Bank and Financial Accounts, or “FBAR”; and Form 8938, Statement of Specified Foreign Financial Assets.  FBAR filings broke records in 2015, reaching an all-time high of 1,163,229, while there were over 300,000 Form 8938s filed along with tax returns in 2014, a number that has been relatively stable in the past few years but which represents over 100,000 more than the number filed in the form’s first year of being introduced, 2011. 

FBAR Requirements

The requirements for submitting the FBAR apply to all taxpayers who have an interest in or signature or other authority over foreign financial accounts whose aggregate value exceeds a specific threshold. Accounts that are often overlooked are those when an American signs or can direct how the funds are disbursed for an international school, church or an employer.  These accounts often have high balances and push the overseas American over the filing threshold. For 2015 the due date for paying the tax was June 30, 2016, and the threshold value was $10,000.

Form 8938 Requirements

Form 8938 became a requirement under the Foreign Account Tax Compliance Act, and is meant for those whose foreign accounts have significantly larger values than the FBAR. The requirements for submitting Form 8938 vary, depending on such factors as whether the taxpayer lives abroad or files a joint income tax return, but the lowest reporting threshold that applies is $50,000 and changes every based on if the taxpayer changed moved to or from the US.  The form is required for resident aliens, certain non-resident aliens, and U.S. citizens alike.

Worldwide Income

Under U.S. tax law, all Americans are required to file tax returns, whether they are living at home or abroad. These returns are expected to include reports of all income, whether domestic or earned from foreign banks, security accounts, or trusts. These laws also apply to many non-U.S. citizens and resident aliens.

Foreign investment income is generally reported via Schedule B, with Part III asking specifically about the existence of applicable accounts and what countries they are located in. It is important that those who have foreign bank accounts, interests in foreign trusts and securities accounts familiarize themselves with these filing requirements, as failure to comply can result in large financial and even criminal penalties. Many of the requirements are complex: if you need help, contact our office to set up an appointment to see how they may apply to you.

Please contact this office at 913-712-8539 for help with your Foreign Account Tax Filing today.