How do I report offshore accounts or foreign assets?

The United States Internal Revenue Service (IRS) requires taxpayers report foreign assets. A failure to do so can result in fines and even criminal charges. Although most people know about this requirement, not everyone knows exactly how to go about reporting these assets. This post will provide some basic information, including common tax forms that the IRS often requires to meet this obligation.

What are foreign assets? First, it is important to know exactly what the IRS considers a reportable foreign asset. Like all things in the tax world, the answer is not as simple as you may think.

These assets include more than just bank accounts held abroad. They generally include income earned abroad, interest on foreign assets, dividends and even signature authority over certain accounts.

What forms does the IRS require? The IRS generally requires:

  • Form 8938. The IRS generally requires this form for those who have a foreign asset that exceed $50,000.
  • Schedule B. There is a box on schedule B that questions if you have earned interest on a foreign bank account. Check the “yes” option if appropriate.
  • FBAR. The Report of Foreign Bank and Financial Accounts (FBAR) is also required for accounts that exceed $10,000 at any point during the applicable tax year.

Each of these forms can cover different types of foreign assets. As such, taxpayers should use those that apply to their obligations.

What are the penalties for failure to report? As noted above, failure to report foreign financial assets to the IRS can result in stiff penalties. This can include a 20 percent penalty for failure to report or, in some cases, a 75 percent civil fraud penalty. The IRS will also take into consideration the nature of the penalty. If it was deemed willful, the penalties increase significantly.

The easiest way to mitigate these penalties is to come into compliance. An attorney experienced in these matters can review your situation and discuss the best options.

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