Reporting by U.S. Taxpayers Holding Foreign Financial Assets
U.S. taxpayers holding foreign financial assets may be required to report certain information about those assets on Form 8938, Statement of Specified Foreign Financial Assets. Taxpayers must attach Form 8938 to their annual tax return.
Learn about what to do if you have unreported foreign income and accounts. Non-Compliance with foreign asset reporting can lead to some hefty penalties such as: Failure to file FBAR: $10,000 for each non-willful violation. Failure to willfully file FBAR: the greater of $100,000 or 50% of the account's highest balance.
The criminal penalties include: Willful Failure to File an FBAR. Up to $250,000 or 5 years in jail or both.
In case you are a resident in India, the details of all foreign assets or accounts in respect of which you are a beneficial owner, a beneficiary or the legal owner, is required to be mandatorily disclosed in the Schedule FA.
The extraterritorial jurisdiction provided by 28 U.S.C. § 1355(b)(2) gives Federal prosecutors a powerful mechanism to deprive criminals and criminal enterprises of the proceeds and instrumentalities of their illegal activities, wherever those assets may have been transferred.
Earnings from foreign bank accounts must be reported and taxed on US Form 1040. Additionally, the taxpayer is required to disclose, on Schedule B, whether they own any foreign bank accounts and they may be required to report the accounts on Form 8938, Statement of Specified Foreign Financial Assets.
Specified foreign financial assets
If the IRS mails you a notice about failing to file a Form 8938 and you don't file the form within 90 days, an additional continuation penalty of $10,000 for each 30-day period after the 90-day period has expired may apply. The maximum continuation penalty is $50,000.
Per the Bank Secrecy Act, every year you must report certain foreign financial accounts, such as bank accounts, brokerage accounts and mutual funds, to the Treasury Department and keep certain records of those accounts.
A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
One of the main catalysts for the IRS to learn about foreign income which was not reported is through FATCA, which is the Foreign Account Tax Compliance Act. In accordance with FATCA, more than 300,000 FFIs (Foreign Financial Institutions) in over 110 countries actively report account holder information to the IRS.
It is important to ensure that this form is filed as required, as the penalties are onerous, $25 per day for failing to file a return (minimum $100, maximum $2,500) and $500 per month for knowingly not filing or for gross negligence, to a maximum of $12,000.
An accuracy-related penalty applies if you underpay the tax required to be shown on your return. Underpayment may happen if you don't report all your income or you claim deductions or credits for which you don't qualify.
The standard non-willful penalty for failure to file can be up to $10,000 per form for each year a person didn't file a required FBAR.
For example, Form 8938 is required if the total foreign-held asset value was $50,000 on the last day of the tax year, or $75,000 at any time during the tax year. If you are married and file jointly with your spouse, the threshold is $100,000 on the last day of the year or $150,000 at any time during the tax year.
Failure to report foreign financial assets on Form 8938 may result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification).
Individuals who fail to report their interest in foreign financial accounts run the risk of substantial civil penalties and possibly a criminal investigation by the IRS.
The Short Answer: Yes. Share: The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.
If you must file Form 8938 and do not do so, you may be subject to penalties: a $10,000 failure to file penalty, an additional penalty of up to $50,000 for continued failure to file after IRS notification, and a 40 percent penalty on an understatement of tax attributable to non-disclosed assets.
The most common penalty is the failure-to-file penalty, which is 5% of the unpaid taxes for each month the return is late, up to a maximum of 25%. However, many US expats owe no US tax due to the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC), so this penalty might not apply.
The Bank Secrecy Act (BSA) mandates the reporting of foreign bank and financial accounts to ensure compliance with U.S. regulations. A common and crucial question is, “How far back do I need to file an FBAR?” The answer is six years, which is vital for maintaining compliance and avoiding FBAR penalties.
Any person who fails to comply with the registration requirements may be liable for a civil penalty of up to $5,000 for each violation. Failure to comply includes the filing of false or materially incomplete information. Each day a violation continues constitutes a separate violation.
Generally, foreign real estate does not need to be reported if it is held directly and used as a personal residence. But, when real estate is held through certain entities or used for rental income, it may trigger reporting requirements.
US taxpayers are required to report their worldwide income and foreign financial assets annually on their tax returns and on international informational reports, such as FinCEN Form 114 (FBAR), Form 8938, etc.
Update 1: Declare Foreign Income in Your ITR Before Dec 31 to Avoid Penalty! The Income Tax Department has issued a stern warning for taxpayers: disclose foreign income and assets by December 31, 2024, or risk facing severe penalties under both income tax and Black Money laws.