The IRS recently released a new tax form (Form 8938) that may need to be filed with your tax return this year if you have an ownership in certain “foreign financial assets.” Foreign financial assets include: foreign bank accounts; foreign broker accounts; investments in foreign bonds or securities; ownership interests in a foreign trust; certain foreign pension payments; and investments in any foreign entity which may hold such assets as real estate, a trade business, etc.
The reporting rules and filing thresholds are complex, but if the value of your foreign financial assets was in excess of $50,000 (or $100,000 if married filing jointly) at the end of 2011 or exceeded $75,000 ($150,000 if married filing jointly) at any time during 2011, and you are a United States citizen or resident alien, you are required to file the new form. These dollar thresholds are four times higher for taxpayers who lived abroad during 2011.
The penalty for failure to provide the required information with your tax returns is $10,000 unless your failure to file is due to reasonable cause. This penalty can reach up to $50,000 for continued failure to file for 90 days after the IRS mails you a notice of failure to file. There are also substantial penalties for failure to report income from the assets that are required to be disclosed, and there are potential criminal penalties for a willful failure to provide the information. The new law also extends the statute of limitations (which is generally limited to three years) for a failure to file the form or disclose any assets that are required to be reported, which means that the IRS has more time to audit your tax returns. As you can see, the penalties for failure to comply with the new filing requirements can be very severe.
Please contact the Aronson Tax Department at 301.231.6200 if you have any questions or require assistance in determining whether you have foreign financial assets that may need to be reported.
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