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Foreign asset filing requirements: June deadlines

For U.S. taxpayers with foreign assets, the reporting that is now required to remain in compliance with U.S. tax law requires several different steps.

In this post, we will outline these steps and remind you of upcoming filing deadlines. Keep in mind that foreign account reporting is a complex subject that is best addressed with the counsel of a skilled tax attorney.

The first step in reporting foreign assets involves regular income tax returns (Form 1040), for which the filing deadline is April 15. If you are a U.S. citizen or resident alien with foreign income, you will have to fill out and include Schedule B when filing your tax return. Line 7(a) of Schedule B asks the taxpayer whether or not they have a financial interest or signature authority over a foreign financial account.

This step is required because the U.S. seeks to tax the worldwide income of its citizens and resident aliens. Schedule B asks specifically not only whether a taxpayer had foreign accounts, but also the country in which the accounts are located.

The implementation of the Foreign Account Tax Compliance Act (FATCA) has imposed requirements taxpayers complete and file additional forms if they have foreign accounts One form that must be filed along with the taxpayer's 1040 is Form 8938, the Statement of Special Foreign Financial Assets, This Form should be included if the taxpayer meets certain requirements.

Further details about Form 8938 requirements are available on the IRS website. But it is best to also discuss your particular situation with a knowledgeable tax lawyer.

Congress passed FATCA to target tax non-compliance by U.S. taxpayers who have foreign accounts. In an effort to facilitate this, agreements have been carried out between the United States Department of Justice and several countries and foreign banking institutions, who are turning over U.S. account holder information in order to avoid severe penalties.

The IRS website includes a search tool with a list of countries and foreign financial institutions who are participating in these agreements.

To summarize so far, April 15 is the filing deadline for individual taxpayers to file income tax returns. Should the taxpayer have a foreign account, they must include with their 1040 return their Schedule B and form 8938 should they meet the criteria.

The filing deadline for form 8938 is June 15 for taxpayers who are living abroad. In effect, this allows these taxpayers a two-month extension beyond the April 15 date for those who live in the U.S. This extension is available for U.S. citizens and resident aliens whose tax home and abode are outside of the United States and Puerto Rico and those who are serving in the military outside the U.S. and Puerto Rico. In order to get this extension for the filing of the 8938, the taxpayer must attach a statement to their tax return stating which of the two categories they fall into.

What makes offshore account compliance so difficult, however, is that there is also an additional set of reporting requirements that have traditionally been known as FBAR. FBAR refers to the Report of Foreign and Financial Accounts, which is now formally called FinCEN form 114. For accounts that meet certain income thresholds, this form has to be filed with the Financial Crimes Enforcement Network (FinCEN).

There are differences in reporting requirements between Form 8938 and FinCEN Form 114 (FBAR). But above all it is important to be aware of the filing dates because FBAR filings are due on June 30.

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