Foreign assets have been a hot topic with the IRS. Your CPA, accountant, or tax preparer should notify you of the requirement to file a FBAR with FinCEN form 114.

In declaring Foreign Assets, one must fill out the necessary form. Form 8938  is required to report financial accounts maintained by a foreign financial institution. Another form needed is the Fin CEN Form 114. This form replaced the old Treasury Form TD F 90-22.1.

Financial Assets that must be declared. Below are some of the items that are reportable:

  • accounts at foreign financial institutions either deposit or custodial
  • account from foreign branch of a U.S. bank
  • account for which you are signatory (exemptions may be granted)
  • stocks or securities account at a foreign bank
  • stock or securities in a deposit account at an international bank
  • partnership interests internationally
  • interests in foreign financial assets internationally
  • mutual funds opened in a foreign country
  • alien accounts and non-account assets wherein you are the grantor
  • insurance or annuity opened internationally with a cash-value
  • hedge funds and private equity in a foreign country

Non-reportable items:

  • account opened at a U.S. branch of a foreign bank
  • mutual fund in foreign stocks and securities opened domestically
  • alien real estate opened directly
  • real estate held through a foreign national
  • International currency acquired directly
  • Metals bought directly of high value
  • Personal items, bought or acquired, such as art, antiques, jewelery, vehicles, etc.
  • Social Security- granted by international country

 

What is an FBAR?

FBAR stands for Foreign Bank Account Report. This is a report annually filed with the United State Treasury for Americans to report existing international bank accounts and other financial accounts owned abroad.

Treasury Department F 90-22.1, Report of Foreign Bank and Financial Accounts was previously needed if the amount held in a foreign account is $10,000 or more. However, this was replaced by FinCEN Form 114 when the Treasury abolished paper-filed processing.

What happens if someone fails to comply?

The penalties for negligence to file a FBAR are worse than fines against tax evasion. If someone failed submit FBAR, it can result to a civil penalty of $10,000 for each non-willful violation. If the violation is found to be willful, the mulct is the greater of $100,000 or 50% of the amount in the account for each violation. If the same violation is committed each year, separate cases will be charged against the person.