What Am I Required to Report About My Foreign Financial Assets?
A common question for taxpayers who have significant foreign financial assets and accounts is, “what are my reporting obligations?” In fact, taxpayers with foreign financial holdings have a myriad of reporting obligations. Understanding the reporting obligations is absolutely essential to complying with U.S. international tax laws and staying out of trouble with the IRS.
One class of special reporting duties applies to taxpayer who have “specified foreign financial assets” valued in excess of $50,000. This reporting obligation is found in IRC § 6038D(a). Under section 6038D(a), a taxpayer must provide a statement with their tax return if the aggregate value of all foreign financial assets in which an individual has an “interest” exceeds the statutory amount. For these purposes, a specified foreign financial asset can refer to any of the following: a stock or bond issued by a person other than a U.S. person, a financial instrument issued by a non-U.S. person, or any other interest in a foreign entity, or any financial account maintained by a foreign financial institution.
What are the Steps to Reporting Under Section 6038(D)?
The statement required under Section 6038(D) must contain certain information in order to be valid. First, the taxpayer must determine what type of specified foreign financial asset is involved, because the format and content of the statement will vary based on the asset. For accounts, the statement must identify the name and address of financial institution where the account is maintained, as well as the account number. If the asset is a stock or security, the statement must contain the name and address of the issuer of the stock or security, and the class or issue of the stock or security. Finally, if the asset is another instrument, contract, or interest, the taxpayer’s statement must contain the names and addresses of the issuers of the instrument or counterparties to the contract.
What are the Consequences for Failing to Report under Section 6038?
Failure to provide a statement as required by IRC § 6038 can result in a penalty of $10,000 and this amount may increase if the taxpayer continues to fail to furnish the required information. A taxpayer will generally receive written notification from the IRS regarding specified foreign financial assets reporting requirement, and will thereafter be given 90 days to provide the required information. Failure to complete the statement within the given time period will result in an additional penalty of $10,000 for every 30-day period, but cannot exceed $50,000. In order to escape the failure to report penalty, the taxpayer can demonstrate that the failure to properly comply with the reporting obligations was “due to reasonable cause and not due to willful neglect,” but the “fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer (or any other person) for disclosing the required information is not reasonable cause.”
Why Should I Consult a Tax Attorney for Foreign Reporting Obligations?
If you have foreign accounts or interests in specified foreign financial assets, you may have reporting obligations of which you are not even aware. In order to fully understand and evaluate the options available to you and your complicated tax situation, you should consider working with an experience tax attorney. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circumstances of their case. To schedule your free consultation simply or call (858) 481-4844.
 IRC § 6038D(a).
 IRC § 6038D(b)(2).
 IRC § 6038D(c).
 IRC § 6038D(g).