Wednesday, December 21, 2011

FATCA Filing Season

This past Saturday the IRS released the final version of Form 8938, Statement of Specified Foreign Financial Assets, and on Monday released the instructions. This form is in response to FATCA, and represents a further tightening of reporting requirements for foreign income and assets.
What do you have to report? The easy answer is overseas bank accounts and securities accounts. It gets a little trickier with hedge and private equity funds. It will also pick up your loan to Grandma Gretchen. This is reporting for foreign assets, not just foreign bank accounts.
Here are the dollar amounts if you live in the U.S.:
·         If single or married filing separately
o   $50,000 on the last day of the year or $75,000 at any time during the year
·         If married filing jointly
o   $100,000 on the last day of the year or $150,000 at any time during the year
Here are the dollar amounts if you live overseas:
·         If single or married filing separately
o   $200,000 on the last day of the year or $300,000 at any time during the year
·         If married filing jointly
o   $400,000 on the last day of the year or $600,000 at any time during the year
Are the dollar thresholds ridiculously low? Of course.
Form 8938 does not replace the FBAR (TD-F 90.22.1), which is filed separately from your income tax return and is due in Detroit by June 30th every year.
Eventually the IRS intends for Form 8938 to also apply to domestic entities, but for right now the IRS is limiting its reach to only individuals.
My take?
We used to expect that the IRS would not assess penalties unless tax was due. That in turn meant that we did not overly fear information returns - that is, returns with numbers on them but no line that said “tax due.” There were some exceptions, such as W-2s and 1099s, of course; otherwise, this rule of thumb worked reasonably well.
No longer. There are penalties to these forms even if there are no taxes due or all taxes have been reported.  Congress has taken umbrage on Americans having assets overseas. I am at a loss why a married couple (say my wife and I) would draw Congress’ attention solely by having $100,000 overseas. That is not enough money to get a starring role next to Michael Douglas in Wall Street II. It is not enough money to get me invited to a White House dinner, and certainly not enough to join a presidential vacation.

If you are even close to the dollar limits, please see a professional. Do not fool around with this, as the penalties can be severe.

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