Foreign Disclosures

So if a person is a United States citizen (or resident alien) and he/she own some investment-type assets and/or investment-type accounts outside the United States, which does not produce any interest, dividends, rental, and/or any other income stream, does this information still need to be disclosed? This is an absolute Yes!!! This mandate for a United States citizen (or resident alien) to make such foreign-assets/account disclosures was first started when the federal government was investigating the account holders of the Swiss bank of UBS in 2008. Because this foreign disclosure controversy between UBS and the federal government, Congress in 2010 enacted the Foreign Account Tax Compliance Act, which contained not only further foreign asset disclosure requirements for United States citizens (or resident aliens), but provides greater enforcement mechanisms for international banks (e.g. UBS) to disclose to the IRS the names, and/or any other information on account holders of these international banks, who are United States citizens (or resident aliens). So below the major foreign disclosures, and the consequences of not complying:

First, if any United States citizen (or resident alien) that owns, having an interest in, and/or signature or other authority over, one or more bank, brokerage, and/or any other investment account located in a foreign country that its aggregate value of such accounts at any point in a calendar year exceeds $10,000, must file a Foreign Bank and Financial Accounts report (FinCEN Form 114) with the federal Treasury Department, directly. This report is due on or by June 30 of every year. There are no tax consequences of filing this report; it is just simply disclosing the value of foreign bank, foreign brokerage, and/or any other foreign investment accounts. The consequence of not filing this requisite report is a penalty that ranges from $500 for mere non-willfulness, or negligence, to $100,000 for willfulness. This has been a requirement under the federal Bank Secrecy Act of 1970.

The second foreign discourse requirement for a United States citizen (or resident alien) is that if he/she owns any foreign assets (including a foreign bank, foreign brokerage, and/or any other foreign investment account) that the aggregate value of all such foreign assets exceeds $50,000 ($100,000 for joint tax filers), must disclose such foreign assets on his/her tax return, by filing Form 8938, with the tax return, and of course it is due on April 15 (or by October 15th, with an extension). Yes, foreign assets include any real estate that is owned outside the United States, whether there is an income stream from it, or not. Remember this only disclosure of foreign assets, with no income tax implications, but the penalty for failure to disclosure such foreign assets would be at least a $10,000 penalty.

Finally, if any United States citizen (or resident alien) does earn and/or receive any income from a foreign source, it would be taxed, because the federal tax code does tax a United States citizen (or resident alien) on a worldwide basis.

If any of you have a lot of foreign assets, and/or accounts, and need to make these disclosures, please contact us at info@kayatax.com, and we would be more than happy in guiding you through these foreign disclosures and provide tax help.