FATCA Financial Assets (Examples of 8938 Foreign Financial Assets) - Golding & Golding

FATCA Financial Assets (Examples of 8938 Foreign Financial Assets) – Golding & Golding

FATCA Financial Assets (Examples of 8938 Foreign Financial Assets)

Our International Tax Lawyers have consulted with thousands of individuals across the globe in over 65 different countries on issues involving the reporting of foreign financial assets, income, accounts and investments.

For many United States Taxpayers (whether or not they reside in the U.S. or overseas) they may not even know if they have a Foreign Financial Asset to report pursuant to FATCA (usually on Form 8938) until they have missed the deadline.

Therefore, we are providing the following common examples of foreign financial assets.

Foreign Financial Asset Examples

The following are common real-life client foreign assets we deal with daily:

Foreign Business – Self-Owned Small Business

David is a U.S. citizen from the United States but relocated overseas to start his own business. What started out as a small business, begins to flourish. David has one main business (possibly a BVI) with several small businesses (possibly multiple Hong Kong Ltd. companies). Even though David is in full tax compliance abroad, and all of the money is foreign sourced — he has not filed U.S. taxes.

Nevertheless, as a U.S. citizen, David is required to report the assets and income to the U.S. (usually on a Form 5471)

Foreign Business – Increased Ownership Percentage

Michael is from Taiwan. He was granted a small portion of a family business when he was young. He does not have an active role in the company. Michael now lives in the United States as a Green Card Holder.

Reporting Part 1: Since the ownership is worth way more than $100K (close to $2M), Michael must file a Form 8938.

Michael’s father recently passed away, and his 6% ownership jumped up to 29%.

Reporting Part 2: As a result, Michael must now file the much more complicated Form 5471 since he owns/acquired more than 10% in the current year.

Foreign Real Estate Partnership

Jennifer is from Singapore. She is a U.S. Citizen who resides in the U.S. Her brother resides in China. They own a multi-million dollar real estate rental property business. Jennifer’s brother takes care of the entire business, including paying foreign tax on Jennifer’s behalf.

Even though the partnership is based overseas, with no U.S. sourced income — and all foreign taxes are paid and accounted for — Jennifer must report her partnership ownership to the IRS on either an 8938 or 8865 (depending on her ownership percentage) and pay U.S. Tax on the income (although she is presumably entitled to a Foreign Tax Credit)

Foreign Mutual Funds

Dean is originally from India. He came to the United States (initially on an F-1 Visa). Years later he is now an H1-B visa holder and meets the substantial presence test.

Dean’s parents back in India are wealthy, and have been moving money and assets to Dean over the last 7 years, without his knowledge. This also includes about $3,000,000 of Mutual Funds at Kotak, HDFC, Birla,, ICICI, L&T etc.

Even though the mutual funds have not been sold or redeemed, Dean must still report the mutual funds to the IRS on a form 8621.

*Moreover, since a few of the funds issue dividends, which are transferred to a linked ICICI account that his parents set up for him and then re-invested, Dean may have an Excess Distribution situation, which will depend on the total value of dividends, averaged over the 3 prior years.

Foreign Trust

Maya is originally from New Zealand. She transferred to the U.S. on a work-visa, and still maintains substantial assets in New Zealand, which are being held in a New Zealand trust (which is a common asset holding vehicle in New Zealand). Since technically it is a trust, Maya has a Form 3520-A requirement (and possibly 3520), in addition to FBAR and Form 8938 to report additional assets she holds outside of the trust.

Inherited Assets or Gifts From a Foreign Person

When a person receives an inheritance or gift from a foreign person (presuming it is foreign property), the U.S. does not tax the inheritance or gift upon receipt, but the U.S. does require an individual to disclose the gift on Form 3520 — once certain thresholds are met.

Moreover, if the gift generates income, then the income must be reported on a tax return, even if the inheritance itself was not taxed.

What Can You Do?

Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.

We Specialize in Safely Disclosing Foreign Money

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Examples of areas of tax we handle

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist

Our Managing Partner, Sean M. Golding, JD, LLM, EA  holds an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

*Click Here to Learn about how Attorneys falsely market their services as “specialists.”

Less than 1% of Tax Attorneys Nationwide

Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.

The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

What Should You Do?

Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.

Be Careful of the IRS

With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.

4 Types of IRS Voluntary Disclosure Programs

There are typically four types of IRS Voluntary Disclosure programs, and they include:

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