Residents with Global Assets | Foreign Asset Reporting
Do you have assets outside the US? If you’re a US citizen or resident, then you generally have two types of reporting to do each year on your US tax returns:
- Income reporting, if your foreign assets generate any dividends, capital gains, business income, or other income, and
- Informational reporting, if the assets you own require annual disclosures to the IRS (most assets do, see below for a list of common examples).
Figuring out which reporting requirements apply to you can be tricky. Ignoring the IRS requirements or failing to fully report your global assets can result in expensive penalties—or even criminal charges. That’s why we work closely with owners of foreign assets to ensure their reporting is on point.
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Frequently Asked Questions by Residents with Global Assets
The IRS requires annual reporting of a wide range of assets held outside the US, including:
- Foreign bank accounts, investment accounts, and other financial accounts
- Foreign life insurance and mutual funds
- Pensions you expect to receive from foreign employers (even if you don’t currently receive distributions)
- Ownership in foreign companies (including family businesses), partnerships, or trusts
- Ownership of personal retirement accounts (e.g., ISAs) or Superannuation Funds
Not reporting your foreign financial assets could result in penalties of $10,000, $25,000, or $100,000 per missing, incomplete, or improperly filed form—even for “regular people” who didn’t know they needed to report. These penalties are also assessed automatically for the late filing of certain informational forms.
Not necessarily! In many cases, it can be very straightforward. For instance, if your only foreign assets are foreign bank accounts or stocks, the reporting requirements are minimal. And the information is generally easy to obtain.
With more complex situations, you can avoid pitfalls by making sure you get the reporting done right in the first year you own the foreign asset (or in the first year you become a US tax resident). We handle this type of reporting daily. And we help you make important tax elections in the first year of ownership to qualify you for better tax treatments going forward. If it’s not your first year of ownership and you need to fix your reporting, we can help with that, too.
Many of the required disclosures are informational reports, with no impact on your tax situation. But some disclosures can have a tax impact. Either way, the IRS places a high priority on these informational reports. Why? Because the IRS has routinely found high error rates in the tax returns of US taxpayers with foreign assets and income. By forcing taxpayers to report on their foreign ownership, the IRS has a mechanism to identify where these same individuals may be under-reporting their taxable income.
Years ago, the IRS had a hard time identifying individuals who were under-reporting, or not reporting, foreign income, or assets. But today the IRS has amassed a wealth of tools and data that allow it to identify US taxpayers who likely have not fully disclosed their overseas assets.
As a result, taxpayers today run a much higher risk of the IRS uncovering their current and past under-reporting. Remaining non-compliant is a high-risk gamble. The good news is that we can help you get back into compliance with the IRS through a variety of IRS amnesty programs.
Read more in our article, “How will the IRS ever know about your foreign assets or income?“
Not all foreign assets require extensive IRS reporting. And often, minor differences in how you hold those assets or in the types of assets held outside the US can make a big difference in the amount of annual reporting.
We help you understand the rules, avoid common pitfalls, and identify alternative actions or investments that meet your needs without unduly increasing your reporting.
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How We Can Help
There are many types of informational reporting forms used for foreign asset reporting. We help you determine which form(s) apply to your situation and prepare these forms to accompany your US tax returns.
If you’ve never previously needed to report foreign income or assets but find your circumstances are changing, we can help you get started.
Or if you have done the reporting but suspect that it was wrong or incomplete, we can help you correct your filings using an IRS amnesty program.
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|Assets to Report||Form Name||Annual Penalties for Not Filing or Incorrect Filing|
|Foreign Bank Accounts or Financial Accounts (including signature accounts); certain foreign pensions||FBAR/Form 114||$10,000 (or if intentional, greater of $100,000 or 50% of maximum balance)|
|Foreign financial accounts, bank accounts, pensions, securities, etc.||Form 8938||$10,000 – $60,000|
|Foreign mutual funds or pooled investments||Form 8621||Keeps statute of limitations open; interest charges may apply|
|Contents of certain foreign retirement accounts or life insurance policies||Form 8621||Keeps statute of limitations open; interest charges may apply|
|Certain foreign retirement accounts and foreign trusts (owner)||Form 3520-A||Late or incorrect filing penalty: greater of $10,000 or 5% of owned trust assets|
|Certain foreign retirement accounts and foreign trusts (owner or beneficiary); certain foreign life insurance policies||Form 3520||Late or incorrect filing penalty: greater of $10,000 or 35% of trust distributions or contributions or 5% of trust assets|
|Recipient of foreign gift or inheritance > $100,000||Form 3520||5% to 25% of value of gift or inheritance|
|Ownership in foreign corporation||Form 5471||$10,000 – $60,000; reduction of 10% of foreign taxes available for credit|
|Ownership in foreign partnership||Form 8865||$10,000 – $60,000; reduction of 10% of foreign taxes available for credit|
|Ownership in foreign sole proprietorship||Form 8858||$10,000- $60,000; reduction of 10% of foreign taxes available for credit|
|Transfer of cash or property to a foreign entity||Form 926||10% of transfer or $100,000|
|Calculation of the GILTI Tax||Form 8992||$10,000 – $60,000|
|FDII Deduction for GILTI Tax||Form 8993||Loss of Deduction|
Why The Wolf Group?
Since 1983, we’ve worked with clients in the United States and abroad on international tax matters. We have a long history of “cleaning up” complex tax returns, reporting foreign assets, and reconstructing financial records.
Check out our extensive team of CPAs, all with vast international tax experience.
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We’re an active member of Nexia International, a global network of independent accountancy, tax and business advisors with over 250 firms around the globe.
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What our clients say
“Very well done. The Wolf Group was especially receptive to dealing with my confusion and difficultly understanding the process and tax issues. Very helpful with my questions. Thank you very much.”
“I really appreciate the exceptional professionalism of your service, and the friendly and patient support and guidance provided during a complicated (and frankly emotionally taxing) process.”
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