To reduce or avoid these penalties the IRS has developed several amnesty programs, collectively referred to as offshore voluntary disclosure.
We have prepared a summary explaining the basics of Form , who has to file, and when. Taxpayers who meet the Form threshold and are required to file a tax return will also be required to include specified foreign asset reporting with their tax return. The threshold requirements will vary, based on U. The threshold for filing the forms is determined based on :. Joint Income Tax Return U. Unmarried or Separate Tax Return U. There are many different types of specified foreign financial assets that may need to be reported to the IRS Form.
While some exceptions, exclusions and limitations apply, it is a pretty comprehensive list. Here are some common examples of Form assets:.
For individuals, the Form due dates, include :. While the IRS refuses to clearly identify what specific facts and circumstances will qualify for reasonable cause, they are quick to include a major hurdle for you in trying to qualify reasonable cause… and the limitation does not seem very reasonable. Those who reviewed the draft Instructions should take careful note of these reporting thresholds, as several vary from those issued with the draft Instructions.
Additionally, the Instructions contain detailed instructions on determining value of foreign assets, including several examples. A big issue covered by this section is joint ownership, as the appropriate value depends upon whether the co-owner is your spouse, whether that spouse would have a reporting requirement, and whether you file jointly. When joint owners are not spouses or are spouses, but one spouse is not a specified individual, and therefore does not need to file Form , each must include the full value of the asset in question.
When joint owners are spouses filing separately and each is a specified individual, each spouse only includes half the value of the asset each. Joint owner spouses filing jointly should include the full value of the asset only once. Form requires that the taxpayer disclose the maximum value of each foreign asset during the year. The Instructions state that for foreign financial accounts it is acceptable to rely on periodic statements and, for other assets, the value on the last day of the tax year, unless the taxpayer has reason to believe that is not a reasonable estimate of maximum value.
The Internal Revenue Service recently published additional guidance regarding Form , Statement of Specified Foreign Financial Assets, which will be of interest to taxpayers filing tax returns. The additional guidance issued on June 7, addresses areas that either were not clearly stated in prior IRS announcements, the Instructions to Form , or which had not been directly addressed. Temporary and Proposed Regulations under Internal Revenue Code Section D were issued on December 14, and set forth the basic requirements for filing Form A "specified individual" must file Form if the applicable threshold value for foreign financial assets is met.
A "specified individual" includes a U. The applicable threshold for filing depends upon the filing status of the "specified individual" and where the "specified individual" lives. Form , and the applicable regulations have special rules for determining the value of "specified foreign assets. The following foreign assets if maintained by a foreign financial institution are reportable and count towards the reporting threshold:. Foreign owned real estate is not a specified asset required to be reported unless it is held through an entity.
Therefore, unless a U. Excluded assets include:. If Form is required, all specified foreign financial assets, regardless of value, must be reported. In addition, any underpayment of tax related to undisclosed SFFA may be subject to a 40 percent penalty. However, no penalty will be imposed if the failure to file Form or disclose SFFA is due to reasonable cause and not willful neglect. The fact that a foreign jurisdiction would impose a civil or criminal penalty on a specified individual if he or she discloses the required information is not reasonable cause.
If you fail to file Form or fail to report any SFFA that you are required to report, the statute of limitations for the tax year may remain open for all or part of your income tax return until three years after the date on which you file Form Due to the sizeable penalties involved, specified individuals may wish to consult their Katten Muchin Rosenman LLP attorney before completing Form However, the information required by the forms is not identical in all cases.
There are different categories of persons required to file Form and the FBAR, different filing thresholds for Form i. There are also different triggers for filing. Because of these differences, certain foreign financial accounts may be reported on one but not both forms. The proposed regulations relating to specified domestic entities apply to taxable years beginning after December 31, Specified domestic entities include certain closely held corporations and partnerships that meet passive income or passive asset tests.
With exceptions, domestic trusts are included if they have a specified individual as a current beneficiary and exceed the reporting threshold. However, domestic estates are not specified domestic entities. A domestic trust is considered a specified domestic entity if it has an interest in SFFA other than assets excepted from reporting with an aggregate value exceeding the threshold for domestic single filers described above and at least one specified individual as a current beneficiary.
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