You may have numerous reasons to hold assets overseas. Perhaps your company does business with foreign entities, and you have an interest in those entities. Maybe you have immigrated to the U.S. and still own personal property in your homeland. Or, you may simply want to diversify with some high-risk investments that may yield higher returns.
Whatever your reason for having assets outside the United States, you may have believed that those assets enjoyed protection from the IRS. However, in recent years, the government has been working with financial institutions around the world to share information about assets Americans own overseas. Far from avoiding the taxes on your profits, you may now face steep penalties for failing to report your assets.
What assets must I report?
Although the U.S. encourages foreign financial institutions to report the financial status of any U.S. citizens who hold certain assets in their countries, the agency also wants you to report your own personal foreign assets. This can include any of the following:
- Savings or checking accounts in foreign banks
- Foreign investment accounts
- Mutual funds not based in the U.S.
- Securities, such as stocks and bonds, you received from a citizen of a foreign country
- Profits you earn from your interest in a corporation or partnership outside the U.S.
If you are a U.S. citizen, a lawful permanent resident or belong to any other group specified by the IRS, and the maximum value of your assets meets the reporting threshold sometime during the previous year, you must use a Form 8938 to report your assets to the IRS. The thresholds vary depending on your filing status and whether you reside within or outside the U.S.
Facing the music
If your foreign assets require you to report to the IRS, you must submit your Form 8938 with your 1040, meeting the same deadlines including any extension you may request. Failing to comply with this obligation can place you at risk of a $10,000 penalty. If the IRS does not receive your 8938 within 90 days of formally notifying you, they can assess an additional $10,000 every 30 days after that.
Once you are in the crosshairs of the IRS, you have a difficult road ahead. It is challenging enough to dispute what the agency claims you owe, but when fines and penalties are levied, you face a struggle that could affect every area of your life. It is wise to seek legal assistance from a New York attorney with experience in complex tax issues.