Individuals who have a financial interest in, or a signature authority over, a financial account located outside of the U.S (such as at a bank or at a brokerage) may have to file Form FinCEN Form 114 (Report of Foreign Bank and Financial Accounts or FBAR). This column discusses which individuals have to file FinCen Form 114 and other forms related to foreign financial capital asset ownership.
FinCEN Form 114 does not have to be filed under the following conditions:
(1) The aggregate value of all foreign accounts is $10,000 or less at all times throughout the calendar year: or
(2) the amounts are held at a U.S. military banking facility.
Currently, the FBAR regulations do not define a foreign account holding virtual currency as a type of reportable account. But the Financial Crimes Enforcement Network (FinCEN) (a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crime) intends to propose to amend the regulations regarding FBARs to include virtual currency as a type of reportable account.
FinCEN Form 114 is not attached to IRS Form 1040. Instead, FinCEN Form 114 must be filed by itself and filed electronically using the BSA e-filing system located at http://bsaefiling.fincen.treas.gov.
The 2021 FBAR due date is April 18, 2022. An automatic six-month extension is allowed. The penalties for failing to file FinCEN Form 114 are:
(1) If non-willful, up to $13,640: or
(2) if willful, up to the greater of $136,399 or 50 percent of account balances.
Rules with Respect to Filing IRS Form 3520
IRS Form 3520, (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts) is filed separately from Form 1040 to report: (1) Certain transactions with foreign-based trusts; (2) ownership of foreign trusts; and (3) receipt of certain large gifts or bequests from certain foreign persons.
Form 3520 is due on the date that an individual’s federal income tax return is due, including extensions. A portion of IRS Form 3520 for 2021 is shown here:
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Rules with Respect to Filing IRS Form 8938
Individuals who hold interests in specified foreign financial assets during the year with a total value over the reporting threshold must report certain information about such assets on IRS Form 8938 (Statement of Specified Foreign Financial Assets). Note that Form 8938 is attached to an individual’s Form 1040 and is due April 18,2022, or October 15,2022 if a filing extension is requested. A portion of IRS Form 8938 for 2021 is shown here:
Form 8938 us required to be filed if the total value of all specified foreign financial assets exceed $50,000 ($100,000 if an individual files married filing jointly) on the last day of the year or $75,000 ($150,000 if filing as married filing jointly) at any time during the year. Note that higher thresholds apply to individuals living outside the U.S.
A specified foreign financial asset is either: (1) A financial account maintained by a financial institution that is not a U.S. entity; or (2) any of the following assets not held in an account maintained by a financial institution.
• Stocks or securities issued by someone who is not a U.S. citizen
• Financial instruments or contracts that have an issuer or counterparty that is not a U.S. citizen; or
• Interests in a foreign entity.
An individual’s failure to file Form 8938 may result in a penalty of up to $10,000 plus an additional $10,000 for each 30 days of not filing after an individual receives an IRS Notice to disclose. This could result in a maximum penalty of $60,000. In addition, criminal penalties may also apply.
Finally, Form 8938 reporting requirement does not affect the requirement to file FinCEN Form 114 (Report of Foreign Bank and Financial Accounts) (FBAR). Some individuals may be required to file both forms.
When filing their federal income tax returns, individuals will be asked on Form 1040 Schedule B (Interest and Ordinary Dividends) (Part III) whether they own a foreign account or received distributions from a foreign trust. Part III of Schedule B of the 2021 Form 1040 is presented here:
Individuals who have questions about whether they are required to file FinCEN Form 114, Form 3520 and/or Form 8938 are highly encouraged to speak with a knowledgeable tax professional.