Business owners or individuals who own offshore assets are required to file various documents other than state and federal income tax returns. Moreover, some taxpayers are required to disclose their offshore assets to the Financial Crimes Enforcement Network and the IRS. Failing to comply with the regulations laid down by these authorities may put you under the scanner of the IRS Criminal Investigation Division. To avoid such penalties, you should consult your IRS tax attorney and furnish all the necessary documents.
In this blog, we will discuss the rules of disclosing offshore assets to the IRS and FinCEN.
When to disclose offshore assets to the IRS?
According to the Foreign Account Tax Compliance Act of FATCA, the taxpayers in the U.S should disclose all the offshore assets that are reportable. There are specific criteria to be eligible for disclosing the offshore assets. You must report all the offshore financial holdings if your assets’ aggregate value is more than $50,000 at the end of 2020 or the value of your foreign assets is more than $70,000 at any point in the year 2020.
Additionally, the FATCA states that foreign financial assets can include:
- Business contracts with any foreign entity.
- Cryptocurrency and investment account in foreign banks
- Financial assets in a foreign land
- Foreign assets acquired for investment
- Foreign securities
However, there are certain exceptions for considering any foreign asset as reportable offshore assets. Thus, it’s essential to consult an IRS tax lawyer to determine if you are required to comply with the IRS and FATCA. Such tax lawyers are experienced in evaluating foreign assets and examining whether they are subjected to disclosure.
U.S taxpayers who are obliged to report their offshore assets under the FATCA must use IRS Form 8938 to make the disclosure. In case you fail to comply with FATCA regulations, the taxpayer can attract a $60,000 fine with a 40% penalty on any taxes levy on the assets that are not disclosed. Moreover, these penalties are levied on a per-year basis. Taxpayers who have not filed the IRS 8938 form in the year 2020 are at higher risk of facing penalties. You can also consider opting for voluntary disclosure to resolve the issues. The best way to avoid such penalties is to speak with a qualified tax attorney.
When to disclose offshore assets to the FINCEN?
According to the Bank Secrecy Act or BSA, the taxpayers are obliged to disclose all their reportable offshore assets to the FinCEN if the total value of their foreign accounts is more than $10,000. Taxpayers who fall under this category are required to file FinCEN 114 form online as well as report the FBAR through the BSA E-Filing System.
Taxpayers who fail to file their foreign assets to the FBAR can be charged with penalties. These penalties are higher than what is charged by the IRS. In case the failure of filing an FBAR is deemed willful, the U.S Department of Justice can prosecute the taxpayer.