It’s Tax Season—Do You Need to Report Your Offshore Assets in 2021?

It is a new year, and that means that it is tax time. While Tax Day is not until April 15, U.S. taxpayers must start preparing now to ensure that they will be able to file their state and federal returns by the due date. But, for taxpayers who own offshore assets, their federal returns may not be all they need to file in 2021. As New Jersey offshore tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group explains, these taxpayers may need to file an FBAR and IRS Form 8938 as well.

What is an FBAR?

FinCEN Form 114, Report Foreign Bank and Financial Accounts (FBAR) is a federal disclosure form that U.S. taxpayers must use to disclose their offshore financial accounts. The obligation to file FBARs exists under the Bank Secrecy Act (BSA), and FBARs must be filed with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

1. When Must a U.S. Taxpayer File an FBAR?

U.S. taxpayers must file FBARs when the aggregate value of their foreign financial accounts exceeds $10,000 at any point during a tax year. The FBAR filing requirement applies to both individual and corporate taxpayers. So, if you or your company-owned foreign financial accounts that had an aggregate value of more than $10,000 in 2020, then you must file an FBAR in 2021.

2. What are the Penalties for Failing to File an FBAR?

The penalties for failing to file an FBAR range from five-figure civil fines to six-figure criminal fines and up to a decade of federal imprisonment. Filing a false FBAR can lead to similar penalties as well.

What is IRS Form 8938?

IRS Form 8938 is a form that is used to disclose foreign financial assets to the Internal Revenue Service (IRS). The obligation to file IRS Form 8938 exists under the Foreign Account Tax Compliance Act (FATCA), which Congress enacted in 2010 to aid in the federal government’s fight against international money laundering and other cross-border financial crimes.

1. When Must a U.S. Taxpayer File IRS Form 8938?

U.S. taxpayers must file IRS Form 8938 when the aggregate value of their foreign financial assets exceeds either (i) $75,000 at any point during a tax year or (ii) $50,000 at the end of a tax year. Similar to the FBAR filing requirement, the FATCA filing requirement applies to both individuals and companies.

2. What are the Penalties for Failing to File IRS Form 8938?

The penalties for failing to file IRS Form 8938 include a $10,000 civil fine and a 40 percent penalty on delinquent taxes owed on undisclosed assets. The IRS can also impose an additional $50,000 civil fine for failure to remedy a FATCA violation following notification of noncompliance.

Contact New Jersey Offshore Tax Attorney Kevin E. Thorn, Managing Partner of Thorn Law Group

If you have questions about offshore asset disclosure compliance, it will be important to ensure that you have a clear understanding of your obligations before Tax Day 2021. To schedule a consultation with New Jersey offshore tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 201-355-8202, email ket@thornlawgroup.com or contact us online today.