IRS Reminds (again) Taxpayers to Report Foreign Income and Assets

Earlier this month on April 11, 2014, the Internal Revenue Service issued Notice IR-2014-52 reminding U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2013, that they may have a U.S. tax liability and a filing requirement in 2014.

The filing deadline is Monday, June 16, 2014, for U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular due date of their tax return. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies.

Nonresident aliens who received income from U.S. sources in 2013 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 16 depending on sources of income.

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B to their tax return. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets.

Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds. Contact a tax professional if you are unsure whether your foreign assets exceed these thresholds.

Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2013 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). This form replaces TD F 90-22.1, the FBAR form used in the past. It is due to the Treasury Department by June 30, 2014, must be filed electronically and is only available online through the BSA E-Filing System website. For details regarding the FBAR requirements, contact a tax professional.

FBAR is an information return that must be filed if any U.S. person has a financial interest or has signature or other authority over foreign financial accounts with an aggregate value exceeding $10,000 at any time during the calendar year. For taxpayers reaching this threshold, they must file a Financial Crimes Enforcement Network (FinCEN) Form 114 (“FBAR.”) Remember there are also other obligations on tax forms to disclose foreign holdings. A few important things to consider when filing and FBAR:

a)    All FBAR filings must be submitted by June 30th every calendar year to report accounts maintained the previous year.

b)     As of July 1, 2013, all filings must be submitted electronically. Mandatory e-filing is available through the BSA E-Filing System at http://bsaefiling.fincen.treas.gov/main.html.

c)     A new form was introduced, FinCEN Form 114a, Record of Authorization to Electronically File FBAR, to authorize a third party to file on your behalf and when filing a joint FBAR form (this is of particular importance for a jointly owned account).