FinCEN is the acronym for the Treasury Department’s Financial Crimes Enforcement Network. FinCEN is a government-wide, multisource, financial intelligence and analysis network tasked with detecting money laundering, terrorist financing, tax evasion, and other financial crimes. To do its job, FinCEN must collect financial data from a multitude of sources, including each U.S. person with connections to foreign financial transactions. This has resulted in a number of reporting requirements imposed upon taxpayers that many are unaware can result in draconian penalties for non-compliance.
- Foreign Account Reporting Requirements – Each United States person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts, in a foreign country, if the aggregate value exceeds $10,000 at any time during the calendar year, must report that relationship to the U.S. government each calendar year. This is done by filing Form TD F 90-22.1 (often referred to as FBAR) on or before June 30 of the succeeding year. No extensions of time to file are available, and failing to comply can result in civil penalties up to $10,000. Willful violations are subject to penalties that are the greater of $100,000 or 50% of the account’s balance.
- Reporting Foreign Gifts, Bequests and Trusts– Gifts of more than $100,000 from a non-resident alien individual or foreign estate and gifts of more than $14,375 in 2011 ($14,723 in 2012) from foreign corporations or partnerships must be reported. Form 3520 is used to report the gifts and to report ownership in a foreign trust. Failure to comply can result in a penalty of the greater of $10,000 or 35% of the gross value of any property transferred to a foreign trust.
- Annual Report of Individuals with Foreign Assets– This is a new reporting requirement for 2011. Generally, U.S. persons with ownership of certain foreign assets not held by a domestic financial institution with an aggregate value of more than $50,000 must file Form 8938 with their tax returns, providing details of the assets. Failure to file can result in penalties of up to 40% of the undisclosed value.
Watch for Overlooked Accounts – You may not realize you have accounts that fall under one or more of these reporting requirements. Don’t overlook accounts where family members in foreign countries have included you on a foreign account or as part owner of a business entity or trust. Don’t overlook foreign retirement savings accounts such as Canadian RRSP and RRIF accounts. Consider business accounts where, as an officer or board member of a company, you may have signature authority over a foreign account.
If you have questions related to these reporting requirements, please give this office a call.