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New Deadlines and Foreign Account Reporting Requirements

by
Bret Willoughby
on
3/2/2017
New Deadlines and Foreign Account Reporting Requirements

Do you have signing or any other authority over a foreign financial account whose aggregate value was worth $10,000 or more at any point during 2016? If the answer to that question is yes and you are a resident or U.S. citizen and you want to avoid having to pay a significant penalty, then you only have until April 18th of 2017 to file FinCEN Form 114 with Treasury Department. This is a switch from previous years, when the deadline to get the form filed was 2 ½ months later, by the end of June.

Extension Added

Though the deadline switch means that you need to act quickly, the good news is that along with moving up the deadline shift, FinCEN also made an accommodation, adding an automatic extension where none was previously permitted. For those who are required to file Form 114 but cannot get it in by the new April 18th deadline, a six-month extension can be filed before the April deadline expires, giving them until October 16th of 2017 to file online

 Do You Need to File Extensions?

Many taxpayers are unclear as to what constitutes a foreign account, and whether or not the accounts that they hold are included in the FinCEN requirements, but the rules are fairly straightforward. A “foreign financial account” is any type of monetary or non-monetary account that is held and located in a foreign country, including savings or checking accounts, brokerage or securities accounts, time deposits, commodities futures, gold, mutual funds, and option accounts. If you own shares in a mutual fund or foreign stock but the brokerage account is a U.S.-located institution, it does not fall under the reporting requirements and the account does not require a FinCEN Form 114 filing.  Even if you hold an account in a foreign institution, if your account is administered and held through a branch that is located within the United States, that also does not require the filing. 

Hidden FinCEN Requirements

Though you may think yourself free of the FinCEN requirements simply because you have not actively opened any foreign accounts, it may be worth your while to double check, especially if you are a signor for your child’s school, your church or your employer. Also, If you engage in online gambling or have relatives who live in foreign countries, check requirements there. Many U.S. citizens and residents have been caught unawares by the fact that online casinos are located in foreign countries, and the accounts that they’ve opened count towards FinCEN Form 114 filing requirements. Others may be unaware that relatives have put their names onto their foreign bank accounts so that they have signing authority in case of an emergency. If these accounts exceed the $10,000 threshold, then they require the FinCEN filing.

Form 8938 Requirements

In addition to being required to file FinCEN Form 114, those who are married and filing jointly will also need to file Form 8938 if their holdings in foreign accounts have a value that is greater than $100,000 at the end of the year. Even if you clear your account out before year end, if a foreign account’s value exceeds $150,000 at any point during the year and you are living in the United States, you will also have to file Form 8938. Those thresholds shift significantly for those who are living outside of the country, with an end of year value set at $400,000 and the “anytime” threshold set at $600,000. If your filing status is anything other than married filing jointly, whether you are living in or out of the country you can calculate your threshold by cutting the married filing jointly requirements in half.  Unlike the FinCEN Form 114 which is filed electronically online, the Form 8938 is filed with the taxpayer’s 1040.

Failing to File

As stated earlier, the penalties for failing to file the FinCEN form and the IRS form 8938 can be substantial. Those whose financial accounts exceed the 8938 thresholds but who do not file the form face a $10,000 annual penalty that can quickly increase to as much as $50,000 if swift action is not taken. These additional penalties generally kick in when more than 90 days go by without filing following the IRS notice of failure to file.  For FinCEN Form 114, depending upon the value of the account, the penalties for not filing can be as much as 50% of the account balance.

With significant and draconian penalties a very real possibility, it is well worth your time to make sure that you have a good understanding of your own obligations. If you are uncertain as to whether any of your holdings make you responsible for FinCEN Form 114 or IRS Form 8938 filings, it is strongly suggested that you review your situation with a tax professional with expertise in the foreign tax reporting requirements.

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Bret Willoughby

Bret Willoughby

Bret Willoughby is a practicing tax preparer for expats throughout the world. He created Providence Payroll to meet the needs of Churches, not-for-profit organizations and businesses with remote workers. His web-based payroll processing service benefits both employers and remote workers with an easy way to access payroll information. Clergy have unique payroll and tax-related issues, one that Providence Payroll is qualified to manage.

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