Finally: Definitive Guidance from the IRS on Offshore Account Reporting

Finally: Definitive Guidance from the IRS on Offshore Account Reporting

By Mark Nestmann • April 4, 2012

A U.S. law with the Orwellian name of the "Bank Secrecy Act" requires U.S. citizens and permanent residents to report interests in, or authority over all foreign accounts with an aggregate value of $10,000 or more. The form used for this purpose is Treasury Form TD F 90-22.1, the Foreign Bank Account Reporting form, or FBAR. You must file this form with the U.S. Treasury by June 30 for accounts held in the previous year. You must also acknowledge foreign accounts annually on Schedule B of your federal income tax return. Click here for background on the FBAR.

Separately, the Foreign Account Tax Compliance Act (FATCA) requires U.S. citizens and permanent residents to file a separate report (Form 8938) listing "foreign financial assets" with an aggregate value of $50,000 or more with their annual tax return, beginning with their 2011 return. The deadline for submitting your tax return (and Form 8938, if required) to the IRS is April 17. If you won't have your return ready by that date, you can file for an automatic six-month extension, although you need to pay all income taxes you believe are due for 2011 by April 17. Click here for background on Form 8938.

Naturally, failing to file the FBAR and Form 8938  accurately and when due renders you subject to civil and possibly criminal penalties.

Until very recently, the IRS had issued only lengthy technical regulations describing these reporting requirements that only a tax attorney could enjoy reading. But on March 26, the IRS issued a helpful and non-technical chart outlining a summary of the respective reporting rules for Form TD F 90-22.1 and Form 8938.

Significantly, the IRS has now confirmed the non-reportability of direct ownership of precious metals or foreign currencies held offshore. Similarly, direct ownership of offshore real estate need not be reported. "Direct ownership" means you don't hold the assets in any type of account. For instance, if you own a quantity of gold coins and hold them in an offshore safety deposit box, you have direct ownership. But, if you have an account at a foreign bank that includes gold coins, you must disclose the entire value of the account on both Form TD F 90-22.1 and Form 8938.

Here's a link to the chart. It's possible the IRS may update the chart in the future, so bookmark this link as a reference.

I wish the IRS had published something like this years ago when it began ramping up enforcement of these reporting rules. Better late than never!

Copyright © 2012 by Mark Nestmann

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About The Author

Since 1990, Mark Nestmann has helped thousands of clients seeking wealth preservation and international tax planning solutions. He is the author of highly acclaimed Lifeboat Strategy and other books & reports dealing with these subjects.

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