U.S. taxpayers who own foreign bank and financial accounts are now subject to increased government scrutiny and additional disclosure rules above and beyond the existing onerous “FBAR” requirements.  Failure to provide the specific information requested most likely will result in assessment of steep nondisclosure penalties and possible civil and/or criminal penalties.

• Disclosure requirement #1 - Form TD F 90-22.1; Report of Foreign Bank and Financial Accounts (FBAR) is mandatory for U.S. persons who have aggregate balances exceeding US$10,000 in foreign financial accounts at any time during a calendar year.  Such accounts include assets held in foreign banks, foreign pensions, foreign brokerage accounts and interests in foreign partnerships and hedge funds.  See IRS.gov for more details about Form TD F 90-22.1 including who must file, deadline for filing, signature authority, foreign account descriptions and noncompliance penalties.
• Disclosure requirement #2 - In addition to the FBAR, the provisions of the Foreign Account Tax Compliance Act of 2009 (FATCA) included in the Hiring Incentives to Restore Employment (HIRE) Act signed into law earlier this year, says U.S. persons who each hold any interest in specified foreign financial assets exceeding US$50,000 during the tax year must disclose specific details about these assets.  A disclosure statement is required beginning with the 2011 tax year and generally must include the name and address of the foreign financial institution along with account numbers, securities issuer and balance amounts.  It is uncertain whether a new IRS form will be available to report this information. If no form is available, a statement disclosing the required information must be attached to the taxpayer’s individual federal income tax return (Form 1040).  Click on HIRE Act of 2010 for information about the new FATCA disclosure requirements.

The failure to disclose penalty structure is complex but generally can be as much as $10,000 or more.  In some cases penalties can go as high as 50% of the undisclosed account balance.  Separate significant penalties also exist for underpayment of tax that is attributable to income from undisclosed foreign financial account assets.  We cannot emphasize enough the importance of complying with the FBAR provisions.  Give us a call if you have questions related to your potential foreign financial accounts disclosure requirements.