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Frequently Asked Questions


i. It is mandatory to disclose information to IRS relating to foreign bank accounts details, assets, and Mutual Fund transactions

ii. Form 114 [FBAR] is the form which is used to disclose the information relating to foreign bank accounts. Though it is an informational form only, penalty will be charged in case of failure to report

iii. Form 8621 – Sale transactions from Mutual Funds will be reported in this form and gain will be considered as other income in Form 1040.

iv. Form 8938 – Based on the threshold limit, it may be required to file this form. If all the information already got filed in Form 8621 then it is enough to specify the form filed details in this Form 8938

v. The penalties of non-reporting or not complying to above requirements is stiff, and includes both a monetary penalty and jail time

FBAR reporting is applicable to US Citizens, Resident Aliens, Entities created, organized or formed under the US Law.

FRAR reporting is mandatory when the cumulative maximum balance of foreign financial interest in the reporting year exceeds $10,000

By June 30th of the year following the tax year

Yes, if a company that you are a stakeholder in is a company which has foreign accounts, this information may have to be included in your FBAR disclosures

The term foreign financial interest includes bank accounts (any type of account), securities accounts and other financial interests such as: accounts of a person in the business of accepting deposits as a financial agency, having Insurance or annuity policies, accounts with a broker who acts as broker or dealer for futures or options transactions in commodities (per rules of commodity exchange or association), and accounts with Mutual Funds or similar pooled funds and other investment funds. Remember if you are a stakeholder in a foreign company, additional information may have to be included on your FBAR disclosures

On Form 8938 you need to report only financial assets (such as bank accounts, Mutual Funds etc.) and not the physical assets

The IRS has stated that failure to file the form will make your form defective and therefore the statute of limitation never applies, which means that they can open your returns for prior years at any time.
If you are a greater than 10% stake holder of a foreign company, or an officer, or a director, you will have to file a form 5471
Civil and Criminal penalties are applicable
Taxpayers who have failed previously to report their taxable income including failing to disclose the interest from their foreign accounts (and failing to file the applicable FBARs) but who have not been contacted by the IRS may consider filing delinquent or amended income tax returns, or otherwise notifying the IRS of the reason for their amended income tax returns, or otherwise notifying the IRS of the reason for their non-compliance. IRS is again offering an OVDP (Offshore Voluntary Disclosure Program) for 2014. The penalty is as low as 0 % - 5%, and one can amend for up to 3 prior years of tax returns and 6 years of FBAR filings.