In March of 2010, Congress passed the Hiring Incentives to Restore Employment (HIRE) Act. This act is partially paid for by new rules pertaining to heightened reporting requirements for foreign accounts. One new and important code section resulting from this act deals with the reporting of certain foreign financial assets in excess of $50,000. For those of you who are or should be reporting your foreign bank, securities, and other accounts in excess of $10,000 with Form TD F 90-22.1, a.k.a. the FBAR, this may mean more reporting for you.
The code section states that any individual holding any interest in a "specified foreign financial asset" must attach specific information to his or her income tax return for that tax year if the aggregate value of those assets exceeded $50,000 at any time. This applies to all tax years beginning after March 18, 2010.
For the purpose of this act, a "specified foreign financial asset" is any of the following:
- Any financial account maintained by a foreign financial institution
- Any of the following assets not held in a foreign financial institution
- A stock or security issued by anyone other than a US person
- A financial instrument or contract held for investment that has an issuer or counterparty other than a US person
- Certain interests in a foreign entity
The specific information that must be attached to the individual's income tax return includes but is not limited to the name and address of the foreign financial institution, the account number, and the maximum value of the asset at any time during the year. For a stock or security, the taxpayer must provide the name and address of the issuer, as well as information indentifying the class or issue of which the security or stock is a part.
If an individual fails to disclose the information described above, the individual may face a penalty of $10,000. This penalty may increase where the failure to disclose continues after the taxpayer is notified. If the failure to disclose continues for more than 90 days after the day the IRS mails notice of the failure, an additional penalty of $10,000 may be assessed for each 30-day period (or portion of a 30-day period) for which the failure continues after the 90-day period up to a maximum penalty of $50,000.
It may be a good idea to err on the side of caution. If the IRS determines that an individual has an interest in these foreign financial assets and the individual does not provide adequate information to determine aggregate value, then the aggregate value is treated as though it exceeds the $50,000 threshold for purposes of assessing penalties.
The IRS has been instructed to prescribe regulations and other guidance in order to assist taxpayers in complying with this new law. Look for important updates in future Tax Highlights!