Updated: Jul 24
As we as a society get more and more global, taxes begin to get more complex. Take, for example, you have a relative, and they pass away and leave you money. Would that impact your tax return? Well, it depends on where they live and how much money they leave for you. Like many of you, I have relatives all over the globe, and if one were to leave me money or assets, I might have a foreign reporting requirement.
Or let's go with a different example; this time, you are taking an extended vacation or studying abroad somewhere. To make things easier on yourself, you decide to open a bank account in the country that you are temporarily residing and transfer $5,000 to the account. Do you have a foreign reporting requirement? If all you transferred was the $5k and you have no other foreign assets, then no. If we change the example and instead transfer $12,000, that changes things, and you would then have a reporting requirement.
Types of Foreign Reporting
The two main types of foreign reporting are the FBAR or Form 114 (most common) and Form 8938 Statement of Specified Foreign Financial Assets. There are many key differences between the requirements to file, and the requirement to file one does not mean that you will need to file the other. One other interesting thing to note is that the FBAR falls under the Department of the Treasury and not the IRS, so it's not actually a tax Form.
The image below goes over some key difference between the two forms:
Who Does This Apply to?
Foreign reporting requirements apply to all U.S citizens, resident aliens, and certain non-resident aliens. This also applies to corporations, partnerships, and trusts.
Penalties Foreign Reporting
The penalties for not filing these forms are also different. For the FBAR, you can pay up to $10,000 for failure to disclose and an additional $10,000 for every 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000. You could also be subject to criminal penalties. For Form 8938, you could be assessed a civil penalty of up to $10,000 if non-willful and an additional penalty up to $50,000 for non-filing after IRS notice of a failure to disclose. If it is determined that the failure to file was willful, then your penalty can be up to the greater of $100,000 or 50 percent of account balances. You could also be subject to criminal penalties. Since the FBAR is not under the IRS to enforce the penalties, the government must bring a lawsuit against you.
For more information: IRS Website