2021 Offshore Reporting Requirements: Do You Need to File with the IRS or FinCEN (or Both)?

If you own offshore assets, you may need to file more than your state and federal income tax returns on April 15. You may have an obligation to disclose your offshore assets to the Internal Revenue Service (IRS), the Financial Crimes Enforcement Network (FinCEN), or both; and, if you do, you will need to file the requisite forms to avoid exposure to substantial penalties. Here, Virginia international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains the offshore asset disclosure requirements for 2021.

Disclosing Offshore Assets to the IRS

Under the Foreign Account Tax Compliance Act (FATCA), U.S. taxpayers are required to disclose their reportable foreign financial assets to the IRS if they meet one of two thresholds. Foreign financial assets must be disclosed in 2021 if either: (i) their aggregate value exceeded $75,000 at any point during 2020; or (ii) their aggregate value exceeded $50,000 at the end of the 2020 tax year.

Foreign financial assets that are generally considered “reportable” under FATCA include:

• Foreign bank, cryptocurrency and investment accounts
• Foreign financial instruments
• Foreign securities and business interests
• Contracts with foreign entities
• Other foreign assets held for investment purposes

We emphasize “generally” because there are some important exceptions. To determine whether you need to comply with FATCA, it will be important for you to consult with an experienced professional who can determine whether your foreign financial assets are subject to disclosure.

If you owe a reporting obligation under FATCA, you must disclose your reportable foreign financial assets using IRS Form 8938. Failure to do so can lead to up to $60,000 in fines plus a 40 percent penalty on any taxes owed in connection with your undisclosed assets. These penalties are imposed on a per-year basis. So, if you failed to file IRS Form 8938 in 2020 or prior years, you could be facing substantial aggregate penalties—and you may need to consider a voluntary disclosure.

Disclosing Offshore Accounts to FinCEN

Under the Bank Secrecy Act (BSA), U.S. taxpayers are also required to disclose their reportable foreign financial accounts to FinCEN if the aggregate value of these accounts exceeds $10,000 during the tax year. If you owe a reporting obligation under the BSA, then you must electronically file FinCEN Form 114, Report Foreign Bank and Financial Accounts (FBAR) using the government’s BSA E-Filing System.

Failure to file an FBAR can lead to penalties even greater than those for failing to file IRS Form 8938. Depending on the circumstances involved (including whether the failure to file is deemed willful), BSA noncompliance can potentially lead to criminal prosecution by the U.S. Department of Justice.

Contact Virginia International Tax Attorney Kevin E. Thorn, Managing Partner of Thorn Law Group

If you have questions about whether you need to report your offshore accounts or other foreign financial assets in 2021, we strongly encourage you to speak with an attorney. To request an appointment with Virginia international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 703-752-3752, email ket@thornlawgroup.com or contact us online today.