Do You Need to Disclose Your Offshore Assets to the IRS in 2021?

If you own offshore assets, you may have an obligation to disclose them to the Internal Revenue Service (IRS) in 2021. You may also be required to disclose them to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Failing to disclose foreign financial assets can lead to substantial penalties, up to and including six-figure fines and federal imprisonment. Here, Boston offshore tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, provides an overview of the foreign asset disclosure requirements.

What Types of Offshore Assets Must Taxpayers Disclose to the IRS and FinCEN?

As Tax Day 2021 approaches, it is imperative for U.S. taxpayers who own offshore assets to ensure that they have a clear understanding of their federal reporting requirements. The following types of assets are all potentially subject to reporting requirements under the Bank Secrecy Act (BSA) or Foreign Account Tax Compliance Act (FATCA):

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

The BSA applies specifically to foreign financial accounts. U.S. taxpayers who owned foreign financial accounts with an aggregate value of more than $10,000 at any point during the 2020 tax year must disclose these accounts to FinCEN in 2021. This involves filing FinCEN Form 114, Report Foreign Bank and Financial Accounts (FBAR).

FATCA applies to foreign financial assets—including, but not limited to, foreign financial accounts. U.S. taxpayers who owned foreign financial assets with an aggregate value of $75,000 at any time during the 2020 tax year or $50,000 at the end of the year must file IRS Form 8938 to comply with FATCA.

There are some notable exceptions to the FBAR and FATCA filing requirements. For example, at present, taxpayers do not need to file FBARs for foreign cryptocurrency accounts (although FinCEN has indicated that it intends to change this rule in 2021). Additionally, the IRS does not consider the following to be reportable foreign financial assets under FATCA:

• Financial accounts maintained by U.S. branches of foreign banks
• Financial accounts maintained by foreign branches of U.S. banks
• Financial accounts maintained by certain foreign subsidiaries of U.S. companies

Many U.S. Taxpayers Will Need to File an FBAR and IRS Form 8938 in 2021

The FBAR and FATCA filing requirements for U.S. taxpayers are not mutually exclusive. In other words, filing IRS Form 8938 does not satisfy the FBAR filing requirement, nor vice versa. The FBAR and FATCA requirements exist under different statutes, they serve different purposes, and they require filings with different entities. As a result, taxpayers must carefully assess their reporting requirements, and they must ensure that they timely file all necessary foreign asset disclosure forms.

Similar to federal income tax returns, FBARs and IRS Form 8938 are due on April 15. While taxpayers can file IRS Form 8938 with their federal returns, FinCEN requires all FBARs to be submitted online.

Contact Boston Offshore Tax Lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group

If you would like more information about the federal disclosure requirements for foreign financial assets in 2021, we encourage you to get in touch. To schedule an appointment with Boston offshore tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 617-692-2989, email ket@thornlawgroup.com or inquire online today.