Under U.S. law, a “U.S. person” must file annually a Form 8938 reporting their ownership of most “specified foreign financial assets.”
In general, Form 8938 reporting is required if the maximum aggregate value of the U.S. person’s foreign financial assets(s) generally exceeded $50,000 ($100,000 if married filing jointly) (if residing abroad then $200,000 or $400,000, respectively) at any time during the calendar year. Form 8938 must be filed with Personal Income Tax Return Form 1040 with the U.S. Internal Revenue Service. Filing an extension also extends the time to file Form 8938.
The IRS can impose a $10,000 penalty for failing to file Form 8938 by the tax return’s due date (including extensions) or for filing an incomplete or inaccurate Form 8938. If Form 8938 has not been filed within 90 days of a formal notice by the IRS, then the IRS can assess additional penalties of $10,000 for each 30-day period (or part of a 30-day period) that the Form 8938 continues to be not-filed up to a maximum penalty of $60,000. Criminal penalties may also apply. Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.
The IRS may waive penalties if the failure to file was due to reasonable cause for the failure to file and the IRS agrees. Reasonable Cause is a fact-specific submission based on each applicant’s facts and circumstances. On the other hand, willful reporting violations may be subject to criminal penalties, which may impose in addition to asset forfeiture or civil penalties.
The IRS Delinquent International Informational Return Submission Procedures (DIIRSP) is one of the methods for taxpayers with unreported offshore accounts who have failed to file Form 8938 to cure non-compliance.
U.S. persons with unreported foreign bank accounts are increasingly at risk of the IRS and the US Department of Justice identifying those accounts due to the implementation of the Foreign Account Tax Compliance Act (FATCA). FATCA, enacted in 2010 and implemented on July 1, 2014, requires foreign financial institutions worldwide to perform in-depth due diligence and to collect information to identify any U.S. account holders or U.S. beneficial owners of financial assets abroad and to disclose account information annually to the IRS automatically. Almost all foreign banks worldwide have regularly provided US accountholder’s information to the IRS since 2014.