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New Foreign Asset Reporting for 2011

Alert Details

There have been many recent changes in foreign reporting for individuals including significant penalties for non-compliance of foreign reporting.

Individuals must disclose any foreign financial assets with their 2011 tax return on Form 8938. This includes:

• Foreign investments
• U.S. stocks held in a foreign brokerage account
• Foreign hedge fund or private activity funds
• Any foreign assets owned in a foreign entity (including disregarded entities)
• Foreign real estate if owned as part of any type of entity (including LLC)
• Beneficiary in a foreign trust or estate
• Foreign retirement or deferred compensation accounts
• Foreign life insurance
• It does not include foreign stock held in a U.S. brokerage account.

The penalty for not complying with these new rules is $10,000. Another $10,000 is levied after 90 days followed by another after 30 days - up to $50,000 for continued failure PLUS 40% of underpayment of tax, 75% of fraud underpayment or possible criminal penalties. Reasonable cause may apply.

This reporting is in addition to the reporting of foreign bank accounts due June 30th each year. It is required if you own or have signatory authority over any foreign bank accounts and the aggregate total is more than $10,000 at any time during the year. The requirement applies to any U.S. person (individual, LLC, partnership, corporation).

The penalties for not complying with these rules are $10,000 (civil) or if willful, the greater of $100,000 or 50% of the balance in the account at the time of the violation. Again reasonable cause may apply.

Please be sure to let your SVA professional know of any foreign assets owned by you at any time during 2011. Also, contact your SVA professional if you have any questions.