The Internal Revenue Service continues to make changes to the reporting requirements of foreign investments. Not all foreign income, investments, or assets are taxable; there may be a reporting requirement. These reporting requirements are for U.S. Citizens, U.S. Residents, and Business Entities. The foreign earned income exclusion or the foreign tax credit does not exempt you from filing.
One of the reporting requirements is filing a Foreign Bank and Financial Accounts (Form 114) to report financial interest in or signature authority over a foreign financial account. A financial account may include foreign bank accounts, foreign brokerage accounts, foreign mutual funds, and a foreign trust. This reporting does not include investments held inside a U.S. brokerage account. The foreign activity will be reported on the 1099 received from these brokerage houses. The income generated from interest, dividends, and sale of assets may be taxable and may require additional tax filings.
Depending on the dollar amount or value in these accounts a FINCen (Form 114) may be required. The filing threshold for this form is if the aggregate value of all foreign accounts exceeds $10,000 at any time during the year. Bank accounts under this filing threshold are reported by answering the questions on the bottom
of Schedule B of the 1040 or questions on business tax returns. The FINCen (Form 114) is filed separately from the tax return and submitted to the Financial Crimes Enforcement Network.
There are stiff penalties for not properly filing a complete and correct form. The civil penalty is not to exceed $10,000 per violation for a non-willful violation that is not due to reasonable cause. A willful violation is the greater of $100,000 or 50% of the balance in the account at the time of the violation.
Currently the Internal Revenue Service has an Offshore Voluntary Disclosure Program. This program allows for filing past years to avoid civil penalties. Currently the program does not have a end date but the Internal Revenue Service can close the program at any time.
There may also be other filling requirements. One of the other filing requirements is Statement of Specified Foreign Financial Assets (Form 8983) if any of their foreign assets exceed certain thresholds. Some of the re portable assets include Stocks, Securities from foreign corporation, and interest in foreign retirement plans, and rental properties. If total value of assets exceed $50,000 (Married $100,000) on the last day of the year or more than $75,000 (Married $150,000) at any time during the year this form is required.
There are many other filing requirements for foreign investments and income. When investing in a foreign entity is it always a good idea to talk to your CPA regarding the investment. They will be able to inform you of the income and reporting requirements.