Wednesday, May 2, 2012

GAO reports confusion over foreign account reporting under FATCA and FBAR

GAO reports confusion over foreign account reporting under FATCA and FBAR

The U.S. government has been tightening its scrutiny of taxpayers who use foreign financial accounts to circumvent U.S. tax law. Last year the Treasury department imposed new requirements on taxpayers with financial interests in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account. Many taxpayers must now report information related to the foreign financial account to the IRS on a yearly basis by filing the “FBAR.”

Form 8939 v. FBAR: duplicated information
The Government Accountability Office (GAO) recently reported that duplication of some of the information requested on Form 8938, Statement of Specified Foreign Financial Assets, and Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), was creating confusion among taxpayers. Even though Form 8938 and the FBAR were developed to meet two different governmental needs (tax administration and law enforcement), FATCA reporting on Form 8938 may be duplicative in some instances of reporting on the FBAR

The IRS noted that individuals must file each form for which they meet the relevant reporting threshold. But for the sake of taxpayer convenience, the IRS recently posted a comparison chart of Form 8938 and FBAR requirements on its website

The chart addresses many of the important differences between the two forms including:

--Who is required to file each form?
--What U.S. territories are subject to the reporting requirements?
--What is the reporting threshold?
--When do you have an interest in an account or asset?
--What is reported?
--When is the form due?

The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The U.S. government can use the information it gleans from FBARs to identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.

Contact Doeren Mayhew, a Michigan Tax and Accounting firm located in Michigan, for more information.

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