2021 Tax Reporting Requirements for Foreign Financial Accounts and Other Offshore Assets
With everything else going on in the world, you could be forgiven for forgetting that Tax Day 2021 is just around the corner. But, as of yet, there is no indication that the IRS will extend the federal income tax filing deadline again this year; and, as a result, U.S. taxpayers need to focus on meeting the usual April 15 deadline.
While this means preparing your annual income tax returns, if you own offshore assets, it could mean making additional filings as well. Here, Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, provides an overview of the FBAR and FATCA filing requirements for 2021.
FBAR: Disclosing Foreign Financial Accounts to FinCEN
U.S. taxpayers who own offshore financial accounts are required to disclose their foreign holdings to the Financial Crimes Enforcement Network (FinCEN). This requirement exists under the federal Bank Secrecy Act (BSA), and regulations promulgated under the BSA mandate the filing of FinCEN Form 114, Report Foreign Bank and Financial Accounts (FBAR) each year by April 15.
Who needs to file an FBAR? The BSA applies to all U.S. taxpayers who own foreign financial accounts (i.e. offshore bank accounts) that have an aggregate value of $10,000 or more at any point during the applicable tax year. If any of a taxpayer’s offshore accounts exceed this reporting threshold, then all offshore accounts must be reported to FinCEN. Learn more: Do You Need to File an FBAR in 2021?
FATCA: Disclosing Foreign Financial Assets to the IRS
In addition to disclosing their foreign financial accounts to FinCEN, many taxpayers will need to make additional disclosures to the IRS in 2021 as well. Under the Foreign Account Tax Compliance Act (FATCA), U.S. taxpayers must disclose foreign financial assets with an aggregate value of $75,000 at any time during the tax year or $50,000 at the end of the tax year.
Foreign financial assets include foreign financial accounts. This means that many taxpayers will need to file an FBAR with FinCEN and file IRS Form 8938 under FATCA for the same offshore accounts. Other types of foreign financial assets that can trigger the FATCA filing requirement include (but are not limited to):
- Foreign stocks and other securities
- Foreign financial instruments
- Contracts with foreign entities
- Ownership interests in foreign businesses
- Other foreign assets held for investment purposes
For U.S. taxpayers who have FBAR and/or FATCA filing requirements in 2021, timely filing of accurate disclosures will be essential to avoid unwanted scrutiny. FBAR and FATCA violations can lead to steep penalties—up to and including six-figure fines and a decade of federal imprisonment.
Discuss Your Legal Obligations with Washington D.C. Tax Lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group
Do you have questions about disclosing your offshore assets to FinCEN or the IRS in 2021? If so, we encourage you to schedule a confidential consultation at Thorn Law Group. To request an appointment with Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner, please call 202-349-4033, email email@example.com or get in touch online today.