United States

The IRS reminds taxpayers who own foreign assets about key deadlines

The IRS reminds taxpayers to review their filing obligations

TAX ALERT  | 

The IRS issued an announcement (IR-2018-87) on April 9, 2018, to remind U.S. citizens, especially those with dual citizenship, and resident aliens about their potential U.S. filing requirements. The reminder covered a number of key points.

Deadline for reporting foreign accounts

The deadline for filing the Report of Foreign Bank and Financial Accounts (FBAR) is the same as for a federal income tax return. As result, a 2017 FBAR, Form 114 must be filed with the Financial Crimes Enforcement Network (FinCEN) by April 17, 2018 through the BSA E-Filing System website. FinCEN grants filers an automatic extension until Oct. 15, 2018 if the filer misses the April deadline. In prior years, the FBAR filing deadline was June 30 without any extensions available.

Any taxpayer with an interest in, or signature or other authority over, foreign financial accounts with an aggregate value exceeding $10,000 at any time during 2017 must file an FBAR. Taxpayers with account balances close to $10,000, but normally less, should be especially meticulous when determining whether the filing requirement extends to their accounts.

Reminder: IRS to end Offshore Voluntary Disclosure Program

The IRS’s Offshore Voluntary Disclosure Program (OVDP), which allowes taxpayers with undisclosed foreign assets who meet the OVDP requirements to reduce some of the related penalties, is ending on Sept. 28, 2018. Taxpayers wishing to utilize the program must do so before the deadline. The IRS will continue enforcement actions to combat offshore tax avoidance.

Most U.S. taxpayers abroad need to file

Tax benefits, such as the Foreign Earned Income exclusion or Foreign Tax Credit, are only available to eligible taxpayers who file a U.S. income tax return. U.S. taxpayers whose tax home and abode are outside of the U.S. and Puerto Rico have until June 15, 2018 to file their tax returns. However, interest, at a rate of 5 percent per year compounded daily, will apply to payments received after April 17, 2018.

Nonresident aliens who receive income from U.S. sources must determine whether they have a U.S. tax obligation. The filing deadline is April 17, 2018.

Special income tax return reporting on foreign accounts and assets

U.S. citizens and residents aliens must report any worldwide income, including income from foreign banks, trusts or security accounts. Such taxpayers provide this information to the IRS by attaching Schedule B to their tax return and completing Part III. If a taxpayer meets the FBAR filing requirements, then the taxpayer must disclose the country where each account is located on the Schedule B.

Certain taxpayers may also need to complete Form 8938, Statement of Foreign Financial Assets, and attach it to their tax return. The Form 8938 must be filed if the aggregate value of the assets exceed certain threshold amounts. The threshold amounts vary depending on whether the taxpayer is residing in the U.S. and the taxpayer’s filing status.

Specified domestic entity reporting

Certain domestic entities that are considered formed for the purpose of holding specified foreign financial assets must file a Form 8938, Statement of Specified Foreign Financial Assets. The threshold value for filing the form is either $50,000 on the last day of the tax year or $75,000 at any time during the tax year. More guidance regarding filing requirements can be found here.

Report in U.S. dollars

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. tax form in U.S. dollars. Any tax payments made must be in U.S. dollars. The exchange rate for the filings and any payments is generally based on the December 31 exchange rate. Generally, the IRS accepts any posted exchange rate that is used consistently. More information can be found in the document Foreign Currency and Currency Exchange Rates.

Expatriate reporting

Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the U.S. during 2017 must file a dual-status alien return and attach Form 8854, Initial and Annual Expatriation Statement.

Choose Free File or e-file

The IRS provides two free filing options for U.S. individual taxpayers, “Free File Fillable Forms” and “IRS Free File” software. U.S. citizens and resident aliens living abroad can use IRS Free File to prepare and electronically file their returns for free using IRS software. To be eligible to use IRS Free File software, U.S. citizens and resident aliens, must have adjusted gross income of $66,000 or less. Free File is also not available for nonresident aliens required to file Form 1040NR.

Free File Fillable Forms have no income limit and are suited for filers comfortable preparing their own tax forms by following the line-by-line instructions for each form, which then does the mathematical calculations. Taxpayers using Free File Fillable Forms are able to e-file the completed tax return. Both filing options are available until Oct. 15, 2018 for filing 2017 returns.

AUTHORS


Subscribe to Tax Alerts



How can we help you with your tax planning & compliance?


Related resource

Tax Controversy