12 | RKL 2018 Year-End Tax Planning Guide RKL 2018 Year-End Tax Planning Guide | 13 FOREIGN FINANCIAL ACCOUNTS: REPORTING OBLIGATIONS Taxpayers with foreign bank accounts or assets are required to report these holdings annually to the IRS. Failure to do so carries significant penalties. There are cases where taxpayers may still have a reporting obligation even if they do not directly own a share in a foreign business or a foreign bank account. For example, an executive or employee with signature authority over a foreign bank account owned by her company would be responsible for reporting the account to the IRS. Form 114, Reports of Foreign Bank and Financial Accounts (FBAR): Taxpayers who own or have signature authority over foreign accounts with balances that total in excess of $10,000 must file an FBAR electronically with the IRS. Keep in mind that each account is measured at its maximum balance during the year and the $10,000 figure is the aggregate of all accounts. For the purposes of FBAR reporting, the IRS defines “authority” as the ability to initiate a withdraw from the account and its definition of “financial account” includes, but is not limited to, traditional bank accounts and other accounts held with a financial institution, as well as brokerage or commodities accounts, insurance and annuity policies with a cash value and mutual funds. FBAR Due Dates & Penalties: The FBAR filing deadline was recently altered to align with the annual federal income tax deadline. Six-month extensions are available. Failure to file can result in fines ranging from $10,000 (non-willful) to the greater of $100,000 or 50 percent of account balances, plus possible criminal charges (willful). Form 8938, Statement of Specified Foreign Financial Assets: Taxpayers holding foreign assets of $50,000 or more on the last day of the tax year or $75,000 or more at any time during the year must report these holdings on Form 8938. For married filing jointly taxpayers, these thresholds rise to $100,000 (last day) or $150,000 (any point during year). Different thresholds apply to Americans living abroad. The Form 8938 definition of specified foreign financial assets includes the foreign accounts reported via FBAR (see previous page) as well as stock or securities (including debt) issued by a non-U.S. person, any ownership interest in a foreign entity or any financial instrument or financial contract issued by a non-U.S. person. Form 8938 Due Dates & Penalties: The annual federal income tax deadline also applies to Form 8938, with a six-month extension available. Penalties include up to $10,000 for failure to disclose and an additional $10,000 for each 30-day period of nonfiling after receipt of IRS notice up to $50,000 plus possible criminal penalties. RKL 2018 Year-End Tax Planning Guide | 13