IRS offers $10,000 prize for filing new form!
Well, that's one way of putting it. More accurately, the IRS will take $10,000 hard-earned dollars out of your pocket if you are don't file some forms related to international taxes.
You say "I'm in Des Moines, I don't have to worry about international tax forms!" Don't be so sure. It's surprisingly easy to find yourself needing to file a form out of the IRS international tax series. Some common situations:
- You have a foreign financial account, or you have signature authority over one you don't own.
- You have loaned money to an offshore borrower.
- You have invested in an offshore venture. Many Iowans, for example, have been investing in Brazilian farm ventures.
The standard IRS fine for failing to file these forms is $10,000, and they assert the $10,000 penalty automatically. The most common forms Iowans have encountered up to now include:
- Form 5471, reporting investments in non-US corporations;
- Form 8865, reporting investments in non-US partnerships;
- Form 3520, reporting interests in non-US trusts or cross-border gifts, and
- Form TD F 90.22-1, reporting interests in offshore financial accounts.
Now there is a new Form reporting broader classes of offshore financial instruments. New Form 8938 requires you to report many offshore financial assets missed by other forms. Unless the interest is held in a securities account, interests in partnerships, closely-held corporations and even public companies will have to be reported on 1040s filed for 2011.
Even if the interest is already reported on one of the old forms, the IRS is requiring a Form 8938 filing, if only to refer to the other form. Examples we've seen of assets that would need to be reported are the Brazilian farm partnerships and shares of Canadian insurer Sun Life received as demutualization proceeds. Single taxpayers will need to file if their holdings of foreign financial assets are $50,000 at the end of 2011 or $100,000 during the year; the thresholds are $100,000 and $200,000 for joint filers.
Except for Form TD F 90.22-1, these forms are all filed with your tax return. Be sure you let your tax professional know about any Non-United States investments you have. Unless you are happy to spare the $10,000, of course.