Jan 19, 2022
As we advised in Tax Tip 20-04 , significant additional disclosure and filing requirements for trusts were announced in the 2018 Federal Budget and are scheduled to apply for trust’s 2021 and subsequent tax years.
“The penalty could apply on a per-item basis.”
Over the last few years, the U.S. has significantly increased compliance requirements and penalties for U.S. persons who have foreign (non-U.S.) assets. A “U.S. person” includes a U.S. citizen, Green Card Holder or U.S. resident.
The Hiring Incentives to Restore Employment (HIRE) Act signed into law by President Obama on March 18, 2010 has increased the compliance burden even further starting January 1, 2011.
For a number of years, United States taxpayers have been required, under the Bank Secrecy Act, to disclose whether they have a financial interest in, signature authority or other authority over non-U.S. financial accounts where the total value of those accounts exceeds USD 10,000 at any time during a calendar year. Such disclosure is made on Form TD F 90-22.1, “Report of Foreign Bank and Financial Accounts” or FBAR, which is due by the following June 30th.” This form is not part of the income tax return. It is filed separately with the Treasury Department in Detroit.
The HIRE Act introduces new provisions directly in the Internal Revenue Code which will require U.S. individuals with an interest in a “specified foreign financial asset” to attach a disclosure statement to their personal income tax return, where the total value of such assets exceeds USD 50,000.
Specified foreign financial assets are:
(a) stocks or securities issued by foreign persons (e.g. non-U.S. private company shares),
(b) any other financial instrument or contract held for investment that is used by or has a counterparty that is not a U.S. person (e.g. GIC’s, Bonds, Term Deposits), and
(c) any interest in a foreign entity (e.g. non –U.S. personal trusts).
This HIRE reporting is in addition to the FBAR requirements and could cover more items than the FBAR rules. For example, shares of a non-U.S. private corporation require disclosure under the HIRE rules but not under the FBAR rules.
The penalty for failing to make the required disclosure is a fixed amount of USD 10,000. Though the legislation is not clear, it appears the penalty could apply on a per-item basis. An additional penalty of USD 10,000 for each 30 days of failure to disclose (or fraction of such 30-day period) applies if the failure to disclose continues for more than 90 days after the IRS notifies the individual, by mail, of the failure to disclose (to a maximum of USD 50,000).
The IRS has been given the authority to issue regulations necessary to carry out the intent of these rules, (including exceptions for non-resident aliens and specified classes of assets and exceptions to avoid duplicative reporting requirements) but no guidelines have been issued yet.
In order to reduce the potential compliance burden posed by this additional filing requirement, U.S. individuals may want to consider consolidating accounts where appropriate.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.
TAX TIP is provided as a free service to clients and friends of Cadesky Tax.
The material provided in Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Cadesky Tax cannot accept any liability for the tax consequences that may result from acting based on the contents hereof.