Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

EA Individuals > Unit 17 - Foreign Financial Reporting > Flashcards

Unit 17 - Foreign Financial Reporting Flashcards

1
Q

BSA

A

The bank secrecy act

The law that imposes reporting requirements on foreign financial accounts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

FATCA

A

The foreign account tax compliance act

Law that mandates the reporting of foreign financial assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the different forms used for reporting foreign bank accounts, for an assets, and foreign gifts

A

FBAR

Form 8938

Schedule B

Form 3520

Form 5471

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

FBAR

A

Form 114

Report of foreign bank and financial accounts

Record-keeping – keep a minimum of five years

Does not directly impact tax liability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Form 8938

A

Statement of specified foreign financial assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Schedule B - for reporting foreign

A

Interest in ordinary dividends – part three

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Form 3520

A

Annual return to report transactions with foreign trust and receipt of certain foreign gifts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Form 5471

A

Information return of US persons with respect to certain foreign corporations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

FBAR - where is it filed and how is it enforced?

A

Filed electronically online through the BSA e-filing system

these forms are filed directly with the financial crimes enforcement network (FinCEN) - a division of the US treasury department

But the IRS is still responsible for enforcement

The IRS is responsible for

  1. Investigating violations.
  2. Assessing and collecting penalties.
  3. Issuing administrative rulings.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

A US taxpayer is required to file an FBAR if:

A
  1. The person had a financial interest, interest, or signature authority over, at least one financial account located outside of the United States.
  2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported. This threshold is the same for every filing status.

REGARDLESS, IF THE ACCOUNT PRODUCES INCOME OR NOT!!!!!!!!

Disclosure of ownership of any foreign account or an FBAR filing requirement is required on for 1040, schedule B, part three

Even if the taxpayer is not required to file an income tax return – could still be required to file an FBAR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Calculating the greatest aggregate value In an account during the calendar year

A

First, the owner must determine the greatest value in the foreign countries currency at any time during the year

The accounts are then converted to US currency based on the exchange rate at the end of the calendar year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Signature Authority

A

The authority of an individual or individuals to control the disposition of assets held in a foreign financial account by direct communication with the bank or other financial institution

FBAR reporting requirements are not determined by ownership of the funds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Foreign financial accounts include the following types of accounts

A
  1. Foreign bank accounts - savings, checking, and time deposits
  2. Foreign securities accounts – brokerage accounts, securities, derivatives, or stock options
  3. Insurance policies with a cash value – such as a whole life insurance policy.
  4. Foreign mutual funds or similar pulled funds.
  5. Any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

FBAR due date

A

Due by April 15 of the year following the year in which the account holder meets the $10,000 threshold

Within an automatic extension to October 15

There is no requirement or form to request this extension

FBAR filing extensions are rare, even for disaster situations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

FBAR minimum age requirement

A

There is no minimum age requirement for filing an FBAR

The requirement includes minor children

If a child holds $10,000 in a foreign financial account, even if the account is not earning revenues, the child will be required to file their own FBAR

EVEN IF THE CHILD HAS NO FILING REQUIREMENT FOR US

IF THE CHILD CANNOT FILE ON THEIR OWN – PARENT OR GUARDIAN MUST FILE AND SIGN IT FOR THE CHILD

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

FBAR requirements for US partnerships, corporations, estates, and trust

A

If they meet the $10,000 threshold – required to file an FBAR

17
Q

FBAR - spouses

A

Spouses do not need to file separate FBARs if they complete and sign form 114a, record of authorization to electronically file FBARs

And…

  • all reportable financial accounts of the nonfiling spouse are jointly owned with the filing spouse

And

  • the filing spouse reports all accounts jointly owned with the nonfiling spouse on a timely filed FBAR.

Otherwise, both spouses must file separately

The e-file system will not allow both spouses signatures on the same electronic form – only the filing spouse signs in the system

Taxpayers don’t submit the form 114a, but they keep it for their records

18
Q

FBAR penalties

A

Non-willful failure to file

Willful failure to file

Criminal penalties

19
Q

FBAR penalty – non-willful

A

The most common FBAR reporting mistake is simply failing to file

A civil penalty of up to $10,000 per return can be imposed

Not per account

Adjusted for inflation – four 2023 the maximum failure to file penalty for non-willful is $15,611

Limited to 50% of the highest aggregate balance of all unreported foreign financial accounts during the years under examination

20
Q

FBAR penalty – willful

A

A willful failure to file could result in the greater of

$100,000 (adjusted for inflation, so for 2023 it is $156,107)

Or

50% of the balance in an unreported for an account per year, for up to six years

21
Q

FBAR penalty – civil penalties

A

In addition to the willful failure to file penalties, civil penalties can also be imposed

May include a fine of up to $250,000 and five years in prison for willfully failing to file an FBAR report

And up to $10,000 and five years in prison for knowingly and willfully filing a false report

22
Q

The following accounts are not classified as foreign financial accounts

A

Foreign financial accounts owned by a government entity

Foreign financial accounts owned by an international financial institution

Foreign financial accounts maintained on a US military banking facility

23
Q

Foreign financial reporting – mutual fund

A

The mutual fund itself is responsible for any foreign financial reporting that is required

The investor does not need to report their ownership in the mutual fund or the holdings of the mutual fund

24
Q

FBAR - safe deposit box

A

A safe deposit box at a foreign financial institution is not considered a financial account

However, under the FBAR rules, if gold, bullion, or foreign currency is held inside a foreign financial institution, it is subject to FBAR reporting

25
Q

Form 3520 – what is it and filing requirement

A

A US person must file form 3520, annual return to report transactions with foreign trust and receipt of certain foreign gifts…

If they receive gifts or bequests valued at more than $100,000 from a nonresident alien individual or foreign estate

Taxpayer must aggregate gifts received from related parties

The form is due at the same time as the US persons income tax return, including extensions

But the form is filed separately from the income tax return

3520 is considered an information return, not a tax return, and no taxes are assessed on this form because foreign gifts or bequests are not subject to US income tax.

26
Q

Failure to file form 3520

A

No penalty applies if the failure to report was due to reasonable cause or not willful neglect

Otherwise, the penalty is equal to 5% of the amount of the foreign gift or bequest for each month for which the failure to report continues

Not to exceed a total of 25%

27
Q

A foreign gift to a US US person does not include amounts paid for

A

Qualified tuition or medical payments made on behalf of the US person.

if the payments are made directly to the institution

28
Q

Specified foreign assets include

A
  1. Foreign stock or foreign securities – not held in a US brokerage account.
  2. Financial accounts maintained by a foreign financial institution.
  3. Foreign pensions or deferred compensation plans.
  4. Interest in a foreign estate.
  5. A partnership interest in a foreign partnership.
  6. Any interest in a foreign issued insurance contract or annuity with a cash surrender value.
29
Q

Form 8938 – statement of specified foreign financial assets

A

Requires the taxpayer to provide detailed financial information about their foreign accounts

Filed with the tax return if the amount of assets exceeds certain thresholds

This is a separate filing requirement, in addition to the FBAR

30
Q

Form 8938 – failure to file penalty

A

Failure to report form 8938 on a timely filed return may result in a penalty of $10,000

Taxpayer has 90 days after the mailing of the IRS letter to avoid additional penalties

Then an additional $10,000 penalty may apply to each 30 day period. The form is not filed after the 90 day deadline.

Up to a maximum of $50,000 of additional late filing penalties – resulting in a total penalty max of $60,000

Under payments of tax attributable to nondisclosure foreign financial assets are subject to an additional substantial understatement penalty of 40%

If the form is omitted accidentally – taxpayer should amend their return, including the form 8938 and attach a statement of reasonable cause to avoid penalties

31
Q

Form 8938 – exclusion

A

If the taxpayer is not required to file an income tax return for the year

They do not need to file form 8938

Even if the value of specified for an assets is greater than one of the reporting threshold

32
Q

Form 8938 filing requirement – taxpayers living inside the US

A

Taxpayer must file the form if the aggregate value of specified foreign financial assets is more than the following reporting threshold:

MFJ - $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year

Unmarried and MFS - $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year

33
Q

Form 8938 filing requirement – taxpayers living abroad

A

Taxpayer must file the form if the aggregate value of specified foreign financial assets is more than the following reporting threshold:

MFJ - $400,000 on the last day of the tax year or more than $600,000 at any time during the year

Unmarried and MFS - $200,000 on the last day of the tax year or more than $300,000 at any time during the year

34
Q

Form 8938 – financial accounts maintained by a US financial institution or US brokerage firm

A

Taxpayer does not need to report financial accounts – even if the financial institution or fund invest in foreign stock

Examples of financial accounts maintained by US financial institutions that do not need to be reported include

US mutual fund account

IRA - traditional or Roth

401(k) retirement plans

Qualified US retirement plans

Brokerage and investing accounts maintained by US financial institutions

35
Q

The following assets are not specified for an assets - do not have to be reported on form 8938

A

Payments or the rights to receive the foreign equivalent of Social Security, social insurance benefits, or another similar program of a foreign government

Directly held tangible assets, such as art, gold, antiques, jewelry, cars, and other collectibles

Foreign real estate - personal residence or rental property

Foreign currency, if it is directly held and not held in a financial institution

36
Q

Schedule B - reporting for an account and trust

A

On part three, schedule B, taxpayer must check yes or no to the question of whether the taxpayer had at any time during the year a financial interest in or signature authority over a financial account - regardless of the filing requirement for the FBAR.

There is no dollar threshold to report for an accounts on schedule B

37
Q

Schedule B - a foreign financial account includes

A

Securities
Brokerage
Savings
Checking
Deposit
Time deposit

Commodity futures or options account

insurance policy with a cash value

Annuity policy with a cash value

Shares in a foreign mutual fund

Other accounts maintained within a financial institution

38
Q

Determining if a bank is considered a foreign bank

A

A financial account is considered to be located in a foreign country if the account is physically located outside of the United States

Includes accounts maintained with a branch of a US Bank if it is physically located outside the US

39
Q

Form 5471 – information return of US persons with respect to certain foreign corporation

What is it?
Filing requirements
Penalties

A

Used to report ownership of a foreign corporation that exceeds a 10% threshold

Includes US citizens and resident aliens, corporations, partnerships, and trusts

Form 5471 is an informational return, not a tax return

But filed along with the tax return . Even if a person is not required to file a tax return, the form 5471 may still be required.

Penalty for not filing is $10,000

If not paid within 90 days of IRS notice – additional $10,000 penalty for each 30 day.

The additional penalty is limited to a maximum of $50,000 for each failure to file

EA Individuals (21 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions