Unit 17 - Foreign Financial Reporting Flashcards

Question

Form 3520 – what is it and filing requirement

Answer 1

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.

Answer 2

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%

Answer 3

Qualified tuition or medical payments made on behalf of the US person. if the payments are made directly to the institution

Answer 4

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.

Answer 5

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

Answer 6

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

Answer 7

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

Answer 8

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

Answer 9

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

Answer 10

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

Answer 11

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

Answer 12

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

Answer 13

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

Answer 14

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

Answer 15

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