Foreign Asset Reporting Issues

The United States requires its citizens and residents to report their worldwide income and disclose their foreign financial accounts and assets. Over the past two decades, Congress and the IRS have dramatically expanded these reporting requirements and imposed severe penalties for noncompliance. For many taxpayers -- including Denver residents with family connections abroad, international business interests, or investments in foreign accounts -- the compliance landscape has become a minefield of overlapping requirements and potentially devastating penalties.

At Lanphier LLP, we help clients navigate the full spectrum of foreign asset reporting issues, from bringing delinquent filings into compliance to defending against proposed penalties. Our team has deep experience with the international provisions of the tax code and the various IRS programs designed to address noncompliance, and we provide strategic guidance tailored to each client's specific circumstances.

Key Reporting Requirements

The primary foreign asset reporting obligations that affect U.S. taxpayers include:

• FBAR (FinCEN Form 114) -- The Report of Foreign Bank and Financial Accounts, required for U.S. persons with aggregate foreign account balances exceeding $10,000 at any point during the year. FBAR penalties can reach $10,000 per account per year for non-willful violations, and up to the greater of $100,000 or 50% of the account balance for willful violations.
• FATCA (Form 8938) -- The Statement of Specified Foreign Financial Assets, required under the Foreign Account Tax Compliance Act for U.S. taxpayers whose foreign financial assets exceed specified thresholds. Penalties start at $10,000 per year and can escalate to $50,000 for continued failure to file.
• Forms 3520 and 3520-A -- Required for transactions with foreign trusts and receipt of certain foreign gifts. Penalties can be 25% or more of the amount involved.
• Forms 5471, 8865, and 8858 -- Information returns for U.S. persons with interests in foreign corporations, partnerships, and disregarded entities. Each carries a penalty of $10,000 or more per return per year.

Coming Into Compliance

If you have foreign accounts or assets that should have been reported but were not, it is essential to come into compliance as soon as possible. The IRS offers several programs and procedures for addressing prior noncompliance, including:

• Streamlined Filing Compliance Procedures -- For taxpayers who can certify that their failure to report was non-willful, these procedures offer a path to compliance with reduced or eliminated penalties
• Delinquent FBAR Submission Procedures -- For taxpayers who have no unreported income but have failed to file FBARs
• Delinquent International Information Return Submission Procedures -- For taxpayers who have failed to file required international information returns
• Voluntary Disclosure Practice -- For taxpayers with willful noncompliance who want to come forward before the IRS discovers the issue

Penalty Defense

When the IRS proposes penalties for foreign asset reporting failures, we provide vigorous defense. We evaluate whether the penalties were properly assessed, whether reasonable cause or other defenses are available, and whether the IRS followed proper procedures. In many cases, penalties can be reduced or eliminated through well-supported arguments and effective advocacy.

Foreign asset reporting is an area where the consequences of inaction can be catastrophic. If you have concerns about your international reporting obligations, contact our Denver office for a confidential consultation. The sooner we address the issue, the more options will be available.