The IRS has added Form 8938 to the individual 1040 tax return, taking another step to collect tax on unreported interest on overseas accounts. In addition to the risk of a third party disclosing the taxpayer’s foreign accounts to the IRS, this form now puts an affirmative duty on the taxpayer to disclose his foreign accounts. The sanctions for not completing and attaching the form (when required) include numerous severe civil penalties and potential prosecution followed by a term in federal prison. If you fail to file Form 8938 or fail to report a specified foreign financial asset, the statute of limitations for the tax year may remain open for all or part of your income tax return (Form 1040) until three years after the date you filed Form 8938.
Assets that must be reported include: Any financial account maintained by a foreign financial institution
- To the extent held for investment and not held in a financial account:
- Stock or securities issued by someone that is not a U.S. person
- Interest in a foreign entity
- Any financial instrument or contract with an issuer or counterparty that is not a U.S. person.