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August 5, 2010

NEW FOREIGN ACCOUNT TAX COMPLIANCE ACT - REPORTING REQUIREMENTS

The new Foreign Account Tax Compliance Act (FATCA) requires that taxpayers report all foreign financial assets if the aggregate current fair market value of all such assets equal $50,000 or more. Foreign financial assets include foreign bank accounts, brokerage accounts, stocks, bonds, and ownership in foreign entities such as foreign corporations, partnerships, trusts, and LLCs.   The IRS has the ability under the new law to define almost any asset located outside the US as a foreign financial assets required to be reported under this law. They will in the future be issuing regulations defining the type of assets they have determined are included under this new law.

These items will either be reported on an attachment to your US tax return or the IRS is most likely to create a new tax form to attach to your return for the reporting. For each such asset you must state full information including account numbers, name and address of financial institution or stock issuer, and the highest value of the foreign asset during the tax year.

If you meet the aggregate $50,000 in value threshold, you will have to report all the information on each asset regardless of the percentage you own or its small value. All other foreign asset reporting forms such as FBARs, Form 5471, 8865, 3520, 3520A, etc must also still be filed if required.

The minimum penalty for failing to report this data begins at $10,000 and can go up from there depending on the circumstances.  This is generally effective for tax years that begin after 3/18/10.