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Important FBAR and International Tax Information For 2012

By Lance Wallach

For individual tax returns (Forms 1040) due to be filed in 2012 (due this year by April 17, 2012, unless extended), the IRS has issued new Form 8938, "Statement of Specified Foreign Financial Assets," requiring the disclosure of certain foreign accounts and assets.

Whether an individual is required to file this form is complicated, but basically this applies to the following assets if owned in 2011:
Financial accounts   in foreign financial institutions.
Any stock or   securities issued by foreign corporations or entities, any interest in a   foreign partnership, trust or estate, as well as any financial instrument or   contract issued by a foreign person, and foreign pension plans and deferred   compensation arrangements (but not foreign social security).  You are   not, however, required to report foreign assets (1) if the assets are held in   a U.S. brokerage account; (2) if you are required to disclose the asset on   certain other tax form such as Form 3520 or Form 5471; or (3) if such assets   (other than stock) are used in your trade or business.
Whether you have to file Form 8938 depends on the total value of such foreign assets at year end as well as the highest value at any point in the year.  For U.S. citizens and residents filing joint tax returns, you must file Form 8938 if the year-end value of the foreign assets is $100,000 or more or, if the value at any time during the year exceeded $150,000.  On joint returns, all foreign-based assets owned by the spouses are considered in determining these thresholds.  For married spouses filing separately and for unmarried persons, the thresholds are $50,000 (year end) and $75,000 (high value during the year).

There are different rules regarding certain persons who live abroad.  There are also rules regarding valuation of certain assets.  These are spelled out in greater detail in the Form 8938 instructions.

If required, Form 8938 is to be filed with your Federal Income Tax Return (Form 1040).  Currently only individuals having filing requirements must fill out the Form 8938, but it is expected that this will be extended to corporations, partnerships and trusts in the future.

The IRS may impose penalties for failure to file Form 8938 if you lack reasonable cause or willfully neglected to file.  In addition, if you underpay your tax as a result of a transaction involving an undisclosed foreign financial asset, the penalty for such failure may be 40 percent of the underpayment (instead of the normal 20 percent).  In addition, the statute of limitations for assessing tax may be extended if you fail to file the form.

It is important to note that Form 8938 is in addition to the annual Foreign Bank Account Form or "FBAR," which has different filing requirements.  The FBAR,  generally is required if you have ownership or signature authority over one or more foreign bank accounts with a value of over $10,000 on any date in the prior year.  The FBAR is not part of your income tax return, but is filed separately and must be received by the Department of Treasury in Detroit by June 30 (timely mailing does not apply to that form).

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters.  He writes about 412(i), 419, and captive insurance plans. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Public Radio's All Things Considered, and others. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education's CPA's Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, or visit and

The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

1 comment:

  1. Friday, April 5, 2013
    Life insurance beneficiary files putative class action lawsuit
    Life insurance beneficiary files putative class action lawsuit against life insurer targeting unclaimed property practices, Edwards Wildman Pamer LLP USA

    The putative class action alleges that John Hancock Life Insurance Company (USA) and John Hancock Life & Health Insurance Company (collectively, “John Hancock” or “the company”) did not utilize the Social Security Death Master File (“DMF”)1 and various court subscription services to identify deceased life insurance policyholders. The complaint, however, also alleges that John Hancock utilized the DMF and court subscription services to identify deceased annuity payment beneficiaries. As a result of this alleged “industry wide practice”, plaintiff argues that the company was able to “collect interest on unclaimed benefits, charge against policy benefits and otherwise benefit from holding unclaimed benefits” to the detriment of thousands of policyholders and beneficiaries nationwide. The complaint alleges that the proposed class representative’s mother (the “policyholder”) purchased a life insurance policy from the company in 1945. When the policyholder passed away in 2006 the policy beneficiary was unaware of the life insurance policy. Following an investigation with the State of Illinois unclaimed property unit, the beneficiary discovered the existence of the policy and sought payment from the company. The complaint asserts that the policy proceeds were never escheated to the State of Illinois pursuant to its unclaimed property laws.

    Following payment of the $1,349.71 policy proceeds to the beneficiary, this complaint followed. The complaint asserts five causes of action and asserts application of Massachusetts law. First, the complaint alleges that John Hancock violated the Massachusetts Protection Act or, alternatively, various State consumer protection laws when the company allegedly: (a) failed in a timely fashion either to notify owners or beneficiaries of unclaimed property or return the unclaimed property; (b) used funds from unclaimed property to generate income for the company’s own benefit; and (c) deducted administrative fees for retaining unclaimed property while making no effort to return the unclaimed property. Second, the complaint alleges that the company has been unjustly enriched by its use of the unclaimed property to generate income and by charging administrative fees for holding the unclaimed property. Third, the complaint alleges that the company engaged in conversion as it exercised dominion and control over the unclaimed property and failed to take reasonable steps either to return the unclaimed property or notify its owners. Fourth, the complaint alleges that the company breached its fiduciary duty to the plaintiff and the class. Fifth and finally, the plaintiff and class seek a declaratory judgment. Specifically, the complaint seeks a declaratory judgment that: (a) the company is prohibited from holding the unclaimed property; (b) the class is declared the true owners of the monies generated from both the use of the unclaimed property and the administrative fees; (c) the company is required to disgorge the unclaimed property to the true owners within thirty days of final judgment, plus pre-judgment interest; (d) the company is required within thirty days of final judgment to return to the class funds previously escheated to any State or jurisdiction; (e) the company is required going forward to use address upd