When Lionel Messi was charged with tax fraud in Spain, his first line of defense was “I was playing football, I knew nothing.” The court did not care that Messi signed documents handed to him by his father and advisors without reading them, and ruled that the renowned soccer player knew enough to be found guilty of tax fraud. Messi and his father were fined millions of Euros for using offshore companies in Uruguay and Belize to defraud the Spanish government of roughly $4.5 million in taxes between 2007 and 2009. They also received 21-month suspended prison sentences.
Getting all the information
If you don’t already have a good understanding of your foreign assets, it is time to begin gathering as much information as possible. Expect to be asked to provide documentation regarding your interests in the following, going as far back as eight or nine years:
- Foreign bank accounts, including accounts held at a foreign branch of a U.S. financial institution, and any foreign financial account for which you have signature authority
- Foreign investment and brokerage accounts, including foreign mutual funds, as well as foreign stocks and securities not held in an account at a foreign financial institution
- Foreign hedge funds and private equity funds
- Foreign retirement plans and deferred compensation plans
- Foreign corporations, partnerships and trusts
- Foreign life insurance and annuity contracts
Foreign real estate is not directly reported, but the value will need to be included in reports if held through a foreign entity (bring all documentation to your tax advisor).
Note that some of our clients have had to travel to the country in which their accounts and/or assets are located in order to get the required information.
You must file an FBAR if the combined value of all your foreign financial accounts exceeds $10,000 at any point (day, hour or minute) of the calendar year. The filing threshold for Form 8938, Statement of Specified Foreign Financial Assets, ranges from $50,000 to $600,000, depending on whether you live in the U.S. or abroad, and your marital/filing status. Note that there are a number of other international tax filing obligations, most of which must be included with your annual individual or corporate tax returns.
In addition to gathering the required information, be prepared to answer some questions that are likely to be posed by the IRS:
- How did you obtain the foreign account or asset?
- Did you know about reporting requirements?
- Why didn’t you report this information to begin with?
Needless to say, “I was just playing football” is not an acceptable response!
Don’t accept less than the highest quality tax preparation and legal services
Accountants and tax attorneys can’t help you come into compliance with your IRS and FinCEN foreign account reporting unless they have all the information. The highly experienced tax attorneys at Moskowitz, LLP are on your side! We will talk to you, learn the details of your situation, and tailor a program that is right for you. We will do everything possible to get you into compliance with your foreign account reporting without your having to pay outrageous, disproportionate penalties. Call our San Francisco office today.