Foreign bank accounts and brokerage reporting requirements

Quick answer: The documents provided don't include general FBAR/FATCA filing guidance for individuals with foreign accounts, but they do flag a serious related risk: if you have an undisclosed foreign financial asset that should have been reported to the IRS, you could face a steep accuracy-related penalty on top of any tax owed.

What the documents cover

IRS Publication 550 explains a penalty specifically for undisclosed foreign financial asset understatements: for tax years beginning after March 18, 2010, you may be liable for a 40% penalty for an understatement of your tax liability due to an undisclosed foreign financial asset, which is any asset for which a required information return under sections 6038, 6038B, 6038D, 6046A, or 6048 is not provided.¹

This 40% penalty can apply to underpayments tied to several categories of unreported foreign holdings, including:

• Any foreign business you control reportable on Form 5471, or Form 8865 (foreign partnerships)²
• Certain transfers of property to a foreign corporation or partnership reportable on Form 926, or certain distributions to a foreign person reportable on Form 8865³
• Your ownership interest in an otherwise undisclosed foreign financial asset reportable on Form 8275 or 8275-R — and, instead of or in addition to those forms, you may have to file Form 8938, Statement of Specified Foreign Financial Assets, with your tax return⁴
• Your acquisition, disposition, or substantial change in ownership interest in a foreign partnership, reportable on Form 8865⁵
• Creation or transfer of money or property to certain foreign trusts, reportable on Form 3520⁶

Separately, Publication 550 lists Form 8938 among the forms relevant to investors with foreign holdings, alongside Form 8865 for foreign partnerships.

What the documents don't cover

Notably absent from these excerpts: the FBAR (FinCEN Form 114) filing requirement that applies to foreign bank and brokerage accounts above certain thresholds, the specific dollar thresholds for Form 8938 reporting, and general income-reporting rules for foreign account interest/dividends. These are important and commonly apply to people in your situation, but I can't cite specifics from what's in front of me.

What it depends on:

• Whether the foreign accounts' aggregate value crosses reporting thresholds
• Whether you have signature authority vs. ownership
• Whether any foreign entity (corporation, partnership, or trust) is involved
• Whether income from these accounts has been fully reported on your U.S. return

Given the penalty exposure described above (40%, and potentially higher accuracy-related penalties), and because this area involves reporting regimes not detailed in these documents, this is a strong candidate for a conversation with a CPA — ideally before your next filing deadline — to confirm exactly what needs to be disclosed and how.