How Manafort’s Problems Could Happen to You

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By now, you’ve probably heard that Paul Manafort has been indicted for money laundering, failure to disclose his foreign accounts and a handful of other indictments.

Chances are you are not going to unwittingly become a money launderer, but failure to disclose foreign accounts could become a real issue. This is especially true if you have international businesses, have family in other countries or have explored setting up offshore tax savings strategies.

So, let’s go over the rules quickly. I’ll try not to make it too dry, but remember, this is serious business. The penalties are stiff and can even involve criminal charges, as Manafort has discovered. Don’t be a victim.

First up, the FinCen 114 form.

You (and/or your business) may need to file this form if you have a financial interest or sign a foreign financial account. This includes a bank account, brokerage account, mutual fund, trust or other type of foreign financial account, exceeding certain thresholds.

The current reporting threshold is $10,000 of combined value of all foreign accounts at any time during the calendar year.

The FinCen 114 must be filed online and is due by April 15th. If you don’t file by that time, there is an automatic 6 month extension. However, the automatic part of that may be changed at any time, meaning that you have to proactively file for the extension.

If you do not file a timely and correct FinCen 114, you may be assessed $12,459 (adjusted for inflation) penalty per violation. If your violation is willful, your penalty will be the greater of $124,588 or 50% of your total account balances.

That’s just the first form.

Next, you need to see if you are subject to Form 8938.

You need to file Form 8938 with your income tax form if you are a US person (including US citizens, resident aliens, trusts, estates and domestic entities and have an interest in foreign financial accounts above a certain reporting threshold.

The current threshold for individuals is:

  • Unmarried individuals or married filing separately taxpayers: Total of assets were more than $50,000 on the last year of the tax year or more than $75,000 at any time during the year.
  • Married, filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

The form 8938 is filed with your tax return. It is not separately filed like the FinCen 114 is. Additionally, you may be required to file Form 3520, 5471 or 8865 if you receive payments from foreign entities, are a beneficiary of a foreign trust or have an interest in a foreign partnership or corporation.

This is definitely not a time to do a do-it-yourself tax preparation. You need an experienced CPA who understands the ramifications of foreign accounts and the required reporting.

One more thing, please keep in mind this has nothing to do with you making any money offshore. In fact, you could lose money and not owe a dime in taxes. It doesn’t matter. This reporting is all about whether you have signature authority or own part of these accounts or foreign entities. Follow the law! Don’t be like Manafort.

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