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Avoiding insidious tax bites: signature authority and offshore accounts

There is no shortage of metaphors that could be used to describe the challenging enforcement landscape for foreign assets. For example, in basketball terms, the IRS's stance toward undisclosed offshore accounts since 2009 could be likened to a full-court press.

Considering how complicated and sweepingly broad the compliance requirements are, we might also suggest another image: that of an insidious snake that can creep up and bite those who simply aren't expecting it.

How can an unsuspecting account holder get in trouble for not making various foreign-account filings? In a recent article on FBAR and Form 8938, we wrote about some of these scenarios.

One such scenario is a foreign-born taxpayer who perhaps did not realize that a relative who still lives abroad had set up an account there that the IRS considers to be within the control of the U.S. taxpayer. This could happen when an account passes to a new owner through inheritance or when the relative who set it up grants signature authority to a U.S. taxpayer to manage the account.

If the account is valued at $10,000 or more, it could trigger the requirement to file the Report of Foreign Bank and Financial Accounts (FBAR).

Passage of the Foreign Account Tax Compliance Act (FATCA) has created further complications for U.S. taxpayers with foreign ties. If a foreign account is worth $50,000 or more at year's end (or $75,000 or more at any point during the year), it may be necessary to file an additional form. This is IRS Form 8938, the Statement of Specified Foreign Financial Assets.

We invite you to read our full article to learn more about how to avoid being bitten by offshore filing requirements.

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