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Aspen Office
400 East Main Street
Aspen, CO 81611

Carbondale Office
0326 Hwy 133, Suite 200
Carbondale, CO 81623

New Reporting Required for Foreign Assets

Several pieces of legislation recently signed into law include tougher, more rigorous disclosure requirements for US taxpayers' ownership of foreign assets. A key component of the federal government's push for heightened tax compliance with these foreign assets is the Foreign Account Tax Compliance Act (FATCA), part of the HIRE Act that is now law.

Foreign accounts and financial accounts were already subject to the disclosure requirements of Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). Now, FATCA imposes a second filing requirement for taxpayers with foreign accounts and assets that exceed $50,000 in aggregate. This new requirement is in addition to, not a replacement of, the FBAR.

The new FATCA provisions are effective for years beginning after March 18, 2010, so it will be applicable to some entities with years ending March 31, 2011 and after. As such, it will be applicable to the 2011 tax year for individuals.

The new FATCA reporting requirement covers a much broader range of investments than the existing FBAR rules and requires that investments in foreign entities, such as foreign hedge funds and private equity funds to be reported. Foreign real estate acquired through a foreign entity will be required to be reported since this is ownership of a foreign entity. Due to the broader categories included, some individuals and entities may be required to file the new report even though they do not have a requirement to file the FBAR.

The penalty for failure to file this report is substantial, starting at $10,000 with a maximum of $50,000. The IRS has not yet issued guidance as to the specific form for the report, but, for an individual, the information will be filed with the taxpayer's Form 1040. In addition, FATCA expanded the statute of limitations to six years (from generally three for most returns), specifically related to omissions of greater than $5,000 of income from an foreign asset required to be reported under this section.

Also included in this act are increased penalties for failure to file Form 3520 for foreign trusts. Foreign trusts include the special Mexican trusts required to purchase land near the borders and coastlines of Mexico.

We will be inquiring as to your ownership of foreign assets in an effort to protect you from being subject to these costly penalties. If you have any questions, as always, give us a call. We love hearing from you!

Reese Henry & Company, Inc.
400 East Main Street Aspen, CO 81611
970.925 3771

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