Taxpayer Advocate Recommends Ways for IRS to Simplify Foreign Asset Reporting

The National Taxpayer Advocate made three specific recommendations to the IRS last week to try to simplify the process for reporting foreign assets. For several years the National Taxpayer Advocate has complained that the disclosure requirements for FBAR (Report of Foreign Bank and Financial Accounts) and Form 8938 (Statement of Specified Foreign Financial Assets) are duplicative and excessive. Moreover, citing examples of foreign financial institutions closing out foreign accounts of U.S. citizens in response to FATCA (Foreign Account Tax Compliance Act), the National Taxpayer Advocate expressed concern about unintended consequences of new FATCA rules for foreign financial institutions, which were making it harder for U.S. taxpayers living abroad to open and maintain legitimate bank accounts overseas.

The National Taxpayer Advocate recommended that the IRS (1) eliminate duplicative reporting of assets on Form 8938 if the asset is already reported or reflected on a timely filed FBAR; (2) exclude from the definition of financial accounts subject to reporting by foreign financial institutions those accounts maintained by a financial institution organized under the laws of the country of which the U.S. person is a bona fide resident; and (3) exclude from the specified foreign financial assets required to be reported on the Form 8938 financial accounts maintained by a financial institution organized under the laws of the country of which the U.S. person is bona fide resident.