Vern Hoven: The next topic you and I have to talk about. It says Foreign Asset Reporting. We have to report foreign assets to the IRS and to a treasury on an annual basis. Why? We don't tax assets, foreign or domestic, on an annual basis. We only tax assets, foreign or domestic, when an individual dies under our estate and gift tax regime, but not under the income tax regime.
Why are there a requirement to report foreign assets and why are the penalties so high? We're going to take a look at two regimes on reporting foreign assets. First, is FBAR, Foreign Bank Account Reporting. Does your client have a foreign bank account? And look at what the sentence says on the screen, do you have ownership of--that's easy, or signature authority over a foreign account that exceeds $10,000 in any one day?
We're getting into trouble with or signature over. I had a client who had grandparents in the old country, calls grandchild up and says, "We're putting your name on our bank account, when we die, clear it out, and give it to the grandchildren." There's no unreported income here. But now, how does grandchild know to report that? Let's make the assumption that there is more than $10,000.
That signature authority over and there's going to end up being a huge penalty if we don't go ahead and report that on an annual basis even though there's never ever a chance that there's going to end up being unreported income. There's got to be no unreported income. Grandparents in the old country are going to be able to do that.
That's the FBAR. Does your client have ownership of or signature authority over a foreign bank account? Where do you report that? It's on the FinCEN website. It's a Bank Secrecy Act website. Some of these names should already start getting you a little bit bothered, Bank Secrecy Act? And you report it and the authority is the FinCEN, Financial Crime Enforcement Network. That's what FinCEN is.