The Foreign Service Journal, January-February 2020

THE FOREIGN SERVICE JOURNAL | JANUARY-FEBRUARY 2020 69 $12,921 per account, per year (for an accidental, non-willful error) up to the greater of $129,210 or 50 percent of each account balance, per account, per year (for a more serious offense, such as one coupled with a misstatement on Sched- ule B or where an investment account was reported but a pension account missed). Willful failures and errors can result in additional penalties and even jail time. These and other penalties for failing to file foreign asset reporting forms can be greater than the value of the assets for which they are filed. Taxpayers with interests in certain foreign financial assets must also file Form 8938 if the total value of such assets exceeds the applicable statutory reporting threshold (i.e., for unmarried persons living in the United States, more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year). Errors relating to this form may result in penalties in excess of $10,000. In addition, the statute of limitations for assessment on a foreign asset reporting form remains open for three years after the date on which the form is ultimately filed, not from when it was due. Additional tax forms must be filed by taxpayers who: (1) have interests in or engage in transactions with offshore entities, trusts and pensions; (2) have investments in foreign mutual funds; (3) receive substantial gifts from non-U.S. persons; and (4) wish to claim the benefit of a treaty-based return posi- tion. Many of these reporting forms must be filed even if they have no impact on tax liability. Taxpayers with foreign assets may want to work with a qualified tax professional who is experienced in the realm of foreign asset reporting to avoid errors. Provide the tax preparer with a complete set of statements for each asset for every year, and save every bank, life insurance and pension statement for at least seven years. Qualified Business Income Deduction To encourage small businesses and start-ups back home, the Tax Cuts and Jobs Act of 2017 created a deduction for up to 20 percent of qualified business income and 20 percent of qualified real estate investment trusts income. The QBI por- tion only includes expenses connected to the business that are used to conduct the business, and that were material to generating revenue. REIT includes payments, like dividends, from a real estate investment trust that are not capital gain dividends or qualified dividend income. Calculate this deduc- tion on Form 8995, for which the associated instructions are essential. Also of note are pass-through entities such as S Corps, LLCs and sole proprietorships that can claim this deduction; but pay attention to pass-through requirements (e.g., via K-1s)