Under the Hiring Incentives to Restore Employment Act, an individual who holds specified foreign financial assets during the taxable year is required to report information on those assets on the individual's federal income tax return if the total value of those assets for that year exceeds a certain dollar threshold. The IRS has issued temporary regulations on these reporting requirements for individuals. Reporting must begin for the individual's 2011 tax year. Reporting under the Treasury Department Report of Foreign Bank and Financial Accounts (FBAR, TD F90-22.1) rules is not sufficient; taxpayers subject to both reporting regimes must provide separate reporting. Penalties of up to $50,000 per year may be assessed on the individual for a missing or incomplete filing.
Although the IRS is still in the process of interpreting the statute, it has released temporary regulations that may impose significant burdens on foreign employers and parent companies and their employees in the U.S. and abroad. It is possible that compensation plans such as deferred compensation, stock options and RSUs offered by foreign companies to U.S. taxpayers will be covered by these rules.
Comments on the temporary regulations and requests for a public hearing are due by February 18, 2012. Employers should take this opportunity to review the new rules, consider how these compensation programs sponsored by non-U.S. entities may be impacted, and determine how to assist employees in accumulating the required information. Employers may wish to submit comments or testimony to the IRS on potential burdens and possible exclusions under these rules.