In an effort to close the tax gap and bring in unreported income, Congress and the IRS have been increasingly focusing on undisclosed foreign assets. Taxpayers have long been required to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, with the Treasury Department if they have a foreign financial account with a balance of more than $10,000 at any point in the year.

A new requirement brought about by the HIRE Act of 2010 now requires some taxpayers to also file Form 8938, Statement of Specified Foreign Financial Assets, beginning with their 2011 individual income tax returns. Only individuals are required to file the form, but businesses may have to report assets in the near future.

FILE BEFORE YOU GET FINED

For unmarried taxpayers living in the United States, Form 8938 will be required if the total value of your foreign assets is more than $50,000 on the last day of the year or more than $75,000 at any time during the year. For married taxpayers filing jointly living in the United States, the form is required if the total value of your foreign assets is more than $100,000 on the last day of the year or more than $150,000 at any time during the year. Consult your tax advisor if you believe this new form might apply to you.

AVOID GOING DIRECTLY TO JAIL

These rules come with serious consequences. If you don't file a complete and correct Form 8938 by the due date, you may be subject to a penalty of $10,000. If you don't file the form within 90 days after the IRS mails you a notice of the failure to file, you may be subject to an additional $10,000 penalty for each 30-day period that you don't file, up to a maximum of $50,000. Other severe civil and potentially criminal penalties may apply if you underpay your tax liability because of the failure to disclose a specified foreign financial asset. The IRS and Congress take foreign accounts very seriously.

For taxpayers who've had undisclosed foreign accounts in the past, the IRS has offered voluntary disclosure programs in 2009 and again in 2011, collecting an estimated $4.4 billion so far. These programs allow taxpayers to voluntarily come forward and disclose their unreported assets in exchange for reduced penalties. Due to the success of the programs and the large number of taxpayers coming forward, the IRS recently announced that it's extending the program for an indefinite period until otherwise announced. While there's no set deadline to apply, the terms of the program may change or the IRS may end the program at any point.

SEE TAX ADVISOR FOR DETAILS

Since criminal penalties are at stake, consult competent legal and tax advisors if you have undisclosed foreign assets. They'll be able to help you determine whether the voluntary disclosure program will be beneficial and advise you on the potential consequences if you choose not to come forward. The bottom line: If you have foreign accounts, talk to a tax advisor about them.

Many times these accounts don't generate U.S. income so they don't impact the calculation of your U.S. taxes and the reporting has nothing to do with the completion of your income tax return. However, this year Form 8938 will be attached to you income tax return. There are also two foreign bank account questions that need to be answered on the bottom of Schedule B with your tax return. Make sure you answer these questions correctly as well.

Gary Glassman, CPA, a Veterinary Economics Editorial Advisory Board member, is partner with Burzenski & Co. in East Haven, Conn.