Archives For fatca

We’ve invited Brian Wynne of Bond Beebe, a Maryland Accounting Firm, to share some insights on FATCA in light of the upcoming June 30 deadline.  For more great posts on taxes, estates, accounting, and finance, check out their blog: It’s Taxing.

flagsWe’ve been talking with our clients quite a bit the past few years regarding the push surrounding foreign financial reporting and the associated penalties if you don’t comply.  The Foreign Account Tax Compliance Act (FATCA) requires that you disclose all ownership of US assets in foreign accounts.  This requirement is in place both for individual taxpayers and for foreign financial institutions (which can report your holdings, even if you do not) and carries significant penalties for non-compliance – up to 50% of the value of the interest, and criminal charges may apply.

There is a deadline on the horizon: FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) is due to the U.S. Department of Treasury by June 30.  In this post, we’ll provide a high-level explanation FATCA, including what types of assets you need to disclose and what forms are required.

What is FATCA and What Do I Need to Disclose?

Any person or entity subject to the jurisdiction of the United States (including individuals, corporations, partnerships, trusts, and estates) with a financial interest in, or signature or other authority over, bank accounts, securities, or other financial accounts having a value exceeding $10,000 in a foreign country, must report this relationship.

Wait- what exactly does that mean?  Bottom line, if you are a US citizen who owns any foreign asset(s) valued at over $10,000, you must report it to the Treasury Department; the IRS threshold for reporting is $50,000.

This requirement doesn’t stop at anything that you yourself own.  You also have to file if you have direct or indirect control over a foreign or domestic entity (a company, a partnership, a trust) with foreign financial accounts, even if you yourself do not have foreign account(s). For example, a corporate-owned foreign account would require filings by the corporation and by the individual corporate officers with signature authority.

This requirement isn’t exactly new – you should have been reporting these assets since the 2012 tax year.  However, the IRS requirement for foreign financial institutions to report these assets will go into effect on May 5, 2014, which means that these banks will be required to disclose your assets, even if you haven’t.

What is a Foreign Financial Asset?

Not sure if what you own/have interest in counts as a foreign financial asset?  Here is a guide to help you determine whether or not (and what) you need to disclose:

  • Bank accounts (savings, checking, deposit) and brokerage accounts that are held at a financial institution outside the US.
  • Stocks, bonds, and other securities issued by a foreign individual or entity
  • Any interest in a foreign corporation, partnership, estate or trust
  • Any financial instrument that is issued by a non-US person, as well as any swap or similar agreement

Note that if you have a foreign investment that is held by a US-based account, it does not need to be reported. In addition, foreign real estate, currency, and directly-held tangible assets do not need to be disclosed.

What Forms Do I Have to File for FATCA?

IRS tax forms regarding FATCA are due when your income tax return is due, including extensions. If you fall into one of the below categories, or if you have any direct or indirect foreign interests, you may be required to file applicable IRS forms:

  • You are an individual or entity with ownership of foreign financial assets and meet the specified criteria (Form 8938);
  • You are an officer, director or shareholder with respect to certain foreign corporations (Form 5471);
  • You are a foreign-owned U.S. corporation or foreign corporation engaged in a U.S. trade or business (Form 5472);
  • You are a U.S. transferor of property to a foreign corporation (Form 926);
  • You are a U.S. person with an interest in a foreign trust (Forms 3520 and 3520-A), or;
  • You are a U.S. person with interests in a foreign partnership (Form 8865).

The threshold for disclosing foreign assets to the IRS is $50,000 (total value of the assets).  You’ll also need to file FinCEN Report 114 (formerly Form TD F 90-22.1) with Department of the Treasury on or before June 30th for any foreign assets that are valued at $10,000 or above.

What Happens if I Don’t Report Foreign Assets?

There are significant penalties for failing to file these forms.  Failure to file IRS Form 8938 can result in a $10,000 penalty, with an additional $10,000 penalty for every 30 day period that it is not filed, up to a maximum penalty of $50,000. Failure to file with the Treasury can elicit a penalty of up to $10,000 per non-willful violation.  Willful violations can elicit penalties that are the greater of $100,000 or 50% of the amount in the account for each violation.

The IRS Offshore Voluntary Disclosure Program provides an opportunity to become compliant while eliminating criminal exposure and reducing the civil penalties you may face.  More details about this program are available on the IRS website.

As foreign financial institutions prepare to report all accounts held by US citizens and the government continues to ramp up its efforts to curb foreign tax evasion, it’s essential that you disclose your foreign assets.  Talk with your CPA to make sure you are in compliance regarding this tricky tax issue.

Brian Wynne, CPA is a Principal at Bond Beebe Accountants & Advisors who specializes in tax preparation and planning for high-net-worth individuals.  He can be reached at wynne@bbcpa.com or 301.272.6019.   

 

The Treasury and IRS released long-awaited final regulations late on January 17 under the Foreign Account and Tax Compliance Act (FATCA), enacted as part of the Hiring Incentives to Restore Employment (HIRE) Act of 2010 (P.L. 111-147). FATCA targets noncompliance by U.S. taxpayers using foreign accounts, the Treasury said in a news release. The issuance of the final regulations marks a key step in establishing a common intergovernmental approach to combating tax evasion, the Treasury said.

Continue Reading...

People do not like FATCA and they are not shy about it.  If you bring up the Foreign Account Tax Compliance Act, don’t be surprised if the response is riddled with curse words.

U.S. expats hate it since some foreign banks just shut out Americans they see as more trouble than they’re worth.

Financial institutions hate it for the high standards and hassles it causes.

Foreign governments hate it for making the IRS more powerful than their own countries’ tax agencies.

At the end of the day, FATCA won’t even make the IRS much money. But the Obama administration has done a slick job of greasing the wheels of international commerce and quelling what could have been veritable repeal riots.

Now FATCA has a new fan base from an unlikely source: the Brits. Sure, there’s a post-Olympic glow and international goodwill. Yet it turns out British legislators want their own FATCA. Just like Brits embraced the hamburger, they want a U.S.-style automatic disclosure by foreign banks and tax authorities on U.K. citizens. Why? Cross-border tax evasion.

That means U.K. citizens and U.K. companies will get reported for foreign accounts just like Americans. The Brits even want to drum up support from other European nations to join the FATCA bandwagon. It’s too soon to say if British legislators will enact a right-hand drive version of FATCA. But who would have thought it?

FATCA isn’t even fully implemented yet. Many think the true test is coming in January 2013. In 2012, most taxpayers with foreign financial assets worth $50,000 or more must file a Form 8938. Unlike FBARs, this form is filed with your tax return. If you extended your tax return filing to October 15, 2012, it extends the date to file your Form 8938. That gives you a little time to figure this out.

Yet this filing is nothing compared to what’s facing foreign financial institutions. January 1, 2013 is D-Day for FATCA implementation. Foreign institutions have to comply or face serious U.S. actions. This has lead to many foreign banks not wanting to open new accounts or even keep existing accounts for Americans

FATCA seems pretty secure now despite resounding critiques. The Wall Street Journal’s William McGurn castigates FATCA here: Obama’s IRS Snoops Abroad. But as they say, imitation is the sincerest form of flattery.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

FATCA Gaining Strength

July 31, 2012 — 1 Comment

Image

U.S. persons living abroad may be your first guess as the biggest naysayers about FATCA. They may be vocal and feel caught in the crosshairs of the U.S. war on undisclosed foreign accounts and income. But the larger and more potent voice is from foreign financial institutions and even their governments.

In another big move toward implementing the FATCA law, the U.S. Treasury Department has spelled out the different ways in which foreign countries and foreign financial institutions can comply with the rules that will be touched on later.  Although FATCA was enacted in 2010, efforts to implement the law are ongoing. 2013 is going to be a big year for FATCA.

FATCA requires Americans to disclose a certain level of overseas holdings directly to the IRS. More controversially, it requires foreign financial institutions to tell the IRS about offshore accounts controlled by Americans if assets top $50,000. Foreign institutions have understandably been struggling to meet FATCA’s demands while also maintaining the privacy of its clients and upholding the bank secrecy laws in those countries.

Nonetheless, FATCA requires it and the IRS will start penalizing foreign banks in 2014 for failing to comply. Even before then, the pressure is on to get the institutions and their governments to work out solutions. The Treasury Department has announced tentative compliance agreements with Switzerland and Japan. Meanwhile the Treasury is well into negotiating with France, Germany, Italy, Spain and Britain to set up arrangements for government-to-government information sharing.

The Treasury Department has offered two ways to structure agreements.

One is reciprocal information-sharing between national tax collection agencies. That’s only for countries operating under an existing income tax treaty or tax information exchange agreement with the U.S.

It’s unclear if every single country with a treaty could qualify. There were some suggestions the U.S. would agree only if there are “robust” protections in place that the information remains confidential and is used only for tax purposes.

The second type of agreement is one-way information missives. Financial institutions in countries that lack any U.S. agreement will have to report American account holders directly to the IRS. That is more controversial as it involves foreign institutions forking over information directly rather than dealing with their own local regulators who in turn would then deal with the IRS.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

Image

After the IRS’s success with UBS and its new regulations coaxing secrets from foreign banks, it is no wonder many Americans have come forward to disclose foreign accounts and assets. After historic 2009 and 2011 voluntary disclosure programs, the IRS announced a third program that is still gathering participants.

More globally, the IRS is implementing FATCA, something the Obama administration feels strongly about. Despite significant foreign criticism, the system is changing the face of global financial reporting and disclosure.

The IRS and Justice Department have coupled the option of amnesty with the threat of punishment and are making examples of those who are not making amends. The latest example involves a British lawyer arrested on arrival at JFK. His alleged crime was helping wealthy Americans hide $10 million in Swiss accounts.

Federal authorities arrested Michael Little on charges for participating in an 11-year tax fraud scheme. Little may have assumed he had nothing to fear, believing that residing in England made him exempt to US tax law.

His alleged crimes date to August of 2001. Upon the death of a client named Seggerman, Little met with the deceased’s descendants at a New York hotel. Explaining there was $10 million of undeclared money, Little advised family members how to hide it from the IRS.

He allegedly suggested ways to send money to the U.S. without alerting the IRS, including travelers checks, art, and jewelry deals. With secrecy befitting a military operation, they used code words for communicating:

  • “FDA” for the IRS;
  • “Beef” for money;
  • “Lbs” for units of $1,000;
  • “Small” for Michael Little;
  • “Moxly” for the Swiss lawyer;
  • “Leaky” was the Seggerman Family matriarch;
  • “BG” was a New Jersey accountant;
  • “Rusty nail” was a trust; and
  • A “Refrigerator” was an account to hold or transfer funds.

Mr. Little’s alleged scheme went on between 2001 and 2008. He even had a New Jersey accountant prepare false and fraudulent individual and corporate tax returns, the government claims. Little also allegedly sent millions surreptitiously to the U.S using several of his suggested techniques to avoid the IRS. He allegedly arranged a sham mortgage to allow one family member to access approximately $600,000 in overseas assets.

Although Little lives primarily in England, he maintains a residence in New York. He was charged with one count of conspiracy, carrying a maximum sentence of five years. Suzanne Seggerman previously pled guilty to conspiracy to defraud U.S. taxing authorities and to subscribing to false individual tax returns. She awaits sentencing.

This is surely not the last time we see these types of cases as the U.S. enforcement efforts continue to grow in reach and strength.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.