Archives For FBAR

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.   

 

Haven’t seen AMC’s TV series, Breaking Bad? You don’t know what you are missing. A high school teacher, Walter White, turns into a major drug dealer, murderer, and tax advisor. While morality may not be his strongest suit, tax advice is clearly his weakest. Don’t worry; there aren’t any series finale spoilers in this post. Continue Reading…

Edward Snowden’s whistleblowing escapade has finally landed him in Moscow and out of the transit zone of the Sheremetyevo airport.

While on the run, the U.S. government has revoked his passport and has charged him with espionage and theft of government property. His consulting job with Booz Allen Hamilton allowed Snowden to access National Security Agency documents and he leaked a number of details regarding U.S. government surveillance program to the press and other sources.

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On June 30, Treasury Form TDF 90-22.1, commonly known as an “FBAR,” is due. Read on to learn more.

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Update 8//6/13: For more detailed and up-to-date information about offshore asset disclosures and foreign tax compliance, please refer to the following pages on our main website:

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You’ve probably heard a lot in the press over the past few years about offshore accounts, tax evasion, and wealthy individuals going to jail for having bank accounts in Switzerland or the Cayman Islands. However, what many people don’t realize is that the same laws which put these tax evaders in jail apply to ordinary citizens and residents – and have been around for many years. The Report of Foreign Bank and Financial Accounts (FBAR) requires taxpayers with accounts totaling more than $10,000 to file an annual report with the U.S. Treasury.  For taxpayers with offshore accounts totaling more than $50,000 during 2011, a brand new requirement came into effect – Form 8938 (Statement of Foreign Financial Assets). These and other requirements can subject those who don’t comply to civil penalties, criminal prosecution, and jail time.

The good news? The IRS knows that everyone isn’t a crook, and that many people had no idea that they were supposed to file. The IRS announced an Offshore Voluntary Disclosure Program (OVDP) in 2009, and an Offshore Voluntary Disclosure Initiative (OVDI) in 2011, which yielded more than $5 Billion in voluntary disclosures to date (see http://www.irs.gov/uac/IRS-Says-Offshore-Effort-Tops-$5-Billion,-Announces-New-Details-on-the-Voluntary-Disclosure-Program-and-Closing-of-Offshore-Loophole). These programs offered reduced civil monetary penalties for taxpayers coming forward with unreported accounts, and ensured that taxpayers would not face the FBAR criminal penalties. Due to the huge success of these programs (which are now closed), in 2012 the IRS announced a new OVDP with no announced deadline for taxpayers who still have not come forward under the prior two programs.

So how do you know if you had an FBAR filing requirement in the past? Well, you had to file an FBAR if:

1)      You were a United States “person” (which can include residents in the United States on a visa);

2)      You had a “financial interest” in, or “signatory authority” over any “financial account” in a foreign county or jurisdiction; and

3)      The total of all such foreign accounts exceeded $10,000 at any time (even for a day!) in a given year.

FBARs are due on June 30th of the following calendar year. Unlike income tax returns, there are no deadline extensions for filing your FBAR. This is why so many taxpayers have come forward under the OVDP and OVDI programs – they simply didn’t know they had an FBAR filing requirement until well after the deadline.

The terms of the 2012 OVDP offer penalties for the highest year of non-compliance (your “high-water mark” of foreign account values) at either 27.5%, 12.5%, or 5% of each account’s highest balance, along with normal tax-related penalties if you didn’t report foreign-earned income on your tax return.

If you don’t come forward, however, you could face a civil FBAR penalty of $10,000 per account, per year. You read that right. That means if you have 5 years and 20 accounts in each year, you could face a $1M FBAR penalty, even if all those accounts combined only held $11,000. Tack on the potential criminal penalties, and you’ll wish you had spent a little time and money up-front talking to a tax professional.

The bottom line: this is NOT an area of law where you want to go it alone. There are alternatives to the 2012 OVDP which may result in no criminal or civil penalties being asserted, and there are also defenses if the IRS tries to come after you. But wading through the quicksand that is the law in this area will be a lot more pleasant if you’re sitting on the shoulders of a competent attorney.

Written by Timothy Canney.

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.

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A new report estimates that the amount of wealth tucked away in offshore accounts is far larger than previously imagined.

While the report by the liberal Tax Justice Network focuses on the problem of unreported wealth for developing countries, it also could become part of the heated political debate going on in the U.S. over purported tax avoidance by the wealthy.

The Tax Justice Network’s report estimates that unreported offshore wealth held in tax havens has reached at least $21 trillion, and possibly as much as $32 trillion. That wealth means that the problem of inequality in wealth and income is actually worse than suspected, the group says.

It also means that many countries are losing out on tax revenue that could go a long way toward alleviating their national fiscal problems, the report’s authors suggest. The largest previous estimate of the problem – also by Tax Justice Network, in 2005 – was about $11.5 trillion, the report says.

The report considers the impacts of a range of offshore protections used, including unreported capital flows and under-taxed corporate profits. It places considerable blame on big multinational banks and other financial institutions that are integral to the process of shifting money to offshore tax havens.

But some tax experts – particularly conservatives – expressed skepticism at the size of the new estimate. Dan Mitchell, a senior fellow at the libertarian Cato Institute, compared the report’s findings to some estimates of climate change.

Regardless, this is a situation that deserves attention and that can have a serious impact on the financial system as we know it.

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.

The institution of FBARs (Report of Foreign Bank and Financial Accounts) on income tax returns originally left many confused on if and how offshore accounts should be reported. Now, there is plenty of information and resources to fully understand the FBAR and the need to report income if you are a U.S. citizen or resident or non-resident alien that has accounts in different countries. Although, there are still court cases where individuals are arguing non-willful evasion of the FBAR because they simply did not know the protocol to filing it. In recent news, the decision United States vs. Williams was reversed due to Mr. Williams willfully failing to file the FBARs.

Before the case was reversed in the Fourth Circuit Court of Appeals, many were hoping U.S. vs. Williams would ensure that individuals would only be liable if the IRS could prove they knew about the FBARs. the law states that willfulness can be proven by reckless conduct or repeated failures to comply with known regulations. Williams admitted to tax fraud in the case, however, was not considered willful when he failed to file FBARs. The district court claimed the IRS would have a difficult time proving willfulness for a taxpayer who did not pay his/her FBARs. In general, an individual may not be willful of the penalty simply due to lack of knowledge or misunderstanding of tax law.

The appeals court found a hole in Williams testimony. He pled guilty to tax evasion so the question is whether he knew about the FBAR violation. The appeals court found that Williams made a conscious effort to avoid learning about the FBAR, and therefore is considered to be willfully apathetic. The majority ruling found that you can be willful without a bad intent – simply willful ignorance.

Mr. J Bryan Williams will now be facing hundreds of thousands of dollars in penalties because of his failure to file FBARs for his offshore accounts. This would have been a lot easier if he simply took the time to learn how to report his offshore accounts.

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.