reporting requirements for us citizens with foreign assets
TRANSCRIPT
Reporting Requirements for U.S. Citizens with Foreign
Assets Remedies for Non-Compliance
Presented by
Allan Peiser, CPA
Josh Ungerman, J.D., CPA
Introduction
• United States citizens need to report and pay tax on worldwide income
• Resident Aliens are taxed as US citizens and need to pay tax on worldwide income
• Citizens and Resident Aliens have the obligation to report their financial interest in foreign:
– Bank Accounts
– Brokerage Accounts
– Mutual Funds
– Trusts
Reporting of Foreign Accounts
• Report a Signature Authority over foreign:
– Bank Accounts
– Brokerage Accounts
– Mutual Funds
– Trusts
• If total balances exceed $10,000 at any time
during the calendar year, all accounts must be
reported
Reporting of Worldwide Income: Interest and Ordinary Dividends (Schedule B)
Check the boxes
Report of Foreign Bank And Financial Accounts (FinCEN Form 114)
• Due Date: June 30th (cannot be extended). This due date will be changing after this year, and will be due with the tax return starting in 2017
• Financial Interest in or Signature Authority over a foreign bank
• Penalty: Up to $10,000 if non-willful violation, and failing to report an account has penalties subject to the greater of $100,000 or 50% of balance in the account, and may also be subject to criminal penalties
• Form must be filed electronically
Statement Of Specified Foreign Financial Assets (Form 8938)
• Penalty: Up to $10,000 if not filed properly; 90 days after notice of failure to file, subject to additional $10,000 for each 30 day period. Maximum additional penalty is $50,000.
Comparison of form 8938 and FBAR Requirements
Form 8938, Statement of Specified Foreign Financial Assets
FinCen Form 114, Report of Foreign Bank and Financial Accounts (FBAR)
Reporting Threshold
Based on where the filer lives (in or outside the US), and the filing status
Based on the aggregate value of financial accounts exceeds $10,000 at any time during the calendar year.
When do you have an interest in an account or asset?
When you are the owner of the asset When you are EITHER the owner of asset or have signature authority
Filing Requirements
Form is attached to your annual return and due on the date of that return, including any applicable extensions, and is filed with the IRS.
Received by June 30 (no extensions of time granted), and is filed electronically with the Department of Treasury
Penalties Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, maximum additional penalty is $50,000; criminal penalties may also apply
If non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50% of account balances; criminal penalties may also apply
Source: irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements
Comparison of form 8938 and FBAR Requirements (continued)
Form 8938, Statement of Specified Foreign Financial Assets
FinCen Form 114, Report of Foreign Bank and Financial Accounts (FBAR)
Foreign stock or securities not held in a financial account
Yes No
Foreign partnership interests Yes No
Foreign mutual funds Yes Yes
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly No No
Foreign real estate held through a foreign entity
No, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Source: irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements
Information Return of U.S. Persons With Respect To Certain Foreign Corporations (Form
5471)
• Due Date: Tax Return
• Penalty: $10,000 per foreign corporation) if not filed properly; 90 days after notice of failure to file, subject to additional $10,000 for each 30 day period. Maximum additional penalty is $50,000. Also subject to reduction of 10% of foreign taxes available for credit.
Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation
Engaged in a U.S. Trade or Business (Form 5472)
• Due Date: Tax Return
• Penalty:$10,000 if not filed timely; 90 days after notice of failure to file, subject to additional $10,000 for each 30 day period. Criminal penalties may apply.
Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign
Gifts (Form 3520) • Due Date: Tax Return
• Penalty: Greater of either $10,000 or:
• 35% of the gross value of any property transferred to a foreign trust for failure by a U.S. transferor to report the creation of or transfer to a foreign trust or
• 35% of the gross value of the distributions received from a foreign trust for failure by a U.S. person to report receipt of the distribution or
• 5% of the gross value of the portion of the trust's assets treated as owned by a U.S. person for failure by the U.S. person to report the U.S. owner information.
Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign
Gifts (Form 3520) (continued)
Tax on Accumulation Distribution of Trusts (Form 4970)
Annual Information Return of Foreign Trust With a U.S. Owner (Form 3520-A)
• Due Date: March 15th
• Penalty: $10,000 or 5% of the gross value of the portion of the trust's assets treated as owned by the U.S. person at the close of that tax year
Offshore Voluntary Disclosure Program
2014 OVDP Important Changes: • Increase preclearance information
• New 50% offshore penalty outed banks
• Payment of miscellaneous penalty due when OVDP
submission is made
• Now include all offshore account statements
• Explicitly threaten no criminal prosecution protection if
there is not cooperation
Offshore Voluntary Disclosure Program
Opt Out and Removal • Opt Out – Taxpayer Initiates
• Removal – IRS Initiates
Ability to Supplement Errors • New disclosure to CI
• Work through the IRS examiner who worked the original disclosure, who will need to obtain program management concurrence
Streamlined Filing Compliance Procedures
Modern Streamlined Supervision Process
“Our goal is to ensure we have struck the right balance between emphasis on aggressive enforcement and focus on the law-abiding instincts of most U.S. citizens who, given the proper chance, will voluntarily come into compliance and willingly remedy past mistakes.”
“We are considering whether our voluntary programs have been too focused on those willfully evading their tax obligations and are not accommodating enough to others who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-willful variety.”
Commissioner Koskinen, 6/18/14, Quote from U.S. Council for Int’l Business – OECD Int’l Tax Conference)
Streamlined Filing Compliance Procedures
Definition of “Non-Willful” for Streamlined Submission Process “Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”
Statement of Facts for Non-Willful Certifications
• Certification must be signed under penalties of perjury
• Certification covers all foreign activities and assets
• Certification explains why the compliance failures occurred
• Certification must include identities of tax advisor and a description of the tax advice
Streamlined Filing Compliance Procedures
Domestic / Foreign Streamlined Foreign
• Non-resident
• Provide delinquent or amended income tax returns (Form 1040/1041); no Forms 1040 NR
• Zero penalties
Domestic
• Requirement of originally-filed returns that are amended
• 5% penalty on assets reportable on FBAR and Form 8938
Streamlined Filing Compliance Procedures
2014 Transition Streamlined
• Must still be in OVDP
• Pre-July 1, 2014 OVDP Submission
• On July 1, 2014, must:
not have a Form 906 Closing Agreement executed by the IRS, or
Not have an IRS exam letter where taxpayer has opted out of OVDP
Streamlined Filing Compliance Procedures
Delinquent FBAR Submission Procedures
Delinquent FBAR Procedures • E-file delinquent FBARs
• In e-file, identify applicable reason for filing late
• In e-file, short statement describing the delinquency
May 13, 2015 - FBAR Interim Guidance • Attachment 1, heading (2) “Penalty for Willful Violations”
• “In most cases, the total penalty . . . Will be limited to 50 percent of the highest aggregate balance. . .”
• “Examiners may recommend a penalty that is higher or lower than 50 percent of the highest aggregate account balance . . . In no event will the total penalty amount exceed 100 percent of the highest aggregate balance. . . .”
Delinquent FBAR Submission Procedures
FBAR Interim Guidance (continued) • Attachment 1, heading (3) “Penalty Amount for
Nonwillful Violations”
• “For most cases involving multiple nonwillful violations, examiners will recommend one penalty for each open year . . . And the penalty for each year will be limited to $10,000.”
• “In no event will the total amount of the penalties for nonwillful violations exceed 50 percent of the highest aggregate balance of all unreported foreign financial accounts.”
Delinquent FBAR Submission Procedures
Delinquent Information Return Procedures Cannot be under civil examination or a criminal investigation
• Cannot have been already contacted regarding delinquent information
• Must have and describe the reasonable cause for the non-compliance
• No guarantee IRS will accept the reasonable cause explanation
Delinquent International Information Return Submission Procedures
Take No Action
Take No Action for Past Non-compliance and Begin Current Compliance on an Ongoing Basis • Taking no remedial action relating to past non-
compliance
• Not allowing taxpayer to continue non-compliance
• Must advise client of potential civil and criminal penalties associated with a failure to remediate the past non-compliance
If you have any questions please feel free to contact:
Allan Peiser
Josh Ungerman