The FBAR filing due date will be different next year.
Hopefully you have already submitted your 2015 FBAR filing which is due by June 30th this year. If not, you still have a little time left to scramble to get those filings submitted timely. And now just when you may have gotten used to the idea that your FBAR filing is due June 30th, that is all going to change next year. Under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, which was signed into law during 2015, the due date for the FBAR next year will be different.
FBAR filings due in 2017 (for the 2016 FBAR) will be due April 15th. There will now be an extension available in order to extend the due date for a maximum of 6 months until October 15th. The official guidance as to how the extension will actually be applied for has not yet been issued but it has been speculated that it will be extended with an extension for your income tax return.
Additionally, there will be a provision for an automatic two month extension for a taxpayer residing outside of the country similar to the rules for income tax returns, and there is supposed to be some penalty relief available for first-time filers who fail to timely request or file an extension.
Recap: Who Has to Report?
I’ve talked about it in a previous post, but here’s a quick reminder of who is required to file an FBAR.
If you are a United States person that has a financial interest in or signature authority over foreign financial accounts, you must file an FBAR if the aggregate maximum value of those foreign financial accounts exceeds $10,000 (U.S. dollars) at any point during a calendar year. Interestingly, this also includes accounts of your employer that you might have signing authority over.
Let’s break this down even further. A “U.S. person” includes all of the following…
- U.S. citizens
- U.S. Green Card holders or U.S. residents
- Foreign nationals or Individuals who spend a significant amount of time in the U.S.
Therefore, there are many times we see individuals who might live in another country, but spend time in the U.S., whether it be traveling for work or for vacations. Many of these individuals may unknowingly trip up a tax filing obligation based on the amount of time they spend in the U.S.
To meet the substantial presence test, you must be physically present in the U.S. on at least 31 days during the current year, and 183 days during the 3-year period that includes the current year and the 2 preceding years.
The test is calculated by counting the following:
- All of the days you were present during the current year,
- 1/3 of the days you were present in the first year before the current year, and
- 1/6 of the days you were present in the second year before the current year
If you meet the test described above you have an FBAR filing requirement.
What Should You Do If You Were Supposed to File an FBAR But Didn’t?
There are options available if you find that you should have filed an FBAR but didn’t. The IRS has made a few different programs available in order to file your delinquent FBAR filings such as the Delinquent FBAR Submission Procedures, the Offshore Voluntary Disclosure Program (OVDP), or one of two Streamlined Filing Compliance Procedures.
Which program you should use will depend on your specific facts and circumstances. Since the penalties for the failure to file an FBAR can be extremely severe, it’s important to consult with a professional who is experienced in this area. An experienced professional can help you to determine which path is right for you in order to get into compliance. Our international tax team here at Freed Maxick has a depth of experience in this area and we encourage you to contact us to assist in determining the best way to proceed with submitting your filings.View full article
Some U.S. taxpayers have used foreign accounts to hide income subject to U.S. taxes. As a result all U.S. taxpayers, and many non-U.S. financial institutions, must comply with information reporting and withholding rules related to accounts outside of the States.
Ronald Reagan was known for quoting a Russian proverb to the Soviet leader: “Doveryai, no proveryai.” In English, “Trust, but verify.” The U.S. Treasury and the IRS have taken a similar approach when it comes to taxpayers holding accounts and transacting business outside of the United States. Those who hold accounts or send money out of the U.S. need to know about the related reporting and withholding rules or risk encountering an enforcement “bear in the woods.”
This discussion requires serving a large bowl of abbreviation alphabet soup, so we’ll make that the appetizer before we get to the main course.
FBAR: Refers to the “Report of Foreign Bank and Financial Accounts” that U.S. taxpayers file to identify financial accounts held outside of the States.
FATCA: Stands for “Foreign Account Tax Compliance Act.” Enacted in 2010, fully effective in 2014, this law expands the types of foreign assets and related income that U.S. taxpayers have to report. Through a series of inter-governmental agreements (IGAs), this law also requires financial institutions in many other countries to provide information to the IRS about accounts and assets held abroad by U.S. taxpayers.
FDAP: This stands for “fixed, determinable, annual or periodic” income, which, if you think about it, is pretty much all income. It applies primarily to foreign persons and businesses earning income in the U.S. Reports that relate to FDAP are used to track payments that leave the U.S. for reasons other than investment or deposit in foreign countries.
In short, FBAR, FATCA and FDAP reporting requirements form the backbone of the “trust” end of the equation. Each of these concepts includes at least some element of self-reporting by U.S. taxpayers on payments made and corresponding withholding, amounts held in foreign accounts and income earned outside of the country. (For more information on FBAR, please see Susan Steblein’s post from July 2015.) (For more information on FDAP, please see my post from March 2015.)
Of the three, FATCA holds down the “verify” side of the equation. Through a network of intergovernmental agreements, the U.S. has actually managed to place reporting requirements on foreign financial institutions. While those financial institutions may not be wild about the idea, they comply because they value the opportunity to do business with the U.S. and its taxpayers. As a result, many foreign financial institutions now regularly report information about assets of U.S. taxpayers that they hold. In some instances, the agreements require foreign institutions to withhold 30% of payments made to U.S.-held accounts if circumstances warrant. The IRS has gone so far as to levy penalties against some covered institutions that have failed to comply with the rules. In addition, financial institutions are now sending account holders reports with detailed account information that they have supplied to the IRS, giving a reality check to the process.
The IRS estimates that the U.S. loses approximately $450 billion per year in taxes on assets held and income generated overseas by U.S. taxpayers. With that kind of money in play, it seems pretty reasonable to expect that enforcement in this area is a high priority for the Service now and for the foreseeable future. The good news is that if you are a U.S. taxpayer who has failed to comply, there are opportunities to mitigate potential penalties by coming forward voluntarily. These voluntary disclosure programs will not last forever, and taxpayers who are audited by the IRS lose the opportunity to reduce penalties if they don’t initiate the process on their own.
If you have tax obligations in the U.S. and hold accounts or conduct business outside of the country, it’s important to make sure that you are in compliance with these rules. For help in figuring out what obligations you might have, please contact us.View full article
Missing the deadline doesn’t have to cause a midsummer night’s nightmare, but you do need to wake up and get into compliance.
It’s July. Some of you have celebrated Independence Day. Others have celebrated Canada Day. A lucky few may have made time to celebrate both. If your fiscal year ended on June 30, it’s time for your fresh fiscal start. If you’re on a calendar year, it’s time to assess progress toward annual goals and make any necessary mid-course corrections. But there’s another group out there who may have just realized they might have a U.S. Foreign Bank Account Reporting (FBAR) obligation that should have been filed by June 30.
Who Has to Report?
Here’s a quick look at who needed to report by June 30, 2015, and steps you should take if you were required to report but haven’t yet.
If you are a:
- United States person that has a
- Financial interest in or signature authority over
- Foreign financial accounts,
You must file an FBAR if:
- The aggregate maximum value of those foreign financial accounts
- Exceeds $10,000
- At any time during a calendar year.
The term “U.S. person” may cover more people than you think. It includes U.S. citizens, Green Card holders or U.S. residents, but it can also apply to foreign nationals. For example, a Canadian citizen or resident with U.S. citizenship may be required to file, as well as a Canadian citizen who is treated as a U.S. citizen for tax purposes due to the amount of time spent in the United States.
Another important thing to note in the definition is “signature authority.” Even if it’s not your money, you may have a filing requirement if you have the authority to move money in and out of the accounts. For instance, if you have signature authority over foreign accounts at work, you may have an FBAR reporting requirement.
What If I Was Supposed to Report But Didn’t?
The penalties that may be assessed for the failure to file an FBAR can be severe, so it’s important to consult with a professional who is experienced in the area and understands the process in order to avoid some pitfalls for the unwary. At Freed Maxick, our first step to get you back in compliance is a fact-finding call to learn the specifics of your situation and help determine the appropriate path to get you back into compliance
Depending on your circumstances, the proper path to come back into compliance with FBAR rules could be to enter into one of the programs the IRS has made available, such as the “Offshore Voluntary Disclosure Program” (OVDP) or one of the two Streamlined Filing Compliance Procedures programs.
It could also be filing the reports under the delinquent FBAR submission procedures. Your accountant should work with you to choose the program best suited for your specific facts and circumstances.
Then, the next steps would be to gather the necessary info, coordinate the US tax filing positions with any tax filings in foreign jurisdictions that may be involved, and get all of the required filings prepared and submitted. If the failure to file stretches back several years, FBARs may be required as far back as 8 years (depending on the program used for submission), and there may also be an additional Foreign Account Tax Compliance Act (FATCA) obligation as far back as 2011.
Professional representation at this point is critical to make sure that you avoid a “quiet disclosure,” which could lead to significant unintended consequences with the IRS. It is important to get back in compliance with the law as quickly as possible, but if you don’t take some of the steps in the proper order you can wind up causing additional difficulty. Using a professional to guide you through the process is highly recommended, especially when the stakes are so high.
By: Howard Epstein
While FBAR reporting requirements have been in place since 1970, the significant revisions to the form (in 2008) and associated penalties for non-compliance are what have garnered the attention of many taxpayers and practitioners over the last few years. The IRS has taken steps to allow individuals who have not filed timely in the past to come forward- the Offshore Voluntary Disclosure Program (OVDP), and the Streamlined Program.
Negotiating FBAR Penalties
Those who decide to voluntarily step forward need to keep a few things in mind in negotiating penalties. Here are some essentials you should be discussing with your CPA as you negotiate FBAR penalties.
· Penalties can be astounding – While FBAR penalties can be unjust, remember that the IRS bases penalties on the account size. When dealing with FBAR penalties, there is tremendous risk and you must take this seriously. These penalties are unlike many other IRS penalties out there.
· There is no “good” penalty- The “get off lightly” FBAR penalty is $10,000 per foreign account. The penalty is assessed if the IRS feels you did “not willfully” fail to file your FBAR and you made an “innocent mistake”. For example, if you have six foreign accounts that you don’t report on your FBAR, the IRS can penalize you $60,000 per year! The “disastrous penalty” is 50% of the account value and can be assessed if the IRS feels you intentionally or “willfully” avoided filing your FBARs. Similarly, the “disastrous” FBAR penalty can also be assessed multiple times meaning the IRS can assess FBAR penalties that can potentially wipe out your entire net worth! One important point is that there are certain penalty mitigation provisions that the IRS can apply based on the facts and circumstances of your case. But you should also be mindful to the fact that a “willful” violation can result in jail time! These matters should not be taken lightly.
· “Burden of proof”- It is up to the taxpayer to prove non-willfulness or reasonable cause. Once you are in the program you are obligated to pay the penalty the IRS deems necessary. There may be certain strategies that can be employed such as entering a OVDP or Streamline program and then “opting-out”. These are options that should be weighed heavily and discussed thoroughly with a CPA.
· You can appeal to a higher authority- Yes, you can “claim” you day in court, but you should exhaust all administrative remedies first. Or you can attempt to pay all assessments, and then file a suit for refund in US District Court. Again this option should be thoroughly discussed with a CPA. Exhausting administrative remedies within the IRS appeals process is usually the best option. Our experience shows that clients don’t have to pay FBAR penalties until the end, and can be successful with alternative administrative remedies, making tax court unnecessary.
· The OVDP Route- Unlike past Voluntary Disclosure Programs, the main purpose of the FBAR OVDP is to create a consistent and standardized format for dealing with the potentially ugly or disastrous FBAR penalties. This is why it is important to use the OVDP as a starting point to minimize your FBAR penalty exposure. By initially going through the OVDP, you will get a much more favorable review when discussing your potential “FBAR reasonable cause” position. Outside the OVDP, the ground is much less sturdy and you will find the IRS does not treat people who they catch (whether innocently or those who made an ill-advised “soft” or “quiet” disclosure) as favorably as those who have come forward under the OVDP. The main advantage of the OVDP is that it can serve as a springboard to limit the potentially staggering penalties to 27.5% of your highest balance and then provides you a mechanism to “opt-out” of the OVDP and work with a revenue agent to apply the various Penalty Mitigation provisions discussed above.
At Freed Maxick, we try to gain an understanding of the issues you face. We have considerable experience in helping taxpayers that have not been historically compliant, to navigate the IRS guidelines and minimize their potential penalties through the various Voluntary Disclosure Programs that are available. We work with individuals and businesses in the U.S. and throughout the world, on addressing all of their International tax issues. For a confidential discussion of your FBAR situation, call us at 716.847.2651 (or toll free at 800.777.4885), or complete and submit the online form for more information.
If you’re not familiar with the term FBAR by now, then you are among the few that are able to resist blogs, media, television and newspapers. FBAR’s have been all over the news, as the IRS has a new focus on FBAR penalty enforcement. W hen determining if you should file the FBAR, all foreign (non-US) financial accounts must be aggregated using their highest value during the calendar year. A common misconception is that if a single account is under $10,000, no filing is required and this may not necessarily be the case. Additionally, filings are required even if the foreign account does not produce income.
Report of Foreign Bank and Financial Accounts (FBAR) Deadline June 30th
Did you know the deadline to file foreign bank and financial accounts (FBARs) is coming up soon? June 30th is right around the corner!
Many companies and individuals agree that the IRS rules and regulations in regard to foreign bank accounts and international tax issues are confusing and intimidating. That’s why it is important to connect with a trusted international tax professional… someone who can navigate through the complexities of these regulations and make things easy and more understandable to those who need to file.
A Little Background
From the IRS website, “If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).
The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.”
Important Reporting and Filing Information- Deadline June 30th
From the IRS website, “The FBAR is an annual report and must be received by the Department of the Treasury in Detroit, MI, on or before June 30th of the year following the calendar year being reported. While FinCEN strongly encourages individuals to electronically file FBARs, the form can be mailed to one of the two addresses below, provided that the mailing is received by June 30, 2013.”
What Should You Do Next?
There is limited time left to comply with IRS regulations regarding foreign bank accounts. Please feel free to contact us to connect with a member of our International Tax team. We at Freed Maxick CPAs are poised to assist you in assessing your FBAR filing requirements, assimilating the necessary information and preparing your current and past due FBARs. We also have considerable experience in helping taxpayer’s that have not been historically compliant to navigate the IRS guidelines and minimize their potential penalties through the various IRS Voluntary Disclosure Programs that have been available.
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Failure to File FBAR | Penalties
FBAR Penalty Relief Under Certain Circumstances
Recent FBAR Developments
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U.S. Tax Services for Canadians
By: Howard Epstein, CPA, Director, International Tax
Opening a new front in the U.S. crackdown on offshore tax evasion, federal investigators have won court approval for a summons on a Caribbean bank, to turn over account data for wealthy American clients. This is just the latest of several overseas banks served with similar demands from the IRS, in an effort to identify federal tax evaders who have assets and income hidden offshore. This comes in response to the IRS leniency program (or Voluntary Disclosure Program), in which Americans can disclose previously secret foreign accounts to the IRS to avoid tax liens and pay back taxes.
The fact that the IRS is using John Doe Summons and other data mining means to flesh out non filers of FBARs provides further proof that they are steadfast in their resolve to find people committing tax fraud. The unfortunate part is that honest people that simply don't know the law are being compromised at the same time. It is important that those innocent people come forward under the current programs available before the IRS taps them on the shoulder and such relief is not available.
FBAR Filing Assistance
At Freed Maxick, we are poised to assist you in assessing your FBAR filing requirements, integrate the necessary information, and prepare your current and past due FBARs. We also have considerable experience helping taxpayers that have not been historically compliant navigate the IRS guidelines, minimizing any potential penalties through the various IRS Voluntary Disclosure Programs that are available.
For a confidential discussion of your FBAR situation, call us at 716.847.2651, or complete and submit this form for more information.
In April of 2010, the Department of the Treasury and the IRS asked for public comment regarding guidance projects and issues concerning interpretation and implementation of the new Foreign Account Tax Compliance Act (FATCA) provisions that stemmed from the HIRE Act of 2010. Unlike its FBAR compliance efforts that rely on delegated authority from the FinCEN and that are restricted due to concerns in the use of tax return or tax return information under Internal Revenue Code ( I.R.C.) 6103, the new provision eliminates these concerns and allows the IRS to use its own tax administration authority.
While there are benefits to the IRS using its own tax administrative authority, there are still some issues. Many of the issues encountered with the FBAR will continue to plague the new provision as well. For example:
The IRS will face the same problem with the new FATCA provisions as it does with the FBAR provisions, as there is no easy method to determine what constitutes the potential population filing base.
The new provision will be self-reported, similar to the FBAR.
Other roadblocks include the burden of what taxpayers will face, and increases filing requirements that have become considerably more complicated as a result of the addition of the FATCA filing. For example:
In addition to the required FBAR filing, taxpayers are now required to file the new FATCA information.
Taxpayers may also find that certain terms are defined differently in the BSA regulations and the Internal Revenue Code. For example, the term United States is defined in the BSA regulations as …the States of the United States, the District of Columbia, the Indian lands, and the Territories and Insular Possessions of the United States.20 While in the I.R.C. it is defined as “United States” when used in a geographical sense includes only the States and the District of Columbia
(Source from IRS.gov/pub/IRS-wd I.R.C 7701(a)(9) (2010).
Are you hitting roadblocks in filing your FBAR and FATCA? Do you have questions on how to navigate the complex IRS tax rules? If so, we can help. Freed Maxick is committed to helping you! Contact us today to get started.
By: Howard B. Epstein, CPA
The Bank Records and Foreign Transactions Act- commonly referred to as the Bank Secrecy Act, became law in 1970 out of a growing complexity of the national and international economy, and technological revolution. Activities increased not just at home but abroad. This allowed the IRS to require citizens or residents of the U.S., or a person in, or doing business in the U.S. to file reports on any financial accounts with aggregate totals valuing $10,000 or more. But did you know……
As a result of new legislation on foreign tax reporting and disclosure of financial assets, some taxpayers may be required to file the new foreign financial assets disclosure statement (Form 8938) with the income tax return, and the Report of Foreign Bank and Financial Accounts (FBAR) seperately. Filings and returns are due April 15th or June 15th, if living in the U.S. For those living outside the U.S., extensions for October 15th filings can go through December 15th. These reporting requirements will potentially add to both taxpayer roadblocks and the complexity of tax law changes.
On March 18, 2010, the President signed the HIRE Act, containing the Foreign Account Tax Compliance Act, into law. Addressing taxpayer concerns, the law requires individual taxpayers with foreign financial assets with an aggregate balance exceeding stipulated dollar amounts during a taxable year to file a disclosure statement with his or her income tax return for that taxable year. The stipulated dollar amounts can be found in IRS Form 8938. Beginning with 2011 individual tax return filings; the new law requires compliance with filing the disclosure statement (Form 8938) describing the maximum value of the assets during the taxable year. The disclosure statement should also provide the following information in the case of a:
Financial account – the name and address of the foreign financial institution in which such accounts are maintained and the number of such account.
Stock or security – the name and address of the foreign issuer and such information as is necessary to identify the class or issue of which such stock or security is part of.
Contract, interest, or other instrument – such information as is necessary to identify such contract, interest, or other instrument and the name(s) and addresses of all foreign issuers and counterparties with respect to such contact, interest, or other instrument.
What should you do next?
It is important to note that while there are similarities between the FBAR and FATCA filings, there are also a number of differences when filing each of the Forms. Freed Maxick International tax practice professionals are here to assist you with your FBAR filings. We can assess FBAR filing requirements and prepare current and past due FBARs. We can navigate the IRS guidelines and minimize potential penalties through the various IRS Voluntary Disclosure Programs available. Contact us to connect with our experts.