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.
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.
Are you a Canadian “snowbird” spending winters in the United States? You may not realize it, but you could be considered a U.S. tax resident. If this is the case, the basis on which tax residency is determined is through the IRS “Substantial Presence Test.”
For this purpose, you will be considered a U.S. tax resident if you meet the following requirements:
Physically present in the United States at least 31 days in the current year, and
183 days during the 3 year period that includes the current year and the 2 years immediately before that.
If you fall into this category, don’t panic! There is potential relief available to Canadian citizens that are caught by this Substantial Presence Test:
You are present in the U.S. for fewer than 183 days in the current year.
You maintain a “tax home” in a foreign country during the year.
You have a “closer connection” to the foreign country where your “tax home” is than to the U.S.
Are there exceptions to the rule?
There are exceptions to the substantial presence test. The following are a few examples:
Days you are in the United States for less than 24 hours- when you are in transit between two places outside the United States.
Days you are in the United States as a crew member of a foreign vessel.
Days you can classify “exempt individual.”
The term “exempt individual” does not refer to someone exempt from U.S. taxes, but to anyone that claims exemption from counting days of presence in the United States. For example- a teacher or trainee temporarily in the United States under a “J” or “Q” visa, who substantially complies with the requirements of the visa. For a full list of exemptions and exceptions, please refer to the IRS substantial presence test.
What should you do next?
If you exclude days of presence in the United States because you fall under a special category, you must file Form 8840 (Closer Connection Statement) or Form 8843 (Statement of exempt individuals and individuals with a medical condition).
Freed Maxick International tax practice professionals can help you determine if you qualify as a U.S. tax resident, and assist you with Substantial Presence Test filings. We can navigate the IRS guidelines and minimize potential penalties. Contact us to connect with our experts.