Archive for the ‘Foreign Reporting’ Category
Back to Basics Part XXXIV – Form 8938 – Statement of Specified Foreign Financial Assets
Filed under: Back to Basics, Foreign Reporting | Tags: FBAR, FinCen 114, foreign income, Form 8938, Statement of Specified Foreign Financial Assets, TD F 90-22.1
Leave a comment Originally published in the Cedar Street Times
March 4, 2016
For those of you living in the US (not just US citizens) with foreign bank accounts, foreign securities accounts, ownership interests in foreign corporations, partnerships, or other foreign potentially income generating assets, you may have a reporting requirement on Form 8938 – Statement of Specified Foreign Financial Assets. Failure to report on this form carries with it significant penalties, so you want to be sure you are in compliance if you have assets of this type.
You may have heard about the Report of Foreign Bank and Financial Accounts (FBAR) which is currently filed on a Form FinCen 114 with the US Treasury Department (a few years ago the form was called a TD F-90-22.1) each year. That form received a lot of press a few years ago as some of the large banks overseas cooperated with the US government to release the names of account holders living in the US, and is also tied to some of the amnesty programs you may have read about. This often conjures up images of mutli-millionaires hiding money overseas to avoid paying US taxes. Although this may be a component of it, I can assure you that it touches “normal” people as well that just happened to have foreign accounts, perhaps from living in a foreign country years ago, and still have the account, or maybe just living in the US for a few years and on a US work visa.
If you are reading this article, and thinking, “I have never heard of this before,” you likely have a relatively easy solution for the FBAR that will not result in huge monetary fines. This often consists of filing amended tax returns for the past three open tax years to report any income generated on these accounts, and filing FBARs for the past six years. But you must do this before the IRS discovers it – so do not bury your head in the sand.
Whereas the FBAR can attribute its roots in the Bank Secrecy Act passed by Congress in 1970 and is filed separately from your tax returns with the US Treasury Department, the Form 8938 has only been around since 2011, and is filed as a form with your tax returns. The Form 8938 has different reporting requirements as well. Whereas the FBAR is focused on foreign bank and securities accounts whose aggregate value of all accounts exceeds $10,000 at any point during the year, the Form 8938 is broader and includes more foreign income generating assets, and is only required if the aggregate value at year end is over $50,000 or if the maximum value at any point during the year is over $75,000 for single and married filing separate filers or $100,000 at year end/$150,000 maximum value if married filing jointly.
Since the US taxes people residing in the US on worldwide income, (and so does California), the IRS wanted a way to ensure that the income from foreign accounts was being properly included on the US tax returns. The FBAR does not do this, so the 8938 was created.
Parts I and II of the Form 8938 are a summary of the various types of specified foreign financial assets that you are reporting. Part III is a cross-reference to the forms and line numbers in the tax return where any income generated by these assets is included. Part IV is a cross-reference to foreign assets whose detail is not reported on the 8938 itself, but on other form specifically designed for those types of assets. Parts V and VI are the specific details of each account listed in parts I and II, and include things like account numbers, addresses, amounts, foreign currency conversions, etc.
You can easily download the instructions to the Form 8938 online if you would like to learn more about the reporting requirements. Even if you do not have a Form 8938 or FBAR filing requirement, you are still required to report on your US tax returns any foreign income earned by the accounts. With many countries there are also tax treaties in place to prevent double taxation.
Please keep in mind, there are complex issues involved with these reportings, and depending on the assets, you may require the assistance of an accountant or attorney.
If you have questions about other schedules or forms in your tax returns, prior articles in our Back to Basics series on personal tax returns are republished on my website at www.tlongcpa.com/blog .
Travis H. Long, CPA, Inc. is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. Travis can be reached at 831-333-1041. This article is for educational purposes. Although believed to be accurate in most situations, it does not constitute professional advice or establish a client relationship.
Confidentiality, Privilege, and Taxes
Filed under: Foreign Reporting, General | Tags: accountant, accountant-client privilege, Attorney, attorney-client privilege, confidentiality, confidentiality privilege, disclosure, evidentiary privilege, IRC 7525, IRS, Kovel letter, privilege, professional standards, tax evasion, tax shelters, third-party
Leave a comment Originally published in the Cedar Street Times
August 22, 2014
Pretty much anybody that watches crime shows on television knows about attorney-client privilege. This is how murderers can admit the details of their crimes to their attorneys and the communication is protected from discovery by the courts.
But what about tax related communications with your accountant? Unfortunately, there are not a lot of television shows featuring taxpayers admitting the gory details to their accountants on how they swindled the IRS. That said, prime time dramas are probably not the best place to learn about the legal and accounting world anyway!
Misinformed people will sometimes think they can sit down with their CPA and contrive ways to scheme the IRS, or that they can openly discuss all the income they took in under the table and did not report. Communications with a CPA are confidential due to professional standards, but they usually do not qualify for evidentiary confidentiality privilege in a court of law. This means the CPA should not disclose the information to other parties without your permission, but if questioned in a court of law, the information would have to be disclosed. The other problem a CPA would have knowing the skeletons in your closet, is that a CPA (or any preparer) cannot knowingly file a false return.
So you may think you should hire a tax attorney to prepare your returns in order to get privilege. That actually won’t work either. One of the main tenets of attorney-client privilege is that if you do not treat the information as confidential and you disclose it to a third-party other than your attorney and his or her associates, then you have lost your privilege. Since tax returns are inherently a third-party communication for disclosure to the taxing authorities, it has been ruled that tax preparation services are not afforded attorney-client privilege. In fact, there have been interesting cases where attorneys have lost their attorney-client privilege because they included estate tax preparation as part of their engagement with the client.
Tax advice, however, is a different story. For engagements that strictly involve tax advice, and not tax preparation, attorney-client and accountant-client privilege is extended. Accountant-client privilege has more limitations than attorney-client privilege as defined in Internal Revenue Code section 7525. Most notably is that accountant-client privilege does not extend to criminal matters before the IRS or Federal courts, nor does it apply to tax shelters designed for tax evasion.
As previously discussed, the disclosure of information to a third-party generally waives the attorney-client privilege. An exception to this rule is if the attorney needs the assistance of another professional (such as an accountant) in order to render legal advice to the client. A Kovel letter (based on the 1961 case) can be drafted and signed by the accountant and attorney which essentially extends the attorney-client privilege to the accountant. The accountant is then, in essence, working for the attorney and not the ultimate client. This does provide additional protections, but it still would not provide protections for tax return preparation.
Prior articles are republished on my website at www.tlongcpa.com/blog.
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
New, Friendlier Option for Foreign Bank Account Disclosure
Filed under: Foreign Reporting | Tags: $10000, $100000, affidavit, FBAR, FinCen 114, Foreign Bank Account Reporting, Offshore Voluntary Disclosure Program, OVDP, privilege, resident, Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures, tax returns, U.S. Treasury Department
Leave a comment Originally published in the Cedar Street Times
August 8, 2014
In July, a few new and more attractive options became available for taxpayers that have accounts in foreign countries that they have not reported. Taxpayers with over $10,000 in aggregate in bank or financial securities accounts (or even just signature authority on someone else’s account) established outside the United States have a requirement to report these accounts to the United States Treasury Department by electronically filing Financial Bank Account Reporting (FBAR) Form FinCen 114 by June 30th each year. In addition, there is a requirement to report any related income on your tax returns and possibly file another reporting form (Form 8938) with your tax returns as well.
These requirements do not just apply to rich people that establish accounts overseas to “hide” money and not pay taxes. If you are simply residing in the U.S. as defined by U.S. tax law and file tax returns as a resident, these requirements apply to you. Many foreigners residing in the U.S., or people with roots in foreign countries from years ago that still maintain bank accounts in another country do not realize this applies to them. It also applies to U.S. taxpayers residing outside the United States – such as U.S. citizens or green card holders.
The mission, as stated by the Financial Crimes Enforcement Network in the Treasury Department is, “to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.”
The stated penalties for failure to comply are massive by most people’s standards. If you are caught before coming forward on you own, and it becomes apparent you were aware of the requirement but specifically chose not to report, or even if you were not aware, but it is apparent you purposely did not take reasonable steps given your circumstances to find out (willful blindness), the penalty is the greater of $100,000 or 50 percent of the account balance and possible criminal prosecution. Even a truly non-willful situation (i.e. I had no idea I had to file) carries a $10,000 PER violation penalty if caught.
The IRS has had several voluntary disclosure programs over the past few years to help people come clean. The most recent program (2012 Offshore Voluntary Disclosure Program – OVDP), carried with it a hefty penalty – conceding 27.5 percent of the account balance on top of filing eight years of amended tax returns and paying past due tax, interest, and penalties on any income generated for those years. Besides having minimum tax liabilities that would keep many people out of the program, it just seemed like the punishment far exceeded the crime for those who were non-willful violators.
The all new Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures provide a much more palatable avenue for those who have non-willful violations. The new domestic program requires three years of amended tax returns, six years of FBARs, signed affidavits attesting to the non-willful nature, and only a five percent penalty. The five percent is calculated on the highest aggregate year-end balance of your accounts during the past six years. For U.S. taxpayers living abroad the foreign program is similar but does not even have a five percent penalty! For situations that could be deemed willful, the 2012 OVDP program is still available as well.
I have been involved with both the 2012 Offshore Voluntary Disclosure Program and now the new Streamlined Domestic Offshore Procedures program with clients, and it definitely feels like this new program is a good option for people with non-willful violations who want a greater sense of closure. For people who still cannot stomach the idea of giving up five percent, there are other possible options to discuss which are better than doing nothing and continuing to be non-compliant. If there is any chance that a willful case could be made, I would also advise you to keep conversations with your accountant hypothetical and broad until you are connected with the right attorney that specializes in this area. Communications with attorneys are privileged, whereas communications with accountants, although confidential, are not generally privileged until the attorney hires the accountant directly. In two weeks I will discuss this concept in more detail.
Prior articles are republished on my website at www.tlongcpa.com/blog.
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
Are You Sure You Have No Foreign Reporting Requirements?
Filed under: Foreign Reporting | Tags: $10, 000, Al Capone, civil penalties, criminal penalties, Form 8938, Form TD F 90-22.1, non-willful neglect, penalty, Report of Foreign Bank and Financial Accounts, Statement of Specified Foreign Financial Assets, terrorism, Treasury Department, willful neglect
Leave a comment Originally published in the Cedar Street Times
May 31, 2013
My grandfather’s sister once had the opportunity to go toe-to-toe with the 1920s gangster, Al Capone…or so goes the family story. She had ordered a fancy car and Capone sent a couple of his henchmen to convince her that she should allow him to purchase it since he did not want to wait for another one to be built. She politely refused, at which point, they said Mr. Capone would like to talk with her in person. So she drove to his place in Palm Island, Florida to meet the notorious gangster. She was a rather outspoken individual, and managed to come out with her car, and did not even have to dodge bullets on the way past the front gate! Most people know the interesting story about Al Capone is that the Feds could never get him for bootlegging, racketeering, prostitution, or murder, but they nailed him for tax evasion and failure to file tax returns!
Fast-forward the better part of a century and we are battling terrorism. Sometimes it is difficult to prove that a particular individual was involved in an act of terrorism, but there may be other ways to get them. How about the failure to report foreign accounts or even having signature authority over foreign accounts while residing in the United States?
Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts is required to be filled out each year for anyone that has bank or financial accounts (or is an eligible signer on someone else’s foreign accounts) that were established in a foreign country that aggregate $10,000 or more. The form is due to the Treasury Department each year by June 30th (one month away). Note this form does not go with your tax returns to the IRS. The IRS has its own two-year old Form 8938 Statement of Specified Foreign Financial Assets which is more geared towards tax evasion and is filed with your returns. It covers some additional assets and has different reporting thresholds, so you and your tax professional should review that as well.
The penalties for failure to file Form TD F 90-22.1 can be pretty sickening. Willful neglect to file the form is punishable with civil and/or criminal penalties. Civil penalties could be the greater of $100,000 or half of the account value. Criminal penalties could be $250,000 plus five years in prison, or $500,000 and 10 years in prison if you are also violating another law simultaneously. Even non-willful neglect (a.k.a. – your ignorance) carries a penalty of up to $10,000. These are also applicable per year you fail to report!
The IRS was recently seeking six years in prison for a 79 year-old widow in Palm Beach, FL for such issues and related failure to report the income from foreign accounts. I think the key is to just make sure you file the forms as needed, and have a discussion with your tax professional or an attorney if you are unclear if your assets qualify you to file these forms.
Oh, and if you happen to know any terrorists that need to file, please don’t forward my contact information…
Prior articles are republished on my website at www.tlongcpa.com/blog.
IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
Do You Have Assets or Investments in Foreign Countries?
Filed under: Foreign Reporting, General | Tags: 8938, bank account, due date, FBAR, foreign, foreign assets, foreign country, foreign investments, Form 8938, Form TD F 90-22.1, investment account, investments, June 30, non-willful neglect, Penalties, real estate, Report of Foreign Bank and Financial Accounts, Statement of Specified Foreign Financial Assets, TD F 90-22.1
Leave a comment Originally published in the Cedar Street Times
December 28, 2012
Various reasons including the fight against terrorism and failure to pay tax on foreign income are driving our lawmakers to require more stringent reporting of foreign investment activities. This is important because there have been significant changes in the past two years with the addition of a new reporting form, and the penalties for noncompliance include extremely high monetary penalties or jail time. Even cases of non-willful neglect or ignorance could lead to penalties of $10,000.
Generally this affects people who have opened bank or investment accounts in other countries (or are authorized signers on such accounts) or have an ownership interest in businesses in foreign countries. It generally does not include direct holdings of real estate, personal property, or financial investments made through an account setup here in the U.S. with a U.S. institution that diversifies your money and invests internationally. For instance, holding an international stock index fund through Vanguard would not trigger a requirement because Vanguard has reporting requirements here in the U.S. that would cover you. This additional reporting generally covers the things for which the U.S. would not know about unless you told them.
There are two forms which I feel tax practitioners should touch base with their clients about every year. One is the Foreign Bank and Financial Accounts Form TD F 90-22.1 (FBAR), and the other is the relatively new Statement of Specified Foreign Financial Assets Form 8938 which has only been around for about two years. The FBAR is not a tax return filing document, but is due to the Treasury Department by June 30th of each year (watch out if you are on extension and do your taxes late in the year). The new Form 8938 gets filed with your tax returns.
I suggest you think about any connections you have with money or assets in a foreign country and discuss them with your tax professional this coming year. The laws do get complicated and sometimes you may not think you have a reporting requirement when you actually do. For instance, you would have a reporting requirement if you have a relative or friend in a foreign country that adds you on to their bank account as a signer, simply for the convenience that you could write a check on their behalf if needed, regardless of whether or not you actually do.
You may have a reporting requirement if a foreign relative or friend has named you as a beneficiary in his or her trust; or perhaps you have a pension or deferred compensation plan which you will someday receive for past service with a foreign company or country; or maybe you are an owner or a partner in a business that holds assets that qualify (indirect interest). As you can see, it is not always straight-forward, but I hope you are now more alert to the issue, and that you can identify situations that may need further review.
Seeking qualified professional help continues to grow in importance as we continue to move in a direction towards increased complexity.
Prior articles are republished on my website at www.tlongcpa.com/blog.
IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
Travis H. Long, CPA, Inc. Blog 