FATCA / FBAR Compliance
If you have a financial interest in a foreign country's financial account, you may be required to report this to the U.S. government under the Bank Secrecy Act. The Report of Foreign Bank and Financial Accounts (known as the "FBAR"), if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year. The instructions are relatively straightforward, asking for account numbers, taxpayer-identification numbers, the country in which the account is held. The FBAR is due June 30 (with some exceptions). The FBAR is filed with the Treasury Department electronically. Failure to file the FBAR and disclose offshore accounts subjects the taxpayer to stiff penalties starting from $10,000.
An essential part of the Hiring Incentives to Restore Employment (HIRE), the Foreign Account Tax Compliance Act (FATCA), has helped combat tax evasion by U.S. citizens with offshore accounts investments. Under this act, U.S. taxpayers with specified foreign financial assets exceeding certain thresholds must report those assets to the IRS. In 2010, Congress passed a new filing requirement for some individuals. The IRS developed Form 8938, Statement of Specified Foreign Financial Assets. Next Level Tax helps you based on your needs as the thresholds vary for single taxpayers, married couples filing jointly, married couples filing separately, and taxpayers who live abroad. The criteria for taxpayers who reside abroad are higher. A specified foreign financial asset is any financial account maintained by a foreign financial institution. It does not include a U.S. payer (such as a U.S. domestic financial institution), the foreign branch of a U.S. financial institution, or the U.S. branch of a foreign financial institution. Other foreign financial assets held for investment that are not in an account maintained by the U.S. or foreign financial institution, namely:
- Stock or securities issued by someone other than a U.S. person
- Any interest in a foreign entity, and
- Any financial instrument or contract that has as an issuer or counterparty other than a U.S. person. Individuals who may have to file Form 8938 are:
- U.S. citizens and residents.
- Non-residents who elect to file a joint income tax return.
- Certain non-residents who live in a U.S. territory.
However, Form 8938 is not needed for individuals who do not have an income tax return filing requirement. Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification).
Foreign Corporation Ownership Reporting
U.S. citizens and residents who are officers, directors, or shareholders in certain foreign corporations have special reporting requirements. The form and schedules are used to comply with the reporting requirements of sections 6038 and 6046 and the related regulations.
Who Must File?
Generally, all U.S. persons who own more than 10 percent ownership in a foreign corporation need to report to IRS. Failure to file information required by section 6046 and the related regulations is subject to a $10,000 penalty for each such failure for each reportable transaction. Suppose this continues for more than 90 days after the date.Then , the IRS mails notice of the failure, an additional $10,000 penalty will apply for every 30 days or fraction thereof during which the failure continues after the 90 days has expired. The additional penalty is limited to a maximum of $50,000.
Undisclosed Foreign Financial Assets
The implementation of FATCA and the IRS's ongoing efforts, and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations for non-U.S. investments. Because the circumstances of taxpayers with non-U.S. investments vary widely, the IRS offers the following options for addressing previous failures to comply with U.S. tax and information return obligations for those investments:
Offshore Voluntary Disclosure Program
The Offshore Voluntary Disclosure Program (OVDP) is a voluntary disclosure program specifically designed for taxpayers with exposure to potential criminal liability or substantial civil penalties due to a willful failure to report foreign financial assets and pay all tax due respect to those assets. OVDP is designed to provide taxpayers with such exposure (1) protection from criminal liability and (2) terms for resolving their civil tax and penalty obligations.
Streamlined Filing Compliance Procedures
Purpose of the streamlined procedures
The streamlined filing compliance procedures described below are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The streamlined procedures are designed to provide taxpayers in such situations with a streamlined process for filing amended or delinquent returns, and terms for resolving their tax and penalty procedure for filing amended or late returns, and
terms for resolving their tax and penalty obligations.
As reflected below, the streamlined filing procedures offered on September 1, 2012, have been expanded and modified to accommodate a broader group of U.S. taxpayers. Major changes to the streamlined procedures include:
- Extension of eligibility to U.S. taxpayers residing in the United States
- Elimination of the $1,500 tax threshold, and
- Elimination of the risk assessment process associated with the streamlined filing compliance procedure announced in 2012.
Eligibility criteria for the streamlined procedures
The modified streamlined filing compliance procedures are designed only for individual taxpayers, including estates of individual taxpayers. The streamlined processes are available to U.S. individual taxpayers residing outside the United States and U.S. individual taxpayers residing in the United States. Descriptions of the specific eligibility requirements for the streamlined procedures for both non-U.S. residents (the "Streamlined Foreign Offshore Procedures") and U.S. residents ("Streamlined Domestic Offshore Procedures") are given below.
- Taxpayers must certify that conduct was not willful. Taxpayers using either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be required to certify that the failure to report all income, pay all tax, and submit all required information returns was due to non-willful conduct. This includes FBARs (FinCEN Form 114, previously Form T.D. F 90-22,1)
- The IRS has initiated a civil examination of taxpayer's returns for any taxable year. Here, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures. Taxpayers under examination may consult with their agent. Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.
- Taxpayers eligible to use streamlined procedures who have previously filed delinquent or amended returns must pay previous penalty assessments. Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns in an attempt to address U.S. tax and information reporting obligations for foreign financial assets (so-called "quiet disclosures" made outside of the Offshore Voluntary Disclosure Program (OVDP) or its predecessor programs) may still use the streamlined procedures by following the instructions set forth below. However, any penalty assessments previously made with respect to those filing will not be abated.
Delinquent FBAR Submission Procedures
Taxpayers who do not need to use either the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who:
- have not filed a required Report of Foreign Bank and Financial Accounts (FBAR) (FinCEN Form 114, previously Form T.D. F 90-22.1),
- are not under a civil examination or a criminal investigation by the IRS, and
- have not already been contacted by the IRS about the delinquent FBARs Should file the delinquent FBARs according to the FBAR instructions.