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International Tax & Foreign Accounts

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  • Foreign Bank Account – FBAR 114
  • Foreign Gift – 3520
  • Foreign Brokerage Account
  • Foreign Trust
  • Bank Secrecy Act – BSA
  • FIRTPA – 8288 8288(a) 8288(b)
  • Streamlined Domestic Offshore Procedures – SDOP
  • OffShore Voluntary Disclosure Program – OVDP
  • Statement of Foreign Financial Assets – 8938
  • Financial Crimes Enforcement Network – FinCEN Forms
  • Foreign Account Tax Compliance Act – FATCA
  • Foreign Corporation – Foreign LLC – 5471 5472

Foreign Accounts

FATCA was created in 2010 and implemented on January 1, 2013 to aid the IRS in tracking foreign accounts, investments and foreign income. The act requires foreign banks to report accounts and holdings of U.S. taxpayers or risk IRS penalties. Most banks have decided to comply, so there is a rapidly decreasing probability that foreign accounts will remain hidden for long. So far, 171,110 banks in 112 countries have agreed to report U.S. account holder’s accounts to the IRS.

U.S. persons having a financial interest in or signature authority over one or more foreign financial accounts, that have an aggregate value exceeding $10,000 during the year are required by the Bank Secrecy Act ( BSA ) to report their interest in the account by electronically filing a “Report of Foreign Bank and Financial Accounts” ( FBAR ), with the U.S. Treasury by June 30th of each year.

Willful failure to file the required forms is a felony punishable by a fine of $250,000 or five years in jail or both. Failure to file may also result in civil penalties of $100,000 or 50% of the account balance per year the account went unreported. After 2 years, these fines will exceed the amount in the account.

Foreign Income and International Tax

US Citizens are required to report their worldwide income. Although this can be inconvenient, there are often a variety of exclusions, deductions and credits to dramatically decrease your foreign earned income tax.

  • Foreign Income Exclusion – You can exclude up to $100,800 of qualified foreign earned income in 2015
  • Foreign Income Tax Credit – You can receive a credit to US taxes owed for the taxes you paid to qualifying foreign governments. This credit can be used in tandem – on the same tax return – with the Foreign Income Exclusion but not on the same income. However, the foreign tax credit cannot be used in tandem with the Foreign Income Tax Deduction.
  • Foreign Income Tax Deduction – You can receive a deduction against your income for the taxes that you paid to qualifying foreign governments. This Deduction can also be used in tandem – on the same tax return – with the Foreign Income Exclusion but not on the same income.

Solutions

Streamlined Domestic Offshore Program – SDOP

For taxpayers residing in the United States. If they meet all requirements below, entities can fulfill their international tax obligation, and generally avoid prosecution, by filing the correct forms and paying a small penalty.

  1. Must meet residency requirement
  2. Have previously filed a U.S. tax return for each of the most recent 3 years
  3. Failed to report income from a foreign financial asset
  4. Failure to file was non-willful
  5. Have not received notice from IRS that it is investigating you

Steps to Foreign Accounts Compliance

Step 1: Fill Out Amended Tax Returns – 3 years

Step 2: Information Returns – e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621

Step 3: Write “Streamlined Domestic Offshore” in red ink at top of each amended tax return.

Step 4: Fill Out IRS Form 14654 Stating That:

  • You are eligible for SDOP
  • All required FBARs have been filed
  • Failure to report all income, pay all tax and submit all required returns, including FBARs, resulted from non-willful conduct
  • Title 26 offshore calculations and fee are accurate

Step 5: Submit check, with TIN, for tax as reflected on amended returns and Statutory Interest due

Step 6: Submit payment for Title-26, 5% penalty

Step 7:  If you seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by an applicable treaty, submit:

  1. a statement requesting an extension of time to make an election to defer income tax and identifying the applicable treaty provision;
  2. a dated statement signed by you under penalties of perjury describing:
    1. the events that led to the failure to make the election,
    2. the events that led to the discovery of the failure, and
  • if you relied on a professional advisor, the nature of the advisor’s engagement and responsibilities; and

for relevant Canadian plans, a Form 8891 for each tax year and each plan and a description of the type of plan covered by the submission

If You Want To Win, Call Jay Allen Finn (877)720-3477

Streamlined Foreign Offshore Program – SFOP

Taxpayers who were not in the U.S.A. and did not have a domestic home in the U.S.A. for any one of the past 3 tax years may escape the 5% penalty and may only have to pay the applicable taxes on their foreign accounts.

  1. Have not received notice that the IRS is investigating you
  2. Failed to report income from a foreign financial asset
  3. In one of the last 3 years, you were outside the US at least 330 days and you did not have an “abode” in the US. An abode is a domestic home.
  4. Your Noncompliance was non-willful 

Step 1: Taxes or delinquent taxes for 3 years

Step 2: Information returns – e.g., Forms 3520, 5471, and 8938

Step 3: If taxes hadn’t been filed previously, file Amended Tax Return – 3 years

Step 4: Write “Streamlined Foreign Offshore: on top of each Delinquent or Amended Tax Return or Information Return

Step 5: Form 14653 – Certification by U.S. Person Residing Outside of the U.S.

Step 6: Payment for tax dues and Statutory Interest – TIN on check

Step 7:  If you seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by an applicable treaty, submit:

          1. a statement requesting an extension of time to make an election to defer income tax and identifying the applicable treaty provision;
          2. a dated statement signed by you under penalties of perjury describing:
            1. the events that led to the failure to make the election,
            2. the events that led to the discovery of the failure, and
          • if you relied on a professional advisor, the nature of the advisor’s engagement and responsibilities; and
          1. for relevant Canadian plans, a Form 8891 for each tax year and each plan and a description of the type of plan covered by the submission

          If You Want To Win, Call Jay Allen Finn (877)720-3477

Offshore Voluntary Disclosure Program – OVDP

The Offshore Voluntary Disclosure Program is for cases in which the IRS would be able to prove that the failure to disclose accounts was willful. The IRS offers this method so account holders will have a method to come into compliance while generally avoiding prosecution.

Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurance that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating the Offshore Voluntary Disclosure Program and should call immediately.

 

Step 1: Pre-Clearance

Step 2: Offshore Voluntary Disclosure Letter

Step 3: Offshore Voluntary Disclosure Package

  • Check to Treasury – Taxes, Interest, Penalties, Name, TIN, Years to which payment relates
  • All Other Package Contents:
    1. Tax Returns
    2. Amended Tax Returns
    3. Copy of Voluntary Disclosure Letter – Enclosures and Attachments
    4. Foreign Account Statement for each account
    5. Taxpayer Account Summary with penalty calculation
    6. Agreements to extend the period of time to assess tax and penalties
    7. Copies of filed FBARs
    8. Copies of statements for all financial accounts covered in the voluntary disclosure
    9. Statement identifying all foreign entities and the foreign assets held by these entities – only for taxpayers disclosing these entities
    10. Amended estate or gift tax returns – only for those disclosing estate and gift taxes
    11. Statement of Passive Foreign Investment Company and Accounting Methodology – only for taxpayers disclosing PFICs
    12. 8938 or FBARs for RRSP or RRIF – for those disclosing Canadian Retirement Accounts

If You Want To Win, Call Jay Allen Finn (877)720-3477

Report of Foreign Bank and Financial Accounts – FBAR

Over 1 million FBARs were filed in 2014. Taxpayers with an interest in, or signature or other authority over, foreign financial accounts, whose aggregate value exceeded $10,000 at any time during 2014 generally must file an FBAR – Report of Foreign Bank and Financial Accounts, form 114a. Filing an FBAR may be the only step needed to gain compliance, and can be done without, taxes, penalties or interests, when filed on time, for accounts that do not produce income.

If there is reasonable cause for failure file an FBAR, and the balance in the account is properly reported, no penalty will be imposed. However, willful failure to file may result in civil penalties of $100,000 or 50% of the account balance per year the account went unreported. Over 2 years of willful failure to file, could result in penalties which exceed the balance in the account. Criminal penalties may be imposed in certain cases.

If You Want To Win, Call Jay Allen Finn (877)720-3477

Foreign Account Tax Compliance Act Requirements – FATCA

In general, federal law requires U.S. citizens and resident aliens to report worldwide income, including income from foreign trusts and foreign bank and securities accounts. Taxpayers need to complete and attach Schedule B to their tax returns. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and generally requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938Statement of Special Foreign Financial Assets.  Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions of this form for details.

The FATCA Form 8938 requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR Form 114. A brief comparison of the two filing requirements is available on IRS.gov.

If You Want To Win, Call Jay Allen Finn (877)720-3477

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Foreign Income - International Tax - Foreign Accounts