IRS Grants Limited Relief For U.S. Persons Owning Mexican Property In A Fideicomiso

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In June 2013, the IRS handed down Rev. Rul. 2013-14 which states that Mexican Land Trusts (MLTs), also known as “fideicomisos”, are not trusts for purposes of IRS tax law.  Prior to the ruling, there was confusion over whether these MLTs were trusts subject to onerous tax reporting requirements involving foreign trusts.  As a result of the ruling, those who hold MLTs, which include many individuals who own vacation or retirement homes in Mexico, are not required to comply with burdensome tax reporting requirements typically applicable to foreign trusts.

Under the Mexican Federal Constitution, non-Mexican persons cannot directly own real property located in “restricted zones” in Mexico.  The restricted zones include real property located within 100 kilometers (63 miles) of Mexico’s inland borders and 50 kilometers (32 miles) of its coastline.

However, non-Mexican persons, with the help of a Mexican bank, can indirectly own real property through MLTs.  Under an MLT, documents are drawn up whereby the MLT entity would be set up, the Mexican bank would nominally hold bare legal title and the beneficial ownership would be retained by the non-Mexican person.

Rev. Rul. 2013-14 essentially disregards the MLT as a true entity and treats the non-Mexican person as the owner of the real property.  The great advantage of this is that the U.S. taxpayer does not need to file forms typically required for foreign trusts.

U.S. persons who receive money from foreign trusts are required to file Form 3520 “Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts” and owners of foreign trusts are required to file Form 3520-A, which is a return for the trust.  In addition, if the aggregate value of taxpayer’s interest in foreign assets exceed $10,000, he or she is required to file an FBAR form and may need to file Form 8938.

One caveat – the ruling is expressly limited to situations in which the Mexican bank holds only bare legal title.  It the non-Mexican person has a bank account out of which the Mexican bank, on its own initiative pays taxes or other expenses related to the property, the IRS could treat the MLT as a trust for U.S. tax purposes.  In addition, U.S persons would still be required to disclose ownership of foreign accounts in Mexico and elsewhere and report foreign interest income and foreign rental income on a U.S income tax return.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

Go For The Gold And Pay Your Tax – Olympic Medals Taxable

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While millions of Americans were glued to their televisions to watch American athletes compete in this year’s Winter Olympics, the Internal Revenue Service was quietly getting ready to make sure that all our Olympic winners pay taxes on their victories.

It’s true. The Internal Revenue Code mandates that If you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must include it in your income. For example, if you win a $100 prize in a marathon, you must report this income on your Form 1040. If you refuse to accept a prize, do not include its value in your income.  Prizes and awards in goods or services must be included in your income at their fair market value.

That being the case, any athlete who accepts his or her Olympic medal will have to report its value as income and pay taxes on it.  Considering that the value of each medal ranges from $10,000 to $25,000, this can be a hefty tax bill of up to $9,000. That’s true even though the competition took place in Russia and not the United States.

Contrast this to winning Olympic athletes from most other countries don’t have to worry about their medals being taxed.  This unfairness has resulted in considerable debate during each session of Congress when a Summer or Winter Olympics is held but any legislation to change the tax law has never made it out of Congress.

You would think most Americans would be in favor of the legislation but there appears to be some backlash. For example, should an Olympian who comes home with 4 medals conceivably make $100,000 tax free while millions of hard working Americans struggle to support their families on far less income yet have to pay taxes? Also consider the millions dollars from endorsements that medal winners can make as a result of winning a medal.

It’s clearly a decisive issue with arguments on both sides. But what you need to remember that even income earned outside the U.S. may be taxable. Every year, thousands of taxpayers learn that lesson the hard way. If you live, compete or work outside the United States, you must still file tax returns here.  In addition, if you win a prize or award, you must claim the value of that prize or award on your tax return as income.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems and make sure you are fully utilizing all benefits under the tax laws.

U.S. Taxpayer Reporting Requirements for Foreign Income Producing Real Estate

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U.S. taxpayers, who include U.S. Citizens or resident aliens, must report worldwide income from whatever source, subject to the same income tax filing requirements that apply to U.S. Citizens or resident aliens living in the U.S.  This worldwide income reporting requirement also applies to rental proceeds generated by real estate the taxpayer owns and rents in a foreign country.  A U.S. Taxpayer also must report on his or her U.S. Federal Income Tax Return the sale of real estate located in a foreign country.

A U.S. taxpayer that collects rental income from foreign real estate must report this income on Schedule E, Supplemental Income and Loss.  Schedule E asks for not only the rents received from the rental property, but also allows for deductions of many expenses for the property, such as repairs and mortgage interest paid.  If the taxpayer claims depreciation expenses of the rental property, the taxpayer may be required to file Form 4562, Depreciation and Amortization.

If the Schedule E shows a loss after deducting the allowable expenses from your rental income, complex passive activity loss limitations come into play in filing Form 8582, Passive Activity Loss Limitations.  Whether you can use the real estate loss to offset your other income depends on whether the real estate rental is considered a “passive activity.”  Generally, rental real estate is a passive activity, unless the taxpayer can meet certain qualifications to consider the rental activity as active.

Ownership of specified foreign assets, such as foreign bank accounts, often triggers certain tax reporting requirements.  For example, a U.S. taxpayer who owns a foreign account must file a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year.  Many taxpayers will also be required to file a Form 8938, Statement of Specific Foreign Financial Assets with his or her annual tax return depending on some specific threshold values.

Ownership of real estate generally does not trigger these additional reporting requirements.  However, if the real estate is held through a foreign entity, such as a trust or estate, then the foreign rental property must be reported on Form 8938, subject to the threshold values.  Additional reporting requirements come into play as well if the real estate is held through a trust or estate, including completing Part III of Schedule B, Interest and Ordinary Dividends.

Penalties

Failure to report your foreign rental income, to accurately report the income on your tax return, or to complete Form 8938 when necessary could expose the taxpayer to many penalties, including a failure-to-file penalty of $10,000, criminal penalties, and if the failure to file results in underpayment of tax, an accuracy-related penalty equal to 40% of the underpayment of tax and a fraud penalty equal to 75% of the underpayment of tax.

The reporting requirements for foreign rental real estate can become very complex and advanced for most taxpayers.  U.S. taxpayers who own income-generating real estate in a foreign country would benefit from the experienced tax attorneys of the Law Office Of Jeffrey B. Kahn, P.C. representing you to avoid the pitfalls associated with failure to comply with the reporting requirements associated with owing foreign real estate.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

 

Jackpot! Now How Do I Get My Withholding Back?

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For foreign persons gambling in casinos in the United States and Indian Reservations, when it comes to taxes – “What happens in Vegas, doesn’t have to stay in Vegas”.

Unlike other foreign countries, the United States considers winnings from gambling and lotteries to be taxable. Under the tax law jackpots of $600 or more will incur a non-resident withholding tax of 30%. So if you are non-U.S. resident and you win $10,000 you only go back home with $7,000.

But as a foreign person, can you get that money back? The short answer is “maybe” depending on the country you are from. For example, the US-Canada Tax Treaty allows Canadians to deduct their U.S. gambling losses (with a few exceptions) in a given year from winnings.

How do you substantiate the losses? Well you don’t have to submit your receipts to the IRS with your tax return.  But if you are ever audited you will be asked for proof of losses so its wise to claim only those losses that you can substantiate. The requirement of substantiation extends to any tax filer (resident or non-resident) looking to claim gambling losses.  To start, if you belong to a casino’s Players Club, check with the casino or casinos that you visited to see if they can provide you with a record of your gambling. Some keep those records. If not, then you should keep a diary of your activity with the following:

•           The date and type of wagering activity

•           The name and location of the casino

•           The amounts you won or lost

You can aggregate all your U.S. gambling  losses for the whole year, not just the trip you won on. Remember travel expenses, entertainment, food and accommodations are not deductible.

So if you are a foreign person looking to claim the gambling losses, what forms need to be filed? If you have never obtained an Individual Taxpayer Identification Number (ITIN) you will need to file for one using Form W-7 along with a certified copy of your passport (sending the original passport is not advisable). Contact passport services of your State Department for one. This only needs to be done the first time you file a return. Next you will fill out tax form 1040NR using the information from the Form 1042S issued to you by the casino. Next send in the completed Form 1040NR, 1042S and your W-7 if you don’t have an ITIN to the IRS who will process your refund.

By using an experienced Cross-Border Tax Expert who is familiar with U.S. tax filings there should be no problem in quickly getting your refund. Contact the Law Offices Of Jeffrey B. Kahn, P.C. with locations in Los Angeles and elsewhere in California.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems and make sure you are fully utilizing all benefits under the tax laws so that you are paying the least amount of tax.

 

U.S. Reporting Requirements for Certain Canadian Savings Plans

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U.S. taxpayers who own a Canadian Registered Retirement Savings Plan (RRSP), Canadian Registered Retirement Income Fund (RRIF) or own or are the beneficiary of a Canadian Registered Education Savings Plan (RESP) may have special tax reporting requirements.

Reporting Requirements for all RRSPs, RRIFs, and RESPs

Some IRS reporting requirements are the same for RRSPs, RRIFs, and RESPs. For all three types of accounts, U.S. taxpayers who have an interest in, or signatory or other authority over these foreign accounts must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if the aggregate value of the foreign trust accounts exceeds $10,000 at any time during the calendar year. As of October 1, 2013 the FBAR form must be filed through the Financial Crimes Enforcement Network’s (FinCEN’s) Bank Secrecy Act E-Filing System on or before June 30th of the year following the calendar year being reported. For example, to report foreign accounts held open in 2013, the taxpayer must file the FBAR by June 30, 2014.

In addition to filing an FBAR form, the U.S. taxpayer with an interest in these Canadian accountsmust follow certain reporting requirements on his or her annual tax return. First, the U.S. taxpayer must include a completed Schedule B, Interest and Ordinary Dividends, with his or her annual tax return. On Schedule B, the taxpayer will complete Part III, Foreign Accounts and Trusts. Questions 7a asks whether, at any time in the year, the taxpayer had a financial interest in or signatory authority over a foreign financial account. Question 7b also asks whether the taxpayer is required to file an FBAR, and if so, in which foreign country the financial account was located. Finally, Question 8 asks whether the U.S. taxpayer received a distribution from, or was the grantor of, or transferor to, a foreign trust, which includes RESPs.

The U.S. taxpayer may also be required to file Form 8938, Statement of Specific Foreign Financial Assets with his or her annual tax return. Whether a taxpayer is required to file this form depends on where the taxpayer lives, the taxpayer’s filing status, and the value in the accounts. For example, unmarried taxpayers living in the United States must file Form 8938 if the total value of your interest in the foreign accountsis more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

RRSPs and RRIFs Unique Reporting Requirement

RRSPs and RRIFs have one unique filing requirements. These two accounts are two types of Canadian retirement account for holding assets, similar to a U.S. IRA or 401(k) retirement plan. Also similar to U.S. IRA and 401(k) plans, RRSPs and RRIFs enjoy tax-deferral benefits in Canada. By default, U.S. taxpayers who have an interest in an RRSP or RRIF do not have tax-deferral benefits on their U.S. income tax returns. However, a U.S. taxpayer may elect to receive similar tax-deferral status of their RRSP or RRIF by filing a Form 8891.

Even if a U.S. taxpayer does not elect tax-deferral status of their RRSP or RRIF, he or she must still file a Form 8891 a) to report contributions to RRSPs and RRIFs; b) to report undistributed earnings in RRSPs and RRIFs; and c) to report distributions received from RRSPs and RRIFs.

RESPs Unique Reporting Requirements

By contrast, a Canadian RESP is generally treated as a foreign trust and must follow similar reporting requirements to a foreign trust.

When the RESPexperiences a “reportable event,” the U.S. taxpayer must file Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Reportable events generally occur when the taxpayer makes a contribution to or receives distributions from an RESP.

The U.S. taxpayer must also file a Form 3520-A, Annual Information Return of Foreign Trust
With a U.S. Owner. This form is an annual information return that provides information about the RESP, its U.S. beneficiaries, and any U.S. person who is treated as an owner of any portion of the RESP.

A U.S. taxpayer who transfers money or property to a foreign trust may also be required to file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. Generally, a U.S. taxpayer who transfers money or property totaling more than $14,000 for the year must file a Form 709. Form 709 is a separate tax return, which is not submitted with the taxpayer’s annual tax return.

Finally, RESPs do not enjoy the tax-deferral benefits afforded to RRSPs and RRIFs by making the Form 8891 election. Accordingly, the owner of an RESP must include any earnings in the RESP on his or her annual U.S. income tax return.

Penalties

Failure to comply with the above reporting requirements can result in steep penalties to the unwitting taxpayer. Failure to file an FBAR may result in civil penalties for negligence, pattern of negligence, non-willful, and willful violations. These penalties range from a high penalty for willful violations, equal to the greater of $100,000 or 50% of the balance in the account at the time of violation, to a low penalty of $500 for negligent violations. For failing to file a correct Schedule B or Form 8938, the taxpayer could face a failure-to-file penalty of $10,000, criminal penalties, and if the failure to file results in underpayment of tax, an accuracy-related penalty equal to 40% of the underpayment of tax and a fraud penalty equal to 75% of the underpayment of tax.

Failure to file a correct and complete Form 3520results in an initial penalty of the greater of $10,000, 35% of the gross value of any property transferred to or distribution from a foreign trust, or 5% of the gross value of the portion of the trust’s assets treated as owned by the U.S. taxpayer. An additional 5% penalty of any unreported foreign gifts may also apply for each month for which the failure to report continues.

Finally, failure to file a Form 709 may come with penalties for willful failure to file a return on time, willful attempt to evade or defeat payment of tax, and valuation understatements that cause an underpayment of the tax. A 20% penalty of the tax underpayment may be imposed on both a substantial valuation understatement (the reported value of property listed on Form 709 is 65% or less of the actual value of the property) and a gross valuation understatement (the reported value listed on the Form 709 is 40% or less of the actual value of the property).

U.S. taxpayers who have an interest in a Canadian RRSP, RRIF, or an RESP would benefit from the experienced tax attorneys of the Law Office Of Jeffrey B. Kahn, P.C. representing you to avoid the pitfalls associated with failure to comply with the reporting requirements associated with having an interest in a foreign trust.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

The Foreign Tax Credit- Avoiding Double Taxation

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If you paid or accrued foreign taxes to a foreign government on foreign source income that is still subject to U.S. tax, you may be able to take either a credit or itemized deduction for those taxes.  The IRS allows the foreign tax credit so that you are not doubly taxed on the same income.

Taken as a deduction, the foreign income taxes reduce your U.S. taxable income.  Taken as a credit, foreign income taxes reduce your tax liability.  Most of the time, it is more advantageous to take foreign income taxes as a tax credit.

To claim the foreign tax credit, you need to fill out IRS Form 1116 unless the amount of credit you are claiming is $300 or less ($600 if married filing a joint return).

The laws regarding the foreign tax credit are complex and the application of the foreign tax credit can vary depending on various factors.  For example, if you have foreign sourced qualified dividends or capital gains or capital losses that will affect the amount of foreign tax credit you can take.

Also, the U.S. has different tax treaties with other countries that may limit your foreign tax.  The tax treaty with each country specifically addresses the type of income for which the tax credit is available and the rate limitation.  For example, the tax treaty with the United Kingdom does not allow a tax credit for foreign taxes paid with respect to interest income.  Also, the tax treaty with India caps the foreign taxes paid to 15%.

But in all cases, if the foreign income is not recognized on your U.S. tax return, you cannot claim as a foreign tax credit the taxes paid to the foreign county on said income.

Given the complexity of this area, one would be best served by seeking tax counsel to make sure that you are getting the maximum tax benefits.  Contact the Law Offices Of Jeffrey B. Kahn, P.C. with locations in Los Angeles and elsewhere in California.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

Taxpayer Reporting Requirements for Foreign Real Estate

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Many U.S. taxpayers do not realize that they must report their worldwide income, regardless of whether they are living in the U.S. or abroad.  If you are a U.S. Citizen or resident alien, you must report your worldwide income from whatever source, subject to the same income tax filing requirements that apply to U.S. Citizens or resident aliens living in the U.S.

This worldwide income reporting requirement also applies to income, such as rental proceeds, generated by real estate the taxpayer owns in a foreign country.  A U.S. Taxpayer also must report on his or her U.S. Federal Income Tax Return the sale of real estate located in a foreign country.

Ownership of specified foreign assets, such as foreign bank accounts, often triggers certain tax reporting requirements.  For example, a U.S. taxpayer who owns a foreign account must file a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year.  Many taxpayers will also be required to file a Form 8938, Statement of Specific Foreign Financial Assets with his or her annual tax return depending on some specific threshold values.

Ownership of real estate, however, does not trigger these additional reporting requirements.  As discussed above, a U.S. taxpayer will need to report any income generated from ownership or sale of the real estate.  However, if the taxpayer merely owns real estate in a foreign country as a second or vacation home and does not generate income from the property, the taxpayer is not required to report this asset to the IRS.

U.S. taxpayers who own income-generating real estate in a foreign country would benefit from the experienced tax attorneys of the Law Office Of Jeffrey B. Kahn, P.C. representing you to avoid the pitfalls associated with failure to comply with the reporting requirements associated with owing foreign real estate.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

Foreign Trusts – Filing Requirements

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All U.S. taxpayers who have an interest in, or signatory or other authority over foreign trust accounts must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if the aggregate value of the foreign trust accounts exceeds $10,000 at any time during the calendar year.  As of October 1, 2013 the FBAR form must be filed through the Financial Crimes Enforcement Network’s (FinCEN’s) Bank Secrecy Act E-Filing System on or before June 30th of the year following the calendar year being reported.  For example, to report foreign accounts held open in 2013, the taxpayer must file the FBAR by June 30, 2014.

A U.S. taxpayer is deemed to have a foreign interest in a foreign trust account in two situations.  First, the owner of record or holder of legal title is a trust of which the U.S. taxpayer is the trust grantor and has an ownership interest in the trust for U.S. federal tax purposes.  Second, the owner of record or holder of legal title is a trust in which the U.S. taxpayer has a greater than 50 percent present beneficiary interest in the trust’s assetsor in the trust’s current income for the calendar year.  The U.S. person who is a trust beneficiary may be exempted from filing an FBAR, however, if the trust, trustee, or agent of the trust is a U.S. person and files an FBAR disclosing the trust’s foreign financial accounts.  A U.S. person who is only a reminder beneficiary or is the beneficiary of a discretionary trust is not required to file an FBAR for the trust as these interests are not “present” beneficiary interests.

In addition to filing an FBAR form, the U.S. taxpayer with an interest in a foreign trust account must follow certain reporting requirements on his or her annual tax return.  First, the U.S. taxpayer must include a completed Schedule B, Interest and Ordinary Dividends, with his or her annual tax return.  On Schedule B, the taxpayer will complete Part III, Foreign Accounts and Trusts.  Questions 7a asks whether, at any time in the year, the taxpayer had a financial interest in or signatory authority over a foreign financial account.  Question 7b also asks whether the taxpayer is required to file an FBAR, and if so, in which foreign country the financial account was located.  Finally, Question 8 asks whether the U.S. taxpayerreceived a distribution from, or was the grantor of, or transferor to, a foreign trust.

If the U.S. taxpayer answered yes to Question 8 on Schedule B, he or she may be required to file Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.  Form 3520 applies to several types of U.S. taxpayers, including those who received a distribution from a foreign trust and those who created or transferred money or property to a foreign trust.

The U.S. taxpayer may also be required to file Form 8938, Statement of Specific Foreign Financial Assets with his or her annual tax return.  Whether a taxpayer is required to file this form depends on where the taxpayer lives, the taxpayer’s filing status, and the value in the accounts.  For example, unmarried taxpayers living in the United States must file Form 8938 if the total value of your interest in the foreign trust is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year. The value of the interest in the foreign trust equals the value of all cash or other property distributed during the tax year to you as beneficiary plus a value indicated on the valuation tables under section 7520.

A U.S. taxpayer who transfers money or property to a foreign trust may also be required to file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.  Generally, a U.S. taxpayer who transfers money or property totaling more than $14,000 for the year must file a Form 709.  Form 709 is a separate tax return, which is not submitted with the taxpayer’s annual tax return.

Failure to comply with the above reporting requirements can result in steep penalties to the unwitting taxpayer.  Failure to file an FBAR may result in civil penalties for negligence, pattern of negligence, non-willful, and willful violations.  These penalties range from a high penalty for willful violations, equal to the greater of $100,000 or 50% of the balance in the account at the time of violation, to a low penalty of $500 for negligent violations.  For failing to file a correct Schedule B or Form 8938, the taxpayer could face a failure-to-file penalty of $10,000, criminal penalties, and if the failure to file results in underpayment of tax, an accuracy-related penalty equal to 40% of the underpayment of tax and a fraud penalty equal to 75% of the underpayment of tax.

Failure to file a correct and complete Form 3520results in an initial penalty of the greater of $10,000, 35% of the gross value of any property transferred to or distribution from a foreign trust, or 5% of the gross value of the portion of the trust’s assets treated as owned by the U.S. taxpayer.  An additional 5% penalty of any unreported foreign gifts may also apply for each month for which the failure to report continues.

Finally, failure to file a Form 709 may come with penalties for willful failure to file a return on time, willful attempt to evade or defeat payment of tax, and valuation understatements that cause an underpayment of the tax.  A 20% penalty of the tax underpayment may be imposed on both a substantial valuation understatement (the reported value of property listed on Form 709 is 65% or less of the actual value of the property) and a gross valuation understatement (the reported value listed on the Form 709 is 40% or less of the actual value of the property).

U.S. taxpayers who have an interest in a foreign trust would benefit from the experienced tax attorneys of the Law Office Of Jeffrey B. Kahn, P.C. representing you to avoid the pitfalls associated with failure to comply with the reporting requirements associated with having an interest in a foreign trust.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

Report of Foreign Bank and Financial Accounts (FBAR) Filing Limits

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In addition to annual income tax forms, certain taxpayers are required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”; previously called Form TD F 90-22.1).  All U.S. taxpayers who have an interest in, or signatory or other authority over a bank, securities or other similar foreign accounts must file an FBAR, if the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year.  The $10,000 threshold value applies whether the taxpayer holds the financial accounts separately or jointly with another person or persons.

As of October 1, 2013 the FBAR form must be filed through the Financial Crimes Enforcement Network’s (FinCEN’s) Bank Secrecy Act E-Filing System on or before June 30th of the year following the calendar year being reported.  For example, to report foreign accounts held open in 2013, the taxpayer must file the FBAR by June 30, 2014.

U.S. taxpayers who have foreign financial accounts would benefit from the experienced tax attorneys of the Law Office Of Jeffrey B. Kahn, P.C. representing you to avoid the pitfalls associated with failure to comply with the reporting requirements associated with owing foreign financial accounts.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

U.S. Taxpayer Worldwide Income Reporting Requirements

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Many U.S. taxpayers do not realize that they must report their worldwide income, regardless of whether they are living in the U.S. or abroad.  If you are a U.S. Citizen or resident alien, you must report your worldwide income from whatever source, subject to the same income tax filing requirements that apply to U.S. Citizens or resident aliens living in the U.S.

When a U.S. taxpayer owns or has signatory authority over a foreign account, the reporting requirements become more complex.   All U.S. taxpayers who have an interest in, or signatory or other authority over a bank, securities or other similar foreign accounts must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year.  As of October 1, 2013 the FBAR form must be filed through the Financial Crimes Enforcement Network’s (FinCEN’s) Bank Secrecy Act E-Filing System on or before June 30th of the year following the calendar year being reported.  For example, to report foreign accounts held open in 2013, the taxpayer must file the FBAR by June 30, 2014.

In addition to filing an FBAR form, the U.S. taxpayer must follow certain reporting requirements on his or her annual tax return.  First, the U.S. taxpayer must include a completed Schedule B, Interest and Ordinary Dividends, with his or her annual tax return.  On Schedule B, the taxpayer will complete Part III, Foreign Accounts and Trusts, which asks whether, at any time in the year, the taxpayer had a financial interest in or signatory authority over a foreign financial account.  Schedule B also asks whether the taxpayer is required to file an FBAR, and if so, in which foreign country the financial account was located.

The U.S. Taxpayer may also be required to file Form 8938, Statement of Specific Foreign Financial Assets with his or her annual tax return.  Whether a taxpayer is required to file this form depends on where the taxpayer lives, the taxpayer’s filing status, and the value in the accounts.  For example, unmarried taxpayers living in the United States must file Form 8938 if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

Failure to comply with the above reporting requirements can result in steep penalties to the unwitting taxpayer.  Failure to file an FBAR may result in civil penalties for negligence, pattern of negligence, non-willful, and willful violations.  These penalties range from a high penalty for willful violations, equal to the greater of $100,000 or 50% of the balance in the account at the time of violation, to a low penalty of $500 for negligent violations.  For failing to file a correct Schedule B and Form 8938, the taxpayer could face a failure-to-file penalty of $10,000, criminal penalties, and if the failure to file results in underpayment of tax, an accuracy-related penalty equal to 40% of the underpayment of tax and a fraud penalty equal to 75% of the underpayment of tax.

U.S. taxpayers who have foreign financial accounts would benefit from the experienced tax attorneys of the Law Office Of Jeffrey B. Kahn, P.C. representing you to avoid the pitfalls associated with failure to comply with the reporting requirements associated with owing foreign financial accounts.

Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.