The United States Internal Revenue Service has at long last posted to its website the instructions and form for reporting non-U.S. (foreign) financial assets under section 6038D of the Internal Revenue Code. This new Form applies from January 1, 2011 for tax returns filed from January 1, 2012 onwards.
The reporting thresholds requiring filing for the 7 million U.S. taxpayers living outside of the United States are:
• Single taxpayers/married filing separately: $200,000 on the last day of the year or $300,000 anytime during the year.
• Married filing jointly living abroad: $400,000 on the last day of the year or $600,000 at anytime during the year.
The limits requiring filing for taxpayers living within the United States are:
• Single taxpayers/married filing separately: $50,000 on the last day of the year or $75,000 anytime during the year.
• Married filing jointly: $100,000 on the last day of the year or $150,000 at anytime during the year.
This new form will add several hundred pages of additional information reporting to U.S. tax returns for millions of individuals.
The value of all pension plans will be reported annually, the value of every investment, every partnership, every insurance policy, every PayPal account - even online gambling accounts and accounts held as funeral plans or to give to the grandchildren when they are old enough will have to be disclosed. Valuing all these assets alone will make completing every U.S. tax return hugely more time consuming.
On December 16, 2011, the Internal Revenue Service issued temporary and proposed regulations relating to provisions that require foreign financial assets to be reported to the IRS for tax years beginning after March 18, 2010. The actual proposed and temporary regs provide that:
1. The foreign asset reporting requirement applies to individuals required to file 1040 or 1040-NR and to domestic entities, although only the individual form, Form 8938, is available now. 2. The taxpayer characteristics for the filing is in some respects more favorable, than the statute.
a. Unmarried taxpayers living in the US: The total value of 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
b. Married taxpayers filing a joint income tax return and living in the US: The total value of specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year
c. Married taxpayers filing separate income tax returns and living in the US: 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.
d. Taxpayers living abroad.
i. Status is other than a joint return and the total value of specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or
ii. Married filing joint return and the value of specified foreign assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year. These thresholds apply even if only one spouse resides abroad.
e. Married individuals who file a joint annual return for the taxable year will file a single Form 8938 that reports all of the specified foreign financial assets in which either spouse has an interest.
3. Assets Covered.
a. Both foreign financial and non-financial assets are covered.
b. Exceptions from reporting are made for assets reported on certain other tax forms. These include: Form 3520, Form 3520-A, Form 5471, Form 8621, Form 8865, or Form 8891. The value of specified foreign financial assets reported on these forms are included in determining the total value of assets for Form 8938 purposes, but the assets do not need to be reported on Form 8938. In this situation, the taxpayer identifies on Form 8938 which and how many of these form(s) report the specified foreign financial assets.
c. A beneficial interest in a foreign trust or a foreign estate is not a specified foreign financial asset of a specified person unless the specified person knows or has reason to know of the interest.
d. For Section 6038D purpose, an individual has an interest in the financial account if potential tax attributes or transactions related to the account would be reported on the individual’s tax return. The concept of signature authority does not apply for Section 6038D purposes.
a. Taxpayers required to file Form 8938 who do not are subject to penalties – a $10,000 failure to file penalty, an additional penalty of up to $50,000 for continued failure to file after IRS notification, and a 40 percent penalty on an understatement of tax attributable to non-disclosed assets.
b. The statute of limitations is extended to six years after a taxpayer’s return is filed if the taxpayer omits $5,000 from gross income attributable to a specified foreign financial asset, without regard to the reporting threshold or any reporting exceptions.
c. If the taxpayer fails to file or properly report an asset on Form 8938, the statute of limitations for the taxable year is extended until the taxpayer provides the required information. If the failure is due to reasonable cause, the statute of limitations is extended only with regard to the item or items related to such failure and not the entire tax year.
5. FBAR filing is required.
6. Entity filing is required pursuant to the proposed regs. There is no form yet to make the filing.
I recently attended an ABA
conference where multiple representatives from the IRS including, Senior
Litigation Counsel Kevin M. Downing, were speakers and they all reiterated that
the IRS has a program in place to audit Quiet Filers, who chose not to make a
voluntary disclosure but rather chose solely to amend their tax returns to
include their previously unreported income from their foreign bank accounts.
Issues that were not answered
1.What FBAR penalty will apply?
othe civil penalty for willfully failing to file an FBAR,
greater of $100,000 or 50 percent of the total balance of the foreign account
per violation. See 31 U.S.C. § 5321(a)(5).
othe civil penalty for non-willful violations that the IRS
determines were not due to reasonable cause are subject to a $10,000 penalty
per violation. See 31 U.S.C. § 5321(a)(5)(B) or
othe penalty of 25% (or more) of the total balance of the
foreign account in conformity with OVCI #2?
2.How will the IRS collect these FBAR
penalties under title 31? (File in FDC to reduce them to an enforceable judgment?)
3.Is the Quite Filer only subject to a
3 year statute limitations for income tax assessments, where the understatement
of income is less and 25% of the taxpayers AGI?
4.Does the fraud provision stop the
Statute of Limitations from running?
are sure there's are even more issues. Stay
tuned as these issues and more get developed, during the various IRS audits of
Quiet Filers, which has already begun.
IRS NEWSWIRE WASHINGTON—The Internal Revenue Service in coming days will release a new
information reporting form that taxpayers will use starting this coming tax
filing season to report specified foreign financial assets for tax year 2011.
Form 8938 (Statement of Specified Foreign Financial Assets) will be filed by
taxpayers with specific types and amounts of foreign financial assets or
foreign accounts. It is important for taxpayers to determine whether they are
subject to this new requirement because the law imposes significant penalties
for failing to comply.
The Form 8938 filing requirement was enacted in 2010 to improve tax
compliance by U.S. taxpayers with offshore financial accounts. Individuals who
may have to file Form 8938 are U.S. citizens and residents, nonresidents who
elect to file a joint income tax return and certain nonresidents who live in a
Form 8938 is required when the total value of specified foreign assets
exceeds certain thresholds. For example, a married couple living in the
U.S. and filing a joint tax return would not file Form 8938 unless their total
specified foreign assets exceed $100,000 on the last day of the tax year or
more than $150,000 at any time during the tax year.
The thresholds for taxpayers who reside abroad are higher. For example in
this case, a married couple residing abroad and filing a joint return would not
file Form 8938 unless the value of specified foreign assets exceeds $400,000 on
the last day of the tax year or more than $600,000 at any time during the year.
Instructions for Form 8938 explain the thresholds for reporting, what
constitutes a specified foreign financial asset, how to determine the total
value of relevant assets, what assets are exempted, and what information must
Form 8938 is not required of individuals who do not have an income tax
return filing requirement.
The new Form 8938 filing requirement does not replace or otherwise affect a
taxpayer’s obligation to file an FBAR (Report of Foreign Bank and Financial
Failing to file Form 8938 when required could result in a $10,000 penalty,
with an additional penalty up to $50,000 for continued failure to file after
IRS notification. A 40 percent penalty on any understatement of tax
attributable to non-disclosed assets can also be imposed. Special statute of
limitation rules apply to Form 8938, which are also explained in the
Form 8938, the form’s instructions, regulations implementing this new
foreign asset reporting, and other information to help taxpayers determine if
they are required to file Form 8938 can be found on the FATCA page of irs.gov.
Internal Revenue Service Dec. 14 released temporary regulations (T.D. 9567)
relating to the provisions of the Hiring Incentives to Restore Employment
(HIRE) Act that require foreign financial assets to be reported to IRS for
taxable years beginning after March 18, 2010.
temporary regulations provide guidance concerning the requirement that
individuals attach a statement to their income tax return on foreign financial
assets in which they have an interest. The temporary regulations affect
individuals required to file Form 1040, U.S. Individual Income Tax Return, and
certain individuals required to file Form 1040-NR, Nonresident Alien Income Tax
temporary regulations also serve as the text of proposed regulations contained
in a cross-reference notice of proposed rulemaking (REG-130302-10). The
proposed regulations describe requirements for certain domestic entities to
report foreign financial assets in the same manner as an individual.
This document is unpublished, but on 12/19/2011 it is scheduled to be published.
The Council of States, the Swiss
equivalent of the U.S. Senate, approved the amendments by a large majority,
with 27 representatives voting in favor and five against. The vote clears the
way for a final decision on the amendments in the National Council, the
parliament’s lower house. The 200 members of the National Council are due to vote
on the matter Dec. 21.
treaty is designed to replace a 1996 treaty. Both provide for judicial
assistance in cases of tax fraud, but the new treaty defines the framework for
this more precisely and admits tax evasion as well as fraud, in some cases, as
grounds for a request for assistance. Under previous agreements, Switzerland
limited cross-border cooperation to cases of suspected tax fraud.
Internal Revenue Service announced in Action on Decision 2011-05 that it will
not acquiesce on a U.S. Tax Court finding that, after weighing each of the 11
badges of fraud equally, the service did not establish taxpayers' intent to
fraudulently evade taxes.
v. Commissioner, T.C. Memo. 2011-161, the Tax Court found that the service was
only able to prove four badges of fraud in regard to William and Sharon
Norris's failure to pay taxes on the income from illegal gambling machines in
their convenience store in 1996.
pleaded guilty to tax evasion for 1998, and IRS issued a notice of deficiency
claiming the pair failed to report income for 1996 and 1998. While the Tax
Court found the couple was collaterally estopped from claiming they intended to
evade taxes for 1998, it said the service failed to prove they intended to
evade the 1996 taxes, as well.
filing the Internal Revenue Service's Form 8939 to elect into the modified
carryover basis regime for people who died in 2010 must file the form as
completely as possible, keeping in mind that amendments are limited.
one chance to get this thing right and you have a do-over within six months,
but you've got to file something by Jan. 17, 2012.
protective election is permitted and no extension of time is permitted.
allows executors to opt out of the estate tax for 2010 decedents and into a
carryover basis regime in which executors can allocate a basis increase of $1.3
million to assets passing to any person, and an additional $3 million to assets
passing to a surviving spouse.
Michael Thornton said “Petitioner's request to seal the record or
alternatively to proceed anonymously presents novel issues of balancing the
public's interests in open court proceedings against petitioner's privacy
interests as a confidential informant.”
the court granted summary judgment for the Internal Revenue Service on whether
the whistleblower was entitled to an award, Thornton concluded that granting
the request for anonymity struck a reasonable balance between the petitioner's
privacy interests as a confidential informant and the relevant social
parties were ordered to redact information that would tend to reveal the petitioner's
identity as the case progresses through appeals and additional litigation.
Internal Revenue Service spelled out the rules for U.S. and dual
citizens who want to comply with U.S. requirements to report their foreign bank
accounts, noting they will not be subject to penalties in all cases where they
have failed to file.
it is aware that some taxpayers who are citizens of both the United States and
a foreign country are only now realizing they are required to file a Report of
Foreign Bank Account (FBAR) and want to come into compliance.
In a new
fact sheet (FS-2011-13) dated Dec. 7, the
agency explained that taxpayers who owe no U.S. tax will not have to pay
failure to file or failure to pay penalties. “In addition, no FBAR penalty
applies in the case of a violation that IRS determines was due to reasonable
cause,” the fact sheet said. The document provided a detailed explanation of
FBAR filing requirements and the circumstances in which penalties will and will
not be imposed.
Scott proposed increasing the corporate income tax
exemption from $25,000 to $50,000. Such a move, he said, would eliminate the
tax liability for more than 25 percent of businesses currently paying the tax.
exemption hike would be the second in as many years. In June, Scott signed a bill
(H.B. 7185) that, as of Jan. 1, 2012, will increase the corporate income tax
exemption from $5,000 to $25,000.
The hike would effectively eliminate the 5.5
percent tax rate for nearly half of the 30,000 Florida businesses that
currently pay the tax.
We've all had a new
client come in the door and the first thing we want to know is their tax
Well, if you know what to ask for, then the Florida Department of
Revenue has a specific form that provides a breakdown of taxes the DOR believes
our client owes from past filing periods. The breakdown is by filing period and
type of tax. This form can reveal issues that even the client didn't know about.
First, as with any matter before the Florida Department of
Revenue, you must have a valid Power of Attorney. Once the POA is in place,
simply ask for a Florida DOR Form ZT09.
If you call the
DOR and ask for this form, don't be surprised if the person on the other end of
the line has never heard of the form.
It is a tool used by auditors to assess
what other taxes may be outstanding prior to an audit. Convince them that it is
available and don't let go until they find someone that can get it for you.
After protest from Ottawa, ambassador says IRS will institute new rules that will waive penalties for people filing late. Americans living in Canada who've neglected to pay their U.S. taxes are getting a big break from Uncle Sam.
The U.S. Internal Revenue Service is poised to waive potentially massive penalties for Americans who agree to come clean and don't owe any taxes, The Globe and Mail has learned.
The new rules will be announced within weeks by the IRS, according to David Jacobson, the U.S. Ambassador to Canada, who has been swamped with complaints from anxious Canadians.
The policy shift will come in the form of new guidance from the IRS, expected to be issued before the end of December. U.S. officials said the statement will make it clear that:
If a U.S. citizen files tax returns late and owes no taxes, there are no penalties for failure to file.
U.S. citizens who were unaware of the bank account reporting requirement can file previous reports now, along with a statement explaining why they're late. No penalty will be imposed if the IRS determines that there is reasonable cause.
Individuals who took part in earlier amnesty programs this year and in 2009 can reapply and get back penalties already paid.
U.S. officials would also not say what would happen to people who owe relatively small amounts to the IRS.
The change doe not address the concerns of Canadian financial institutions, which complain they'll face massive costs trying to track all their U.S. account holders. The new U.S. bank reporting rules, slated to come in 2014, could violate Canadian privacy laws.