IRS Form W-9, FATCA and FBAR Compliance

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The Foreign Account Tax Compliance Act (“FATCA”) produced a major catalyst for the usage of Form W-9 by the banks in order to identify whether their clients are U.S. taxpayers. This article explores the connection between the IRS Form W-9, FATCA and FBAR compliance.

IRS Form W-9

The essence of the IRS Form W-9 is to allow a person, who is required to file an information return with the IRS, to obtain a U.S. taxpayer’s correct taxpayer identification number (TIN) in order to report the required transactions (for example, income paid to the taxpayer).

The taxpayer should use Form W-9 to provide his correct TIN to the person requesting it (the “requester”) and, where applicable, to certify that the taxpayer’s TIN is correct, that the taxpayer is not subject to backup withholding, and so on.

Form W-9 should be used only by U.S. persons.

FATCA and Form W-9

The recent developments in U.S. tax compliance laws and regulations, especially the enactment of FATCA, forced many overseas banks to identify which of their customers are U.S. taxpayers and report certain information about these taxpayers to the IRS.

This is why there has been a huge surge of Forms W-9 sent out by foreign banks to U.S. persons. In some countries, the foreign banks’ usage of Forms W-9 has been especially widespread. Among these countries are Switzerland, France, Germany and even India.

Where a U.S. taxpayer fails to supply Forms W-9, the foreign banks usually force the closure of a foreign bank account with all of its potentially negative consequences. Moreover, intentional failure by a U.S. taxpayer to supply Forms W-9 may be used by the IRS against such taxpayer as circumstantial evidence of willful failure to file the FBARs.

FBAR Compliance and Form W-9

It is important to recognize the direct link between Form W-9 and FBAR compliance. The exposure of non-compliance with Report of Foreign Bank and Financial Accounts (“FBAR”) is the true reason behind the IRS strategies to force foreign banks to send out Forms W-9 to their U.S. customers.

Receipt of Forms W-9 from a foreign bank by U.S. taxpayers who are not in compliance with the FBAR filings is a watershed event for such taxpayers (many of whom may not have even heard of the FBARs in the past). This is when the U.S. taxpayers should immediately contact an international tax attorney in order to conduct voluntary disclosure of their foreign accounts (obviously, it is even better to do it independently of the receipt of Form W-9, but the form adds special urgency to such a disclosure).

Form W-9 and Offshore Voluntary Disclosure Program 2012

It should be recognized that receipt of Form W-9 by itself (i.e. without any IRS investigation or examination) does not prevent the eligibility to enter into a voluntary disclosure program.

In most situations, the 2012 Offshore Voluntary Disclosure Program (“OVDP”), which was announced by the IRS on January 9, 2012, would still be available even after a taxpayer receives Form W-9. On the other hand, if the taxpayer provides the required information on Form W-9 to a foreign bank and the IRS begins an investigation of this taxpayer (after receiving the relevant information from the bank), then the taxpayer is likely to be precluded from participating in the OVDP.

Contact Sherayzen Law Office For Help With Voluntary Disclosure of Foreign Accounts

If you received Form W-9 and you have not been in compliance with the FBAR requirements, you should contact Sherayzen Law Office immediately for professional legal assistance. Our experienced voluntary disclosure firm will analyze the facts of your case, determine the extent of your FBAR (and any other U.S. tax compliance) liability, advise you on the available options, implement the best option of your choice (including filing of all necessary tax forms and amending prior tax returns), and provide rigorous IRS representation.

IRS Form 944 Basics

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General Obligations To Deposit Payroll and Income Tax Withholdings

Under federal law, employers must withhold Social Security, Medicare and Federal income taxes from their employees’ paychecks and deposit them with the federal government (together with the employer’s own payroll tax contributions). In addition to the deposit requirements, the employers are also obligated to file Form 941 every quarter to report the withholdings and make up for any deficiencies in deposits (or receive a refund).

Who Must File Form 944 – the Notice Requirement

Forms 941 can be a burdensome requirement for some very small employers. While computer software has alleviated some of the problems, it has not solved them.

Therefore, the IRS designed Form 944 to assist the smallest employers, which are defined as employers whose annual liability for social security, Medicare, and Federal income tax withholding is $1,000, or less. If the IRS notifies (and this is a crucial point) such an employer that the form is to be filed, the employer may file and pay such taxes only once a year, instead of every quarter.

Notice, the “notification” requirements. If the IRS does not notify you about Form 944, you must file Form 941 each quarter. It is also appropriate to note here the exceptions for agricultural and household employers who follow their own set of rules.

If, for some reason, you do not with to file Form 944, you will need to specifically contact the IRS and make such request. After the IRS notifies you about the changes in your reporting requirements, you can start filing Forms 941. Again, until you receive an IRS notice about the change in your Form 944 filing requirements, you must file Form 944.

Form 944 Reporting Requirements

If you are required to file Form 944, you should report all the following items: wages paid, tips received by employees; federal income tax withheld; both employer’s and the employee’s share of social security and Medicare taxes; any current year’s adjustments to social security for fractions of cents, sick pay, tips, or group-term life insurance; and any credits for COBRA premium assistance payments.

Form 944 Deadline

If you are required to file Form 944, you must file it only once a year. In most situations, it should be filed by January 31 after the end of the calendar year for which you are filing Form 944. Certain extensions are available if timely full payments of deposits were made by January 31.

Complications

Various complications may arise if you are a new owner or you sell (transfer) your business. You will need to contact a tax attorney to discuss how this affects your requirement to file Forms 941 and 944.

Another set of complications may arise if your Form 944 does not match your W3 amount. Usually, this means that there has been a mistake in reporting either on Form 944 or W3.

Finally, it should be remembered that Form 944 is only one requirement for employers. There are other reporting requirements that may apply to you. You should contact a tax attorney to discuss your federal tax responsibilities as an employer.

Penalties

If you fail to comply with Form 944 requirements, various penalties and interest may apply as required by law.

Contact Sherayzen Law Office With Any Questions about Form 944

If you have any questions with respect to Form 944 or if you failed to file Form 944, contact Sherayzen Law Office for professional legal help. Our experienced tax firm will analyze your situation, help you become compliant with all of your federal tax obligations, and provide rigorous representation of your interests during your negotiations with the IRS.

New FBAR Form: January 2012

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In January of 2012, the IRS issued a new version of the Treasury FinCEN Form 114 formerly Form TD F 90-22.1, popularly known as the “FBAR” (the Report on Foreign Bank and Financial Accounts).

This is a third revision of the FBAR in less than one year.  In March of 2011, the IRS made substantial changes to the FBAR instructions after adopting the final regulations concerning the form.  Then, in November of 2011, the IRS revised the form again to reflect certain changes, particularly concerning amendment of a previously filed FBAR.

The latest revision mostly concerns the contact information if you have any questions about the FBARs – a new telephone number and an email address.

Keep in mind that the 2011 FBARs should be filed separately from your tax returns, and they are due on June 30, 2012. This means that the IRS must receive an FBAR on that date; the usual “mailbox rule” (i.e. if the package is mailed on the due date, then it is timely) does not apply to FBARs.

Only the latest version of the FBAR must be used to report your foreign bank and financial accounts.  As of March 5, 2012, the January of 2012 version is the latest version.

Contact Sherayzen Law Office For the FBAR Issues

If you have any questions about the FBARs or you wish to determine whether this requirement applies to your case, you need to contact Sherayzen Law Office.  Our experienced international tax firm will thoroughly analyze the facts of your case and determine whether an FBAR requirement applies to you and what needs to be reported on the FBAR.

You should also contact Sherayzen Law Office to discuss your case if you were required to file the FBARs for the past years but you have not done so. The FBAR has one of the most severe penalty structures in the entire Internal Revenue Code, and it is important to secure the professional help of Sherayzen Law Office to properly deal with this issue.

Mortgage Debt Forgiveness: Key Points

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Under the current U.S. tax law, canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is came into existence under the Mortgage Forgiveness Debt Relief Act of 2007.

Under this law, married homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012 may exclude up to $2 million of debt forgiven on their principal residence. The limit is $1 million for a married person filing a separate return.

The exclusion applies to both, debt reduced through mortgage restructuring and mortgage debt forgiven in a foreclosure.

Not just any type of debt is entitled to the exclusion. In order to qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion. If, however, the proceeds of refinanced debt were used for other purposes (for example, to pay off credit card debt), then such proceeds do not qualify for the exclusion.

Other examples of debt that does not qualify for the exclusion include debt forgiven on second homes, rental property, business property, credit cards or car loans. In some cases, however, other tax relief provisions (e.g. insolvency) may be applicable.

If your debt is reduced or eliminated you should normally receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

In order to claim the special exclusion, you should fill out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

Second Quarter of 2012 Underpayment and Overpayment Interest Rates

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On February 23, 2012, the IRS announced that the underpayment and overpayment interest rates will remain the same for the calendar quarter beginning April 1, 2012. The rates will be:

  • three (3) percent for overpayments (two (2) percent in the case of a corporation)
  • three (3) percent for underpayments
  • five (5) percent for large corporate underpayments
  • one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

Notice 88-59, 1988-1 C.B. 546, announced that, in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding.

Interest factors for daily compound interest for annual rates of 0.5 percent are published in Appendix A of Revenue Ruling 2011-32. Interest factors for daily compound interest for annual rates of 2 percent, 3 percent and 5 percent are published in Tables 7, 9, 11, and 15 of Rev. Proc. 95-17, 1995-1 C.B. 561, 563, 565, and 569.