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FBAR Maximum Account Value Determination | FBAR Tax Lawyer & Attorney

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Determination of the FBAR maximum account value is a problem with which every FBAR filer has to deal. In this article, I would like to provide the main guidelines for the determination of the FBAR maximum account value.

FBAR Maximum Account Value Determination: Background Information

The Report of Foreign Bank and Financial Accounts or FBAR requires each filer to disclose his financial interest in or signatory authority or any other authority over foreign bank and financial accounts to the IRS. As part of this disclosure, the filer must calculate and report the maximum account value for each of his foreign accounts on his FBAR.

FBAR Maximum Account Value Determination: Definition of Highest Value

FinCEN defines the maximum value of an account for FBAR purposes as “a reasonable approximation of the greatest value of currency or nonmonetary assets in the account during the calendar year.” In other words, the IRS does not expect you to always get the highest possible value. A reasonable approximation of this value will do if the exact highest value is not possible to determine.

FBAR Maximum Account Value Determination: Usual Problems

There are two main problems that each FBAR filer faces whenever he tries to identify the maximum account value for FBAR purposes. The first and most obvious problem is the determination of the highest account value. How does one determine the highest value for a bank account? What about a securities account where stocks fluctuate all the time? What about a precious metals account which has investments in different precious metals?

Second, FBAR requires that all amounts be stated in US dollars. Hence, an issue arises with respect to proper currency conversion – i.e. what is the proper currency exchange rate? Should the spot rates be used? Or December 31 exchange rates?

Let’s discuss each of these problems in more depth.

FBAR Maximum Account Value Determination: Methodology

Determination of maximum account value depends to a certain degree on the type of an account for which the filer is trying to determine this value. There is no question that, with respect to checking and savings bank accounts, the IRS wants you to use the full-year statements to determine the day on which the highest value was achieved for each of these accounts. This is a simple and effective method.

Determining the maximum value of a securities account is much harder, because securities fluctuate on a daily basis. For this reason, the IRS allows you to rely on periodic account statements to make this determination, especially end-of-year statements. This method is allowed only as long as the statements fairly approximate the maximum value during the calendar year.

Even this method, however, is often insufficient when one deals with mixed-currency accounts, mixed-investment accounts, mixed-metal accounts, et cetera. These situations should be handled on a case-by-case basis by your international tax attorney.

Let’s illustrate the complexity of the issues involved here by a relatively simple example. Generally, an end-of-year statement for an investment account is a good approximation of the maximum value of the account. If, however, there was a withdrawal of funds from the account following a major sale of investments, then the end-of-year statement cannot be relied upon. Instead, one should try a different method to approximate the highest value. One possibility is to use a reliable and known financial website for valuing the remaining assets on the date of the sale plus the proceeds from the sale of investments. The method, however, may fail if the highest value of investments was at the beginning of the year, not the date of sale.

FBAR Maximum Account Value Determination: Currency Conversion

Unlike the identification of the highest account value with its various complications, the currency conversation part of the FBAR maximum account value determination is fairly straightforward. All filers must use the end-of-year FBAR rates published by the Treasury Department. These rates are officially called “Treasury Financial Management Service rates”, but they are commonly called “FBAR rates” by US international tax lawyers. The FBAR rates are division rates, not the multiplication ones. This is standard in US international tax law.

Hence, for the currency conversion purposes, you need to identify the currency in which your account is nominated, find the appropriate FBAR conversion rate for the relevant year and divide your highest balance by the relevant FBAR rate. For your convenience, Sherayzen Law Office also publishes FBAR rates on its website.

Contact Sherayzen Law Office for Professional Help With Your FBAR Preparation

If you are required to file FBARs, contact Sherayzen Law Office for professional help. We have helped hundreds of US taxpayers to comply with their FBAR obligations, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Joint Account FBAR Reporting | FBAR Tax Lawyer & Attorney

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As an FBAR tax attorney, I constantly deal with the issues of joint account FBAR reporting. In most cases, the joint account FBAR reporting goes relatively smooth, but problems may surface from time to time. In this essay, I would like to address the general issues concerning joint account FBAR reporting.

Joint Account FBAR Reporting: FBAR Background

FBAR is the acronym for the Report of Foreign Bank and Financial Accounts, FinCEN Form 114. A US person has to file an FBAR if he has a financial interest in or signatory authority or any other authority over foreign bank and financial accounts the aggregate value of which exceeds $10,000 at any point during the relevant calendar year.

It is important to emphasize that, with respect to joint accounts, each joint owner takes the entire value of the account in calculating whether he or she exceeded the $10,000 filing threshold.

A US person should file an FBAR separately from the tax return. Since 2016 FBAR, the Congress aligned the FBAR filing deadline with that of an income tax return (i.e. April 18). For example, the 2022 FBAR is due on April 18, 2023 (with an automatic extension until October 16, 2023 if needed).

Joint Account FBAR Reporting: Joint Owners

If two or more persons jointly maintain or own a partial interest in a foreign bank or financial account, then each of these persons has a financial interest in that account. Hence, as long as they are US persons, each of these US persons has to report the account on his or her FBAR.

Moreover, each of the filers must also indicate the principal joint owner of the joint account, even if this owner is not a US person. I wish to repeat this important point: the joint owner must be disclosed on FBAR even if he is not a US person. Besides the name of the joint owner, the filer must report the joint owner’s address and tax identification number (US or foreign).

Joint Account FBAR Reporting: Report the Entire Value of the Account

Even though the same joint account may be reported at least twice, FinCEN requires the FBAR filer to disclose the entire value of each jointly-owned foreign account on his FBAR.

Joint Account FBAR Reporting: Exception for Spouses

In certain circumstances, spouses may file a joint FBAR. This means that the spouse of an FBAR filer may not be required to file a separate FBAR, but she can join her husband in filing one FBAR for both of them.

In order to qualify for this exception, the spouses must meet the following three conditions. First and most important, all of the financial accounts that the non-filing spouse has to report are jointly owned with the filing spouse. The filing spouse may have additional accounts, but the non-filing spouse should not have any other foreign bank and financial accounts. Beware, however, that if one spouse is an owner of a foreign account, but the other spouse only has a signatory authority over the same account, then separate FBARs must be filed by each spouse.

Second, the filing spouse reports the jointly owned accounts on a timely filed FBAR and a PIN is used to sign item 44.

Third, both spouses must complete and sign Form 114a, a Record of Authorization to Electronically File FBARs (maintained with the filers’ records).

Contact Sherayzen Law Office for Professional Help With Joint Account FBAR Reporting

If you have foreign bank and financial accounts, contact Sherayzen Law Office for professional help with US international tax compliance and FBAR reporting. We have helped hundreds of US taxpayers with their FBAR filings, including joint FBAR filings, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Italian Bank Accounts | International Tax Lawyer & Attorney New York New Jersey

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US tax requirements concerning Italian bank accounts can be quite burdensome and complex. The chief three US reporting requirements applicable to Italian bank accounts are: worldwide income reporting, FBAR and FATCA Form 8938. Let’s discuss each of these requirements in more depth.

Italian Bank Accounts: US Tax Residents and US Persons

Before we delve into the discussion of these requirements, we need to identify who is required to comply with these requirements. This task is complicated by the fact that each of aforementioned three requirements has its own definition of a required filer.

Nevertheless, we can readily identify the categories of required filers shared by all three requirements. These categories correspond most closely, but not exactly to the concept of US tax residents. “US tax residency” is a broad term which includes US citizens, US permanent residents, residents who satisfy the Substantial Presence Test and individuals who declare themselves as US tax residents.

This definition of a US tax resident is fully applicable to the worldwide income reporting requirement and very closely corresponds to the concept of the Specified Person of Form 8938. FBAR’s concept of “US Persons”, however, does differ more significantly from the definition of a “US tax resident”, but only in more unusual circumstances. The most common differences arise with respect to the treaty “tie-breaker” provisions to escape US tax residency and persons who declare themselves tax residents of the United States.

Additionally, I wish to caution the readers that even the definition of US tax residents which I just stated has a number of important exceptions, such as visa exemptions (for example, an F-1 visa five-year exemption for foreign students) from the Substantial Presence Test.

In other words, the issue of who the required filer is, requires careful analysis of the facts and circumstances of an individual. This is definitely the job of your international tax attorney; it is just too dangerous to attempt to do it yourself.

Italian Bank Accounts: Worldwide Income Reporting

All US tax residents must report their worldwide income on their US tax returns. In other words, US tax residents must disclose both US-source and foreign-source income to the IRS. In the context of the Italian bank accounts, foreign-source income means all bank interest income, dividends, royalties, capital gains and any other income generated by these accounts.

Italian Bank Accounts: FBAR Reporting

The official name of the Report of Foreign Bank and Financial Accounts (“FBAR”) is FinCEN Form 114. FBAR requires all US Persons to disclose their ownership interest in or signatory authority or any other authority over Italian bank and financial accounts if the aggregate highest balance of these accounts exceeds $10,000.

I wish to emphasize again that, while the term “US persons” is very close to “US tax residents”, it is not the same. The term “US tax residents” is slightly broader than “US persons”. I encourage you to search our website – sherayzenlaw.com – for articles concerning the definition of a US Person.

One aspect of the FBAR requirement, however, deserves a special mention here – the definition of an “account”. The FBAR definition of an account is substantially broader than how this word is generally understood in our society. “Account” for FBAR purposes includes: checking accounts, savings accounts, fixed-deposit accounts, investments accounts, mutual funds, options/commodity futures accounts, life insurance policies with a cash surrender value, precious metals accounts, earth mineral accounts, et cetera. In fact, whenever there is a custodial relationship between a foreign financial institution and a US person’s foreign asset, there is a very high probability that the IRS will find that an account exists for FBAR purposes.

Finally, no discussion of FBAR can be considered complete without mentioned the much-dreaded FBAR penalty system. It is complex and severe to an astonishing degree. The most feared penalties are criminal FBAR penalties with up to 10 years in jail (of course, these penalties come into effect only in the most egregious situations). The next layer of penalties are FBAR willful civil penalties which can easily exceed a person’s net worth. Finally, FBAR imposes penalties even on non-willful taxpayers.

All of the civil FBAR penalties have their own complex web of penalty mitigation layers, which depend on the facts and circumstances of one’s case. One of the most important factors is the size of the Italian bank accounts subject to FBAR penalties. Additionally, since 2015, the IRS has added another layer of limitations on the FBAR penalty imposition. These self-imposed limitations of course help, but one must keep in mind that they are voluntary IRS actions and may be disregarded under certain circumstances (in fact, there are already a few instances where this has occurred).

Italian Bank Accounts: FATCA Form 8938

FATCA Form 8938 has been in existence since 2011. Unlike FBAR, it is filed with a federal tax return and considered to be an integral part of the return. This means that a failure to file File 8938 may render the entire tax return incomplete and potentially subject to an IRS audit.

Form 8938 requires “Specified Persons” to disclose on their US tax returns all of their Specified Foreign Financial Assets (“SFFA”) as long as these Persons meet the applicable filing threshold. The filing threshold depends on a Specified Person’s tax return filing status and his physical residency. For example, if he is single and resides in the United States, he needs to file Form 8938 as long as the aggregate value of his SFFA is more than $50,000 at the end of the year or more than $75,000 at any point during the year.

The IRS defines SFFA very broadly to include an enormous variety of financial instruments, including foreign bank accounts, foreign business ownership, foreign trust beneficiary interests, bond certificates, various types of swaps, et cetera. In some ways, FBAR and Form 8938 require the reporting of the same assets, but these two forms are completely independent from each other. This means that a taxpayer may have to do duplicate reporting on FBAR and Form 8938.

Specified Persons consist of two categories: Specified Individuals and Specified Domestic Entities. You can find a detailed explanation of both categories by searching our website sherayzenlaw.com.

Finally, Form 8938 has its own penalty system which has far-reaching consequences for income tax liability (including disallowance of foreign tax credit and imposition of higher accuracy-related income tax penalties). There is also a $10,000 failure-to-file penalty.

Contact Sherayzen Law Office for Professional Help With the US Tax Reporting of Your Italian Bank Accounts

Worldwide income reporting, FBAR and Form 8938 do not constitute a complete list of US reporting requirements that may apply to Italian bank accounts. There may be many more.

This is why, if you have Italian bank accounts, should contact Sherayzen Law Office. We have a highly knowledgeable international tax compliance team headed by an experienced international tax attorney, Mr. Eugene Sherayzen. We have helped hundreds of US taxpayers with their US international tax issues, including reporting Italian bank accounts, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

2018 FBAR Civil Penalties | FBAR Tax Lawyer & Attorney

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Following the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, the FBAR civil penalties are adjusted every year by the IRS for inflation. In this brief article, I would like to describe the new 2018 FBAR Civil Penalties that may be assessed by the IRS with respect to FBAR noncompliance.

2018 FBAR Civil Penalties: Pre-2016 FBAR Penalty System

The FBAR penalty system was already complex prior to the FBAR penalty inflation adjustment. It consisted of three different levels of penalties with various levels of mitigation. The highest level of penalties consisted of criminal penalties. The most dreadful penalty was imposed for the willful failure to file FBAR or retain records of a foreign account while also violating certain other laws – up to $500,000 or 10 years in prison or both.

The next level consisted of civil penalties imposed for a willful failure to file an FBAR – up to $100,000 or 50% of the highest balance of an account, whichever is greater, per violation per year.

The third level of penalties were imposed for the non-willful failure to file an FBAR. The penalties were up to $10,000 per violation per year. It is also important to point out that the subsequent laws and IRS guidance imposed certain limitations on the application of the non-willful FBAR penalties.

Finally, there were also penalties imposed solely on businesses for negligent failure to file an FBAR. These penalties were up to $500 per violation; if, however, there was a pattern of negligence, the negligence penalties could increase ten times up to $50,000 per violation.

2018 FBAR Civil Penalties: Penalty Adjustment System

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 further complicated the already complex FBAR penalty system, including for 2018 FBAR civil penalties.

As a result of the Act, with respect to post-November 2, 2015 violations, the exact amount of penalties will depend on the timing of the IRS penalty assessment, not when the FBAR violation actually occurred.

For example, in 2017, the IRS announced that if the IRS penalty assessment was made after August 1, 2016 but prior to January 16, 2017, then the maximum non-willful FBAR penalty per violation would be $12,459 and the maximum willful FBAR penalty per violation would be the greater of $124,588 or 50% of the highest balance of the account.

Similarly, if the penalty was assessed after January 15, 2017, the maximum non-willful FBAR penalty would increase to $12,663 per violation and the maximum civil willful FBAR penalty would be the greater of $126,626 or 50% of the highest balance of the account.

Now, in 2018, post-January 15, 2017 FBAR penalties are adjusted higher.

2018 FBAR Civil Penalties: 2018 Inflation Adjustment

The new 2018 FBAR civil penalties for FBAR violations have increased as a result of inflation. If a penalty was assessed after January 15, 2017, the maximum 2018 FBAR civil penalties for a non-willful violation increased from $12,663 to $12,921. Similarly, the maximum 2018 FBAR civil penalties for a willful violation assessed after January 15, 2017 increased from $126,626 to $129,210.

It should be emphasized that the IRS currently interprets the term “violation” as a failure to report an account on an FBAR. In other words, these higher 2018 FBAR civil penalties can be assessed on a per-account basis.

Contact Sherayzen Law Office for Professional Help with 2018 FBAR Civil Penalties

If you have not filed your FBAR and you want to do a voluntary disclosure; if you are being audited by the IRS with the possibility of the imposition of FBAR penalties; or FBAR penalties have already been assessed and you believe that they are too high, you should contact Sherayzen Law Office for professional help.

Sherayzen Law Office has helped hundreds of US taxpayers to deal with their FBAR penalties on all levels: offshore voluntary disclosure, FBAR Audit pre-assessment, post-audit FBAR penalty assessment and FBAR litigation in a federal court. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

IRS Letter 3708: IRS Demand to Pay FBAR Penalty

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After the IRS imposes an FBAR penalty on the taxpayer, the IRS will send the taxpayer IRS Letter 3708 to demand the payment of the part of the FBAR Penalty that remains unpaid. In this article, I would like to discuss IRS Letter 3708 in more detail, particularly focusing on the various FBAR Penalty Collection options that the letter lists.

First Part of IRS Letter 3708: Explanation of FBAR Penalty Imposed and Balance Unpaid

IRS Letter 3708 begins with the statement that this letter is a demand for the payment of the FBAR (Report of Foreign Bank and Financial Accounts) penalty that was assessed to the taxpayer under relevant IRC sections (such as §5321(a)(5) and §5321(a)(6)). Then, the IRS Letter 3708 mentions that the taxpayer should have previously received IRS Letter 3709 with the explanation of penalty imposed based on the facts of the taxpayer’s case.

Second Part of IRS Letter 3708: Account Summary and Payment Instructions

The next part of IRS Letter 3708 is devoted to the summary of the taxpayer’s account – i.e. the amounts owed per each relevant year. At total amount due is provided at the end.

The letter continues with the explanation of the precise payment instructions, including what information needs to be written on the check (in order for the payment to be applied correctly). Also, an option for an installment agreement is mentioned if the payment in full is not possible. However, even in the case of an installment agreement, the interest of at least 1% will be charged (interest rates may change); additional debt servicing fee of about 18% of the penalty amount may also be charged.

Third Part of IRS Letter 3708: Interest and Penalties

Failure to pay the amount due within 30 days may lead to the imposition of interest and penalties. The interest is imposed under IRC Section 3717(a)-(d); the current rate is 1% per year, but it may be raised in the near future.

The late payment penalty is imposed under IRC Section 3717(e)(2); currently, the rate if 6% per year. This penalty is imposed on portion of the FBAR penalty that remains unpaid 90 days from the date listed on IRS Letter 3708.

IRS Letter 3708 also mentions that both, interest and penalties, may be abated under 31 C.F.R. 5.5(b).

Fourth Part of IRS Letter 3708: Collection Enforcement and Costs

The fourth part of the IRS Letter 3708 is very important, because it is devoted entirely to how the IRS can collect the amount due. The letter lists seven different collection enforcement mechanisms that are available to the IRS if the debt not paid within 30 days:

• Referral to the Department of Justice to initiate litigation against the taxpayer.
• Referral to the Department of the Treasury’s Financial Management Service. (This referral involves an additional debt-servicing fee that is approximately 18% of the balance due.)
• Referral to private collection agencies. (Referral to a private collection agency increases the additional debt-servicing fee from approximately 18% to 28% of the balance due.)
• Offset of federal payments such as income tax refunds and certain benefit payments such as social security.
• Administrative wage garnishment.
• Revocation or suspension of federal licenses, permits or privileges.
• Ineligibility for federal loans, loan insurance or guarantees

These additional costs may be imposed on noncomplying taxpayer based on 31 U.S.C. §3717(e)(1).

Final Part of IRS Letter 3708: Contesting Penalty Assessment

At the end, IRS Letter 3708 advises the taxpayers of two main options for contesting the penalty assessment. First, the taxpayers can file an administrative appeal with the Appeals Office in Detroit. This option is available if an administrative appeal was not requested based on Letter 3709 or if new situations have occurred since the last administrative review. The appeal must be requested in writing within 30 days from the date listed on IRS Letter 3708.

The second option is to file a refund suit in the United States District Court or the United States Court of Federal Claims. IRS Letter 3708 does not state whether such a suit would be subject to the full-payment rule (such as one that applied in income tax matters).

Contact Sherayzen Law Office if Your Received IRS Letter 3708 or IRS Letter 3709

If you received IRS Letter 3708 or IRS Letter 3709, contact Sherayzen Law Office for legal help as soon as possible. We have helped taxpayers around the world to reduce their FBAR penalties and we can help you!

Call Today to Schedule Your Confidential Consultation!