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October 15 2018 Deadline for FBARs and Tax Returns | US Tax Law Firm

With just a week left before October 15 2018 deadline, it is important for US taxpayers to remember what they need to file with respect to their income tax obligations and information returns. I will concentrate today on four main requirements for US tax residents.

1. October 15 2018 Deadline for Federal Tax Returns and Most State Tax Returns

US taxpayers need to file their extended 2017 federal tax returns and most state tax returns by October 15, 2018. Some states (like Virginia) have a later filing deadline. In other words, US taxpayers need to disclose their worldwide income to the IRS by October 15 2018 deadline. The worldwide income includes all US-source income, foreign interest income, foreign dividend income, foreign trust distributions, PFIC income, et cetera.

2. October 15 2018 Deadline for Forms 5471, 8858, 8865, 8938 and Other International Information Returns Filed with US Tax Returns

In addition to their worldwide income, US taxpayers also may need to file numerous international information returns with their US tax returns. The primary three categories of these returns are: (a) returns concerning foreign business ownership (Forms 5471, 8858 and 8865); (b) PFIC Forms 8621 – this is really a hybrid form (i.e. it requires a mix of income tax and information reporting); and (c) Form 8938 concerning Specified Foreign Financial Assets. Other information returns may need to be filed by this deadline; I am only listing the most common ones.

3. October 15 2018 Deadline for FBARs

As a result of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, the due date of FinCEN Form 114, The Report of Foreign Bank and Financial Accounts (also known as “FBAR”) was adjusted (starting tax year 2016) to the tax return deadline. Similarly to tax returns, the deadline for FBAR filing can also be extended to October 15; in fact, under the current law, the FBAR extension is automatic. Hence, October 15 2018 deadline applies to all 2017 FBARs which have not been filed by April 15, 2018.

The importance of filing this form cannot be overstated. The FBAR penalties are truly draconian even if they are mitigated by the IRS rules. Moreover, an intentional failure to file the form by October 15 2018 may have severe repercussions to your offshore voluntary disclosure options.

4. October 15 2018 Deadline for Foreign Trust Beneficiaries and Grantors

October 15 2018 deadline is also very important to US beneficiaries and US grantors (including deemed owners) of a foreign trust – the extended Form 3520 is due on this date. Similarly to FBAR, while Form 3520 is not filed with your US tax return, it follows the same deadlines as your income tax return.

Unlike FBARs, however, Form 3520 does not receive an automatic extension independent of whether you extended your tax return. Rather, its April 15 deadline can only be extended if your US income tax return was also extended.

Sherayzen Law Office warns US taxpayers that a failure to file 2017 Form 3520 by October 15 2018 deadline may result in the imposition of high IRS penalties.

2018 Tax Filing Season | International Tax Lawyer News

On January 4, 2018, the IRS announced that the 2018 tax filing season for the tax year 2017 will commence on January 29, 2018. This date was chosen by the IRS to make sure its software incorporates the full impact of the Tax Cuts and Jobs Act of 2017 on the 2017 tax returns.

2018 Tax Filing Season: EITC and ACTC Refunds

Despite the fact that the 2018 tax filing season will begin on January 29, the IRS warned that taxpayers who will claim Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) will not receive their refunds until at least February 27, 2018.

2018 Tax Filing Season: Processing of Paper Tax Returns

Also, it is important to note that the processing of paper returns will begin only in mid-February, because the system updates will continue until that time. The IRS, however, will begin accepting both, electronic and paper tax returns, on January 29, 2018.

This is very important for taxpayers who file US international information returns, such as Forms 926, 5471, 8621, 8865, 8938, et cetera. A lot of these returns are voluminous and cannot be e-filed due to tax software limitations; hence, they must be filed on paper.

2018 Tax Filing Season: Deadline on April 17, 2018

The filing deadline to submit 2017 tax returns will be on Tuesday, April 17, 2018. Usually, the deadline would be on April 15, but, in 2018, April 15 falls on a Sunday and April 16 is a legal holiday in the District of Columbia (Emancipation Day). Under the tax law, legal holidays in the District of Columbia affect the filing deadline for federal tax returns; hence, the filing deadline moved by one more day to April 17, 2018.

US taxpayers who have to file international information returns should keep in mind that there are two categories of such returns: information reports which are filed with their 2017 tax returns and the information reports which are filed (or e-filed) separately from the 2017 tax returns. Forms 926, 5471, 8621, 8865, 8938 and other similar information returns must be filed with the original US tax returns.

On he other hand, FBARs (FinCEN Form 114) and Form 3520 should be filed separately from the taxpayers’ tax returns. The deadline for this category of returns, however, is the same as the deadline for the 2017 tax returns – April 17, 2018 (unless an extension is filed).

Contact Sherayzen Law Office for Help with Your US International Tax Compliance During this 2018 Tax Filing Season

If you have foreign income and/or foreign assets, or if you received a foreign gift or inheritance, you should contact Sherayzen Law Office for professional help in determining your US tax compliance obligations and the preparation of the required US international information returns.

Contact Us Today to Schedule Your Confidential Consultation!

IRS International Tax Campaigns | International Tax Attorney Houston

Five of the thirteen new IRS Campaigns directly target US international tax noncompliance. In this essay, I would like to provide a brief overview of these five IRS International Tax Campaigns. In the future articles, I will explain each of these campaigns in more detail.

IRS International Tax Campaigns: Background Information

After multiple years of preparation and reorganization, the IRS Large Business and International Division announced a new way to enforce US corporate and international tax laws – issue-focused IRS campaigns. An IRS campaign is basically an approach to tax enforcement which allows the IRS to allocate its scarce resources to a specific issue that the IRS believes to be a major noncompliance concern. This is very different from the previous IRS approaches which focused more on specific types of taxpayers.

On January 31, 2017, the IRS outlined the first thirteen campaigns and claimed that many more campaigns are in the process of being developed and finalized. Five of the first thirteen campaigns focus on international tax compliance issues.

IRS International Tax Campaigns: General Description

These five IRS International Tax Campaigns are: Offshore Voluntary Disclosure Program (“OVDP”) Declines-Withdrawals Campaign, Repatriation Campaign, Form 1120-F Non-Filer Campaign, Inbound Distributor Campaign and Related Party Transactions Campaign.

The international focus of the OVDP, Repatriation, Form 1120-F and Inbound Distribution Campaigns is fairly obvious. The Related-Party Transactions is listed among the IRS International Tax Campaigns because of the IRS focus on the transfer of funds from a controlled foreign corporation to its related pass-through entities (US or foreign) or shareholders.

IRS International Tax Campaigns: What Taxpayers are at Risk

Among the IRS International Tax Campaigns, the OVDP Declines-Withdrawal Campaign and Form 1120-F Non-Filer Campaign can apply to small, mid-market and high net-worth taxpayers. It appears that the Inbound Distributor Campaign is likely to apply to any mid-market to large taxpayers. The rest of the IRS International Tax Campaigns, the Repatriation Campaign and the Related Party Transactions Campaign, specifically identify “mid-market taxpayers” as a targeted group. It should be stated, however, that the Repatriation Campaign will also indiscriminately target failures to state taxable transactions on US tax returns.

From the description above, it is obvious that the IRS is increasing its focus on mid-market taxpayers. Who is considered to be a “mid-market” taxpayer? The IRS defined this category during its first webinar on March 7, 2017 as taxpayers with assets between $10 million and $250 million. If you or your company fall within this category, you are at a high risk of IRS examination.

What Should Taxpayers Exposed to the IRS International Tax Campaigns Do?

If you are taxpayer with tax issues identified in the IRS International Tax Campaigns, you should contact Sherayzen Law Office as soon as possible. Our team of tax professionals, headed by an international tax attorney, Mr. Eugene Sherayzen, will: throughly analyze your case to determine if you are currently in compliance with US tax laws, determine the options for proceeding forward with bringing your tax affairs into full compliance and preparing for an issue-based examination, and implement the preferred option (including the preparation of all legal documents and tax forms).

Contact Us Today to Schedule Your Confidential Consultation!

IRS AI Software to Analyze Tax Data | IRS Tax Lawyer Minneapolis

On November 18, 2016, Mr. Benjamin Herndon, the current IRS director for research and analytics, confirmed the recent rumors that the IRS AI Software is being tested to help IRS agents find patterns of tax noncompliance.

The idea is to supplement human analysis of data with the IRS AI software that would analyze any piece of data not only by itself, but also in conjunction with the other data available to the IRS. This way, the IRS AI Software is expected to analyze a very large amount of various data to identify tax noncompliance patterns.

This means that the IRS currently plans to use artificial intelligence for pattern recognition and visualization of data that would help IRS revenue agents uncover tax noncompliance. It is possible that the IRS AI software will even analyze a particular taxpayer’s characteristics in the context of a taxpayer’s behavior to uncover any discrepancies and potential tax noncompliance.

I believe that this is just the first step that the conservative agency is making. In the near future, one can foresee that the IRS AI software will start taking on more and more tasks such as conducting correspondence audits, certain automatized communications with taxpayers, analysis of data during a field audit (the IRS AI Software can be used most effectively during the audits of large corporations which have huge amounts of data), IRS customer support, international tax compliance (particularly analysis of data collected through FATCA and FBARs) and other vital IRS functions. Most likely, the decisions associated with penalty imposition and the negotiation of offer in compromise will rest with human IRS agents for now.

Finally, the biggest immediate impact of the IRS AI software is likely to be felt in the ability of the IRS to more effectively implement US tax laws and conduct more audits due to the fact that the IRS revenue agents will now be able to devote less time to audit analysis and more time to enforcement of tax laws.

In sum, the US taxpayers should be ready for the impending improved ability of the IRS to identify tax noncompliance and conduct more audits due to increased efficiency which will be introduced by the IRS AI Software.

Tata Mutual Fund FATCA Letters and Indians in the United States

Tata Mutual Fund FATCA Letters were some of the first FATCA letters received by U.S. investors in India. A lot of these U.S. investors were Indians born in India, but living and working in the United States. However, the process of sending FATCA letters is not over at this point. Therefore, more and more Indian-Americans should expect to receive Tata Mutual Fund FATCA Letters. In this article, I explore the purpose of Tata Mutual Fund FATCA Letters and how these letters affect Indians who live and work in the United States.

FATCA

The Foreign Account Tax Compliance Act (FATCA) became a law in 2010. The main purpose of FATCA is to combat tax noncompliance of U.S. taxpayers with foreign accounts. Since its enaction, FATCA was successfully implemented by most countries around the world and became a new global standard for the exchange of tax information. In fact, more than 110 jurisdictions today operate under the worldwide reach of FATCA.

What makes FATCA different from other tax regimes is the fact that its core target are foreign financial institutions and it has “teeth” in the form of 30% tax withholding on transactions done with noncompliant foreign financial institutions. While the 30% tax withholding provision is important, it is not directly relevant to our discussion.

On the other hand, it is very important to understand how FATCA impacts the behavior of foreign financial institutions – FATCA obligates foreign financial institutions to turn over certain information regarding foreign accounts owned by U.S. persons as well as certain information regarding the U.S. owners themselves. In essence, FATCA effectively turns all compliant foreign financial institutions into de-facto IRS informants.

This means that foreign financial institutions report to the IRS the information which, prior to FATCA, the IRS could only obtain after a long and expensive investigation. Therefore, the investigative reach of the IRS has grown enormously and the IRS is now able to find and track down with far more ease noncompliant U.S. taxpayers.

Furthermore, another part of FATCA is targeting U.S. taxpayers themselves by requiring them to report “Specified Foreign Assets” on Form 8938.

Tata Mutual Fund FATCA Letters

FATCA is usually implemented after an adoption of a FATCA implementation treaty. India signed the Model 1 FATCA treaty which came into force on August 31, 2015.

As a foreign financial institution, Tata Mutual Fund is obligated to comply with the obligations accepted by the Indian government under the FATCA agreement. For this purpose, Tata Mutual Fund needs to collect and turn over certain information regarding its U.S. investors.

Tata Mutual Fund FATCA Letters are designed exactly for this purpose – to collect the required FATCA information regarding U.S. investors into Tata Mutual Fund.

Impact of Tata Mutual Fund FATCA Letters on Indian-American Investors

Tata Mutual Fund FATCA Letters may have a profound impact on Indian who live and work in the United States while investing into Tata Mutual Fund, especially if this investment was not timely disclosed to the IRS. I would like to focus here on two issues: identification and voluntary disclosure.

First, Tata Mutual Fund FATCA Letters would allow IRS to identify noncompliant Indian-American investors into Tata Mutual Fund. This can lead to an IRS investigation and imposition of civil and even criminal penalties (depending on the gravity of tax noncompliance).

Second, by reporting noncompliant U.S. investors, Tata Mutual Fund FATCA Letters may trigger an IRS investigation that may prevent these U.S. investors from doing a timely voluntary disclosure. It must be remembered that, one of the fundamental conditions of all IRS voluntary disclosure options is that the U.S. taxpayer is not under IRS examination or investigation.

Hence, when a U.S. taxpayer receives Tata Mutual Fund FATCA Letters, the clock starts on his ability to do timely voluntary disclosure. On the other hand, if the taxpayer refuses to provide the requested information, he may be classified as a “recalcitrant taxpayer” (although, the Indian FATCA Agreement offers better treatment to recalcitrant taxpayers than most other FATCA treaties).

Contact Sherayzen Law Office if You Received a FATCA Letter from India

If you are an Indian-American or just an Indian who lives and works in the United States and you received a FATCA letter from your Indian financial institution, please contact Sherayzen Law Office for experienced help. Our professional legal team will thoroughly analyze your situation, propose the best strategy with respect to responding to the FATCA Letter, review your voluntary disclosure options and prepare all legal and tax documents required to complete your voluntary disclosure.

Call Us Today to Schedule Your Confidential Consultation!