Retirement Savings Contributions Credit 2013

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You may be eligible for a tax credit if you make eligible contributions (other than rollover contributions) to an employer-sponsored retirement plan or to an individual retirement arrangement.

Eligible Plans

The eligible plans for the retirement savings contribution credit include: traditional and Roth IRAs, 401(k), 403(b), governmental 457, SEP, SIMPLE, 501(c)(18)(D) and contributions to a qualified retirement plan as defined in section 4974(c) (including federal Thrift Savings Plan).

Additional Requirements and Limitations

Other important eligibility requirements and limitations include:

1. Income Limitations

You cannot exceed the following income limits in order to be able to take the Retirement Savings Contributions Credit (these are 2013 numbers):

• Single, married filing separately, or qualifying widow(er), with income up to $29,500

• Head of Household with income up to $44,250

• Married Filing Jointly, with income up to $59,000

2. Age Limitation

To be eligible for the Retirement Savings Contributions Credit you must have been born before January 2, 1996.

3. Full-Time Students Not Eligible

You cannot have been a full-time student during the calendar year if you wish to claim the Retirement Savings Contributions Credit (there are some specific definitions regarding the “student” status).

4. Cannot Be a Dependent on Another Person’s Tax Return

If you were claimed as a dependent on someone else’s 2013 tax return, you cannot take the Retirement Savings Contributions Credit.

5. Distributions are Deducted From Contributions

When figuring the Retirement Savings Contributions Credit, you generally must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date – including extensions – for filing the return for the credit year.

Credit amount

If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 or up to $2,000 if filing jointly. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.

Also note that the Retirement Savings Contributions Credit is a benefit in addition to other tax benefits which may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA.

FBARs and Polish Lokata Accounts

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In recent years, I have received a number of questions from my Polish clients about whether “Lokata” accounts are reportable on the FBARs. The short answer is “Yes”.

Lokata Accounts

Lokata is a fixed-term deposit account which is very common in Polish banks; a Lokata is very similar to U.S. CD-type of accounts. There are many types of lokatas – overnight, three-month, six-month and even twelve-month lokatas. Usually, the bank would automatically take the funds from a current account (so-called “rachunek biezacy”) and deposit it on the lokata at a certain fixed percent. At the end of the lokata period, the lokata is closed by the bank and the balance with interest (minus automatic 19% tax withholding for non-business accounts) is returned to the current account.

All major Polish banks (e.g. DZ Bank and Bank Zchodni WBK S.A.) offer lokatas to their clients.

Lokata and FBAR Complications

Every time lokata is opened, it is assigned a separate account number. For the purposes of the FBAR, it is a bank account which should be reported on the FBAR separately from the current accounts (contrary to some of the widely-held beliefs among U.S. taxpayers living and working in Poland).

So far, this sounds fairly simple. However, there are serious complications with respect to reporting lokata accounts on the FBAR. First, most current bank account statements are not likely to fully identify lokata accounts.

Second, even where a lokata is identified by a separate number, you still need to make sure that the amount shown on the statements actually reflects the gross amount (i.e. before tax withholding). Usually, it would not and you will need to request the bank to supply a separate bank statement for each lokata and keep track of all gross interest and withholding tax amounts.

Third, the sheer number of lokata accounts can be overwhelming. While there are may be renewable long-term lokatas, oftentimes, it is the opposite. The problem with short-term lokatas is that they terminate once the funds with interest are returned to the current account. This means that a new lokata account is likely to be open every time a new deposit is made. Imagine if a new lokata is opened every week, every three days or every day?! This can be an extremely burdensome requirement for U.S. taxpayers who maintain bank accounts in Poland.

Other problems may arise where the taxpayer needs records for prior years, a lokata is opened in one year and is closed in the following year, et cetera.

Contact Sherayzen Law Office for Help with Reporting Undisclosed Lokata Accounts

If you have undisclosed bank and financial accounts in Poland, contact Sherayzen Law Office for help with your voluntary disclosure. Our team of experienced international tax professionals will thoroughly analyze your case, estimate your current potential FBAR liabilities, propose a solution to your FBAR problems, and implement your voluntary disclosure plan, including preparation of all required legal documents and tax forms.

Form 114(a): Authorization to Efile FBARs

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In response to numerous requests made by the international tax attorneys and individual FBAR filers of the Reports of Foreign Bank and Financial Accounts (FBARs) jointly with spouses, or wish to submit them via third-party preparers, the Financial Crimes Enforcement Network (FinCEN) introduced FinCEN Form 114(a), Record of Authorization to Electronically File FBARs. A copy of this form would be maintained by the filer and the account owner, but not submitted to FinCEN. The form would be made available upon request by FinCEN or the Internal Revenue Service (IRS).

New Version of the FBAR

Note, that Form 114(a) came out just ahead of the new version of the FBAR which was tested in October of 2013.

FBARs are used by U.S. taxpayers to disclose foreign financial accounts and they were due on June 30; the filing deadlines now coincide with tax return deadlines (April and October) for each preceding calendar year. There is an automatic extension to October if you cannot file your FBAR by April 15th. Failure to file FBARs on time can lead to severe penalties and even criminal prosecution.

Modified Voluntary Disclosure Based on Reasonable Cause

It is important to emphasize that Form 114(a) should be provided to your international tax attorney if he is filing FBARs on your behalf. This is irrespective of whether you are filing your FBARs a few days late or whether your international tax attorney is e-filing the FBARs as part of your modified voluntary disclosure based on reasonable cause. Note that, starting October 1, 2013, the OVDP/OVDI participants are also required to e-file the FBARs ; special reference to the OVDP/OVDI program should also be submitted – contact Sherayzen Law Office for details.

Contact Sherayzen Law Office for Help with E-filing FBARs for Undisclosed Accounts

If you have foreign bank accounts and need help with e-filing late FBARs for undisclosed accounts, contact Sherayzen Law Office for legal and tax help. Our law firm consists of highly experienced international tax professionals who will thoroughly review your case, identify available options and prepare all of the legal documents and tax forms necessary for your voluntary disclosure process.

New 2013 FBAR form: E-filing Explanation for Late FBARs

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On October 1, 2013, in response to various requests from FBAR tax lawyers and accountants, FinCEN updated the online FBAR filing form. There are various new technical additions and a much friendlier user interface, but the inclusion of the explanation for the delay in FBAR filing is definitely the key new feature for the FBAR tax lawyers who are thinking about recommending the reasonable cause disclosure (a/k/a Modified Voluntary Disclosure) to their clients.

The late FBAR explanation has two particularly interesting characteristics.

Analysis of the Late Filing Explanation Choices

First, a taxpayer who files his FBAR late can choose among the following ten answers to explain the reason for filing the FBAR late:

A. Forgot to file
B. Did not know that I had to file
C. Thought account balance was below reporting threshold
D. Did not know that my account qualified as foreign
E. Account statement not received in time
F. Account statement lost (replacement requested)
G. Late receiving missing required account information
H. Unable to obtain joint spouse signature in time
I. Unable to access BSA E-Filing System
Z. Other

These choices are somewhat surprising for FBAR tax lawyers because some of these choices would not normally constitute a reasonable cause, others are repetitive and some may actually get the taxpayer (especially a taxpayer who is not represented by an FBAR tax lawyer).

The most dangerous answer is “A” – forgetting the FBAR means that the taxpayer admits to the knowledge of the existence of the FBAR requirement and non-willfully but negligently fails to comply with the FBAR requirement. Potentially, the IRS can use this answer to impose a $10,000 penalty per violation.

Choice “B” is a good but insufficient choice. Lack of knowledge of the FBAR may help establish non-willfulness, but it is not sufficient in itself for a reasonable cause. FBAR tax lawyers usually start with non-willfulness, but this is not where they end.

Choices “C” and, to a lesser extent, “F” may be dangerous because it is unclear where the confusion (in case of “C”) comes from and why the statements (in the case of “F”) were lost. The taxpayer could be opening the door to potential charge that he is not compliant with the FBAR recordkeeping requirements.

Outside of U.S. territories, I am not certain who would be using answer “D”. In any case, by itself, it does not appear to be sufficient to avoid the imposition of an FBAR penalty.

Choices “E” and “G” are pretty much the same and would be useful in presenting the argument for the reasonable cause, but this task can hardly accomplished without presenting a comprehensive context in which these events occurred. The same problem applies to “H” and “I”.

Choice “Z” – Other Explanation

The second and most important feature of the new FBAR is that it provides the space for writing an explanation for why the FBARs are filed late – this is the last choice “Z”.

There is, however, a very important limitation with respect to choice “Z”; there are only a maximum of 750 characters allowed. In other words, FinCEN and the IRS only gave taxpayers a few tweets to present a complex argument for non-willfulness and reasonable cause. Most FBAR tax lawyers will agree that 750 characters is a laughable amount of space for a reasonable cause explanation.

I believe that this feature will continue to be a great obstacle to submitting reasonable cause explanations purely electronically. More likely, the electronic explanation will need to reference the reasonable cause statement on paper.

Possibility of PDF File Upload in the Future

It seems that the IRS also understands that there is a big problem with choice Z. I fully expect the IRS to finish and implement a new feature (probably in the next version of the FBAR) that would allow FBAR tax lawyers to upload their reasonable cause statements as a pdf file (in a same manner as it is currently done in many court systems in the United States).

Contact Sherayzen Law Office for Legal Help With Late FBARs

If you have undisclosed foreign accounts and you are facing a situation where your FBARs will be filed late, contact Sherayzen Law Office for professional legal help with your late FBARs. Our experienced FBAR tax firm will thoroughly analyze your case, present the available choices, and properly conduct your voluntary disclosure, including the preparation and filing of late FBARs and other necessary legal documents and tax forms.

Offshore Voluntary Disclosure Attorney: Introduction to Program for Swiss Banks

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Since the early 2000s, the IRS has engaged in a multi-layered effort to enforce U.S. tax laws overseas, in particular (at least from the perspective of an offshore voluntary disclosure attorney) curb tax evasion in Switzerland with the emphasis on undisclosed Swiss financial accounts (mainly FBAR compliance). In 2008, the U.S. Department of Justice (DOJ) scored a major victory in the now-famous UBS case.

Since that case, DOJ has pursued a large number of criminal investigations against the U.S. accountholders, Swiss tax and financial advisors and, actually, Swiss banks. There has also been a tremendous surge in IRS civil audits and John Doe summons. Even the Whistleblower Office became engaged in the international tax compliance efforts. A number of new laws and treaties, stemming from FATCA, have been utilized by the U.S. government in its worldwide efforts to increase U.S. tax compliance internationally.

As the DOJ increased its pressure on the U.S. taxpayers who have undisclosed foreign accounts, the IRS created a number of voluntary disclosure programs, 2012 Offshore Voluntary Disclosure Program (OVDP) being the latest example. As of September of 2013, it is estimated that about 40,000 U.S. taxpayers have voluntary participated in this program OVDP is now closed.

The Program – Voluntary Disclosure Program for Swiss Banks

On August 29, 2013, the DOJ announced a new, unprecedented initiative – The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (Program) – which is intended to allow Swiss banks to bring themselves into compliance with DOJ requirements and avoid any US enforcement action in exchanged for detailed disclosures and, in some cases, the payment of monetary penalties.

In essence, this is a voluntary disclosure program. Unlike the OVDP, however, this is “OVDP” for foreign banks in a foreign country! This is a truly unique reach that the DOJ and IRS have achieved in a country which has been celebrated for centuries for its bank secrecy laws.

Outlines of Required Disclosure

Under the Program, the Swiss banks are required to turn over a vast amount of extensive and detailed information regarding its account holders, including providing the following information: description of how the banks structured, operated and supervised their cross-border activities; list of names and functions of all individuals who participated in any of this activity; description of how a bank marketed its services to U.S. persons and serviced their accounts; list the value of accounts greater than $50,000 during three separate periods; on an account by account basis, the highest value during the period beginning August 1, 2008; the number of persons affiliated with the account and their functions; whether the account was held in a structure (a foreign corporation, foundation, etc.); whether it held U.S. securities; the name and role of any outside advisor affiliated with the account; information about transfers of funds into or out of the account; and other detailed information (note: these are some of the disclosure requirements, but there are many more – contact offshore voluntary disclosure attorney Eugene Sherayzen at Sherayzen Law Office for more information).

In essence, with this information, the IRS and DOJ can freely pursue civil and criminal investigations of U.S. persons who have had undisclosed bank accounts since 2008 (and possibly earlier).

Consequences for Swiss Banks

The banks who participate in the Program can use the it to effectively close-out any potential U.S. compliance issues and prevent future criminal prosecution of the banks. The hope is that it will enable Swiss banks to put this issue behind them and enable them to develop a more attractive investment environment in the future.

Consequences for U.S. Accountholders

As any offshore voluntary disclosure attorney will tell you, the consequences for the U.S. accountholders with undisclosed accounts in Switzerland are infinitely more dire. Armed with such detailed information, the IRS should have no problems auditing and, ultimately, prosecuting U.S. taxpayers who are not compliant with U.S. tax laws.

Furthermore, those individuals who have engaged in quiet disclosure at any point since 2008 are under severe risk of exposure and potential prosecution. For example, if a U.S. taxpayer had an undisclosed account since 2004 and engaged in quiet disclosure in 2012, he may now potentially face an IRS audit for all years going back to 2007 (and potentially further).

Additionally, there is a great uncertainly for U.S. taxpayers with Swiss accounts who wish to enter the OVDP, because their accounts may have already been disclosed independently by Swiss banks to the IRS. In this case, the OVDP participation may be precluded.

Contact Sherayzen Law Office for Legal Help with Undisclosed Swiss Accounts

If you have undisclosed Swiss accounts at any point since 2005, contact Sherayzen Law Office for professional help. Our international tax law firm is highly experienced in the voluntary disclosures of foreign financial accounts and other offshore assets. We will thoroughly analyze your case, determine the available voluntary disclosure options for your offshore assets, and meticulously implement the chosen plan of action (including preparation of all legal documents and tax forms).