IRS Form 8938 and Revised Form 8621 Filing Requirements Under Notice 2011-55

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The IRS recently released Notice 2011-55, partially suspending certain Foreign Account Tax Compliance Act (“FATCA”) information reporting requirements until Form 8938, (Statement of Specified Foreign Financial Assets), and a revised Form 8621, (Return by a Shareholder of a Passive Foreign Investment Company or a Qualified Electing Fund) are released.

It is important to note that while the reporting requirements of Forms 8938 and revised Form 8621 have been partially suspended, they have not been excused for taxpayers. Thus, taxpayers should be aware that until the new forms are issued, tax preparation may be necessary in order to be in compliance and avoid severe penalties.

FATCA Reporting Requirements

Congress enacted FATCA as part of the Hiring Incentives to Restore Employment Act (“HIRE” Act). Included in FATCA is the additional information reporting requirements of IRC Sections 6038(D) and 1298(f).

Under 6038(D), taxpayers who hold more than $50,000 in the aggregate in any financial account maintained by a foreign financial institution, or in any foreign stock, interest in a foreign entity (including a foreign trust, or financial instrument with a foreign counterpart that is not held in a custodial account of a financial institution) are subject to file a Form 8938 with their annual return.

IRC Code Section 1298(f) requires a U.S. person who is a shareholder in a passive foreign investment company (“PFIC”) to file an annual report, Form 8621. Notice 2011-55 states that the IRS will be issuing a revised Form 8621. Once the revised form is issued, individuals must retroactively file the revised Form 8621 for tax years beginning after the date of the HIRE Act (March 18, 2010).

The IRS is planning on also issuing further regulations regarding these reporting requirements.

Notice 2011-55

IRS Notice 2011-55 provides that the IRC 6038D Form 8938 reporting requirements are suspended until the form is released. Additionally, as noted above, for U.S. shareholders of PFIC’s who were not previously required to file Form 8621 under the current requirements before the enactment of Section 1298(f), reporting requirements are suspended (but not excused) until the revised Form 8621 is released. Taxpayers who are already required to file Form 8621 under the current instructions must continue to file the form.

When the IRS issues the revised forms, taxpayers who must file will be required to attach the appropriate forms to their next information return or tax return, completed for the suspended tax year. Failure to file (or to properly file) Form 8938 and/or Form 8621 for the suspended tax year may result in the extension of the statute of limitations under section 6501(c)(8), and penalties may also be applied.

A Form 8938 or revised Form 8621 filed for a suspended tax year with a timely filed information or tax return will generally be treated as having been filed in the date that the income tax or information return for the suspended tax year was filed.

Subject to certain exceptions, the statute of limitations for assessment of tax will not expire until three years after Form 8938 and/or revised Form 8621 is received by the IRS.

FBAR Requirements Not Affected

The IRS stated in Notice 2011-55 that the filing requirements of FinCEN Form 114 formerly Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts; “FBAR”) are not suspended under the notice.

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This article is intended to give a brief summary of these issues, and should not be construed as legal or tax advice. Tax planning and reporting often necessitates an experienced understanding of complex regulations, statutes, and case law, and penalties for failure to comply can be substantial. If you have further questions regarding your own tax circumstances, Sherayzen Law Office offers professional advice for all of your Federal, international, cross-border, and state tax needs. Call or email for a consultation today.

What is SEP IRA?

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A Simplified Employee Pension (“SEP”) is a written plan that allows you to make contributions toward your own retirement as well as your employees’ retirement while avoiding the complexity of various qualified plans. Under a SEP, you make contributions to a traditional IRA set up by or for each eligible employee.

It is important to note that SEP-IRA is owned and controlled by the employee, and you make contributions to the financial instituation where the SEP-IRA is maintained.

At a minimum, SEP-IRAs are set up for each employee that is considered to be eligible under the IRS regulations. “Excludable” employees can be excluded from coverage under a SEP.

There are three basic steps in setting up a SEP. First, you must execute a formal written agreement to provide benefits to all eligible employees. Second, you must give each eligible employee certain information about the SEP. Finally, a SEP-IRA must be set up by or for each eligible employee.

While there are special rules determining the contribution limit for self-employed individuals, generally, a contribution to a common-law employee’s SEP-IRA cannot exceed the lesser of 25% of the employee’s compensation or $49,000 (for the tax year 2011).

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If you have any questions with respect to SEP-IRA and how it functions, contact Sherayzen Law Office for additional legal help.

Pension Plan Limitations for 2012

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Due to the cost of living adjustments, many of the pension plan limitations will change for 2012, but others will remain the same.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Commissioner annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made pursuant to adjustment procedures which are similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

The following is the description of most of the changes:

Effective January 1, 2012, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) is increased from $195,000 to $200,000.

The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.

The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.

The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.

The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2012 from $49,000 to $50,000.

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $16,500 to $17,000.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $245,000 to $250,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $160,000 to $165,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $985,000 to $1,015,000, while the dollar amount used to determine the lengthening of the 5 year distribution period is increased from $195,000 to $200,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $110,000 to $115,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $5,500. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $360,000 to $375,000.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $16,500 to $17,000.

The compensation amounts under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $95,000 to $100,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $195,000 to $205,000.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $34,000 to $34,500; the limitation under Section 25B(b)(1)(B) is increased from $36,500 to $37,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), is increased from $56,500 to $57,500.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $25,500 to $25,875; the limitation under Section 25B(b)(1)(B) is increased from $27,375 to $28,125; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), is increased from $42,375 to $43,125.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $17,000 to $17,250; the limitation under Section 25B(b)(1)(B) is increased from $18,250 to $18,750; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), is increased from $28,250 to $28,750.

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $90,000 to $92,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $56,000 to $58,000. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $169,000 to $173,000.

The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $169,000 to $173,000. The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $107,000 to $110,000.

The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under section 430(c)(2)(D) has been made is increased from $1,014,000 to $1,039,000.

The following is the highlight of the items that remain unchanged:

The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $550.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $11,500.

The deductible amount under § 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,000.

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Incoterms 2010 FCA

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In a previous essay, I already explained the importance of Incoterms to drafting of international contracts and discussed one of the Incoterms 2010 (EXW). In this article, I will provide a brief overview of another and more common Incoterms 2010 – FCA.

FCA (Free Carrier) means that the seller delivers (the Incoterms 2010 rules specify exactly when such even occurs) the goods to the carrier or another person designated by buyer at the seller’s premises or another named location. If FCA is used, the seller’s obligations are expanded to clearing the export license (where necessary) and otherwise comply with the customs requirements for exports in addition to providing the goods conforming with the contract specifications. There is no such requirements for securing an import license; rather, this is still the buyer’s obligation.

The buyer still makes the contracts of carriage and insurance under FCA. However, there are exceptions to this rule whether based on the buyer’s request or commercial practice. Furthermore, the buyer is not obligated to the seller to make such contract of insurance. If the buyer wishes to obtain the contract of insurance, the seller is obligated to supply the information necessary for the buyer to secure the contract of insurance.

There are fairly complex rules surrounding FCA with respect to the transfer of risk under FCA. Generally, the seller bears all risks of loss and damage up to the point of delivery of goods as specified by the Incoterms 2010 rules. However, there are important exceptions that may modify the main rule and force one of the parties (usually buyer) to bear the burden of risk from an earlier point.

Unlike EXW, the allocation of costs to the seller now explicitly includes all costs related to the customs formalities related to the export of the goods (inlcuding taxes, duties, and other export-related charges). The buyer’s obligation to pay costs is also expanded in certain circumstances, including the failure to provide certain notices to the seller. Likewise, there are specific exceptions to these rules.

It is also important to note here that Incoterms 2010 provide a number of specific requirements with respect to the notices that should be given by the parties to each other, packaging of goods, checking the goods, pre-shipment inspection, security-related information, and other numerous rules.

Whether you are a buyer or a seller, you are well-advised to consult an international contract attorney before you use any of the Incoterms 2010. The description of FCA provided in this essay is fairly basic and for general information only. It should not be relied upon in drafting the contract.

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If you are about to engage in a transaction involving an international delivery of goods, contact Sherayzen Law Office for legal help. Our experienced international contract firm can assist you at every stage of your contract: negotiation, drafting and enforcement. We will provide a rigorous representation of your interests, protect your contractual rights, and strive to ensure that the contemplated transaction goes as smoothly as planned.

Incoterms 2010: EXW

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Incoterms (the ICC rules on the use of domestic and international trade terms) constitute a critical part of an international sales contract.  Their most important contribution to the contract consist of a clear delineation of the parties’ respective obligations, thereby reducing the risk of misunderstanding and litigation.  Moreover, Incoterms are regularly updated and, therefore, incorporate the recent developments in global trade.  The latest update occurred in 2010 and, today, Incoterms 2010 constitute an invaluable part of an international trade attorney’s vocabulary.

In this essay, I want to provide a very brief overview of one of the most unfamiliar Incoterms 2010 – EXW.

EXW (Ex Works) means that the seller delivers the goods to the buyer when the seller places the goods at the disposal of the buyer on the seller’s premises (or at another specific named location).  The seller does not need to load the goods on any collecting transport.  It also does not need to clear the goods for export.

If EXW is used, the buyer bears all costs and risks when it takes the goods from the agreed point (usually, the seller’s premises).

In other words, among all of the Incoterms 2010, the seller has minimum obligations if EXW is used.

While EXW may appeal to the seller, one should use this Incoterm very carefully.  In addition to the fact that it is not easy to get the buyer to agree to EXW, there are certain disadvantages to using EXW.  For example, the obligation of the buyer to supply to seller the information regarding exports is very limited even though the seller may actually need this information for tax or export control compliance purposes.

Moreover, Incoterms do spell out certain conditions that may actually broaden the seller’s obligations. For example, the seller is obligated to supply the buyer with certain information necessary for security-clearance purposes.

Thus, despite all of its apparent simplicity, EXW should be used only where the situation warrants its use.  It is well advised that a non-professional should not engage in using Incoterms, such as EXW.  Rather, such decisions should be left to an international contract attorney who will have a better understanding of when to utilize EXW.

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If you are about to engage in a transaction involving an international delivery of goods, contract Sherayzen Law Office for legal help.  Our experienced international contract firm can assist you at every stage of your contract: negotiation, drafting and enforcement. We will provide a rigorous representation of your interests, protect your contractual rights, and strive to ensure that the contemplated transaction goes as smoothly as planned.