FBAR: Aggregate Value Requirement

FBAR filing is required only if the aggregate balances of a U.S. person’s foreign financial accounts exceed $10,000.

Despite appearances, the requirement that the aggregate value of all of the foreign financial accounts exceeds $10,000 at any time during a calendar year is not without complications. In order to figure out the account value in a calendar year, one needs to look first at the largest amount of currency and/or monetary instruments that appear on any quarterly or more frequently issued account statement for the relevant year. If the financial institution which manages the account does not issue any periodic account statements, then the maximum account value is the largest amount of currency and/or monetary instruments in the account at any time during the applicable year. If the account consists of stocks or other non-monetary assets, then one only needs to consider fair market value at the end of the relevant year. If, however, the non-monetary assets were withdrawn before the end of the calendar year, then the account value is determined to be the fair market value of the withdrawn assets at the time of the withdrawal.

The maximum value of a foreign financial account must be reported in U.S. dollars on the FBAR. Therefore, a taxpayer needs to convert foreign currency into the corresponding amount of U.S. dollars using the official exchange rate at the end of the relevant calendar year.

A final word of caution on the topic of the account balance. Notice the word “aggregate” – it means that the balances of all of the filer’s foreign financial accounts should be tallied to determine whether the $10,000 threshold is exceeded. For example, if the filer has one foreign bank account of $6,000 and another of $5,000, then he still needs to file the FBAR with the DOT, because the aggregate value of both accounts exceeds the required $10,000.

Deciding whether you are required to file the FBAR is a complicated process. Sherayzen Law Office can help you!

Call now to discuss your situation with an experienced tax attorney!

IRS Interest Rates: 4th Quarter of 2010

On August 19, 2010, the IRS announced that interest rates for the calendar quarter beginning October 1, 2010, will remain the same as follows:

1. Individual underpayment and overpayment: 4%;
2. Corporate overpayment: 3%
3. Large corporate underpayment: 6%
4. Portion of corporate overpayment exceeding $10,000: 1.5%

The interest rate is determined on a quarterly basis and compounds daily. 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 of a percentage point.

Interest factors for daily compound interest for annual rates of 1.5 percent, 3 percent, 4 percent, and 6 percent are published in Tables 8, 11, 13, and 17 of Rev. Proc. 95-17, 1995-1 C.B. 556, 562, 565, 567, and 571.

Recently Married Taxpayers: Five Basic Tips

If you are getting married this year, this may have a significant impact on your tax returns for the year 2010. While you are likely to deal with most of these changes when you will be filing your tax return for the tax year 2010, there are some basic administrative actions that you should be taken right now.

1. Notify the Social Security Administration (“SSA”). Report any name change to the SSA, so that your name and Social Security Number will match when you file your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security Card, at your local SSA office.

2. Notify the IRS. If you have a new address you should notify the IRS by sending Form 8822, Change of Address.

3. Notify the U.S. Postal Office. You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence

4. Notify Your Employer. Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.

5. Tax Withholding. If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on IRS.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will even provide you with a new Form W-4, Employee’s Withholding Allowance Certificate, you can print out and give to your employer so they can withhold the correct amount from your pay.

Due Date to Preserve Tax-Exempt Status: October 15, 2010

On July 26, 2010, the IRS instituted a one-time relief program under which that small nonprofit organizations at risk of losing their tax exempt status because they failed to file required returns for 2007, 2008 and 2009 can preserve their status by filing returns by October 15, 2010. The IRS also posted on its website the names and last-known addresses of these at-risk organizations, along with guidance about how to come back into compliance.

There are two types of relief available for small exempt organizations. First, filing an extension for the smallest organizations required to file Form 990-N. An organization simply needs to go the IRS website, supply the information items required by the Form 990-N, and electronically file it by October 15, 2010.

Second, IRS has a voluntary compliance program (“VCP”) for small organizations eligible to file Form 990-EZ (Short Form Return of Organization Exempt From Income Tax). Under the VCP, tax-exempt organizations eligible to file Form 990-EZ must file their delinquent annual information returns by October 15, 2010 and pay a compliance fee. More details are available on the IRS website.

The relief announced today is not available to larger organizations required to file the Form 990 or to private foundations that file the Form 990-PF.

Once an organization loses its exemption, it has to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.