South African Bank Accounts | International Tax Lawyer & Attorney Los Angeles California

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Due to various waves of emigration from South Africa since early 1990s, there is a significant number of South Africans who live in the United States. Many of these new US taxpayers continue to maintain their South African bank accounts even to this very day. These taxpayers need to be aware of the potential US tax compliance requirements which may apply to these South African bank accounts. This is exactly the purpose of this article – I intend to discuss the three most common US tax reporting requirements which may apply to South African bank accounts held by US persons. These requirements are: worldwide income reporting, FBAR and Form 8938.

South African Bank Accounts: US Tax Residents, US Persons and Specified Persons

Prior to our discussion of these reporting requirements, we need to identify the persons who must comply with them. It turns out that this task is not that easy, because different reporting requirements have a different definition of “filer”.

The most common and basic definition is the one that applies to the worldwide income reporting requirement – US tax residency. A US tax resident is a broad term that covers: US citizens, US permanent residents, persons who satisfy the Substantial Presence Test and individuals who declare themselves as US tax residents. This general definition of US tax residents is subject to 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.

FBAR defines its filers as “US Persons” and Form 8938 filers are “Specified Persons”. These concepts are fairly similar to US tax residency, but there are important differences. Both terms apply to US citizens, US permanent residents and persons who satisfy the Substantial Presence Test. The differences arise mostly with respect to persons who declare themselves as US tax residents. A common example are the treaty “tie-breaker” provisions, which foreign persons use to escape the Substantial Presence Test for US tax residency purposes.

Determination of your US tax reporting requirements is the primary task of your international tax lawyer. I strongly recommend that you do not even attempt to do this yourself or use an accountant for this purpose. It is simply too dangerous.

South African Bank Accounts: Worldwide Income Reporting

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

South African Bank Accounts: FBAR Reporting

FinCEN Form 114, the Report of Foreign Bank and Financial Accounts (“FBAR”), requires all US Persons to disclose their ownership interest in or signatory authority or any other authority over South African (and any other foreign country) bank and financial accounts if the aggregate highest balance of these accounts exceeds $10,000. I encourage you to read this article (click on the link) concerning the definition of a “US Person”. You can also search our firm’s website, sherayzenlaw.com, for the explanation of other parts of the required FBAR disclosure.

The definition of “account”, however, deserves special attention here. The FBAR definition of an account is substantially broader than what this word generally means 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, FBAR has a very complex and severe penalty system. The most feared penalties are criminal FBAR penalties with up to 10 years in jail (of course, these penalties come into effect in extreme situations). On the civil side, the most dreaded penalties are FBAR willful civil penalties which can easily exceed a person’s net worth. Even FBAR non-willful penalties can wreak a havoc in a person’s financial life.

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 South African 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).

South African Bank Accounts: FATCA Form 8938

Form 8938 is filed with a federal tax return and forms part of the tax return. This means that a failure to file Form 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 of filers: 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 income tax consequences (including disallowance of foreign tax credit and imposition of 40% 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 South African Bank Accounts

If you have South African bank accounts, contact Sherayzen Law Office for professional help with your US international tax compliance. We have helped hundreds of US taxpayers with their US international tax issues, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

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 15). For example, the 2023 FBAR is due on April 15, 2024 (with an automatic extension until October 15, 2024 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!

Disregarded Entity FBAR Obligations | FBAR Tax Lawyer & Attorney Houston

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As an FBAR tax lawyer & attorney, I can see that one of the most common tax compliance mistakes made by US taxpayers is ignoring their disregarded entity FBAR obligations. These taxpayers believe that, since disregarded entities are ignored for tax purposes, these entities do not need to file any FBARs. In this article, I will explain why this view is completely false and how US taxpayers should comply with their disregarded entity FBAR obligations.

Disregarded Entity FBAR Obligations: What Are Disregarded Business Entities?

Under US tax law, certain juridical persons are disregarded for tax purposes. In other words, an entity is not recognized for tax purposes as something separate from its owner; the owner and the entity are merged into one tax person for tax purposes.

A disregarded entity may have only one owner. If there is more than one owner, then the entity is treated as a partnership for US tax purposes (unless it elects to be treated as a corporation).

A disregarded entity does not file its own tax return. Rather its owner reports all of the entity’s income and expense items on the owner’s tax return.

It is important, however, that one does not confuse the tax and legal treatment of a disregarded entity. Despite being ignored for tax purposes, a disregarded entity continues to exist legally. In other words, for all legal purposes, it is a separate juridical person with its own legal rights and obligations.

The most typical example of a disregarded entity is a single-member limited liability company (“SMLLC”). Another prominent example is a grantor trust.

Disregarded Entity FBAR Obligations: Required FBAR Compliance

A US disregarded entity must file an FBAR if it has a financial interest in or signatory authority or any other authority over foreign bank and financial accounts the highest aggregate value of which exceeds $10,000 at any point during the relevant calendar year.

FBAR is not filed with a US tax return. Hence, disregarded entities must file FBARs even though they do not file US tax returns. Taxpayers need to make sure to obtain an EIN number for their disregarded entities.

It is important to emphasize that all FBARs of disregarded entities are filed under the names of these entities, not their owners or managers. In other words, if a grantor trust files an FBAR, the trustee will sign FBAR which is officially filed in the name of the grantor trust.

Also note that I stated that a “US disregarded entity” must file an FBAR. A foreign disregarded entity does not need to file an FBAR (though, its US owner will have to do it under the FBAR rules).

Disregarded Entity FBAR Obligations: FBAR is not a Tax Requirement

Why is it that a disregarded entity has to file FBARs if it is disregarded for tax purposes? The answer to this question requires us to look into the legislative origin of FBAR.

The key to understanding why a disregarded entity has to file FBARs is the fact that FBAR is not part of the Internal Revenue Code (“IRC”). In other words, FBAR is not a tax form. FBAR is a creation of the Bank Secrecy Act and belongs to Title 31 (IRC is Title 26) of the United States Code.

As I stated above, a disregarded entity is ignored only for tax purposes, but it continues to exist for legal purposes. Hence, for FBAR purposes, the entity is not disregarded but continues to exist as a separate juridical person with its own legal compliance duties, including FBAR obligations.

Disregarded Entity FBAR Obligations: Why IRS Enforces FBAR Compliance

There is one more issue we need to clarify: if FBAR is not part of the IRC, why is the IRS agency in charge of enforcing it? The answer to this question also lies in FBAR’s history (now, the readers can appreciate why I insist that an international tax attorney should know the legal history of different legal and tax requirements).

Prior to the 9/11 terrorist attacks, the IRS was not in charge of enforcing FBAR compliance. Instead, for many years prior to 2001, FinCEN (the Financial Crimes Enforcement Network) was in charge of FBAR.

Why? The answer is simple: the original purpose of FBAR was not to fight tax noncompliance; it was not created as a tax form. Rather, FBAR was a tool to fight financial crimes, such as money laundering and terrorist financing. This fell straight within the competence of FinCEN.

In 2001, however, the US Congress turned over the function of enforcing FBAR compliance to the IRS (technically, FinCEN delegated the enforcement of FBAR to the IRS). The IRS almost immediately shifted the focus of FBAR from financial crimes to international tax enforcement.

Disregarded Entity FBAR Obligations: Frequent FBAR Violations

FBAR compliance is miserably low among disregarded entities. The main reason for so many FBAR violations is the fact that most taxpayers are completely unaware of the legal analysis of FBAR which I have set forth above. As I stated above, they incorrectly believe that FBAR is a tax form and, since disregarded entities are ignored for tax purposes, these entities do not or did not file FBARs. Unfortunately, even these non-willful situations may lead to the imposition of substantial FBAR penalties.

Contact Sherayzen Law Office for Professional Help with Your Disregarded Entity FBAR Obligations

In order to avoid these FBAR penalties and ensure proper tax compliance, you should contact Sherayzen Law Office for professional help with your disregarded entity FBAR obligations. Sherayzen Law Office has filed FBARs for every type of a disregarded entity. If your entity has not filed FBARs in the past, but it was required to do so, Sherayzen Law Office can also help you determine the best offshore voluntary disclosure option for your entity and do all of the work necessary to bring you and your entities into full compliance with US tax laws. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

New Zealand Bank Accounts | International Tax Lawyer & Attorney Madison Wisconsin

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There is a vibrant community of New Zealanders in Wisconsin (though New Zealanders can be found in many other places in the United States). Many members of this community continue to maintain their pre-immigration New Zealand bank accounts. Some of these owners of New Zealand bank accounts are aware of at least some US tax requirements with respect to these accounts, others are confused and still others are completely unaware of the existence of any such requirements. In this article, I will explain the three most common US reporting requirements – worldwide income reporting, FBAR and Form 8938 – concerning New Zealand accounts as well as describe, in general, those required to comply with them.

Note that, in this article, I will concentrate solely on individuals, not businesses, trusts or estates.

New Zealand Bank Accounts: US Tax Residents, US Persons and Specified Persons

Let’s commence our discussion with the issue of who is required to comply with US reporting requirements concerning New Zealand bank accounts. The first issue to note here is that US tax reporting requirements do not always define the required filers in the same manner.

In fact, each of aforementioned three requirements has its own definition of required filers. The worldwide income reporting requirement will follow the general definition of US tax residents. On the other hand, “US Persons” are required to file FBAR and “Specified Persons” are required to file Form 8938.

Despite these differences, however, the definitions of US Persons and Specified Persons are very similar to the concept of US tax residency; there are some specific differences, but, overall, these two concepts follow the definition of US tax residents very closely.

Hence, we should do the same and concentrate on the definition of a “US tax resident“. This is a broad term which covers a variety of US taxpayers, including: US citizens, US permanent residents, persons who satisfy the Substantial Presence Test and individuals who declare themselves as US tax residents. This general definition of “US tax resident” is subject to 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.

Both, US Persons and Specified Persons include the same categories of taxpayers, but differences arise with respect to the treatment of individuals who declare themselves as US tax residents. 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.

I strongly recommend that you contact an international tax attorney in order to determine whether you fall within the definition of any one or all of these filers. An attempt to do it by a non-professional is fraught with legal dangers.

New Zealand 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 New Zealand bank accounts, foreign-source income means all bank interest income, dividends, royalties, capital gains and any other income generated by these accounts.

New Zealand 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 New Zealand (and any other foreign country) bank and financial accounts if the aggregate highest balance of these accounts exceeds $10,000. I encourage you to search our website sherayzenlaw.com for article concerning the definition of a US Person.

There is one aspect of the FBAR legal test that I wish to discuss here with more specificity – the definition of an “account”. The FBAR definition of an account is substantially broader than what this word is generally means 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, FBAR has a very complex and severe (to an astonishing degree) penalty system. 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). On the civil side, the most dreaded penalties are FBAR willful civil penalties which can easily exceed a person’s net worth. Even FBAR non-willful penalties can wreak a havoc in a person’s financial life.

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 New Zealand 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).

New Zealand Bank Accounts: FATCA Form 8938

Since 2011, FATCA Form 8938 has been another higher important requirement of US international tax law. This form is filed with a federal tax return and considered to be an integral part of the return. This means that a failure to file Form 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 of filers: 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 New Zealand Bank Accounts

If you have New Zealand bank accounts, contact Sherayzen Law Office for professional help with your US international tax compliance. We have helped hundreds of US taxpayers with their US international tax issues, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!