international tax lawyer-minnesota-minneapolis

FBAR: Financial Interest, Signature Authority, and Other Comparable Authority

/in , , , , /by

One of the major requirements that gives rise to the obligation to file the FBAR is that a U.S. person has either a financial interest in, or a signature authority or other comparable authority over the relevant foreign financial accounts. In deciding whether the FBAR is required, it is useful to go through all three of these requirements in order.

First, the filer needs to determine whether he has a financial interest in the account. If the account is owned by an individual, the financial interest exists if the filer is the owner of record or has legal title in the financial account, whether the account is maintained for his own benefit or for the benefit of others, including non-U.S. persons. See 75 Fed. Reg. at 8847. Hence, if the owner of record or holder of legal title is a U.S. person acting as an agent, nominee, or in some other capacity on behalf of another U.S. person, the financial interest in the account exists and this agent or nominee needs to file the FBAR. If a corporation is the owner of record or the holder of legal title in the financial account, a shareholder of a corporation has a financial interest in the account if he owns, directly or indirectly, more than 50 percent of the total value of the shares of stock or has more than 50 percent of the voting power. Id. Where a partnership is the owner of record or the holder of legal title in the financial account, a partner has a financial interest in the financial account if he owns, directly or indirectly, more than 50 percent of the interest in profits or capital. Similar rule applies to any other entity (other than a trust) where a U.S. person owns, directly or indirectly, more than 50 percent of the voting power, total value of the equity interest or assets, or interest in profits. Id. Special rules apply to trust and can be found in the Proposed Regulations. Id. Finally, a U.S. person who “causes an entity to be created for a purpose of evading the reporting requirement shall have a financial interest in any bank, securities, or other financial account in a foreign country for which the entity is the owner of record or holder of legal title.” Id.

If there is no financial interest in the foreign financial account, the filer should determine whether he has signature authority over the account. A U.S. person has account signature authority if that person can control the disposition of money or other property in the account by delivery of a document containing his signature to the bank or other person with whom the account is maintained. See 75 Fed. Reg. at 8848. Notice, once again, that control over the disposition of assets in the account is one of the main factors in deciding whether the FBAR needs to be filed.

It is important to mention that, pursuant to the IRS Announcement 2010-23, persons with signature authority over, but no financial interest in, a foreign financial accounts for which an FBAR would otherwise have been due on June 30, 2010, will now have until June 30, 2011, to report those foreign financial accounts. Combined with IRS Announcement 2009-62, this means that the deadline has been extended for the calendar year 2009 and all prior years.

Finally, even if no financial interest or signature authority exists, the filer has to continue his analysis and determine whether he has “other comparable authority” over the account. This catch-all, ambiguous term is not defined by the IRS. Nevertheless, the instructions to FinCEN Form 114 formerly Form TD F 90-22.1 generally state that the other comparable authority exists when the filer can exercise power comparable to the signature authority over the account by communication with the bank or other person with whom the account is maintained, either directly or through an agent, or in some other capacity on behalf of the U.S. person.

FBAR Penalties

/5 Comments/in , , , /by

In this essay, I would like to discuss some of the penalties that may be imposed as a result of the failure to file the FBAR even though you were required to do so. In particular, I will focus on three general scenarios describing specific penalties commonly attributed to each of them. The first scenario is where you willfully failed to file the FBAR, or destroyed or otherwise failed to maintain proper records of account, and the IRS learned about it when it launched an investigation. This is the worst type of scenario which carries substantial penalties. The IRS may impose civil penalties of up to the greater of $100,000, or 50 percent of the value of the account at the time of the violation, as well as criminal penalties of up to $500,000, or 10 years of imprisonment, or both.

Another scenario is where you negligently and non-willfully failed to file the FBAR, and the IRS learned about it during an investigation. Unlike the first scenario, there are no criminal penalties for non-willful failure to file the FBAR; only civil penalties of up to $10,000 per each violation (unless there is a pattern of negligence which carries additional civil penalties of no more than $50,000 per any violation). In this situation, you are likely to fare much better, and you may even be able to obtain lower penalties by showing of reasonable cause for the failure to file.

The third scenario is where you non-willfully fail to file the FBAR, accidentally discover your mistake, and come to an attorney to file a delinquent FBAR before the IRS commences its investigation of your finances. This is the most favorable of all scenarios due to the fact that you may qualify for the benefits of a voluntary disclosure program, despite the fact that the position of the IRS regarding civil penalties for voluntarily filed but delinquent FBARs is uncertain following the October 15, 2009 voluntary disclosure deadline (now ended). The best strategy for addressing delinquent FBARs, however, varies depending on the facts and circumstances of the particular case.

A word of caution: this discussion focuses solely on the penalties associated with the failure to file the FBAR. This essay does not address the various strategies that may be employed in dealing with the delinquent FBAR filings in the post-October 15, 2009 world, including qualification for the voluntary disclosure program. In certain situations, there may also be other relevant significant tax issues outside of the FBAR realm – the most important of which is non-payment of taxes on undisclosed income by the U.S. taxpayers – which may significantly alter the amount of penalties, interest, and taxes due to the IRS.

FBAR: Aggregate Value Requirement

/in , , , /by

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!

Foreign Earned Income Exclusion Amount for 2010

/in , , , /by

Under I.R.C. §911, if certain conditions are met, a qualified individual can exclude his foreign earned income from taxable gross income for the U.S. income tax purposes. This income may still be subject to U.S. Social Security taxes.

The income exclusion amount for 2010 has increased to $91,500.

International Tax Lawyers in Minneapolis Minnesota: Fee Agreement Arrangements

/in , , , /by

In this article, I will discuss five most important issues that you need to know before you sign a fee agreement with international tax lawyers in Minneapolis.

* How is the international tax lawyer’s fee paid? There are three main models of payment that lawyers use: hourly fee, contingency fee, and flat fee. The hourly fee is the most common form of a Minneapolis international tax lawyer compensation and it is fairly simple – the international tax attorney is paid only based on the time he spends on the case. If you’re paying your international tax lawyer by the hour, the agreement should set out the hourly rates of the tax attorney and anyone else in this attorney’s office who might work on the case. The contingency fee arrangement, where the international tax attorney takes a percentage of the amount the client wins at the end of the case, is almost never used by international tax lawyers in Minneapolis. In the unlikely case that this latter type of fee arrangement is used, the most important issue to understand is whether the international tax lawyer deducts the costs and expenses from the amount won before or after you pay the lawyer’s percentage. Obviously, you will pay more in attorney fees if your international tax lawyer deducts the litigation costs based on the latter scenario (i.e. after you pay the lawyer’s fee). Finally, in a flat fee arrangement, you pay an agreed-upon amount of money for a project. For example, you pay $3,000 to your tax attorney to file delinquent FBARs (Reports on Foreign Bank and Financial Accounts) for the past five years. While a flat fee arrangement is possible in a small project, it is generally disliked by international tax lawyers in Minneapolis because it often lacks the necessary flexibility to account for the client’s individual legal situation. Usually, some sort of an additional payment arrangement is built into such fee agreements to make sure that the balance between the client’s legal needs and the tax attorney’s fees is maintained. Remember, usually, you will have to pay out-of-pocket expenses (e.g. long-distance calls, mailing costs, photocopying fees, lodging, etc.) and litigation costs (such as court filing fees) in addition to your lawyer’s fees.

* Does the agreement include the amount of the retainer? Most international tax lawyers in Minneapolis require their client to pay a retainer. Retainer can mean two different fee arrangements. First, retainer may be the amount of money a client pays to guarantee a tax attorney’s commitment to the case. Under this arrangement, the retainer is not a form of an advance payment for future work, but a non-refundable deposit to secure the lawyer’s availability. Second, a retainer is simply the amount of money an international tax attorney asks his client to pay in advance. In this scenario, the international tax lawyer usually deposits the retainer in a client trust account and withdraws money from it for the work completed according to the fee agreement. The fee agreement should specify the amount of the retainer and when the lawyer can withdraw money form the client trust account (usually, on a monthly basis).

* How often will you be billed? Most international tax attorneys in Minneapolis bill their clients on a monthly basis. Sometimes, however, when the project is not large, the fee agreement will specify that you will be billed upon completion of the case. In a flat-fee scenario, it is likely that the client will be obligated to pay either a half or even the whole amount immediately as a retainer. It is wise for a client to insist in paying some part of the fee upon completion of the case to retain a degree of control over the case completion.

* What is the scope of the tax attorney’s representation? Most international tax lawyers in Minneapolis will insist on defining their obligations in the fee agreement. The most important issue here is to state what the international tax attorney is hired for, without defining it either too narrowly or too broadly. Usually, a fee agreement should specify that a new contract should be signed if you decide to hire this international tax lawyer to handle other legal matters.

If you are hiring a large or a mid-size law firm, beware that the partners in a law firm often delegate some or all of their obligations to their associates or even their staff. While the partners retain full responsibility for the case, there is a danger that important parts of it may be delegated to far less experienced associates. Besides the potential quality issues, there is also a concern that you would be paying a large hourly fee for a first-year associate’s work. It is important to insist that the fee agreement specifies what, if any, type of work is being delegated to the associates, the corresponding billing rate of each associate involved, and who carries the responsibility for the whole case.

* Who controls what decisions? Whether this information should be included in the fee agreement really depends on a case and on an attorney. Generally, international tax attorneys in Minneapolis let their clients make the important decisions that affect the outcome of the case (such as: acceptance or rejection of the IRS settlement offer, commencement of a lawsuit, business decisions, et cetera). All of the decisions with respect to the legal issues (such as: where to file a lawsuit, what motions should be filed, what negotiation tactics should be employed, how to structure a business transaction from a tax perspective, etc.) are usually taken by the international tax lawyers. If there are any changes to this arrangement (for example, you want your lawyer to make certain decisions with the respect to the outcome of the case), you should insist that these modifications be reflected in the fee agreement.

Generally, before you sign the fee agreement, international tax lawyers in Minneapolis will discuss with you many more topics than what is covered in this article. The five issues explained here, however, are crucial to your understanding of how the tax relationship with your tax attorney will work. Before you sign the fee agreement with your international tax lawyer, you should ask at least these five questions and make sure that the answers are complete and to your satisfaction.