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Ukrainian FATCA IGA Enters Into Force | FATCA Tax Lawyer & Attorney

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On November 18, 2019, the Ukrainian FATCA IGA entered into force. Sherayzen Law Office already wrote on this subject a little more than three years ago. This essay updates the status of the Ukrainian FATCA IGA.

Ukrainian FATCA IGA: Background Information

The Foreign Account Tax Compliance Act (FATCA) was enacted into law in 2010 and quickly caused a revolution in the area of international tax information exchange. While FATCA is very complex, its basic purpose is clear – improving US international tax compliance through new information reporting standards. The revolutionary aspect of FATCA was to force foreign financial institutions (“FFIs”) to comply these new information reporting standards through what essentially amounted to FATCA tax withholding penalties. In other words, FATCA turned FFIs throughout the world into IRS informants.

Using brutal economic force on the FFIs, however, may be considered by many foreign countries as a violation of their sovereignty, because FFIs are not US taxpayers. In order to enforce FATCA effectively, the United States has worked to enlist the cooperation of the FFIs’ home countries. The ultimate products of these negotiations have been FATCA implementation treaties, officially called FATCA IGAs (Intergovernmental Agreements). The Ukrainian FATCA IGA is just one example of such a treaty.

Ukrainian FATCA IGA: History and Current Status

On November 9, 2016, the Ukrainian government authorized the Ukrainian FATCA IGA for signature. On February 7, 2017, the IGA was signed. Since November 18, 2019, it has been in force.

Ukrainian FATCA IGA: Model 1 FATCA Agreement

The Ukrainian FATCA IGA is a Model 1 FATCA Agreement. In order to understand what this means, we need to explore the two types of FATCA IGAs – Model 1 and Model 2. The Model 2 FATCA treaty requires FFIs to individually enter into an FFI Agreement with the IRS in order to report the required FATCA information directly to the IRS (for example, Switzerland signed a Model 2 treaty).

On the other hand, the Model 1 treaty requires FFIs in a “partner country” (i.e. the country that signed a Model 1 FATCA agreement) to report the required FATCA information regarding US accounts to the local tax authorities. Then, the tax authorities of the partner country share this information with the IRS.

Thus, the Ukrainian FFIs will report FATCA information to the Ukrainian tax authorities first. Then, the Ukrainian IRS will turn over this information to the IRS.

Impact of Ukranian FATCA IGA on Noncompliant US Taxpayers

The implementation of the Ukrainian FATCA IGA means that the Ukrainian FFIs either have already implemented or will soon implement the necessary KYC (Know Your Client) procedures. Using these procedures, the FFIs will collect the required FATCA information concerning their US customers and send this information to the Ukranian tax authorities, which, in turn, will share this information with the IRS.

Then, the IRS will process this information in order to identify noncompliant US taxpayers. Once it reaches this point, the IRS will most likely investigate these persons and determine whether to conduct a civil audit or proceed with a criminal prosecution.

In other words, since November 18, 2019, US taxpayers who have undisclosed foreign accounts in Ukraine have been at an ever-increasing risk of the IRS detection. Once their noncompliance is verified by the IRS, these taxpayers, may face the imposition of draconian IRS penalties and potentially even a criminal prosecution.

Contact Sherayzen Law Office for Professional Help Undisclosed Ukrainian Foreign Accounts and Other Assets

If you have undisclosed Ukrainian assets (including Ukrainian bank accounts) and/or Ukrainian-source income, contact Sherayzen Law Office for professional help as soon as possible. We have successfully helped hundreds of US taxpayers around the globe (including Ukrainians) to resolve their past US tax noncompliance issues, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Italian Bank Accounts | International Tax Lawyer & Attorney New York New Jersey

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US tax requirements concerning Italian bank accounts can be quite burdensome and complex. The chief three US reporting requirements applicable to Italian bank accounts are: worldwide income reporting, FBAR and FATCA Form 8938. Let’s discuss each of these requirements in more depth.

Italian Bank Accounts: US Tax Residents and US Persons

Before we delve into the discussion of these requirements, we need to identify who is required to comply with these requirements. This task is complicated by the fact that each of aforementioned three requirements has its own definition of a required filer.

Nevertheless, we can readily identify the categories of required filers shared by all three requirements. These categories correspond most closely, but not exactly to the concept of US tax residents. “US tax residency” is a broad term which includes US citizens, US permanent residents, residents who satisfy the Substantial Presence Test and individuals who declare themselves as US tax residents.

This definition of a US tax resident is fully applicable to the worldwide income reporting requirement and very closely corresponds to the concept of the Specified Person of Form 8938. FBAR’s concept of “US Persons”, however, does differ more significantly from the definition of a “US tax resident”, but only in more unusual circumstances. 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.

Additionally, I wish to caution the readers that even the definition of US tax residents which I just stated has 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.

In other words, the issue of who the required filer is, requires careful analysis of the facts and circumstances of an individual. This is definitely the job of your international tax attorney; it is just too dangerous to attempt to do it yourself.

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

Italian 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 Italian bank and financial accounts if the aggregate highest balance of these accounts exceeds $10,000.

I wish to emphasize again that, while the term “US persons” is very close to “US tax residents”, it is not the same. The term “US tax residents” is slightly broader than “US persons”. I encourage you to search our website – sherayzenlaw.com – for articles concerning the definition of a US Person.

One aspect of the FBAR requirement, however, deserves a special mention here – the definition of an “account”. The FBAR definition of an account is substantially broader than how this word is generally understood 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, no discussion of FBAR can be considered complete without mentioned the much-dreaded FBAR penalty system. It is complex and severe to an astonishing degree. 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). The next layer of penalties are FBAR willful civil penalties which can easily exceed a person’s net worth. Finally, FBAR imposes penalties even on non-willful taxpayers.

All of the 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 Italian 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).

Italian Bank Accounts: FATCA Form 8938

FATCA Form 8938 has been in existence since 2011. Unlike FBAR, it is filed with a federal tax return and considered to be an integral part of the return. This means that a failure to file File 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: 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 Italian Bank Accounts

Worldwide income reporting, FBAR and Form 8938 do not constitute a complete list of US reporting requirements that may apply to Italian bank accounts. There may be many more.

This is why, if you have Italian bank accounts, should contact Sherayzen Law Office. We have a highly knowledgeable international tax compliance team headed by an experienced international tax attorney, Mr. Eugene Sherayzen. We have helped hundreds of US taxpayers with their US international tax issues, including reporting Italian bank accounts, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!