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

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 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

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, you should 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!

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FBAR Safe Deposit Box Reporting | FBAR Tax Lawyer & Attorney

One of the most common questions that US taxpayers have is regarding FBAR Safe Deposit Box reporting requirements. While the general answer is clear, there may be complications in certain cases.

General FBAR Safe Deposit Box Reporting Requirements

In general, a safe deposit box is not considered to be a financial account and, therefore, not reportable on FBAR.

This is a general rule and it is important to understand that it applies only to a safe deposit box – i.e. an individually secured container, usually held within a larger safe or bank vault. It is important to understand that the bank vault itself is NOT a safe deposit box. In fact, if you were to store gold in a bank vault with bank employees able to directly and legally access the contents of your storage, you would create a reportable account.

The most common example of accounts created by storing items in a bank vault are precious metals, particularly gold and silver (but also any other similar accounts, such as rare minerals accounts).

Exception: FBAR Safe Deposit Box Reporting May Arise If Custodial Relationship Is Established With Respect to the Safe Deposit Box

The great majority of cases are easily resolved under the general rule. However, as I hinted at above, an FBAR safe deposit box reporting requirement may arise if the owner of a safe deposit box enters into a custodial relationship with respect to this safe deposit box.

In such situations, a foreign financial institution is usually given direct legal access to the safe deposit box, is responsible for the safety of its contents and may change the contents according to the instructions from the box’s owner. Of course, in such a case, a safe deposit box can hardly be called in such a way and becomes very similar to a regular bank vault account.

This exception is very rare. I have personally encountered such exceptions only in the context of precious metals accounts.

Contact Sherayzen Law Office for Professional Help With Your FBAR Reporting Requirements

If you need professional help with your FBAR filings, or if you have not timely filed your FBARs for past years and need to resolve your past tax noncompliance, please contact Sherayzen Law Office. Our experienced legal team of tax professionals, headed by our international tax attorney Eugene Sherayzen, will thoroughly analyze your case, determine the US tax reporting requirements that may apply to your case, develop your voluntary disclosure plan and implement it.

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South Korean Citizen FBAR Guilty Plea| FATCA Lawyer

On October 27, 2017, the IRS and the DOJ announced that Mr. Hyung Kwon Kim, a South Korean citizen and a Legal Permanent Resident of the United States, pleaded guilty to failure to file correct FBARs.

Alleged Facts of the Case Which Led the South Korean Citizen to the FBAR Guilty Plea

Mr. Kim is a South Korean citizen who became a US permanent resident in 1998. At that time, he traveled to Switzerland to identify financial institutions at which he could open accounts for the purpose of receiving transfers of funds from another person in Hong Kong. Over the next few years, Mr. Kim opened accounts at several banks, including Credit Suisse, UBS, Bank Leu, Clariden Leu, and Bank Hofmann. By 2004, the aggregate value of Mr. Kim’s accounts exceeded $28,000,000.

Mr. Kim engaged in activities to conceal the funds from the IRS. In order to accomplish this, he also enlisted the help of several bankers, including Dr. Edgar H. Paltzer (who was convicted in 2013 for conspiring to defraud the United States). Dr. Paltzer and other bankers assisted Mr. Kim in opening of sham entities organized in Liechtenstein, Panama and the British Virgin Islands as well as bank accounts in the name of these entities.

Mr. Kim also utilized other means to conceal funds from the US, including directing his bankers to issue checks in the millions of dollars payable to third parties in the United States. This is exactly how the South Korean citizen purchased his personal residence in Greenwich, Connecticut.

In 2005, Mr. Kim created a nominee entity to hold title for the purchase of another home on Stage Harbor in Chatham, Massachusetts, for nearly $5 million. Here, Dr. Paltzer and Mr. Kim engaged in a purchase in such a manner as to create the appearance that Mr. Kim was renting a property from a fictitious owner.

Furthermore, between 2000 and 2008, Mr. Kim took multiple trips to Zurich and withdrew more than $600,000 in cash during these visits. He also brought his offshore assets back to the United States by purchasing millions of dollars’ worth of jewelry and loose gems. In 2008, for example, Mr. Kim purchased an 8.6 carat ruby ring from a jeweler in Greenwich, Connecticut, which he financed by causing Bank Leu to issue three checks totaling $2.2 million to the jeweler.

After the UBS case in 2008, Mr. Kim’s banker at Clariden Leu informed Mr. Kim that due to ongoing investigations in the United States he had to either disclose the accounts to the US government, spend the funds or move the funds to another institution. Mr. Kim chose to move the funds into nominee accounts at another bank.

In 2011, the South Korean citizen engaged in the ultimate strategy of concealment by liquidating the accounts by, among other things, withdrawing tens of thousands of dollars in cash and purchasing three loose diamonds for about $1.7 million from a Greenwich jeweler. Finally, as part of his guilty plea, Mr. Kim also admitted that he filed false income tax returns for 1999 through 2010, on which he failed to report income from the assets held in the foreign financial accounts that he owned and controlled in Switzerland.

FBAR Criminal Penalties and Other Penalties that the South Korean Citizen Faces

As part of his plea agreement, Mr. Kim will pay a civil penalty of over $14,000,000 dollars to the United States Treasury for failing to file, and filing false FBARs. Separately, Mr. Kim faces the sentencing scheduled for January 26, 2018 before the US District Court Judge T.S. Ellis III. The South Korean Citizen faces a statutory maximum sentence of five years in prison. He also faces a period of supervised release, restitution, and monetary penalties, in addition to the FBAR penalty.

IRS FBAR Audit and IRC Section 6103 | FBAR Tax Attorney Minneapolis

This article explores a certain relationship between tax returns and an IRS FBAR Audit. In particular, the critical question that I seek to answer in this writing is when the IRS is able to use US tax returns as evidence to support and/or commence an IRS FBAR Audit.

IRS FBAR Audit and the IRS Examination of US tax Returns

In discussing the relationship between the US tax returns and IRS FBAR Audit, the focus is on the information uncovered by the IRS during the examination of US tax returns that may be used to commence or advance an IRS FBAR Audit. It is possible, however, for the IRS to use a taxpayer’s tax returns in other contexts, not just examinations, to further an IRS FBAR Audit.

In a previous article, I already discussed the enormous amount of useful information that US tax returns contain and that can be used by the IRS to commence an IRS FBAR Audit. In addition to the obvious Schedule B, the tax returns contain foreign income documents, tax fraud evidence, patterns of noncompliance and other useful evidence that can be used in an IRS FBAR Audit.

This means that, in a lot of cases, there is a direct relationship between tax returns and the subsequent IRS FBAR Audits.

Tax Return Confidentiality Under IRC §6103(a) Prevents Automatic Disclosure for the IRS FBAR Audit Purposes

Despite their utility, there is one problem with the ability of the IRS to use tax return information in an IRS FBAR audit – US tax return information is confidential and protected from disclosure under IRC (Internal Revenue Code) §6103(a). This protection extends to the disclosure of tax returns and tax return information within the IRS, especially for use in investigating a Bank Secrecy Act (“BSA”) violation. Why are we discussing the BSA? The reason is simple – BSA is the legislation that created FBAR.

In other words, the tax return information (which is collected under U.S.C. (United States Code) Title 26 cannot be automatically shared within the IRS for the purposes of Title 31 FBAR violation. Rather, the IRS has to find a legal justification for the disclosure of this information. The usual proper statutory basis for this justification can be found in IRC §6103(h).

IRC §6103(h) and Authorization to Share Tax Return Information for the IRS FBAR Audit Purposes

The exploration of §6103(a) exceptions under §6103(h) leads us into a complicated world of tax analysis. I will try to simplify this analysis while reducing as much as possible the risk of leaving out important details.

In general, under IRC §6103(h), disclosure of returns and return information is authorized without written request to officers and employees of the Treasury Department as long as these officers’ and employees’ official duties require such disclosure for tax administration purposes. “Tax administration” is a term of art in this context – it is a fairly broad term that covers the administration, management and supervision of the Internal Revenue Code and “related statutes”, including assessment, collection and enforcement under the IRC and these “related statutes.” See §6103(b)(4).

The key question then is whether BSA is a “related statute”. If it is, then the IRS employees can use tax return and return information to commence an IRS FBAR Audit.

IRS FBAR Audit: Is BSA a “Related Statute”?

From the outset, it is important to emphasize that the IRS does not treat BSA as a “per se” related statute, because BSA reports are required a variety of purposes, not just tax compliance. For example, FBARs can be used for such government purposes as counter-terrorism, money-laundering investigations and law enforcement in general.

Therefore, the IRS will deem the BSA as a related statute only if there is a good-faith determination that a BSA violation was committed in furtherance of a Title 26 violation or if such violation was part of a patter of conduct that violated Title 26. See IRM (07-24-2012). In lay terms, the FBAR violation has to be related to a tax violation in order for the IRS to be able to utilize the taxpayer’s tax returns and tax return information in an IRS FBAR Audit.

Unfortunately, there is no clear-cut straightforward answer to when the FBAR is related to a tax violation. Rather, this determination should be made based on the facts and circumstance of each case.

IRS FBAR Audit vs. DOJ Criminal Investigation: IRC §6103(i)

It is important to emphasize that the “related-statute” limitation applies only to IRS examiners in a civil IRS FBAR Audit. If, however, a taxpayer is the subject of a criminal Department of Justice (“DOJ”) grand jury investigation, then the DOJ prosecutors are not subject to §6103(h). Instead they can use §6103(i) to access the taxpayer’s tax returns and tax return information.

Contact Sherayzen Law Office for Professional Help with an IRS FBAR Audit

If you are subject to an IRS FBAR Audit, you should contact Sherayzen Law Office as soon as possible for professional help. Without proper representation, an IRS FBAR Audit can lead to disastrous consequences to the taxpayer’s financial life due to imposition of the draconian FBAR Penalties.

Our experienced and highly-knowledgeable legal team, headed by Mr. Eugene Sherayzen, can help you! Contact Us Today to Schedule Your Confidential Consultation!

Foreign Life Insurance Policies – FBAR Reporting

Foreign Life Insurance Policies are very popular around the world, especially in India, Germany and France (Assurance Vie accounts). Yet, very few U.S. taxpayers (especially H-1B holders and U.S. permanent residents) are aware of the fact that these policies may be subject to numerous and complex IRS tax reporting requirements in the United States. In this article, I would like to generally discuss the FBAR requirements applicable to foreign life insurance policies.

I will not be discussing here the requirements for a qualified foreign life insurance policy, because it is mostly irrelevant since the great majority of foreign life insurance policies would not be qualified policies.

Types of Foreign Life Insurance Policies

Before we start exploring which foreign life insurance policies (also known as Life Assurance Policies) are subject to the FBAR requirement, it is important to distinguish three general categories of foreign life insurance policies.

In the order of rising complexity, the first category of foreign life insurance policies consists of simple, straightforward life insurance policies with no cash surrender value, no income payments and no income accumulations. The taxpayer simply makes the required premium payments and he expects a fixed-amount payout at death.

The second category of foreign life insurance policies has a cash-surrender value, but no income. The taxpayer pays a premium and expects a certain payout when the policy is surrendered or matures. The cash surrender value grows over time mostly through premiums and bonuses which would be paid out when the policy is surrendered. There is also a potential death benefit.

Finally, the third category of foreign life insurance policies has a cash-surrender value with investments and/or income. There is a large variety of investment life insurance policies. The most common arrangement, though, is where the taxpayer pays a relatively large initial premium which is invested in foreign mutual funds; the growth in mutual funds will usually determine the cash-surrender value. Oftentimes, the cash-surrender value in these policies is tax-free if certain requirements are met (for example, Assurance Vie policies in France or certain life insurance policies in India).

In some cases (for example, in Malaysia), an investment foreign health insurance policy may be tied into a life insurance policy.

FBAR – FinCEN Form 114

FinCEN Form 114 – Report of Foreign Bank and Financial Accounts (commonly known as FBAR) is the most important US tax information return. FBAR must be filed by a US tax resident if the aggregate value of foreign financial accounts (in which this US person has financial interest and/or over which this US person has signatory authority) exceeds $10,000 at any time during the calendar year. The 2015 FBAR must be received by the IRS by June 30, 2016 without any extension possible; however, starting the reporting for the calendar year 2016 (i.e. 2016 FBAR) the FBARs are due on April 15 with an extension possible.

The importance of FBAR stems from the draconian FBAR penalties. Unlike many other information returns, FBAR imposes penalty not only on the willful non-filing, but also on the non-willful failure to file the FBAR. The willful FBAR penalties range from criminal penalties with up to 5 years in prison to up to $100,000 penalty per account per year. The FBAR statute of limitations is six years, which means that up to six years maybe subject to a penalty (though, usually it would be 2-4 years).

Foreign Life Insurance Policies and FBAR Reporting

Foreign life insurance policies must be reported on the FBAR if they have a cash-surrender value. Therefore, foreign life insurance policies that fall into categories two and three described above are always reportable. Investment foreign life insurance policies promoted by national governments (such as Assurance Vie accounts in France) are reportable even if they are considered to be held by a foreign trust (such as Superannuation Accounts in Australia).

The first category of foreign life insurance policies I listed above (i.e. life insurance policies without any cash-surrender value) are not likely to be reportable, but there are exceptions.

The determination of whether your foreign life insurance policies are reportable on the FBAR should be made by an international tax attorney; I strongly discourage any attempt by US taxpayers to make this determination without legal assistance.

Foreign Life Insurance Policies and Other Reporting Requirements

It is important to note that other US reporting requirements may apply to foreign life insurance policies. Examples include FATCA Form 8938, PFIC compliance, foreign trust reporting, et cetera.

Contact Sherayzen Law Office for Help With Foreign Life Insurance Policies

If you have foreign life insurance policies, you should contact Sherayzen Law Office for assistance as soon as possible. Foreign life insurance policies can be extremely complex and the US reporting requirements associated with them vary from country to country. Sherayzen Law Office has accumulated tremendous experience in dealing with foreign life insurance policies from Australia, Canada, New Zealand, Europe and Asia. We can help You!

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