FinCEN Form 114 Filers | FBAR Tax Lawyer & Attorney Minnesota Minneapolis

The Report of Foreign Bank and Financial Accounts, FinCEN Form 114 (a/k/a FBAR) is arguably the most important information return concerning foreign accounts. Its importance stems first and foremost from the extremely severe Form 114 penalties, which range from criminal penalties of up to 10 years in prison to willful and even non-willful penalties that may exceed the value of the penalized accounts. Given these penalties, it is important to understand who the FinCEN Form 114 filers are – i.e. who is required to file Form 114?

For today’s purposes, I will concentrate only on the individual FinCEN Form 114 filers.

FinCEN Form 114 Filers: General Definition

At the center of the definition of FBAR filer is a United States person (“US person”). A US person must file FinCEN Form 114 if he has a financial interest in or signatory authority or any other authority over any foreign financial accounts and the aggregate maximum value of these accounts exceeds $10,000 at any time during the calendar year.

FinCEN Form 114 Filers: Main Categories of US Persons

Under the 31 CFR 1010.350(b), the definition of a US Person is very specific and consists of five main categories: (1) a citizen of the United States; (2) a resident of the United States; (3) an entity created or organized in the United States or under the laws of the United States; (4) a trust formed under the laws of the United States; and (5) an estate formed under the laws of the United States. As I stated above, today, I will focus only on categories 1 and 2; I will deal with business, trust and estate FinCEN Form 114 filers in other articles.

FinCEN Form 114 Filers: US Citizens

This is by far the easiest category of FinCEN Form 114 filers to analyze. If an individual is a US citizen and has foreign accounts that exceed the filing threshold, then, he must file Form 114.

FinCEN Form 114 Filers: Definition of “Residents of the United States”

In the context of FBAR compliance, a “resident of the United States” has a special meaning which corresponds for the most part, but not exactly, to the US income tax definition of a tax resident. There are three distinct categories of individuals who fall within the definition of a “resident of the United States” for FBAR purposes: US permanent residents, persons who satisfy the Substantial Presence Test, and certain non-resident aliens who make the first-year election to be treated as US tax residents. Additionally, Internal Revenue Code (“IRC”) §7701(b)(2) contains a number of provisions that regulate when individuals are considered to be US residents for FBAR (as well as income tax) purposes during the first-year and the last-year of residency.

FinCEN Form 114 Filers: US Permanent Residents

The first category of residents of the United States is not complex. All US Permanent are US persons and, if they have foreign accounts that exceed the FBAR filing threshold, also FinCEN Form 114 filers.

FinCEN Form 114 Filers: Substantial Presence Test

The second category of residents of the United States for FBAR purposes are the individuals who satisfied the Substantial Presence Test described in IRC §7701(b)(3). Under the Substantial Presence Test, an individual is a US person if: (1) he was present in the United States (as defined under 31 CFR 1010.100(hhh)) for at least 31 days during the calendar year in question; and (2) the sum of the number of days on which such individual was present in the United States during the current year and the two preceding calendar years equals or exceeds 183 days. The amount of days in the two preceding years should multiplied by the applicable multiplier as follows: first preceding year – one-third; second preceding year – one-sixth.

For example, if we are trying to determine the tax residency for the tax year 2019, we will take all the sum of the days an individual was physically present in the United States in 2019, one-third of the days in 2018 and one-sixth of the days in 2017. If the total amount equals or exceeds 183 days, then this individual is a US person for FBAR purposes.

It should be pointed out that this is the general rule. There are numerous exceptions to the Substantial Present Test, including the famous “closer connection exception” and certain visa exemptions. Hence, you should retain an international tax attorney to analyze your specific set of facts in order to determine whether you should be considered a US person for FBAR purposes.

FinCEN Form 114 Filers: First-Year Residency Election

The third category of residents of the United States for FBAR purposes includes all individuals who made a first-year election on their US tax returns to be treated as residents pursuant to IRC §7701(b)(4). Generally, we are talking about a situation where a person does not have a green card, does not meet the Substantial Presence Test and comes sometime during a year. In other words, this person is not a US person under any other category, but decides to make an election to be treated as a US tax resident.

In order to make this election, the person must satisfy certain requirements outlined in IRC §7701(b)(4). Failure to meet any of these requirements will result in a person becoming a non-resident alien for the entire year.

It is also important not to confuse the IRC §7701(b)(4) election with the IRC §6013(g) or (h) election. In the latter cases, the elections do not affect the residency status for FBAR purposes.

FinCEN Form 114 Filers: First- and Last-Year Residency Provisions of IRC §7701(b)(2)

IRC §7701(b)(2) is not technically a fourth category of a resident of the United States. Rather, this section regulates when US residency actually starts or ends once it is acquired or lost under other categories. Nevertheless, it is important to understand and be aware of these provisions.

FinCEN Form 114 Filers: Tax Treaties & FBAR Residency Status

Most tax treaties contain what are known as “tie-breaker provisions” for determining a person’s tax residency. Sometimes, a person can use these provisions to escape the income tax residency rules. The IRS has specifically stated that, as long as one of the residency test of IRC §7701(b) is met, the tax treaty non-residency determination does not affect the residency status of a person for FBAR purposes.

Contact Sherayzen Law Office for the Determination of Whether You and Your Family Should Be Considered FinCEN Form 114 Filers

If you have foreign bank accounts, you should contact Sherayzen Law Office for professional help concerning whether you need to file an FBAR. Sherayzen Law Office is a highly-experienced international tax law firm which has helped hundreds of US taxpayers with their FBAR issues. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

IRS Pursuit of Mizrahi Bank Clients Gains Steam

It is well-known that the IRS is in hot pursuit of U.S. taxpayers with undisclosed bank accounts in Mizrahi Bank. There have been a number of victories that the IRS has scored against Mizrahi Bank clients. The latest example of this is the case of Monajem Hakimijoo who plead guilty on February 13, 2014.

According to court documents, Mr. Hakimijoo, a U.S. citizen, and his brother maintained an undeclared bank account in Israel at Mizrahi Bank in the name of Kalamar Enterprises, a Turks and Caicos Islands entity they used to conceal their ownership of the account. Mr. Hakimijoo and his brother used the funds in the Kalamar account as collateral for back-to-back loans obtained from the Los Angeles branch of Mizrahi Bank. Although Mr. Hakimijoo and his brother claimed the interest paid on the back-to-back loans as a business deduction for federal tax purposes, they failed to report the interest income earned in their undeclared, Israel-based account as income on their tax returns. In total, Mr. Hakimijoo failed to report approximately $282,000 in interest income. The highest balance in the Kalamar Enterprises account was approximately $4,030,000.

As further described in the release by the U.S. DOJ, in March 2013, Mr. Hakimijoo was scheduled to be interviewed by Justice Department attorneys and IRS special agents. Prior to the interview, Mr. Mr. Hakimijoo, through counsel, provided the attorneys and special agents with copies of his amended tax returns for 2004 and 2005. When asked if the amended tax returns had been filed with the IRS, Mr. Hakimijoo indicated that the returns had been filed. Shortly thereafter, the IRS determined there was no record of the amended returns being filed with the IRS. When Mr. Hakimijoo was asked to provide copies of cancelled checks to prove that the taxes reflected on the amended returns had been paid, none were provided.

Points of Interest of the Mr. Hakimijoo Case

Several features are prominent in this case. First, the Mizrahi Bank account in question was not in Switzerland, but Israel itself. This is one more example of the IRS interest in countries other than Switzerland. Israel is an obvious target, but it appears that it will not take long for the IRS to expand into the neighboring country of Lebanon.

Second, it seems incredible that Mr. Hakimijoo would engage in such reckless conduct as to gamble on the IRS not finding out that he has not filed the amended tax returns. Equally puzzling is the fact that the guilty plea did not involve any type of a false statement charge.

Finally, unfortunately for Mr. Hakimijoo, the facts of his case were greatly influenced by the use of an entity to conceal the ownership of the Mizrahi Bank account.

U.S. Taxpayers with Undisclosed Accounts in Israel Should Do Some Type of Voluntary Disclosure

Mr. Hakimijoo is the latest in a series of defendants charged in the U.S. District Court for the Central District of California with concealing undeclared bank accounts in Israel that were used to obtain back-to-back loans in the United States. It is unlikely that the IRS will relent its pursuit at this point given the wealth of information that has been collected through the IRS voluntary disclosure programs as well as the Swiss voluntary disclosure program for banks.

The biggest lesson for U.S. taxpayers with undisclosed accounts in Israel and Mizrahi Bank specifically is that the IRS will not limit itself to Switzerland. Hence, there is a great urgency for these taxpayers to commence the analysis of their voluntary disclosure options as soon as possible. Some options may still be open if these taxpayers come forward now; these options may be closed once the taxpayer is subject to an IRS investigation.

Contact Sherayzen Law Office for Experienced Professional Help with Your Voluntary Disclosure

If you are a U.S. person who has (or had at any point since 2007) undisclosed bank or financial accounts in Israel and any other foreign country, you should contact Sherayzen Law Office as soon as possible for professional help. Our experienced international tax law firm has helped taxpayers throughout the world with their voluntary disclosures and we can help you.

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New FBAR Form: January 2012

In January of 2012, the IRS issued a new version of the Treasury FinCEN Form 114 formerly Form TD F 90-22.1, popularly known as the “FBAR” (the Report on Foreign Bank and Financial Accounts).

This is a third revision of the FBAR in less than one year.  In March of 2011, the IRS made substantial changes to the FBAR instructions after adopting the final regulations concerning the form.  Then, in November of 2011, the IRS revised the form again to reflect certain changes, particularly concerning amendment of a previously filed FBAR.

The latest revision mostly concerns the contact information if you have any questions about the FBARs – a new telephone number and an email address.

Keep in mind that the 2011 FBARs should be filed separately from your tax returns, and they are due on June 30, 2012. This means that the IRS must receive an FBAR on that date; the usual “mailbox rule” (i.e. if the package is mailed on the due date, then it is timely) does not apply to FBARs.

Only the latest version of the FBAR must be used to report your foreign bank and financial accounts.  As of March 5, 2012, the January of 2012 version is the latest version.

Contact Sherayzen Law Office For the FBAR Issues

If you have any questions about the FBARs or you wish to determine whether this requirement applies to your case, you need to contact Sherayzen Law Office.  Our experienced international tax firm will thoroughly analyze the facts of your case and determine whether an FBAR requirement applies to you and what needs to be reported on the FBAR.

You should also contact Sherayzen Law Office to discuss your case if you were required to file the FBARs for the past years but you have not done so. The FBAR has one of the most severe penalty structures in the entire Internal Revenue Code, and it is important to secure the professional help of Sherayzen Law Office to properly deal with this issue.