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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!

FBAR United States Definition | FBAR Lawyer & Attorney Minneapolis MN

The United States is defined differently with respect to different parts (and, sometimes even within the same part) of the United States Code. There is a specific definition of the United States for FBAR Purposes. In this brief essay, I would like to discuss the FBAR United States Definition and explain its importance to FBAR compliance.

Importance of FBAR United States Definition to FinCEN Form 114

Before we discuss the FBAR United States Definition, we need to the context in which it is used and why it is important for US international tax purposes. FBAR is a common acronym for the Report of Foreign Bank and Financial Accounts, FinCEN Form 114. It used to be known under a different name – TD F 90-22.1.

FBAR is part of Title 31, Bank Secrecy Act, but the IRS has administered FBAR since 2001. The IRS primarily uses FBAR not to fight financial crimes (which was its original purpose), but for tax enforcement. In particular, the IRS found that FBAR is an extremely useful tool for combating tax evasion associated with a strategy of hiding money in secret foreign bank accounts.

FBAR’s draconian penalties is what makes this form the favorite with the IRS, but much hated by US taxpayers. The penalties range from a jail sentence to civil willful penalties and even civil non-willful penalties which may exceed a taxpayer’s net worth.

It is precisely these penalties which make it absolutely necessary for US taxpayers to understand when they need to file FBARs. One of the aspects of this understanding is the FBAR United States Definition, which allows one to determine two things. First, the FBAR United States Definition is used to define the United States for the purposes of the Substantial Presence Test. Second, the FBAR United States Definition allows one to classify bank accounts as foreign or domestic for FBAR compliance purposes.

FBAR United States Definition

31 CFR 1010.100(hhh) contains the FBAR United States Definition. Under this provision, the United States is defined as: the States of the United States, the District of Columbia, the Indian Lands (as defined in the Indian Gaming Regulatory Act) and the territories and insular possessions of the United States. As of February 3, 2019, the US territories and insular possessions refer to: Puerto Rico, Guam, American Samoa, US Virgin Islands and Northern Mariana Islands.

Contact Sherayzen Law Office for Professional FBAR Help

If you have undisclosed foreign accounts, you should contact Sherayzen Law Office for professional help. We have successfully helped hundreds of US taxpayers around the world with their FBAR issues, and We can help You! Contact Us Today to Schedule Your Confidential Consultation!

Colombian Bank Accounts | International Tax Lawyer & Attorney Miami

Even today many US owners of Colombian bank accounts remain completely unaware of the numerous US tax requirements that may apply to them. The purpose of this essay is to educate these owners about the requirement to report income generated by these accounts in the United States as well as the FBAR and FATCA obligations concerning the disclosure of ownership of Colombian bank accounts to the IRS.

Colombian Bank Accounts: Individuals Who Must Report Them

Before we discuss the aforementioned requirements in more detail, we need to determine who is required to comply with them. In other words, is every Colombian required to file FBAR in the United States? Or, does this obligation apply only to certain individuals?

The answer is very clear: only Colombians who fall within one of the categories of US tax residents must comply with these requirements. US tax residents include US citizens, US Permanent Residents, an individual who satisfies the Substantial Presence test and an individual who properly declares himself a US tax resident. There are important exceptions to this general rule, but, if you fall within any of these categories, you need to contact an international tax attorney as soon as possible to determine your US tax obligations concerning your ownership of Colombian bank accounts.

Colombian Bank Accounts: Income Reporting

All US tax residents are subject to the worldwide income reporting requirement. In other words, they must disclose on their US tax returns not only their US-source income, but also their foreign income. The latter includes all bank interest income, dividends, royalties, capital gains and any other income generated by Colombian bank accounts.

The worldwide income reporting requirement also requires the disclosure of PFIC distributions, PFIC sales, Subpart F income and GILTI income. These are complex requirements which are outside the scope of this article, but US owners of Colombian bank accounts need to be aware of the existence of these requirements.

Colombian Bank Accounts: FinCEN Form 114 (FBAR)

FinCEN Form 114, the Report of Foreign Bank and Financial Accounts (commonly known as “FBAR”) mandates US tax residents to disclose their ownership interest in or signatory authority or any other authority over Colombian bank and financial accounts if the aggregate highest balance of these accounts exceeds $10,000. Every part of this sentence has a special significance and contains a trap for the unwary.

The most dangerous of these traps is the definition of an “account”. The FBAR definition of account is much broader than how this word is generally understood by taxpayers. For the purposes of FBAR compliance, this term 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, it is very likely that the IRS will find that an account exists whenever there is a custodial relationship between a foreign financial institution and a US person’s foreign asset.

FBAR has its own intricate penalty system which is widely known for its severity. The FBAR penalties range from incarceration to willful and even non-willful penalties which may easily exceed the value of the penalized accounts. In order to circumvent the potential 8th Amendment challenges and make the penalty imposition more flexible, the IRS has implemented a system of self-imposed limitations, but it is a completely voluntary system (i.e. the IRS can, and in fact already did several times, disregard these limitations).

Colombian Bank Accounts: FATCA Form 8938

While Form 8938 is a relative newcomer (since tax year 2011), it has occupied a special place among the US international tax requirements. In fact, one could argue that it is currently as important as FBAR for US taxpayers with Colombian bank accounts.

The Foreign Account Tax Compliance Act (“FATCA”) gave birth to Form 8938, making it part of a taxpayer’s federal tax return. This means that a failure to file Form 8938 may render the entire federal tax return incomplete, and the IRS may be able to audit the return. Immediately, we can see the profound impact Form 8938 has on the Statute of Limitations for the entire tax return.

Given the fact that it is a direct descendant of FATCA, it is not surprising Form 8938’s primary focus is on foreign financial assets. Form 8938 requires a US taxpayer to disclose all Specified Foreign Financial Assets (“SFFA”) as long as he satisfies the relevant filing threshold. The filing thresholds differ depending on the filing status and the place of residence (i.e. inside or outside of the United States) of the taxpayer.

SFFA includes an enormous variety of foreign financial assets, including foreign bank and financial accounts. In fact, with respect to bank and financial accounts, Form 8938 is very similar to FBAR, which often results in double-reporting of the same assets. It is important to emphasize that Form 8938 does not replace FBAR, both forms must still be filed. In other words, US taxpayers should report their Colombian bank accounts on FBAR and disclose them again on Form 8938.

Form 8938 has its own penalty system which contains some unique elements. In addition to its own $10,000 failure-to-file penalty, Form 8938 directly affects the accuracy-related income tax penalties and the ability of a taxpayer to use foreign tax credit.

Contact Sherayzen Law Office for Professional Help With the US Tax Reporting of Your Colombian Bank Accounts

US international tax compliance is extremely complex. It is very easy to get yourself into trouble, and much more difficult and expensive to get yourself out of this trouble. This is why, if you have Colombian bank accounts, you should contact the experienced international tax attorney and owner of Sherayzen Law Office, Mr. Eugene Sherayzen. Mr. Sherayzen has helped hundreds of US taxpayers with their US international tax issues, and He can help You!

Contact Mr. Sherayzen Today to Schedule Your Confidential Consultation!

FinCEN Form 114 and FBAR Are the Same Form | FBAR Tax Lawyers

In my practice, I often receive phone calls from prospective clients who treat FinCEN Form 114 and FBAR as two different forms. Of course, these are the same forms, but I have asked myself: why do so many taxpayers believe that FinCEN Form 114 and FBAR are two different forms?

The simplest answer, of course, would be that taxpayers are simply so unfamiliar with US international tax law that they do not know the form with which both titles, FinCEN Form 114 and FBAR, should be associated. There is definitely a lot of truth to this conclusion, but it does not tell the whole story.

Upon more profound exploration, I found that a significant amount of potential clients believed that either FBAR or FinCEN Form 114 was a tax form while the other form was something else. In other words, some of the taxpayers think that FinCEN Form 114 is a tax form while FBAR is not a tax form while other taxpayers believe that FBAR is a tax form while FinCEN Form 114 is something else.

After making this discovery, I realized that the very nature of FBAR is at the heart of the problem, because FBAR is not a tax form and has nothing to do with Title 26 (i.e. the Internal Revenue Code) of the United States Code. Rather, the Report of Foreign Bank and Financial Accounts, FinCEN Form 114, commonly known as FBAR, was created by the Bank Secrecy Act of 1970. The Bank Secrecy Act forms part of Title 31 of the United States Code. In fact, prior to September 11, 2001, the IRS had almost nothing to do with FBAR.

It was only after the 9/11 terrorist attacks in the United States when the Congress decided to turn over the enforcement of FBAR to the IRS. Initially, the official purpose was to facilitate the Treasury Department’s fight against terrorism. Within a year, though, it became clear that the IRS would use FBAR in its fight against offshore tax evasion and other noncompliance with US international tax laws.

Using the draconian FBAR penalty structure (at that time, the form was still called TD F 90-22.1) against noncompliant US taxpayers turned out to be a highly effective intimidation tool for the IRS – a tool which works very well even today. Once the Treasury Department mandated the e-filing of FBARs, the name of FBAR was changed from TD F 90-22.1 to FinCEN Form 114.

Thus, the confusion over the relationship between FinCEN Form 114 and FBAR stems from FBAR’s peculiar legal history. Most of US taxpayers do not know any of it; they are simply confused by the fact that the IRS is enforcing a form that has two names and which has nothing to do with the Internal Revenue Code.

Basic Individual Tax Reporting Requirements for U.S. Citizens Residing Outside of the United States

If you are a U.S. citizen or a dual citizen of the United States and another country (or countries) the IRS expects you to comply with certain individual tax reporting requirements even you reside outside of the United States. The purpose of this article is to outline some of the most important of these reporting requirements; it should be noted, however, that this article simply provides a broad background information and does not cover all of the requirements that may be applicable to in your situation – you are advised to consult Sherayzen Law Office for a detailed analysis of your particular tax reporting requirements.

A. Tax Return Filing Requirements

The United States has a very complex tax system which is somewhat unique in the world. One of the most singular features of this tax system is the taxation of the worldwide income of its citizens. As a United States citizen, you must file a federal income tax return for any tax year in which your gross income is equal to or greater than the applicable exemption amount and standard deduction. I wish to emphasize here that “gross income” means worldwide income. For example, if you earned $1,000 in the United States and $50,000 outside of the United States, you must file a U.S. tax return (however, if you meet all of its requirements, you may be able to take the foreign earned income exclusion). With exceptions which may or may not apply to your case, you have to report the worldwide income irrespective of what type of income you are receiving – rental, bank interest, dividends, et cetera. Note, however, that certain tax treaties may apply and modify your particular tax reporting requirements.

B. Form TD F 90-22.1: FBAR (Report on Foreign Bank and Financial Accounts)

As a United States citizen, you may be required to report your interest in certain foreign financial accounts on FinCEN Form 114 formerly Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). The form should be filed separately from your tax return by June 30 of each relevant calendar year. Visit our Voluntary Disclosure and FBAR Center for more information.

It is important to emphasize that the combination of failure to file the FBAR with failure to pay U.S. tax can radically complicate your legal situation as the FBAR penalties are more likely to be imposed in this scenario. These FBAR penalties are likely to be much higher than your average failure to file penalty.

Please schedule a consultation with Sherayzen Law Office experienced FBAR tax firm in order to deal with this situation properly.

C. Individual Reporting With Respect to Foreign Business Ownership: Forms 5471, 8865, et cetera.

In some situations, you may be required to file additional forms with respect to foreign business ownership. The most common of these forms are 5471, 8865, 8858, and so on. These are highly complex forms which are usually filed with your tax return.

D. Reporting of Foreign Gifts, Inheritance, and Trust Income: Form 3520

In some situations, you may be required to file Form 3520 in order to report qualifying foreign gifts, inheritance, and trust income.

Keep in mind, additional requirements may apply with respect to domestic gifts, inheritance and trust distributions.

E. Passive Foreign Investment Company Income: Form 8621

In some situations, you may be required to file Form 8621 in order to properly report what is known as “passive foreign investment company” or PFIC income. Despite its deceivingly simple format, this form may require extremely complex accounting calculations and legal determinations. A separate penalty structure applies to Form 8621.

F. New Reporting Requirements of Foreign Financial Assets: Form 8938

A new law (FATCA) requires U.S. taxpayers who have an interest in certain specified foreign financial assets with an aggregate value exceeding the specified threshold amount to report those assets to the IRS. Taxpayers who are required to report must submit Form 8938 with their tax return. See our earlier article with respect to Notice 2011-55 for additional information about this reporting requirement under IRC section 6038D.

This form carries its own elaborate penalty structure which may even affect your ability to take foreign tax credit.

H. Other Reporting Requirements

Obviously, it is beyond the scope of this article to list every tax reporting requirements that may apply to your case. This article merely attempts to sketch some of the most important tax filing requirements that you may need to comply with. There are may be other forms that may apply to your particular situation; you will need to consult Sherayzen Law Office for a particular analysis of your fact pattern.

G. Penalties

1. Penalties and Interest imposed for failure to file income tax returns or to pay tax

Failure to file the income tax return and/or pay tax due may result in substantial IRS penalties unless you show that the failure is due to reasonable cause and not due to willful neglect. Main penalties are listed in Internal Revenue Code (IRC) Section 6651 and include failure to file and failure to pay tax (both of which are limited to 25 percent of your total tax deficiency).

In addition to penalties, pursuant to IRC Sections 6621 and 6622, the IRS will also require you to pay the interest on the tax liability according to underpayment rate (compounded daily) published on a quarterly basis.

2. Reasonable Cause Considerations

Whether a failure to file or failure to pay is due to reasonable cause is based on a consideration of the facts and circumstances. Reasonable cause relief is generally granted by the IRS when you demonstrate that you exercised ordinary business care and prudence in meeting your tax obligations but nevertheless failed to meet them. In determining whether you exercised ordinary business care and prudence, the IRS will consider all available information.

This is why it is important to have an experienced tax attorney advocating your position and presenting the arguments to the IRS. While it is not a guarantee that the IRS will actually abate the penalties, your chances of success are likely to be higher than if you were to present your case without professional assistance.

3. Possible additional penalties that may apply in particular cases

In addition to the failure to file and failure to pay penalties, in some situations, you could be subject to other civil penalties, including the accuracy-related penalty, fraud penalty, and certain information reporting penalties.

Moreover, you may be subject to additional penalties for failure to accurately file other informational reports such as 3520, 8865, 5471, 8621, 8938 and other forms. These penalties can be extremely severe and such cases must be reviewed by a tax professional before presenting the argument to the IRS. FBAR penalties especially stand out due to their potentially draconian severity. For example, the civil penalty for willfully failing to file an FBAR can be up to the greater of $100,000 or 50 percent of the total balance of the foreign account at the time of the violation. See 31 U.S.C. § 5321(a)(5). Since the penalty can be imposed for each year of non-compliance, the FBAR penalties can greatly exceed the current balance on an account.

Finally, criminal penalties may be imposed in extreme cases.

You should visit our Voluntary Disclosure and FBAR Center in order to learn more about the tax reporting requirements as well as the various penalty structures that may apply to you.

Contact Sherayzen Law Office To Determine Your IRS Reporting Requirements

This article merely provides a general background information on U.S. tax reporting requirements and is NOT meant to be treated as a legal advice. If you are U.S. citizen or a dual citizen and you live abroad (or have exposure to international taxes), contact Sherayzen Law Office for legal help with U.S. international tax compliance. Our experienced tax compliance firm will guide you through the complex web of international tax reporting requirements and help you bring your tax affairs into full compliance with U.S. tax laws and regulations.