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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!

FBAR Legislative History | FBAR Tax Attorney Minneapolis

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Exploring the FBAR legislative history is not just a theoretical adventure which should interest only legal scholars. Rather, the FBAR legislative history allows us to understand the theoretical and historical basis for the high FBAR penalties and the legal arguments that may serve best to combat the imposition of these severe penalties.

FBAR Legislative History: The Bank Records and Foreign Transactions Act and the Bank Secrecy Act

The obligation to file a Report of Foreign Bank and Financial Accounts (FBAR) originated from the Bank Records and Foreign Transactions Act, which, together with subsequent amendments, is commonly known as the Bank Secrecy Act.

The Bank Secrecy Act (BSA) was first enacted in 1970. The BSA created various financial reporting obligations to identify and collect evidence against money laundering, tax evasion and other criminal activities. One of these reporting obligations is U.S. Code Title 31, Section 5314 which directly discusses what became known as the FBAR.

31 U.S.C. §5314 requires a U.S. person to file reports and keep records regarding this person’s foreign financial accounts maintained with a foreign financial institution: “the Secretary of the Treasury shall require a resident or citizen of the United States or a person in, and doing business in, the United States, to keep records, file reports, or keep records and file reports, when the resident, citizen, or person makes a transaction or maintains a relation for any person with a foreign financial agency.” The statute identifies the basic information required to be reported on FBAR and authorizes the U.S. Department of Treasury to prescribe the requirements, including identifying the classes of persons who should file FBARs and the threshold amount triggering this reporting requirement.

FBAR Legislative History Prior to 2001

Prior to 2001, the FBAR legislative history does not reflect any major changes. In fact, the most important development in the FBAR legislative history prior to 2001 came not from Congress, but from the United States Supreme Court.

Prior to 2001, the BSA required that, in order to impose civil and criminal FBAR penalties, the U.S. government had to prove willful failure to file an FBAR. Here is where the Supreme Court made its decisive contribution in Ratzlaf v. United States, 510 U.S. 135, 149 (1994). In that case, the Court established the willfulness standard as a “voluntary, international violation of a known legal duty”. The Court further held that merely structuring a transaction to avoid the applicability of the BSA did not constitute willfulness.

In other words, after 1994, the DOJ (the U.S. department of Justice) had to show that the defendant structured the transactions with knowledge that such structuring was in itself unlawful. Such a high standard was difficult to satisfy and the FBAR-related indictments became relatively rare.

FBAR Legislative History After 2001

The terrorist attacks on September 11, 2001, resulted in significant changes in the FBAR legislative history which propelled the FBAR to its current prominence. Let’s focus on three such changes.

1. USA PATRIOT Act

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”) charged the U.S. Treasury Department with improving FBAR enforcement, particularly with respect to illegal offshore banking activities. The USA PATRIOT Act reflected the Congress’s findings that terrorist funding was successfully concealed through offshore banking activities which provided secrecy and anonymity of the parties involved. It is worth noting that the focus of the USA PATRIOT Act was still on the money-laundering and terrorist activities, not tax enforcement.

The USA PATRIOT Act further required the Treasury Department to submit recommendations to improve FBAR policies and procedures.

2. Treasury Reports and the Delegation of FBAR Enforcement to the IRS

In response to the Congress’ request, the Treasury Department released three reports between 2002 and 2004. The importance of these reports lies in the evolution of the FBAR role from the original purpose of fighting terrorism to international tax compliance.

The first report was released in 2002 complained that, due to the small probability of imposition of civil penalties and limited FBAR filing guidance, compliance with the FBAR was lower than 20% (in retrospect, this was still a very generous assessment because FBAR compliance was, in reality, much lower). Therefore, the Treasury Department outlined a number of objectives to improve FBAR policies and procedures, such as improving forms, enhancing outreach and strengthening enforcement.

Most importantly, for the first time, the Treasury Department suggested delegating the enforcement of civil FBAR penalties from FinCEN to the IRS. While nothing yet expressly suggested in the FBAR legislative history that FBAR should be used for tax enforcement, it is difficult to interpret the Treasury Department’s report in any other way. At the very least, the first report hinted at such a possibility.

The second report issued by the Treasury Department (in 2003) was much more direct. The report noted that the civil enforcement of FBAR was already delegated to the IRS and contained the key statement: “one could argue the FBAR is directed more towards tax evasion, as opposed to money laundering or other financial crimes, that lie at the core mission of FinCEN”. This was the first time the IRS officially stated the true purpose of FBAR in the post-9/11 world.

It is worth noting that the final report of the Treasury Department (issued in 2004) happily related to the Congress that the FBAR filings had increased in 2003 by 17% from the year 2000 as a result of the IRS enforcement action, confirming the correctness of the Department’s original objectives stated in the first report.

3. American Jobs Creation Act of 2004

No summary of the post-2001 FBAR legislative history would be complete without discussion of the American Jobs Creation Act of 2004 (“2004 Jobs Act”). The 2004 Jobs Act was enacted partially as a result of the Treasury Department’s reports and its complaints about the difficulty of imposing civil sanctions for a failure to file FBAR and partially seeking an increase revenue. As a result of the 2004 Jobs Act, the Congress made one of the most important changes to FBAR by significantly increasing the FBAR penalties, including the imposition of a non-willful penalty for up to $10,000 per violation.

FBAR Legislative History: New FBAR Deadline Starting 2016 FBAR

The most recent change in the FBAR Legislative History came from the innocently-sounding “The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015″ that was enacted on July 31, 2015. As a result of this new law, starting with the 2016 FBAR, the FBAR deadline moved from June 30 to April 15 (with an extension possible for the first time in the FBAR legislative history).

Contact Sherayzen Law Office for FBAR Legal and Tax Help

If you have not complied with the FBAR requirement in the past or you need to determine whether FBAR applies in your situation, contact Sherayzen Law Office for professional help. We have helped hundreds of US taxpayers around the world with their FBAR compliance and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!