Posts

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!

Indian Bank Accounts : Key US Tax Obligations | International Tax Lawyer

Due to ongoing implementation of FATCA as well as the tax reform in India, more and more Indian Americans and US tax residents of Indian nationality are learning that they are required to disclose to the IRS their Indian bank accounts. Yet, there are still many more US taxpayers left who are either completely unaware of this requirement or they are confused with respect to what is required to be disclosed and how. This essay intends to clarify who is required to report their Indian bank accounts to the IRS and explain the most common US international tax requirements applicable to Indian bank accounts.

Indian Bank Accounts: Who Needs to Report Them to the US Government?

All US tax residents with Indian bank accounts need to disclose them to IRS. Warning: “US tax resident” is not equivalent to the immigration concept of “US Permanent Resident”. The confusion over these two concepts is a frequent cause of US tax noncompliance, because many Indian immigrants who come to the United States on a work visa assume hat they are not US tax residents since they do not have the status of a US Permanent Resident. This assumption is completely false.

The definition of US tax residency includes US permanent residents, but it is much broader. In general, this term includes: US citizens, US Permanent Residents, any person who satisfied the Substantial Presence Test and any person who declared himself as a tax resident. There are exceptions to this rule, but you will need to consult with an international tax lawyer before making use of any of these exceptions.

Indian Bank Accounts: Indian Income Must Be Disclosed on US Tax Returns

All US tax residents must comply with the numerous US tax reporting requirements, including the worldwide income reporting requirement. All Indian-source income generated by the Indian bank accounts of US tax residents must be disclosed on their US tax returns.

The worldwide income reporting requirement applies to any kind of income: bank interest income, dividends, capital gains, et cetera. This income should be reported on US tax returns even if it was already disclosed on Indian tax returns or subject to Indian tax withholding. This income should be disclosed in the United States even if it never left India.

Indian Bank Accounts: FBAR

The Report of Foreign Bank and Financial Accounts, FinCEN Form 114 (popularly known as “FBAR”) is one of the most important and dangerous reporting requirements that applies to Indian bank accounts. Generally, a US person is required to file FBAR if he has a financial interest in or signatory authority or an authority over foreign bank and financial accounts which, in the aggregate, exceed $10,000 at any point during a calendar year.

FBAR has an extremely severe penalty system, and US taxpayers should strive to do everything in their power to make sure that they comply with this requirement.

Indian Bank Accounts: FATCA Form 8938

US tax residents are also required to disclose their Indian bank accounts on Form 8938. The Foreign Account Tax Compliance Act (“FATCA”) led to the creation of Form 8938; US taxpayers should have filed their first Forms 8938 with their 2011 US tax returns.

Form 8938 requires US tax residents to report all of their Specified Foreign Financial Assets (“SFFA”) as long as the Form’s filing threshold is met. SFFA includes a very diverse set of financial instruments, including foreign bank and financials accounts, bonds, swaps, ownership interest in a foreign business, beneficiary interest in a foreign trust and many other types of financial assets. In other words, with the exception of signatory authority accounts, Form 8938 not only duplicates FBAR, but covers a much broader range of financial instruments that would not be required to be reported on FBAR.

It should be pointed out that, even when FBAR and Form 8938 cover the same assets, both forms must be filed despite the duplication of the disclosure.

While Form 8938 has a much higher filing threshold than FBAR, it may still be easily exceeded, especially by taxpayers who reside in the United States. For example, if a taxpayer resides in the United States and his tax return filing status is “single”, then he would only need to have $50,000 or higher at the end of the year or $75,000 or higher at any point during the year in order to trigger the Form 8938 filing requirement. A lot of US taxpayers with Indian bank accounts easily exceed this threshold, especially if they are helping their parents or buying properties in India.

Finally, it should be remembered that Form 8938 has its own penalty structure for failure to file the form. Furthermore, Form 8938 forms an integral part of a federal tax return; this means that a failure to file the form may extend the IRS Statute of Limitations for an IRS audit indefinitely for the entire return.

Contact Sherayzen Law Office for Professional Help With Reporting of Your Indian Bank Accounts in the United States

In this essay, I just listed the most common US tax reporting requirements that may apply to US owners of Indian bank accounts. There is a plethora of other requirements that may apply to these taxpayers.

This is why you should contact Sherayzen Law Office for professional help with your US tax compliance. We have worked extensively with our Indian clients with respect to reporting of their Indian bank accounts, including offshore voluntary disclosure for late filings.

The stakes in international tax compliance are high, and you need to be able to rely on the knowledge, experience and professionalism of Sherayzen Law Office in order to make sure that you protect yourself from draconian IRS tax penalties. We have successfully helped hundreds of US taxpayers to deal with their US international tax compliance, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

2017 FBAR Deadline | FinCEN Form 114 FBAR Lawyer & Attorney

FinCEN recently confirmed the 2017 FBAR deadline and the automatic extension option.

2017 FBAR Deadline: FBAR Background

FinCEN Form 114, the Report of Foreign Bank and Financial Accounts, is commonly known as FBAR.  US taxpayers should use this form to report their financial interest in or signatory authority over foreign financial accounts. Failure to timely file the FBAR may result in the imposition of draconian FBAR penalties.

2017 FBAR Deadline: Traditional FBAR Deadline

Prior to 2016 FBAR, the taxpayers had to file their FBARs for each relevant calendar year by June 30 of the following year. No filings extensions were allowed. The last FBAR that followed this deadline was 2015 FBAR (its due date was June 30, 2016).

2017 FBAR Deadline: Changes to FBAR Deadline Starting 2016 FBAR

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the “Act”) changed the FBAR deadline starting with 2016 FBAR.  Section 2006(b)(11) of the Act requires the FBARs to be filed by the due date of that year’s tax return (i.e. usually April 15), not June 30.

Furthermore, during the transition period, the IRS granted to US taxpayers an automatic extension of the FBAR filing deadline to October 15. The taxpayers do not need to make any specific requests in order for extension to be granted.

In other words, starting 2016 FBAR, the Act adjusted the FBAR due date to coincide with the federal income tax filing deadlines. Moreover, the new FBAR filing deadline will follow to the letter the federal income tax due date guidance. The federal income tax due date guidance states that, in situations where the tax return due date falls on a Saturday, Sunday, or legal holiday, the IRS must delay the due date until the next business day.

2017 FBAR Deadline

Based on the new law, the 2017 FBAR deadline will be April 17, 2018 (same as 2017 income tax return due date). If a taxpayer does not file his 2017 FBAR by April 17, 2018, then the IRS will automatically grant an extension until October 15, 2018. Failure to file 2017 FBAR by October 15, 2018, may result in the imposition of FBAR civil and criminal penalties.

IRS Letter 3708: IRS Demand to Pay FBAR Penalty

After the IRS imposes an FBAR penalty on the taxpayer, the IRS will send the taxpayer IRS Letter 3708 to demand the payment of the part of the FBAR Penalty that remains unpaid. In this article, I would like to discuss IRS Letter 3708 in more detail, particularly focusing on the various FBAR Penalty Collection options that the letter lists.

First Part of IRS Letter 3708: Explanation of FBAR Penalty Imposed and Balance Unpaid

IRS Letter 3708 begins with the statement that this letter is a demand for the payment of the FBAR (Report of Foreign Bank and Financial Accounts) penalty that was assessed to the taxpayer under relevant IRC sections (such as §5321(a)(5) and §5321(a)(6)). Then, the IRS Letter 3708 mentions that the taxpayer should have previously received IRS Letter 3709 with the explanation of penalty imposed based on the facts of the taxpayer’s case.

Second Part of IRS Letter 3708: Account Summary and Payment Instructions

The next part of IRS Letter 3708 is devoted to the summary of the taxpayer’s account – i.e. the amounts owed per each relevant year. At total amount due is provided at the end.

The letter continues with the explanation of the precise payment instructions, including what information needs to be written on the check (in order for the payment to be applied correctly). Also, an option for an installment agreement is mentioned if the payment in full is not possible. However, even in the case of an installment agreement, the interest of at least 1% will be charged (interest rates may change); additional debt servicing fee of about 18% of the penalty amount may also be charged.

Third Part of IRS Letter 3708: Interest and Penalties

Failure to pay the amount due within 30 days may lead to the imposition of interest and penalties. The interest is imposed under IRC Section 3717(a)-(d); the current rate is 1% per year, but it may be raised in the near future.

The late payment penalty is imposed under IRC Section 3717(e)(2); currently, the rate if 6% per year. This penalty is imposed on portion of the FBAR penalty that remains unpaid 90 days from the date listed on IRS Letter 3708.

IRS Letter 3708 also mentions that both, interest and penalties, may be abated under 31 C.F.R. 5.5(b).

Fourth Part of IRS Letter 3708: Collection Enforcement and Costs

The fourth part of the IRS Letter 3708 is very important, because it is devoted entirely to how the IRS can collect the amount due. The letter lists seven different collection enforcement mechanisms that are available to the IRS if the debt not paid within 30 days:

• Referral to the Department of Justice to initiate litigation against the taxpayer.
• Referral to the Department of the Treasury’s Financial Management Service. (This referral involves an additional debt-servicing fee that is approximately 18% of the balance due.)
• Referral to private collection agencies. (Referral to a private collection agency increases the additional debt-servicing fee from approximately 18% to 28% of the balance due.)
• Offset of federal payments such as income tax refunds and certain benefit payments such as social security.
• Administrative wage garnishment.
• Revocation or suspension of federal licenses, permits or privileges.
• Ineligibility for federal loans, loan insurance or guarantees

These additional costs may be imposed on noncomplying taxpayer based on 31 U.S.C. §3717(e)(1).

Final Part of IRS Letter 3708: Contesting Penalty Assessment

At the end, IRS Letter 3708 advises the taxpayers of two main options for contesting the penalty assessment. First, the taxpayers can file an administrative appeal with the Appeals Office in Detroit. This option is available if an administrative appeal was not requested based on Letter 3709 or if new situations have occurred since the last administrative review. The appeal must be requested in writing within 30 days from the date listed on IRS Letter 3708.

The second option is to file a refund suit in the United States District Court or the United States Court of Federal Claims. IRS Letter 3708 does not state whether such a suit would be subject to the full-payment rule (such as one that applied in income tax matters).

Contact Sherayzen Law Office if Your Received IRS Letter 3708 or IRS Letter 3709

If you received IRS Letter 3708 or IRS Letter 3709, contact Sherayzen Law Office for legal help as soon as possible. We have helped taxpayers around the world to reduce their FBAR penalties and we can help you!

Call Today to Schedule Your Confidential Consultation!

Swiss Bank Program Penalties Bring More than $1 Billion

On December 23, 2015, as US Department of Justice (DOJ) announced that it reached resolutions with Bank J. Safra Sarasin AG, Coutts & Co Ltd, Gonet & Cie and Banque Cantonal du Valais, it also announced that Swiss Bank Program Penalties reached a landmark – more than $1 Billion. At that time, in addition to Swiss Bank Program Penalties, DOJ also reached agreements with 75 Swiss Banks.

As a reminder to readers, the DOJ Swiss Bank Program was announced by DOJ on August 29, 2013 (per agreement with Swiss government). The Program provides a framework for Swiss Banks to resolve their US tax issues (or “cross-border criminal tax violations”) in exchange for information about the Banks’ US accountholders and, for Category 2 banks, Swiss Bank Program Penalties.

Moreover, according to the terms of the non-prosecution agreements signed by Swiss banks under the Program, Swiss Banks agree to cooperate in any related criminal and civil proceedings, show that the Banks implemented controls to avoid future misconduct with respect to US-held accounts.

While the percentages of Swiss Bank Program Penalties are firmly established, under the terms of the Program, the banks are allowed to mitigate their Swiss Bank Program Penalties if they can show that their US accountholders are either in compliance with their US tax obligations or they entered the IRS Offshore Voluntary Disclosure Program (and, later, Streamlined Procedures).

It should be noted that more Swiss banks reached resolutions with DOJ under the Program since December 23, 2015. This means that the DOJ has already collected even more Swiss Bank Program Penalties.

These resolutions under the Program concern not only Swiss Banks and Swiss Bank Program Penalties, but they also have direct relevance to US owners of undeclared Swiss bank accounts. Two major consequences arise for US taxpayers with undisclosed accounts from their Swiss Bank participation in the Program. First, there is a direct impact of information exchange between the participating Bank and the IRS which may lead to the discovery of the undisclosed accounts by US tax authorities. The subsequent IRS investigation is likely to render any future participation of the taxpayer in the OVDP impossible.

Second, if the participating bank reaches resolution and pays its Swiss Bank Program Penalties to the DOJ before the taxpayer enters OVDP (or, more precisely, files the Preclearance Request), the OVDP penalty on all (not just the taxpayer’s accounts in the participating Bank’s) of the taxpayer’s accounts will jump to 50% (from the normal 27.5%).

Contact Sherayzen Law Office for Help With Your Undisclosed Foreign Accounts

If you have undisclosed foreign accounts or any other foreign assets, you should contact Sherayzen Law Office as soon as possible. Our experienced legal team has helped hundreds of US taxpayers around the world and we can help you!

Contact Us Today to Schedule Your Initial Consultation!