IRS Streamlined Filing Compliance Procedures explained by Richard S. Leh...

OVDP IRS Streamlined Offshore Voluntary Disclosure Program

Foreign Financial Asset Disclosures

Foreign Financial Asset Disclosures

• In IR-2014-73 the IRS has announced changes in two of its programs related to offshore accounts. 
• The IRS has modified the terms of the Offshore Voluntary Disclosure Program (OVDP), which allows individuals to avoid criminal prosecution if they disclose their foreign accounts and pay a substantial penalty. 
• The IRS has expanded the streamlined filing compliance process, or “streamlined procedures,” which are aimed at US taxpayers who have failed to disclose their foreign accounts but who are not willfully evading their tax obligations. These programs are part of a wider effort to stop offshore tax evasion, which includes enhanced enforcement, criminal prosecutions, and implementation of third-party reporting via the Foreign Account Tax Compliance Act (FATCA). 

Changes include:

• Additional taxpayer information requirements. 
• Taxpayers are no longer exempt due to a "risk" questionnaire and unpaid taxes of less than $1,500. Treasury Department and Department of Justice have pledged to pursue every non-compliant person. 
• Taxpayers must submit all account statements and pay the offshore penalty at the time of the OVDP application. 
• Taxpayers are allowed to submit voluminous records and supporting documents electronically rather than on paper. 
• To be in compliance when submitting an OVDP Application, accounting must be complete and accurate and payments must be made in full. 
• US Taxpayers residing in the US can be subject to a special 5% OVDP asset penalty. 
• US taxpayers living abroad may apply to have OVDP asset penalties waived. 
• Increased penalties, (27.5% to 50%), incentive for holders of hidden assets to come in sooner if they are concerned about the possibility of an investigation, for taxpayers who invest in institutions that are under DOJ federal investigation. 
• A non-willful conduct testament can assist some taxpayers with compliance. 
• Penalties can be eliminated for some non-willful taxpayers. 
• The 50% penalty is comprehensive and applies to foreign partnerships, stock holdings and all other investments. 

Foreign Account Reporting Requirements

• There are a number of reporting requirements for taxpayers with foreign accounts. 
• Affected taxpayers must fill out and attach to their 1040 tax return, Schedule B, which asks about the existence of foreign accounts, (check "Box B" Yes or No). 
• Some taxpayers have to fill out Form 8938, Statement of Foreign Financial Assets. 
• Other filing requirements apply to foreign trusts. 
• Taxpayers with foreign accounts whose aggregate value exceeds $10,000, at any time during the year, must file a Form 114, Report of Foreign Bank and Financial Accounts (FBAR) electronically through the Financial Crimes Enforcement Network’s (FinCEN) BSA E-Filing System. 
• Failure to comply with applicable reporting requirements can result in civil and criminal penalties.

On July 1, 2014, the new information reporting regime instituted by FATCA will go into effect. Thousands of foreign financial institutions will begin to report to the IRS the foreign accounts held by US persons.

Courtesy:  MaSEA

References: CCH

IRS Offshore Voluntary Disclosure Efforts Produce $6.5 Billion; 45,000 Taxpayers Participate

FBAR Reporting

FBAR Reporting

• "Signature authority"... needs to be reported on electronic-FBAR even if another entity holds the assets. e.g. Fred & Wilma own an LLC 50%/50%. LLC has foreign account over $10K. Because Fred & Wilma have signature authority over account (even though neither one of their ownership's exceeds 50%) they need to file an FBAR disclosing signature authority. And of course, the LLC needs to file its own FBAR as owner of a foreign account over $10K.
• Beneficiaries of a Defined Benefit (DB) plan (pension plan) do not need to file FBAR.
• Beneficiaries of a Defined Contribution (DC) plan DO need to file FBAR.
• It doesn't matter how you acquire the funds (inheritance), if its a foreign account, needs FBAR reporting.
• Gold coins in a foreign safety deposit box do NOT need FBAR reporting. these are considered personal assets and not a foreign account.
• FBAR is not a report of income or assets, simply a report of foreign accounts.
• BitCoin (virtual currency), is reportable on FBAR -- stay tuned...
• Declare foreign banking activity by filing a Foreign Bank Account Report (FBAR), if necessary. US persons (citizens, residents and entities created in the US) must file the FBAR if, at any time during the year, they had a financial interest or signature authority over a foreign financial account with a value of more than $10,000. A wallet with an exchange located in a foreign country, such as Mt. Gox, (Mt. Gox was a BitCoin exchange based in Tokyo, Japan) would cause the taxpayer to be subject to the FBAR rules. Note that the reporting threshold applies to your account balance on every day of the year, not the average balance or balance on just the last day. The FBAR threshold is also crossed when multiple foreign financial accounts have an aggregate value of greater than $10,000.
• You do not have to have a US SSN to file an FBAR. alternatively, you can use Block 4 for Passport # or Gov't issue ID with explanation... (use Block 3 for US SSN or Tax ID).
• Canadian RSP accounts (IRAs) and Mexican AFORE accounts (IRAs) are FBAR reportable.
• If you don't have all necessary foreign account info by June 30th, file the FBAR with what you have, and come back later and amend once info is available. No extensions, June 30th deadline.
• FinCEN is responsible for FBAR under Title 31USC, BSA. IRS examines for FBAR compliance.
• BSA laws say; any foreign account over $10K at anytime during the year requires FBAR. FBAR attempts to track illicit foreign accounts used for money laundering, terrorism...

Question: When a preparer is willing to help clients with filing their FBAR (FinCEN Report 114) through FinCEN's BSA E-Filing System, can the preparer fill out the information online for the taxpayer?

Answer: Yes, provided the preparer registers as an institution on the BSA website. When you go to File the Report of Foreign Bank and Financial Accounts (FBAR) as an Individual, there is a note that says, “A non-individual FBAR filer, such as an attorney, CPA, or an enrolled agent filing the FBAR on behalf of a client must register to Become a BSA E-Filer and file as an institution rather than an individual.” You must Become a BSA e-Filer to register and submit forms as a business.

Furthermore, a taxpayer will use Form 114a, Record of Authorization to Electronically File FBARs, to give the preparer authority to file the FBAR on behalf of the taxpayer.

FBAR: Form FinCEN 114 replaces TD F 90-22.1

FBAR: Form FinCEN 114 replaces TD F 90-22.1 replaced

• On September 30th, 2013, the Financial Crimes Enforcement Network (FinCEN) made a very important change to the FBAR form which will effect it's filing for 2014. 
• Form FinCEN 114 reporting threshold (total value of foreign assets) is $10,000 at any time during the calendar year.

What Are The Changes:

• The FinCEN Form 114 supersedes TD F 90-22.1 as the official FBAR form. 
• The new FinCEN Form 114 is only available online on the BSA E-Filing System website. 
• A paper copy of the FinCEN Form 114 will not be accepted. 
• The system allows the filer to enter the calender reported, including past years on the online form. 
• The online form offers an option to explain a late filing. 
• It also lets you indicate if a filing is being made in conjunction with an IRS compliance program. 
• If you are filing FBAR with your spouse jointly or if you wish to have a third party preparer file your FBARs on your behalf, you can use the new FinCEN Form 114a. Form 114a is not filed with the Form 114 but maintained with the FBAR records by the filer. 

BSA E-Filing System

• The taxpayer has to go on the website and can download an Adobe PDF version of the FBAR, fill out the report, sign & save a copy & then submit the FBAR on the BSA Website. 
• Or the taxpayer can designate their EA, CPA or attorney to file on the BSA website on their behalf. 

Becoming a BSA Filer:

• An Enrolled Agent, CPA or Attorney can become a designated third-party filer. 
• The EA, CPA or attorney must make sure they have documented authority from the taxpayers required to file to sign & submit FBARs on their behalf through the BSA E-Filing System. 
• If such authority has been provided, the EA, CPA or attorney can file the FBARs through the single BSA account established for them. 
• Professional tax software programs may have included the FinCEN Form 114, enabling e-fling with the BSA Website. 

FBAR (Foreign Bank Account Report FinCEN 114) due no later than June 30th annually.

• The electronic version of the FBAR is currently available and must be filed electronically effective July 1, 2013.
• To file an FBAR report
• Line Item Instructions for completing the FBAR (Form 114)
• Record of Authorization to Electronically File FBARs (Form 114a) Click on the link to open the form to authorize spouse (if filing jointly) or a third party (individual or entity) to file the FBAR on your behalf. This form may be completed and saved electronically. Follow the instructions and complete all of the requested information. The filer and the account owner should maintain a copy of the completed form. The form must be made available upon request by FinCEN or the IRS. 
• Special notice for 2013 filings due by June 30, 2014

New Reporting Requirements by US Taxpayers Holding Foreign Financial Assets (Form 8938)

• Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. File Form 8938 if max value of account(s) exceeds $50,000 at any point during the year. Must use US Treasury FMS website Treasury Reporting Rates of Exchange to calculate foreign currency exchange rate. 
• The new Form 8938 filing requirement does not replace or otherwise affect a taxpayers requirement to file FBAR. A chart providing a comparison of Form 8938 and FBAR requirements, and other information to help taxpayers determine if they are required to file Form 8938, may be accessed from the IRS Foreign Account Tax Compliance Act Web page.
• Attach Form 8938 Statement of Specified Foreign Financial Assets to Form 1040 if max value of account(s) is more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the tax year

Offshore Voluntary Disclosure Program

• On Jan 9, 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced.