1818 Society Form 8938 and Other I mportant R eporting I ssues

1. 1818 SocietyForm 8938 and Other Important Reporting Issues Bob Len, CPA, CFP Wolf Group Capital Advisors Dale Mason, CPA The Wolf Group Grant Miller, The Wolf Group

2. FATCA Overview • Background • Designed to force U.S. citizens and residents to report all foreign income • FATCA provisions add an entirely new Chapter to the Internal Revenue Code • 400 pages of regulations

3. FATCA Overview • IRS Agreement: • Required of all worldwide foreign financial institutions (“FFI”) and certain non-financial institutions who receive any U.S. source payments • 5 European Countries Joint Statement • OTHERWISE: • 30% withholding tax applied to any “Withholdable Payment”

4. FATCA - Practical Implications • Many foreign financial institutions have and will decide to terminate U.S. clients’ accounts • Strict enforcement of PFIC rules and cost of information reporting will also cause U.S. persons to move financial assets to the U.S. • Self-reporting will be cross checked with institutional (foreign government) reporting. Discrepancies will be easy to identify.

5. Form TD F 90-22.1 andForm 8938

6. Foreign Bank Account Reporting: Form TD F 90-22.1 • Who should file: • U.S. citizens and residents • Persons with financial interest in or signature authority over foreign financial account(s) • Aggregate value exceeding $10,000 at any time during the year • Deadline is June 30 of the following year • (No extensions) • Not filed with tax return • Schedule B question

7. Foreign “Financial Account” • Bank, savings and checking accounts • Securities accounts such as mutual funds and brokerage accounts • Even foreign annuity or insurance policy with a cash surrender value • Not individual bonds, notes or stock certificates

8. Maximum Value • Must file if the sum of all foreign financial accounts’ maximum values during the year exceeds $10,000 • Look first at the maximum value of each account • Then add all maximum values and compare to $10,000 • Odd result: $5,000 transferred between accounts is reportable • Convert foreign currencies at the 12/31 exchange rate • Must use Treasury’s FMS rate if available

9. Joint Accounts • Each U.S. person who owns part of a joint account that exceeds $10,000 must report the account on an FBAR • Each joint owner reports the full value of the account • No joint FBARs except for MFJ husband and wife • Not allowed if each spouse has separate accounts

10. Form TD F 90-22.1 Penalties • Non-willful failure penalty • $10,000 • May be waived due to “reasonable cause” • Willful failure penalty • Greater of $100,000 or 50% of account balance • Criminal penalties • 6 year statute of limitations

11. IRS’ Offshore Voluntary Disclosure Program • Partial amnesty program • FBAR and certain international tax reporting • Pay all taxes and interest for past 8 years • Accuracy or delinquency penalty • Waiver of penalties for informational forms • Penalty: 27.5% of the highest account balance • Penalty: 12.5% if unreported foreign account < $75K • Currently no deadline; subject to change

12. New Specified Foreign Financial Assets Report – Form 8938 • Effective for individuals for 2011 • Interest in “Specified Foreign Financial Assets” with an aggregate value exceeding $50,000 • Information statement attached to the individual's U.S. income tax return • This reporting requirement is in addition to FBAR!

13. New Specified Foreign Financial Assets Report – Form 8938 • “Specified foreign financial asset” • Any financial account maintained by a foreign financial institution • Any stock or security issued by a foreign person • Any financial instrument/contract – foreign issuer • Any interest in a foreign entity • Information statement - Maximum value of assets, account numbers, names and addresses of foreign financial institutions, etc.

14. Form 8938 Filing Thresholds

15. Jointly Owned Assets • Joint Ownership – each specified person must report • Spouse, MFJ – file a joint 8938; include asset value once • Specified Individual Spouse, MFS – include ½ asset value to determine threshold, but report full amount on 8938 • Non-Specified Individual Spouse, or Non-Spouse – each joint owner includes entire value of asset • Examples on page 3 of Form 8938 Instructions

16. Form 8938 Valuation • Accounts: may generally rely on periodic statements • Other assets: may rely on year-end value, don’t need appraisal • Unless individual has reason to know the above does not provide reasonable maximum value • Foreign pension plan – year-end value • If not known, value of distributions received during the year • If no distributions received, value is zero • Convert to USD at December 31 spot rate • Must use Treasury’s FMS rate if available

17. Form 8938 Penalties • $10,000 penalty for failing to file Form 8938 • Additional penalties following notification • 40% underpayment penalty • Criminal penalties • Reasonable cause exception • Extended statute of limitations

18. FBAR vs. 8938

19. Form 8938: World Bank Pension • Subject to special valuation rules • Value of participant’s share of defined benefit plans generally not ascertainable • Value equal to distributions received during the year • Gross distribution reported on Form 1099-R

20. Example: Facts • Single individual living in the U.S. • Retired from the World Bank • Receives an annual gross distribution of $75,000

21. Example: Sample 8938

22. Example: Sample 8938

23. Other Important International Filing Requirements • Form 8621 – Passive Foreign Investment Companies • Form 3520 – U.S. owner of a foreign trust • Form 5471 – U.S. owner of a foreign corporation

24. Questions?