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Current Landscape of International Compliance

Current Landscape of International Compliance. Tax Institute November 6, 2013. Today’s Presenter. Rosemarie C. Steeb Principal, Chiampou Travis Besaw & Kershner LLP Owner, Rosemarie C. Steeb , CPA Tax Services Phone: (716) 868-0022 Fax: (716) 683-8297

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Current Landscape of International Compliance

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  1. Current Landscape of International Compliance Tax Institute November 6, 2013

  2. Today’s Presenter • Rosemarie C. Steeb • Principal, Chiampou Travis Besaw& Kershner LLP • Owner, Rosemarie C. Steeb, CPA Tax Services • Phone: (716) 868-0022 • Fax: (716) 683-8297 • E-mail: rosemarie112108@msn.com

  3. Topics covered US Federal reporting requirements FATCA – in general FATCA – Form 8938 FBAR

  4. Federal Income Tax Reporting • U.S. taxpayers with foreign accounts or other non-U.S. holdings are required to: • Report and pay tax on their worldwide income, including reporting investment income earned on financial accounts located outside the United States • Disclose the existence of any foreign accounts on their U.S. tax return (e.g. Form 1040, Schedule B)

  5. Consequence of non-compliance • Nonwillfulfailure to comply can result in the assessment of tax, interest, and penalties. • Willful non-compliance can be prosecuted as criminal offenses under U.S. law and subject the persons involved to substantial civil money penalties. • The statute of limitation for criminal tax offenses is six years.

  6. Other Federal Reporting Requirements • U.S. taxpayers with foreign accounts or other non-U.S. holdings must consider: • Form 8938, Statement of Specified Foreign Financial Assets • Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts* • Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner* • Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations* • Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships* and • Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation* * no statute of limitation for failure to file any of those forms

  7. Foreign Account Tax Compliance Act (FATCA) • Enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts. • Part of a broader enforcement effort undertaken by the U.S. government since 2008 • Directs U.S. taxpayers to report certain specified foreign financial assets with their tax filings • Requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest

  8. FATCA(cont.) • Creates a complex withholding regime designed not so much to collect tax but rather to coerce FFIs to unearth U.S. account holders who may not be complying with U.S. tax reporting rules and to disclose information on an annual basis about those accounts. • This information reporting and withholding regime takes effect in 2014 (although certain deadlines have been pushed back to 2015 or later) • Any FFI is subject to 30% withholding unless it has entered into a disclosure arrangement with the IRS. • Tax would be withheld not only on U.S.-source investment income but also on any U.S.-source proceeds from the sale of many kinds of property.

  9. Form 8938 - in general Required reporting began in the 2011 tax year Attachment to annual income tax return (e.g. Form 1040) Until the IRS issues such regulations, only individuals must file Supplements the existing FBAR requirements Taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, regardless of the value of their specified foreign financial assets There are significant penalties ranging from $10,000 to $50,000 for failure to comply

  10. Exchange rate Required to use the foreign currency exchange rate on the last day of the tax year, even if closed or disposed of the account/asset before the last day of the tax year

  11. Aggregate value thresholds • Disclose if the aggregate value of specified foreign financial assets is: • US citizens living in the United States and resident aliens: • Other than married filing joint - greater than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year • Married filing joint – thresholds rise to $100,000 and $150,000 respectively • U.S. taxpayers who reside abroad*: • Other than married filing joint - greater than $2000,000 on the last day of the tax year or more than $300,000 at any time during the tax year • Married filing joint – thresholds rise to $400,000 and $600,000 respectively * Physically present in foreign country at least 330 days during 12 mo. period or bona fide resident

  12. Specified foreign financial assets • Depository or custodial accounts unless maintained by: • a U.S. payer (such as a U.S. domestic financial institution), • the foreign branch of a U.S. financial institution, or • the U.S. branch of a foreign financial institution

  13. Specified foreign financial assets (cont.) • Other foreign financial assets held for investment that are not in an account maintained by a US or FFI: • Stocks, options or securities issued by foreign persons • Note, bond, debenture, or other form of indebtedness issued by foreign persons • Any other financial instrument or contract held for investment issued by a foreign issuer or counterparty • Any interest in a foreign entity (including foreign partnership, trust or estate)

  14. Specified foreign financial assets (cont.) Need not report income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of an asset to be considered having an interest in a specified foreign financial asset Owner of a disregarded entity (including grantor trust) is deemed to have an interest in any specified foreign assets owned by the disregarded entity If parent includes unearned income of child on Form 1040 then parent has an interest in any specified foreign financial assets held by the child

  15. Reporting period • Calendar year unless: • Single taxpayer who died during year – reporting period begins on January 1 and ends on date of death • Single non-US citizen who arrived in US and satisfied substantial presence test during the year – reporting period begins on US residency starting date and ends on December 31

  16. Determination of value If the maximum value of a specified foreign financial asset is less than zero, use a value of zero for the asset Financial accounts - reliance can be placed on period statements received for a financial account to determine maximum value Financial assets - use value on last day of reporting period unless asset was disposed during the period or value does not reflect reasonable estimate of maximum value of asset during the tax year

  17. Determination of value (cont.) • Joint interests: • Spouses filing a joint return - report the maximum value of an account held jointly only once on the single Form 8938 filed with the joint income tax return. • Spouses filing separate returns - report the maximum value of an account held jointly by you and your spouse on each separate Forms 8938 filed with each separate income tax returns. • Other joint owners - report the maximum value of the entire jointly held account on the Form 8938 filed, regardless of the value of the joint owner’s separate interest in the account.

  18. Determination of value (cont.) • Foreign non-grantor trusts: • The sum of: • Value of all of the cash or other property distributed during the tax year from the trust to the beneficiary and • Value using valuation tables under Section 7520 of the right as a beneficiary to receive mandatory distributions as of the last day of the tax year

  19. Determination of value (cont.) • Foreign estate, pension or deferred compensation plan: • Fair market value of your beneficial interest in the plan on the last day of the year • If no readily accessible information on the fair market value of your beneficial interest then the maximum value is the value of the cash and/or other property distributed to you during the year • NOTE - the rights to receive the foreign equivalent of social security, social insurance benefits or another similar program of a foreign government are not specified foreign financial assets and are not reportable.

  20. Coordination with other filings • You do not need to report a specified foreign financial asset on Form 8938 if they are required to be reported on: • Form 3520 - Form 8621 • Form 3520-A - Form 8865 • Form 5471 - Form 8891 • However, you must: • Identify on Part IV of Form 8938 which and how many of these form(s) you file and • Still include the value of these specified foreign financial assets to determine aggregate value thresholds

  21. Report of Foreign Bank and Financial Accounts (FBAR) • Required if a “US person” has: • A financial interest in or signature authority over a foreign financial account; and • The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year

  22. U.S. person • US citizen • US resident • Entities created or organized in the US or under the laws of the US: • Corporations • Partnerships • LLCs • Trusts or estates formed under laws of the US

  23. Foreign Financial Accounts Bank account Brokerage account Mutual fund Trust

  24. Separate FBAR not required • Accounts jointly owned by spouses* – single FBAR can be filed if: • All foreign financial accounts are reported as jointly owned by the filing spouse • Single FBAR is timely filed and • Both spouses sign the FBAR in item 44 • Entity named in a consolidated FBAR filed by a greater than 50% owner • Account of any governmental entity of the US * Not currently available through BSA e-filing since can only accept single digital signature

  25. Exceptions Account of any governmental entity of the US Owner or beneficiary of an IRA is not required to report a foreign financial account held in the IRA Participant in or beneficiary of a retirement plan described in IRC Sections 401(a), 403(a) or 403(b) is not required to report a foreign financial account held by or on behalf of the retirement plan Trust beneficiary is not required to report trust’s foreign financial accounts if trust files an FBAR disclosing these accounts.

  26. Compliance reminders • Must be filed by June 30 following each calendar year - no extensions to the deadline • Not filed with a tax return • Filing deferral for certain individuals with signature authority over, but no financial interest in, foreign financial accounts of their employer or a closely related entity until June 30, 2014 • Effective July 1, 2013, electronic filing of FBARs is mandatory • http://bsaefiling.fincen.treas.gov/FAQs.html

  27. FBAR non-compliance penalties • Nonwillfulfailure to file an FBAR can be penalized up to $10,000 per violation • Willful failure to file can result in a civil penalty of as much as 50% of the value of the foreign account, with no cap for each violation, per year.

  28. Beware of … • The increased global enforcement presence by the IRS, particularly its Criminal Investigation Division, and • The considerably improved cooperation among tax authorities worldwide.

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