Easy Steps to Offshore & Foreign Account Disclosure Compliance - Golding & Golding

Easy Steps to Offshore & Foreign Account Disclosure Compliance – Golding & Golding

10-Step Offshore & Foreign Account Disclosure Compliance Guide

Our International Tax Attorneys specialize exclusively in IRS FATCA and FBAR reporting and disclosure of offshore accounts, assets, investments, & income.

Offshore & Foreign Account Disclosure Compliance

One of the most difficult aspects of getting into compliance with the IRS and international tax, is trying to understand whether or not you are even required to file certain international reporting forms.

Common questions, include:

  • Do I meet the threshold for filing FATCA?
  • Do I meet the threshold for filing an FBAR?
  • What if I never filed the form before?
  • Can I file the forms late?
  • Will the IRS penalize me?
  • What are my options for Foreign Account Amnesty?

Offshore & Foreign Account Lawyers – Golding & Golding (Board Certified Tax Specialist)

We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.

Golding & Golding is the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.

10-Step Offshore & Foreign Account Disclosure Compliance Guide

Isn’t Google great?

The first CPA you contact tells you nothing is going to happen and you should just go back and amend the prior returns and file FBARs. He doesn’t tell you about what a “Quiet Disclosure” is, but your research tells you that a Quiet Disclosure is probably not the best idea.

You decide to move on to attorneys and make a list of the ones that offer “Free Consultations.”

Who doesn’t like free stuff, right?

So when you talk to the first attorney on your list, he has a different take on your situation.

Tax Attorney Scaremongering

How does Tax Attorney scaremongering work?

It goes something like this:

You see an Ad for a Free Consultation.

The Attorney proclaims himself an “Expert,” “Industry Leader,” “Top Attorney, etc.” The Attorney may advertise that he used to work for the IRS, but you later learn that it was not as an Offshore Disclosure Lawyer for the IRS.

The Attorney then tries to scare you.

He tells you that you’re probably going to be subject to criminal investigation and that unless you provide him with confidential account information, sign the retainer immediately, and deposit a huge retainer at an hourly fee without any idea what the total price of services will be, chances are — the IRS will find you and you are going to go to prison.

The Attorney rattles off a bunch of acronyms, making your head spin.

Luckily, before signing any retainer, you find our firm and come to realize that chances are — you are not going to jail.

(Small) Disclaimer

Whenever you are submitting documents (even tax returns) to the IRS, you should use an experienced tax professional. With that said, not everyone has the means to do so and/or many people are just fine doing it themselves.

If you want to use the guide below, just remember that it is not considered legal or tax advice.

Reporting Foreign Accounts – Acronym Basics

It’s impossible for any individual, in any industry to make an intelligent decision based on analysis and not fear, until they understand the basics of what they’re dealing with.

Therefore, we have provided a very basic ten-step analysis to help you determine what your reporting requirements might be.

First, Common Offshore Reporting Acronyms

These are the common acronym basics for non-attorneys, non-CPAs, and non-tax professionals

FBAR 

Foreign Bank Account Reporting. But, since it includes more than than accounts, it is generally referred to as “Report of Foreign Bank and Financial Account Form.”

FinCEN 114

Financial Crimes Enforcement Network. It sounds much more evil than it actually is. FinCEN Form 114 is actually the technical term for FBAR.

FATCA

Foreign Account Tax Compliance Act. For individuals, it generally refers to either form 8938, which is part of your U.S. tax return, or when you receive a FATCA Letter from a Foreign Financial Institution (FFI).

PFIC

Passive Foreign Investment Company. This refers to certain investments that a person has oversees, and includes foreign mutual funds (where many unsuspecting U.S. Taxpayers get snagged). The PFIC calculation is very complicated.

Step 1 – Do You Have a Foreign Account?

Accounts include a laundry list of different items, including investment accounts, foreign life insurance, foreign retirement funds, and foreign provident accounts. You should make a list of ALL your accounts.

Step 2 – Do you Own the Foreign Account or have Signature Authority?

Depending on whether you own the foreign accounts, or just have signature authority over the account(s) will help determine where and how to report the accounts  — and whether it also needs to be reported on FBAR, form 8938 (interest in the account vs. signature authority) and other forms.

Step 3 – What is the Value of the Foreign Accounts?

You should use whichever exchange rate you prefer for the actual year in which you’re performing the analysis.  So if you’re analyzing for 2014 —  you would use 2014 exchange rates, not the current year rates.

Step 4 – Categorize the Foreign Accounts you have

You should separate the accounts by type, value, and whether you have ownership or signature authority over the account.

Step 5 – What Currency are the Foreign Accounts in?

In many countries, foreign financial institutions maintain multiple “currency sub-accounts” within the accounts, and the accounts may be in different currencies (common in Hong Kong and Taiwan)

For example, since the exchange rate for the HKD dollar and CNY are similar, but the exchange rate for the Taiwanese dollar (TWD) is much different, it is important to calculate the exchange amount properly to avoid over reporting or underreporting.

Stop!

As you begin aggregating your account values, it is important to know which forms you may have to file.

Do You File the FBAR?

If you have foreign accounts that you have either ownership or signature authority over, and the annual aggregate total in any given years, exceeds $10,000 in US dollars using that specific year’s exchange rate – you may have an FBAR Reporting Requirement.

Do You File FATCA Form 8938?

If you have foreign assets/accounts that exceed any of the Form 8938 thresholds, you may have a form 8938 filing requirement as well.

There are four main thresholds for individuals is as follows:

  • Single or Filing Separate (in the U.S.): $50,000/$75,000
  • Married with a Joint Returns (In the U.S): $100,000/$150,000
  • Single or Filing Separate (Outside the U.S.): $200,000/$300,000
  • Married with a Joint Returns (Outside the U.S.): $400,000/$600,000

PFIC (8621)

If you have foreign investment accounts, addition to the value, you also have to determine whether the investment is considered a PFIC.

This will help to determine what your tax liability will be, and whether you have to report the accounts on a form 8621 or not, and whether or not you have to perform an excess distribution calculation or not

Schedule B

Schedule B is not based on any value of the accounts. Question 7 simply asks whether or not you own foreign accounts, or if you have signature authority over foreign accounts.

Chances are that if you made it this far into our article, you probably have at least one foreign account.

Step 6 – Aggregate Your Account Values, By Type

Calculate the total amount of each type of account and whether you own it, or have signature authority over it to determine the total value.

Step 7 – Determine Which Forms You Have to File

Refer to the list of forms above to determine which forms you have to file (note: you may have other forms to file as well)

Step 8 – Did You Have to Report in Prior Years? – Very Important

Determine whether you have met the requirements in prior years as well, and review your prior returns to assess if you were in compliance during those prior years as well.

*Generally, the compliance period is 3-6 years.

Step 9 – Check if the Current Year is the First Year You Had to File

If this is the first year you have to file, you are in luck.

Presuming you are timely, as long as you give it your best effort and perform a diligent and reasonable completion of the forms, usually that will be sufficient.

Step 10 – You Missed Prior Year Reporting

If you come to the realization that you are out of compliance for prior years, then you should STOP. 

Before submitting for the current year you are required to go back and get into compliance for the prior years using one of the approved IRS offshore voluntary disclosure/Tax Amnesty Programs.

While the IRS is done away with OVDP, other programs are still available such as 

  • Traditional IRM Voluntary Disclosure
  • Streamlined Disclosure
  • Reasonable Cause

*If you decide to just submit without getting into compliance first, just keep in the mind that the IRS has indicated it will take a heavy hand against individuals who take this position, and it may result in significant fines and penalties.

**That is not an attempt to scare you, since there are probably plenty of people who do it anyways, and get away with it no problem (although we really don’t recommend it, since the downside is tough).

Beat the IRS to the Punch!

If you are out of compliance for not properly disclosing foreign income, accounts, assets, and/or investments — and are not under audit or examination — you may consider submitting to IRS Voluntary Disclosure (IRM, Streamlined or Reasonable Cause) in order to get into compliance.

IRS Offshore Voluntary Disclosure Specialist

IRS Offshore Voluntary Disclosure Specialist

Golding & Golding: Our international tax lawyers practice exclusively in the area of IRS Offshore & Voluntary Disclosure. We represent clients in 70+ different countries. Managing Partner Sean M. Golding is a Board-Certified Tax Law Specialist Attorney (a designation earned by < 1% of attorneys nationwide.). He leads a full-service offshore disclosure & tax law firm. Sean and his team have represented thousands of clients nationwide & worldwide in all aspects of IRS offshore & voluntary disclosure and compliance during his 20-year career as an Attorney.

Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
IRS Offshore Voluntary Disclosure Specialist