Foreign Accounts – Compliance with IRS Offshore Reporting in 2019
- 1 Foreign Accounts Compliance
- 2 Step-by-Step Guide to Foreign Account Compliance – Board Certified Tax Law Specialist
- 3 10 Simple Steps to Determine Your Filing Needs
- 4 First, Common Offshore Reporting Acronyms
- 4.1 FBAR
- 4.2 FinCEN 114
- 4.3 FATCA
- 4.4 PFIC
- 4.5 Step 1 – Do You Have a Foreign Account?
- 4.6 Step 2 – Do you Own the Foreign Account or have Signature Authority?
- 4.7 Step 3 – What is the Value of the Foreign Accounts?
- 4.8 Step 4 – Categorize the Foreign Accounts you have
- 4.9 Step 5 – What Currency are the Foreign Accounts in?
- 5 Stop!
- 5.1 Do You File the FBAR?
- 5.2 Do You File FATCA Form 8938?
- 5.3 PFIC (8621)
- 5.4 Schedule B
- 5.5 Step 6 – Aggregate Your Account Values, By Type
- 5.6 Step 7 – Determine Which Forms You Have to File
- 5.7 Step 8 – Did You Have to Report in Prior Years? – Very Important
- 5.8 Step 9 – Check if the Current Year is the First Year You Had to File
- 5.9 Step 10 – You Missed Prior Year Reporting
- 6 Beat the IRS to the Punch!
- 7 Safely Get Into IRS Offshore Compliance
- 8 4 Types of IRS Voluntary Disclosure Programs
Foreign Accounts Compliance
Foreign Accounts Compliance: If you have Foreign Accounts, then it is important to stay in “Foreign Account Compliance” with IRS reporting rules. The main rules include:
- 1040, Schedule B
Foreign Accounts Compliance – IRS Offshore Reporting in 2019: It is important that if you are a U.S. person with Foreign Accounts, that you remain in compliance with IRS compliance requirements, including FATCA (Foreign Account Tax Compliance Act) FBAR (Foreign Bank and Financial Account Reporting), and several other IRS statutes and regulations.
Reporting foreign accounts generally includes FBAR & FATCA disclosure of foreign:
- Bank Accounts
- Investment Accounts
- Stock Accounts
- Trust Accounts
- Business Accounts
- Life Insurance
- Provident Funds
- ETFs and Mutual Funds
- Cryptocurrency Accounts
Step-by-Step Guide to Foreign Account Compliance – Board Certified Tax Law Specialist
A Step-by-Step Offshore Tax Guide for IRS Reporting of Foreign Bank and Financial Accounts to help determine if you meet the IRS Threshold Filing Requirements for FBAR, FATCA, PFIC and more.
It’s 2019 — where did the time go?
As part of your New Year’s Resolution, you decided that this year you are going to get into compliance with the IRS (you were very drunk).
You know you have foreign accounts, and you know they have to be reported.
Your CPA tells you not to worry about it (he was drinking with you on New Year’s Eve), but he also tells you that the liability is all yours if you don’t report.
10 Simple Steps to Determine Your Filing Needs
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
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.”
Financial Crimes Enforcement Network. It sounds much more evil than it actually is. FinCEN Form 114 is actually the technical term for FBAR.
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).
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.
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
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 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.
Safely Get Into IRS Offshore Compliance
Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.
4 Types of IRS Voluntary Disclosure Programs
There are typically four types of IRS Voluntary Disclosure programs, and they include:
- Traditional (IRM) IRS Voluntary Disclosure Program
- Streamlined Domestic Offshore Procedures (SDOP)
- Streamlined Foreign Offshore Procedures (SFOP)
- Reasonable Cause (RC)
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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, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)
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