New April 15th FBAR Deadline Makes it Easier for the IRS to Find You
- 1 That Doesn’t Seem Fair
- 2 The New Due Date Increases the Risk of Getting Caught
- 3 The Risk is Heightened if you Received a FATCA Letter…
- 4 Golding & Golding Can Help
- 5 The Basics of Reporting Foreign Money
- 6 Who Has to Report?
- 7 Foreign Reporting Summary
- 8 Foreign Income
- 9 Foreign Accounts
- 10 Fines & Penalties
- 11 Customs Holds and Passport Revocation
- 12 Getting Into Compliance
- 13 Be Careful
As tax year 2016 comes to an end, it is important to take note that the time to file the FBAR (aka FinCEN 114) Report of Foreign Bank and Financial Account has changed.
In prior years, the FBAR was due on June 30th. This was a hard and fast rule; if you missed the filing deadline, you were immediately out of compliance — there was no mechanism to obtain an extension.
That Doesn’t Seem Fair
We agree. In fact, pretty much everyone agreed — including the U.S. government. That is why starting in 2017, the FBAR is now due at the time you file your tax return (although it is filed separately — electronically with the Department of Treasury). Therefore, when file your 2016 tax return (no later than April, 2017) you will also be required to file your FBAR by that date as well.
There is an understanding that if you apply for an extension to file a tax return, you should also be able to file an extension for your FBAR. With that said, because this is the first year the new date is being implemented, we would recommend erring on the side of caution, and making sure you file your FBAR no later than April 15th.
The New Due Date Increases the Risk of Getting Caught
Now that the FBAR and tax returns are required to be filed at the same time, the U.S. government will also be able to more easily glean both sets of forms to determine whether a person is in compliance.
Example: Before the introduction of the new rules, a person could have literally filed their FBAR on February 3rd and their tax return on October 12th; this made it harder for the IRS and DOT to track and reconcile the two sets of forms to determine if a person was in full compliance.
But now, with the U.S. government requiring both the FBAR and Tax Return (which includes FATCA Form 8938 if you meet the threshold requirement) to be filed at the same time, it overall makes it much easier for the IRS to review both sets of documents to determine whether a person is in compliance or not.
*Beyond just FATCA Form 8938, depending on the information contained in the FBAR, it will be easier for the IRS to determine if the applicant should have filed additional other reporting forms, such as a 3520, 3520-A, 5471, 8621, 8865, etc.
The Risk is Heightened if you Received a FATCA Letter…
In addition, whether people like it or not at the current time FATCA (Foreign Account Tax Compliance Act) is the law. Under this law, more than 100 countries and tens of thousands of Foreign Financial Institutions are proactively reporting U.S. account holder information to the IRS.
In addition, many of these banks are issuing very stern warnings to their customers, letting them know that unless they certify their status to the bank of their compliance with FATCA, the bank will no longer continue working with them. Moreover, we have represented numerous clients who received FATCA Letters wherein the foreign financial institution simply refuses to work with them any longer, solely because they are a U.S. Account Holder – even if they certify (specifically in the Cayman Islands and Switzerland).
As such, with so many different foreign financial institutions agreeing to, and proactively reporting to the U.S. government, compounded by the fact that the IRS has brought more clarity to the reporting of foreign accounts by synchronizing the due dates, it is very important that you remain in compliance.
Golding & Golding Can Help
Our entire tax practice is limited to Offshore Voluntary Disclosure, such as (OVDP, Streamlined Offshore Disclosure, FATCA and OVDP). We speak with several hundred clients and potential clients annually and we understand how overwhelming the process can be.
Therefore, below please find a very basic summary of how international tax law works, followed by a summary of the streamlined foreign offshore disclosure program.
The Basics of Reporting Foreign Money
Golding & Golding is a flat-fee, full-service firm; we are lawyers who assist international clients in reporting their offshore accounts to the IRS. Most recently, many of our clients learned about Foreign Bank Account reporting requirements when they received a FATCA Letter from their Bank, asking them to certify their U.S. Status by submitting either a W-9 or W-8 BEN.
Who Has to Report?
We have represented numerous clients worldwide with issues similar to yours:
– Expats who relocated overseas and did not know they had to report their foreign accounts.
– U.S. Citizens who live overseas and may or may not earn significant income, but have accounts in a foreign country.
– Legal Permanent Residents of the United States who relocate back to a foreign country but are unaware that they are still required to report the foreign accounts.
– Non-Residents who meet the substantial presence test and therefore are required to report foreign bank and other accounts to the US government.
Please do not worry. We can assist you as we have assisted hundreds of clients in over 40 countries disclose upwards of $40 million in a single disclosure.
We are available seven days a week and provide flat-fee and full-service representation to our clients around the world.
Foreign Reporting Summary
These are the most basic rules when it comes to foreign accounts and foreign income:
If you are either a US Citizen, Legal Permanent Resident (aka Green Card holder or recently gave up your Green Card) or foreign resident who meets the substantial presence test, then you are required to report your worldwide income to the IRS. This means that even if you do not have any US-based income, you are still required to report your worldwide income (even if it is the type of income which is not taxed in your home country such as interest and dividend income in most Asian countries). And, if you have enough foreign income to meet the minimum threshold for having to file a US tax return, then you are required to do so even if it is based on your foreign income alone.
If you meet the requirement for being a U.S. “Taxpayer” (even if you do not meet the threshold for having to file a US tax return), you are still required to file an annual FBAR (Report of Foreign Bank and Financial Accounts). The threshold is as follows: if at any time during the year, you have more than $10,000 in foreign accounts (whether the money is in one account or spread over numerous accounts), you are required to file an FBAR.
In addition, if you have significant amounts of money overseas, then you may also have to file additional forms such as an 8938 (FATCA Form) or 8621 (Passive Foreign Investment Company, which includes Foreign Mutual Funds along with as many other passive investments). There are many other forms you may have to file, but we determine those on a case-by-case basis.
Fines & Penalties
Unless you are criminal, chances are the IRS or Department of Justice will not be banging down your door to come drag you to jail. With that said, the fines and penalties can be very steep and depending on your particular circumstances, may include penalties upwards of 100% of the value of your foreign account. If the IRS believes you were willful (aka intentional), then they may launch a criminal investigation against you and the penalties and fines can get much worse from here, including Liens, Levies, Seizures…and worse.
Customs Holds and Passport Revocation
With the implementation of FATCA (Foreign Account Tax Compliance Act), the United States is heavily cracking down on offshore tax evasion and unreported foreign accounts in general. The IRS and US government have the power to both revoke your passport as well as possibly hold you at the airport “customs hold” to question you on the spot (usually outside the presence of your attorney).
Getting Into Compliance
Getting into compliance should be mandatory on your “to-do” list. Even though our firm, Golding & Golding, is based in Newport Beach, we represent clients worldwide. A majority of our clients live overseas in over 40 countries. We have helped numerous clients get into compliance and are regarded as one of the top Offshore Disclosure Law Firms worldwide.
To that end, there are three main methods of compliance:
(1) Streamlined Compliance
This program is for individuals who were unaware of any requirement to file an FBAR and/or report their income on a US tax return. The penalties under the streamlined program are significantly reduced and may possibly be waived depending on whether a person qualifies under the strict definition of foreign resident for offshore disclosure purposes.
This program is mainly for individuals and businesses who were willful, aka were aware they were supposed to report their foreign accounts but intentionally hid or kept the account/income information secret.
(3) Reasonable Cause Statement
This is not a particular program; instead, it is a method for getting to compliance while attempting to avoid any penalty. There are many pros and cons to this method depending on your specific situation, which must be evaluated carefully with your attorney before making a decision.
In the end, the decision to comply or not comply should be up to each individual who may be subject to foreign reporting. It depends on each person’s risk management level and what they’re willing to shoulder or not. That person should weigh the risks versus the rewards, the pros versus the cons.
For some people, they could care less and have no concerns that the US government is going to come to a foreign country to get them. Alternatively, there are many individuals who reside abroad and enjoy traveling back and forth to the United States on a US passport and may not want to risk the loss of the passport and other fines and penalties associated with it.
If you are considering coming into compliance, then you should speak with an experienced offshore voluntary disclosure attorney to get a better idea of your specific situation and what your best route for compliance may be.
If you are subject to US taxes but live overseas, you may potentially qualify for the Streamlined Offshore Disclosure Program (which means you do not have to pay any penalties) and you may even qualify for the Foreign Tax Credit (which means any taxes you may owe the IRS will be offset by any taxes you paid to a foreign country – in some cases, you may end up with zero tax liability). Thus, you may be one of the lucky individuals who do not have to pay any penalties nor any taxes.
**Quiet Disclosure Caution: if you are considering a Quiet Disclosure, we highly recommend against it as that is proactively committing a crime. This will automatically disqualify you from the Streamlined programs or Reasonable Cause submission. If you want to learn more about the dangers of quiet disclosure please see this article.
For additional information, please read here.
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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.)