SLIDE 1
Presented by Glen MacMillan – Adams & Miles LLP
SLIDE 2 Formerly known as “Form TD F 90-22.1”. Now known as “FinCEN Form 114”. Required to be filed if the aggregate value of all
foreign “financial accounts” which a “U.S. person” has a “financial interest” in or “signature authority”
- ver exceeds $10,000 at any time during a
calendar year.
$10,000 threshold was set in 1970 and has never
been increased.
SLIDE 3 A financial account includes, but is not limited to, a
securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution).
A financial account also includes a commodity futures
- r options account, an insurance policy with a cash
value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions).
SLIDE 4
A foreign financial account is a financial account
located outside the U.S.
An account maintained with a branch of a U.S.
bank that is physically located outside the United States is a foreign financial account.
An account maintained with a branch of a foreign
bank that is physically located in the U.S. is not a foreign financial account.
Intent seems to be to identify accounts that are not
subject to existing U.S. reporting rules.
SLIDE 5
U.S. citizens and U.S. residents of any age. Non-residents who meet the substantial presence test but claim
non-resident status under a tax treaty.
However, non-residents who timely file form 8840 to claim closer
connection to another country are not subject to FBAR reporting.
Entities, including but not limited to, corporations, partnerships,
limited liability companies trusts or estates created or organized in the United States or under the laws of the United States.
A child is responsible for filing his or her own FBAR. If a child
cannot file for any reason, such as age, the child's parent, guardian, or other legally responsible person must file it for the child.
SLIDE 6
An entity disregarded for tax purposes is not
relieved from an obligation to file an FBAR.
For example, a disregarded LLC is still required to
file the FBAR.
SLIDE 7 A U.S. person has a financial interest in a foreign
financial account for which:
- The U.S. person is the owner of record or holder of legal
title, regardless of whether the account is maintained for the benefit of the U.S. person or for the benefit of another person,
- The owner of the account is a corporation in which the
U.S. person owns directly or indirectly (i) more than 50%
- f the total value of shares of stock or (ii) more than 50%
- f the voting power of all shares of stock, or
- The owner of the account is a partnership, trust or any
- ther entity where the U.S. person has more than a 50%
interest.
SLIDE 8
Signature authority is the authority of an individual
(alone or with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the bank or other financial institution that maintains the financial account.
For example, a son with signing authority over (but
no financial interest in) his elderly parents’ foreign bank account.
SLIDE 9 A spouse is not required to file a separate FBAR if
- all financial accounts of the non-filing spouse are jointly
- wned with the filing spouse,
- the filing spouse reports the jointly owned accounts on a
timely filed FBAR, and
- Form 114a is signed by non-filing spouse and retained in
filing spouse’s records.
- In all other cases, both spouses must file separate
FBARs and both must report the entire value of jointly owned accounts.
SLIDE 10 FBARs must be efiled. Filers can efile their own FBARs on FinCEN’s website at
http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html
The online efiling process is relatively straightforward. Assistance available by calling E-Filing Help
Desk 1-866- 346-9478 (option 1) or via email BSAEFilingHelp@fincen.gov
Detailed
FBAR instructions can be found at http://www.fincen.gov/forms/files/FBAR%20Line%20Item%20 Filing%20Instructions.pdf
Third party preparers efiling FBARs on behalf of clients must
- btain client consent with form 114a “Record of Authorization
to Electronically File FBARs”.
SLIDE 11
Must be efiled on or before June 30th of the year
immediately following the calendar year being reported.
No extension of time available for filing an
FBAR.
Extensions of time to file federal tax returns do
not extend the June 30th FBAR due date.
SLIDE 12
New law provides that the FBAR due date “shall
be April 15 with a maximum extension for a 6- month period ending on October 15 and with provision for an extension under rules similar to the rules in Treas. Reg. section 1.6081–5…….”
It appears U.S. citizens living outside the U.S.
should have an automatic extension to June 15 to file both the 1040 and FBAR.
SLIDE 13
Filers can request an extension to file the FBAR to
October 15th by filing an extension that is expected to be similar to Form 4868.
For first time FBAR filers, the new law allows the
IRS to waive penalties for failure to timely file an extension request.
Not clear whether any changes are forthcoming
for FBAR filers that are not individuals.
SLIDE 14 The following are not required to file an FBAR
- An entity named in a consolidated FBAR filed by a
greater than 50 percent owner.
- Governmental entities.
- Owner or beneficiary of an IRA.
- Beneficiary of a retirement plan is not required to report a
foreign financial account held by or on behalf of the retirement plan.
SLIDE 15 Part I - Filer Information
- Relatively straightforward information about the filer
- Name, address, SSN/EIN, date of birth (if applicable),
etc.
- See separate FBAR instructions for Box 14a and 14b if
filer has a financial interest in or signature authority over 25 or more foreign financial accounts.
SLIDE 16 Part II - Information on financial account(s) owned
separately
- Disclose type of account, account number, name and
address of financial institution where account is located, maximum value in the account during the year.
- Maximum values must be reported in US$.
- Convert foreign currency amounts to US$ using the year-
end exchange rate even if the maximum value has been determined at some other date.
- A movement of funds between foreign accounts results in
those funds being included in the maximum value determination for each account.
SLIDE 17 Part III - Information on financial account(s) owned
jointly
- Same account information as required for separately owned
accounts.
- Maximum value reported for joint accounts is the maximum
gross value in the account; the value is not reduced to reflect the joint owner’s prorate share of the account.
- Additional information includes reporting the number of joint
- wners and identification of the “principal joint owner”.
- A spouse is always the principal joint owner of a jointly owned
account.
- For joint accounts with non-spouses, the term “principal joint
- wner” is undefined.
SLIDE 18 Part IV - Information on Financial Account(s)
where filer has signature or other authority but no financial interest in the account(s)
- Example: a U.S. person with signing authority over a
parent’s foreign account.
SLIDE 19 Part
IV – Signature authority
employer accounts
- Example: A U.S. person has signing authority over bank
account of an arm’s length employer.
- A U.S. person who (1) lives outside the U.S. (2) is an
employee of an employer located outside the U.S. and (3) has signature authority over a foreign financial account of the employer only needs to report basic identifying information about the employer one time.
- Detailed information about the value and location of the
account(s) is not required.
SLIDE 20 Additional Part IV exceptions from reporting
- Employees of banks subject to U.S. examiners.
- Employees of financial institutions and certain other
Entities subject to SEC examinations.
- Employees of certain entities controlled by U.S. publicly
traded entities.
- Various other miscellaneous employee exceptions.
SLIDE 21 Part V - Information on financial account(s) where
filer is filing a consolidated report
- A U.S. entity that owns directly or indirectly a greater than
50 percent interest in another entity that is required to file an FBAR is permitted to file a consolidated FBAR on behalf of itself and the other entity.
SLIDE 22 A person who is required to file an FBAR and fails to
properly file is subject to a $10,000 penalty.
If there is reasonable cause for the failure and the
balance in the account is properly reported, no penalty will be imposed.
A person who willfully fails to report an account or
disclose required information may be subject to a penalty equal to the greater of $100,000 or 50 percent
- f the balance in the account at the time of the
violation.
Willful violations may be subject to criminal penalties.
SLIDE 23
Questions?
SLIDE 24
Presented by Glen MacMillan – Adams & Miles LLP
SLIDE 25 Form 8938 was introduced for the 2011 tax year. The form captures information about the location of an
individual’s foreign accounts and the amount
income reported on the 1040 from foreign accounts.
Filing the 8938 does not relieve an individual of the
requirement to file the FBAR even though the content and purpose of the 8938 and the FBAR appear comparable.
Form 8938 must be filed with a 1040 or 1040NR
income tax return.
If an individual is not required to file a tax return, form
8938 is not required under any circumstances.
SLIDE 26 U.S. citizens, resident aliens and certain non-residents if
the value of “specified foreign financial assets” exceeds their “reporting threshold”.
Non-residents who meet the substantial presence test and
claim non-resident status under a tax treaty between their home country and the U.S.
Non-resident aliens who elect to be treated as resident
aliens for purposes of filing a joint income tax return.
Non-resident aliens who are residents of American Samoa
At this time, only individuals must file form 8938 but there
are indications from the IRS that the obligation to file form 8938 may be expanded to other domestic entities.
SLIDE 27 Similar to the FBAR definition. Financial accounts maintained by a foreign financial
institution
Foreign financial assets if held for investment and not
held in an account maintained by a financial institution:
- Stock of a foreign corporation, interests in foreign partnerships,
notes and bonds issued by foreign persons, interest in a foreign trust or estate, interest rate swaps, currency swaps, derivative instruments, currency and commodity options with a foreign person.
Specified foreign financial assets owned by grantor
trusts and disregarded entities in which the taxpayer has an ownership interest.
SLIDE 28 Accounts owned by children
- If a parent files form 8814 “kiddie tax” election to
include in gross income certain unearned income of the child, the parent has an interest in any specified foreign financial asset owned by the child.
SLIDE 29 Unmarried taxpayers and married taxpayers filing
separate returns:
- Total value of specified foreign financial assets is more
than $50,000 on the last day of the year or more than $75,000 at any time during the year.
Married taxpayers filing joint returns:
- total value of specified foreign financial assets is more
than $100,000 on the last day of the year or more than $150,000 at any time during the tax year.
SLIDE 30 Unmarried taxpayers and married taxpayers filing
separate returns :
- total value of specified foreign financial assets is more
than $200,000 on the last day of the year or more than $300,000 at any time during the year.
Married taxpayers filing joint returns:
- total value of specified foreign financial assets is more
than $400,000 on the last day of the year or more than $600,000 at any time during the tax year.
SLIDE 31
All values must be reported in US$’s. Maximum value of a specified foreign financial asset
denominated in a foreign currency must be first determined in the foreign currency and then converted to U.S. dollars.
Use the year-end exchange rate to convert to US$’s even if
the maximum value is determined on a date other than the last day of the year.
Report the maximum value of an entire account, even if the
account is owned jointly with a spouse or another person.
Periodic account statements, such as monthly brokerage
statements, may be relied on to ascertain maximum value unless the taxpayer is aware that these statements do not reflect the true maximum value during the year.
SLIDE 32
For assets not held in a foreign financial account,
the individual may use the value on the last day of the year, unless the individual is aware the year- end value is not a reasonable estimate of the maximum value of the asset during the year.
Special rules apply for valuing interests in foreign
trusts, foreign pension plans and foreign deferred compensation plans.
SLIDE 33 A joint owner (excluding spouses) is considered to
have an interest in the entire asset and must report the maximum value of the entire asset.
Married individuals:
- MFJ filers - report specified foreign financial assets
- wned jointly only once and include the maximum value
- f the entire asset.
- MFS filers - both spouses report specified foreign
financial assets owned jointly and both must report the maximum value of the entire asset.
SLIDE 34 In addition to the maximum value of specified
foreign financial assets, an individual must report the following amounts earned from foreign assets and disclose where in the tax return the amounts have been reported:
- Interest
- Dividends
- Royalties
- Income
- Gains or losses
- Deductions
- Credits
SLIDE 35
Foreign rental properties owned personally are not
included in the definition of “specified foreign financial assets”.
If the purpose of form 8938 is to identify the location of
and income earned from passive foreign assets, query why foreign rental properties are excluded.
SLIDE 36 An asset does not need to be reported on form 8938 if
the asset is reported on one of more of the following forms:
- Form 3520 “Annual Return To Report Transactions With
Foreign Trusts and Receipt of Certain Foreign Gifts”
- Form 5471 “Information Return of U.S. Persons With
Respect To Certain Foreign Corporations”
- Form 8621 ”Information Return by a Shareholder of a
Passive Foreign Investment Company or Qualified Electing Fund”
- Form 8865 “Return of U.S. Persons With Respect to Certain
Foreign Partnerships”
SLIDE 37 Failure to file penalty:
Continuing failure to file penalty:
- If an individual does not file a correct and complete
form 8938 within 90 days after the IRS mails a notice
- f the failure to file, the individual may be subject to an
additional penalty of $10,000 for each additional 30 day period during which the failure continues, up to a maximum additional penalty of $50,000.
SLIDE 38
No penalty will be imposed if individual fails to
file form 8938 or to disclose one or more specified foreign financial assets on form 8938 and the failure is due to reasonable cause and not to willful neglect.
Must affirmatively show the facts that support a
reasonable cause claim.
This language seems stronger than the FBAR
reasonable cause exception.
SLIDE 39
Questions?
