Tag Archive for: FBAR

Foreign Assets

Foreign Assets and FBAR Reporting

Ever increasing U.S. reporting obligations on Americans living, working, and/or investing abroad, make it difficult to keep up.  This is a review of your foreign assets and FBAR reporting requirements.  Foreign assets are reported on IRS Form 8938 and the FBAR is sent to the Treasury on FinCEN Form 114 (Report of Foreign Bank and Financial Accounts).

These two forms are quite similar, and many are confused about when and why to file each.  I note that you must file if you meet the reporting threshold.  Basically, the IRS wants you to send in the same information twice… so they know exactly where your assets are and how they are invested.

Who Must File Foreign Assets and FBAR

The Statement of Specified Foreign Assets must be filed by U.S. citizens, resident aliens, and some non-residents if your reportable foreign assets are at least $50,000 on the last day of the year, or $75,000 at any time during the tax year.  Note that higher levels apply to married couples.

The FBAR is required from any U.S. person, including citizens, resident aliens, trusts, estates and U.S. structures that have foreign bank account(s) with at least $10,000 at any time during the year.  So, if you have a foreign account with $11,000 for just one day, and the rest of the year your balance is $5,000, you still must report.  Also, if you have 11 accounts, each with $1,000, you have $11,000 offshore and thus must report all of these accounts on your FBAR.

Foreign assets you own are reportable on Form 8938.  This is to say, if you would need to report income or gains from these assets on your U.S. return, you must report their existence on Form 8938.

As for the FBAR, an interest in a financial account means you have signature authority over the account or you are the beneficial owner of the account.  If you have a right to tell the bank what to do with the funds, how to invest the cash, or instruct them to send a wire, you are the signor and need to report.

You’re the beneficial owner if you’re the owner of record or holder of legal title.  For example, if you have $100,000 deposited in to an account, and then assign a nominee account manager, you are the beneficial owner of the account because the funds belong to you.  The signor and nominee in this case is acting on your behalf.

What is Reported as Foreign Assets and on the FBAR

When you are reporting foreign assets or the FBAR, you must report the maximum value.  For the FBAR, you report the highest value in the account during the year.  If you are holding funds in a currency other than USD, you should use an average FX rate, or convert on the day the account balance is at its high water mark.

This means that the amounts reported on your FBAR might be artificially inflated by transfers, one time deposits, etc.  For example, you have $100,000 in account A, and transfer that to account B, and then to account C, all within the same year.  Your FBAR will show three accounts, each with $100,000.  The government won’t know whether you have $300,000 or $100,000 offshore but it allows them to maximize failure to report penalties.

On the Foreign Asset report, you’re to list the maximum value of each foreign asset, which includes bank and brokerage accounts, and certain other assets.  You should report the fair market value in USD for each account and asset reported.

* Foreign Account: Is any bank or brokerage account at a financial institution outside of the United States (see below).  For the FBAR, if the bank has a branch in the U.S., but your account is held at a foreign branch, it must be reported.  If you have an account at Citibank, Panama, you have a foreign account and need to file the FBAR.

The foreign asset report is due with your U.S. tax return, including extensions.  So, Form 8938 is usually due on April 15 or October 15.  The FBAR is due by June 30 and no extensions are available.  If you file your return on April 15, you should submit your FBAR at that time.  If you get an extension for our 1040, your FBAR is still due by June 30.

The FBAR should be filed online through the FinCens BSA E-Filing System.  Please see my article on how to file this form electronically.

Foreign Reporting Penalties

The penalties for failing to file the foreign assets and FBAR forms are severe… and can include criminal charges.  There are many Americans sitting in jail for not telling their Uncle where their assets are.  Some also

Cheap offshore Company

A Cheap Offshore Company Cost Me $100K

Are you considering forming a cheap offshore company?  Has some scammer in Nevis promised you tax freedom and privacy?  Forming a cheap offshore company that does not include U.S. tax compliance is a roadmap to disaster for the American living, working or investing abroad.

How much would you be looking at in penalties for using a cheap offshore company formation mill?  The most common error is failing to Ale the Foreign Bank Account Report or FBAR.  Most get a penalty of $100K per year and are happy to avoid jail time.

Others get in to even more trouble for failing to file an offshore corporation return on Form 547 or one of the various LLC reporting forms.  Those of you with complex asset protection trusts have even more risks.  You may need to file a form when you fund the structure and Forms 3520 and 3520-A each year to report transactions in your trust.  Add to this the requirement to report foreign assets in a variety of situations, and in improperly structured and reported cheap offshore company can cost you a fortune.

When asked how much a cheap offshore company will cost, I like to say about $100K.  This is because the FBAR is the IRS’s first line of attack and other forms base their penalties on the amount of unreported tax or as a percentage of assets (i.e. an offshore trust).  For the trust, the usual penalty is 25% of assets under management per year!

Back when I was defending cheap offshore company users, I commonly saw people who were out of compliance for multiple years and who owed more in taxes and penalties that they had taken offshore.  In one case, a client put $75,000 offshore for a few years and ended up paying $225,000 in taxes, fines and penalties. . .and happy to pay up rather than sit in jail.

Some were not as lucky.  U.S. jails are full of people who had a cheap offshore company and found themselves in theirs crosshairs – to eventually spend time

behind bars.  How much does a cheap offshore company cost?  If the IRS wants to make an example of you, about 3 to 5 years of your life.

The U.S. is one of the very few nations on earth that locks away its citizens for not paying taxes.  In fact, America has put people away for failing to file a form when no tax was due (lawyers calls this a zero tax loss case).  I personally know people in jail for 10 months for failing to file a form in a zero tax loss case.  I know of another person who got 2 years home confinement on a zero tax loss case.

This is all to say, stay away from cheap offshore company formation mills unless you are an international tax expert, you are heading for trouble using such a provider because you can’t tell puffery and salesmanship from fact.

When you form an offshore company with Premier, we include 12 months of tax and business consulting services at no cost.  Our U.S. tax experts are here to answer any questions from you or your tax preparer, explain what forms to use and when to file and make sure you in compliance with the IRS.  We also assist with any business or banking questions – including opening additional bank or brokerage accounts in the first 12 months.  We are always her to answer your questions.

While advice and consulting services are free, we also offer tax compliance packages for corporations, LLCs, trusts and asset protection structures that we have created.  We do not prepare complex returns for structures we have not formed . . .this is just too much liability for us to assume from others’ mistakes.

  • We also prepare personal returns, Form 1040 and 2555, for anyone living and working abroad.

So, how much does a cheap offshore company formation cost?  Too much!  If you don’t select Premier to structure your international affairs, please use a U.S. attorney or firm that can keep you out of trouble.  The cheap offshore company formation is not worth the risk.

For a confidential consultation, please call us anytime or send an email to info@premieroffshore.com.  All discussions are private and there is no obligation.

Offshore Roth Conversion

IRS Automatic Extension for Expats: April 16 is the First Day of the Expat Tax Season

Because of the IRS automatic extension for Expats, today, April 16, is the first day of the Expat tax filing season. While those of us stuck in the U.S.A. must file and pay by April 15, Expats get an automatic two month extension.

This two month automatic extension for Expats is more valuable than the standard six month extension to file your taxes. See, the six month extension allows you to file your return on October 15, but it does not extend the time to pay your taxes. If you pay after April 15, penalties and interest will apply.

If you are living abroad, you have two extra months to file and pay without getting hit with any fees by the ever generous IRS. This means you have an extra two months to use that cash before it goes in to Uncle Sam’s coffers.

If you use the automatic two month extension for Expats, make sure the IRS knows that you qualify so you don’t get stuck fighting over an erroneous bill. There is no form available to put them on notice, so you need to attach a letter to the front of the return with your name (or names if a joint return), foreign address, and social security number(s). Either tell the IRS that you are employed in Country X, or that you are a tax resident of Country Y and thus your return is due on June 15.

This extension is only for those who are resident or working in another country as of April 15th. If you were living abroad in 2013, and returned to the U.S. in January of 2014, you may not take the IRS Automatic Extension for Expats.

If you need more than two months, you can use IRS Form 4868 just like the rest of us gringos to get the standard 6 month extension. Of course, you will be expected to pay by June 15 and, if you pay after that date, interest and penalties will apply. For a rough estimate, paying after June 15 will cost about 4.5% per month in fines.

  • For more information on Form 4868, see the IRS website.
  • For information on late filing penalties, see this section of the IRS site.

You should also keep in mind that the two and six month extensions don’t affect your FBAR filing deadline. You must report your foreign bank account by June 30th, no matter when you file your personal return. If you need to report a foreign bank account, checkout my article on New FBAR Filing Requirements for 2014.

If you are operating a business through an offshore corporation and filing Form 5471, this form is attached to your personal return. Thus, extending your personal return automatically extends the time permitted to file your corporate return. No additional extension is required.

However, the two month and six month extensions above do not apply to offshore trusts. If you file Form 3520-A or 3520, these are due on March 15 and can be extended until September 15 using IRS Form 7004 (see the IRS website for more information).

Finally, if you are an Expat who is going to qualify for the Foreign Earned Income Exclusion late in the year, you can get a special extension from the IRS to file after the October 15 deadline. To use this extension, you must file IRS Form 2350 by April 15, and pay any expected tax due by April 15 (that’s right, not June 15 when using this extension). For more information, see Extension of Time to File in Order to Qualify for the Foreign Earned Income Exclusion.

When might someone need this FEIE extension? Let’s say you leave the U.S. on November 1, 2014 and want to use the 330 day test to qualify for the FEIE on income earned abroad from November 1, 2014 to December 31, 2014, as well as get credit for those days to qualify in 2015. In that case, you must file your 2014 return 30 days after you qualify for the FEIE, which would be December 2, 2015. You may not file your 2014 return until you actually qualify for the FEIE…you may not assume you will qualify.

For those of you who love trivia, here is the origin of the automatic extension for Expats to file their Federal tax returns. Under the mail box rule, your tax return is received by the IRS when you place it in the mail box. Lawyers also call this constructive receipt.

When you mail your tax return in the U.S. on April 15, it arrives at the IRS in just a few days. If you are out of the U.S., it might take a very long time in deed to go from China to a package to Uncle Sam using standard international post. The automatic extension for Expats came about as the longest time the IRS would allow a package to arrive from overseas. So, back in the day, the IRS was to receive your return by June 15, whereas you needed to post your return by April 15 from the U.S.

Today, those using the automatic extension for Expats can mail their return and payment on June 15…it need not be received on that date. If you will be sending in a paper return on this date, I strongly recommend you use FedEx or another courier service to avoid significant delays.

As electronic filing has become the norm, the justification for the automatic extension for Expats has changed. Today, it is explained as the extra time Expats might need to collect documents and file their local returns so that they know how to make use of the Foreign Tax Credit and related deductions.

As we get ready for the Expat tax filing season, please take a minute to read through my tax page. Feel free to send me an email at info@premieroffshore.com or call (619) 483-1708 if you would like for us to prepare your U.S. Expat tax return. We are experts in Forms 5471, the new FBAR, Form 2555, and all the others those living, working and investing abroad must come to terms with.

Retire Abroad

New FBAR Filing Requirements for 2014

As you, the American with investments abroad, get ready to prepare your 2014 tax return, there are important new FBAR filing requirements for 2014. Some of these FBAR filing requirements are cosmetic and others could get the misinformed in hot water.

Note: If you have no idea what an FBAR is, you might check out my general article on filing requirements for those living, working, or investing abroad. If you want to learn how to legally avoid the FBAR, click here.

First, let me tell you how your accountant or CPA thinks. The foundation of tax preparation for professions is SALY…prepare the return the Same As Last Year to reduce the risk of an audit.

So, when your preparer pulls out your file, he or she will be thinking SALY and will reach for the same old forms to file. When new FBAR filing requirements for 2014 are announced, but don’t get much press, tax preparers without many Expat clients can get caught unprepared.

It may be up to you to educate your preparer on the FBAR and these New FBAR filing requirements for 2014. Here they are:

Not one to bury the lead: IRA owners don’t need to file an FBAR in 2014!

For those of you with Offshore IRA accounts, the IRS has finally come out and said that IRA owners and beneficiaries do not need to file an FBAR. Whether an offshore IRA needed to file an FBAR was never clear, so we all aired on the side of caution and filed it year after year. Well, that burden has been lifted (see below).

The cosmetic change is that the name of the form has changed. The official name of the FBAR changed from Treasury Form TD F 90-22.1 to FinCEN Form 114. I’ll bet not many people even noticed, as we all refer to it as the FBAR.

The big change to the FBAR for 2014 is that it must now be filed online. No more paper allowed. So, when your preparer pulls out your file and grabs the same old forms, you may be in for penalties.

That’s right, if you or your preparer are unaware of the change and mail in SALY, you could face significant penalties for filing late…or not filing at all. So, be sure to talk to your tax man or woman!

Note: the deadline for the electronic FBAR filing did not change and remains June 30. If you file your FBAR with your personal return on April 15, all is well. If you procrastinate and get an extension for your personal return until October 15, your FBAR is still due on June 30. That’s right, the extension of time to file your personal return does not apply to the FBAR.

Do you prepare your own returns? Do you want to sound cool when you explain things to your preparer? Then here is how to file an electronic FBAR in excruciating detail.

To file an electronic FBAR:

  1. Go to http://bsaefiling.fincen.treas.gov/main.html.
  1. Click “File an Individual FBAR” on the left side of the page.

  1. You will then be brought to the screen below, where you can download a PDF version the FBAR (FinCen Form 114). This PDF allows you to type information into the form and save the results (wow, a fillable PDF form – modern technology fresh from 2001!)

  1. Fill in FinCen Form 114 PDF. You will need your information, including social security number and date of birth, as well as your bank name, address, account number, and highest balance for the year. Be sure to save the document when you are finished. If you are unsure what information you need to enter in a certain field, you can move the mouse cursor over that field, hold it for a moment, and a box of text will pop up explaining what you need to enter. See the picture below for an example.

  1. Once everything is filled out correctly, go back to the first page digitally sign the document, save and validate it, and then finalize it for submission.

  1. When you’re ready to submit the form, go back to the page from Step 3 and click the link to “Submit FBAR.” This will take you to the submission page, where you’ll need to enter some contact information and then upload the finalized PDF. The process is not complete until you submit the form.

As you can see, the government has taken a simple form, which could be filled out a a 5th grader and mailed in, and turned it in to a computer nightmare for some. How many of those preparing their own returns will be confused and confounded by this new fangled technology? It will be an interesting year.

New FBAR Filing Requirements for 2014 – Who Must File?

Anyone who is a “U.S. person” must file an FBAR and enjoys the honor of paying U.S. tax on their worldwide income. Basically, this is anyone with a U.S. passport, green card, or someone who lives in America for 6+ months in the year.

If you are not sure you qualify as a U.S. person, please read: Who is a US Person?

The list of those exempt from filing an FBAR has also been updated and codified. For many of you, the most important statement is that IRA owners and beneficiaries are not required to file an FBAR.

Here is the complete list:

  • Certain foreign financial accounts jointly owned by spouses;
  • United States persons included in a consolidated FBAR;
  • Correspondent/nostro accounts;
  • Foreign financial accounts owned by a governmental entity;
  • Foreign financial accounts owned by an international financial institution;
  • IRA owners and beneficiaries;
  • Participants in and beneficiaries of tax-qualified retirement plans;
  • Certain individuals with signature authority over, but no financial interest in, a foreign financial account;
  • Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust); and
  • Foreign financial accounts maintained on a United States military banking facility.

To be clear, the above list is not necessarily new FBAR filing requirements for 2014. I am saying that the IRS finally listed the exceptions on their website and ended the debate, especially in regard to IRA owners and beneficiaries. For more information, see IRS.gov.

I hope you have found this article helpful. Please post any questions or suggestions in the comments below. I will personally respond to every inquiry.