Title: Streamlined Filing Compliance Procedures
1(No Transcript)
2Webinar Overview
much more!
3Who is a U.S. Taxpayer?
- U.S. Citizens
- Lawful permanent residents Green Card holder
- Those satisfying the substantial presence test of
IRC section 7701(b)(3).
- To meet this test, a person must be physically
present in the United States on at least - 1. 31days during the current year, and2. 183
days during the 3-year period that includes the
current year and the 2 years immediately before
that, considering - All the days a person was present in the current
year, and - One -Third (1/3) of the days a person was present
in the first year before the current year, and
- One - Sixth (1/6) of the days a person in the
second year before the current year.
4Responsibility of US Citizen and Residents
- File income tax returns reporting worldwide
income (Form 1040) - File required US international informational tax
returns - File FBARs on FinCen Form 114
5Foreign Assets Disclosure and Reporting
- Form 3520 Annual Return to report transactions
with foreign trust and receipt of certain foreign
gift - Form 926 Return by a U.S Transferor of property
to a foreign corporation - Form 5471 Information Return of U.S. persons with
respect to certain foreign corporations - Form 8865 Return of U.S. person with respect to
certain foreign partnerships - Form 8621 PFICs
- FBAR
- Form 8938 Foreign Financial Assets
6Form 3520
Annual Return to Report Transactions With Foreign
Trusts and Receipt of Certain Foreign Gifts
- Under IRC 6048, taxpayers must report various
transactions involving foreign trusts, including
the creation of a foreign trust by a United
States person, transfers of property from a
United States person to a foreign trust, and
receipt of distributions from foreign trusts. - This return also reports the receipt of gifts
from foreign entities under IRC 6093F. - The penalty for returns reporting gifts is five
percent of the gift per month, up to a maximum
penalty of 25 percent of the gift.
7Form 926
Return by a U.S. Transferor of Property to a
Foreign Corporation
- Under IRC 6038B, taxpayers must report transfers
of property to foreign corporations and other
information. - The penalty for failing to file each one of these
information returns is ten percent of the value
of the property transferred, up to a maximum of
100,000 per return, with no limit if the failure
to report the transfer was intentional.
8Form 5471
Information Return of U.S. Persons with Respect
to Certain Foreign Corporations
- Under IRC 6035, 6038 and 6046, certain United
States persons who are officers, directors or
shareholders in certain foreign corporations
(including International Business Corporations)
must report information. - The penalty for failing to file each one of these
information returns is 10,000, with an
additional 10,000 added for each month the
failure continues beginning 90 days after the
taxpayer is notified of the delinquency, up to a
maximum of 50,000 per return.
9Form 8865
Return of U.S. Persons with Respect to Certain
Foreign Partnerships
- Under IRC 6038, 6038B, and 6046A, United States
persons with certain interests in foreign
partnerships must report interests in and
transactions of these foreign partnerships,
transfers of property to these foreign
partnerships, and acquisitions, dispositions and
changes in foreign partnership interests. - Penalties include 10,000 for failure to file
each return, with an additional 10,000 added for
each month the failure continues beginning 90
days after the taxpayer is notified of the
delinquency. - The penalty is capped at 50,000 per return, and
ten percent of the value of any transferred
property that is not reported, subject to a
100,000 limit.
10FBAR
Who Must Report?
- Individuals Must Must File FBARs if they Have
- Financial Interest in, Signatory Authority or
Other Authority Over One or More Accounts (Bank
Accounts, Brokerage Accounts, Mutual Fund
Accounts) in a Foreign Country
Penalty
A person who willfully fails to file an FBAR or
files an incomplete or incorrect FBAR, may be
subject to a civil monetary penalty of 100,000
or 50 of the balance in the account at the time
of the violation, whichever is greater. Willful
violations may also be subject to criminal
penalties.
11Form 8938
A specified foreign financial asset (SFFA) is
- Any financial account maintained by a foreign
financial institution
Foreign bank accounts Foreign mutual funds
Foreign hedge funds Foreign private equity
funds Certain foreign insurance products
Penalty
- In general, Form 8938 penalties will be 10,000
per year.
12Efforts by IRS
- IRSs latest efforts is to promote tax compliance
and to crack down on offshore tax evasion - These program will ease the financial and legal
pain for expatriate Americans who live and work
abroad - They relax the penalties that a taxpayer with an
overseas account might otherwise face for failing
to disclose a foreign account
What Does the IRS Know?
- Never Underestimate What Information The IRS Can
Find Out on its Own - Tax Return Preparer Must Forewarn Clients About
the Increasing Breadth of Information That Can Be
Gathered by IRS, and Department of Justice (DOJ)
on Noncompliant Taxpayers Through Social Media - Foreign Bankers Are Often meticulous in Keeping
Notes of Prior Phone Calls and Meetings with
Clients or Advisors - No Such Thing as a Secret Account
- Taxpayer Must be prepared to Credibly Explain to
IRS Why They Failed to Disclose Foreign Accounts
and Why They Did Not Make a Voluntary Disclosure?
13Streamlined Programs Remediation Eligibility
- Streamlined Programs Initiated in 2012
- Technically Two Programs
- Streamlined Domestic Offshore Procedures
- Streamlined Foreign Offshore Procedures
- Common Theme of Both Programs is Requirement That
Taxpayer Certify Under Penalty of Perjury That
His Conduct Was Not Willful Conduct was due to
negligence, or mistake or conduct that is the
result of good faith misunderstanding of the
requirements of the law, accidental failure to
report - IRS does not explicitly define non-willful.
They review each case on an individual basis - Only available to Individual and Estate (Not
entities) - Always include a certification narrative
(reasonable cause statement) and attach Form
14654 or 14653 - Failed to report foreign financial assets and pay
taxes
14Streamlined Domestic Offshore Procedures
- IRS extended streamline procedure to American
Living in the U.S. with undisclosed foreign
accounts who previously were ineligible from
participating in the streamlined procedure - Such person who come forward now will owe back
taxes, interest, and a reduce miscellaneous
offshore penalty equal to five percent of their
undisclosed foreign financial assets. - Taxpayers Residing In US Requires Taxpayer to
Have Filed Prior US Tax Returns for Most Recent 3
Years AND - Limited to Filing Amended Returns (No Original
Returns Permitted if None Originally Filed), AND - Carries a Potential 5 Miscellaneous Penalty for
Unreported Account/Assets
15Getting to Know Streamlined Domestic
What must I submit?
- For each of the most recent three years for which
the U.S. tax return due date or extended due
date - has passed (the "covered tax return
period"), file amended tax returns, together with
all required information returns (e.g., Forms
3520, 3520-A, 5471, 5472, 8938, 926, and 8621) - For each of the most recent six years for which
the FBAR due date has passed (the "covered FBAR
period"), file any delinquent FBARS and - Pay a miscellaneous offshore penalty. The full
amount of the tax, interest, and miscellaneous
offshore penalty should be submitted with the
amended tax returns.
16Miscellaneous Offshore Penalty for Streamlined
Domestic
1. How is the miscellaneous offshore penalty
calculated? It is equal to 5 percent of the
highest aggregate balance of the taxpayers
foreign financial assets that are subject to the
penalty during the years in the covered tax
return period and the covered FBAR period. 2.
How is the highest aggregate balance
determined? By tallying the year-end account
balances and year-end asset values of all the
foreign financial assets subject to the penalty
for each year in the covered tax return period
and the covered FBAR period and selecting the
highest aggregate balance from among those years.
17Streamlined Foreign Offshore Procedures
- U.S. taxpayers must satisfy the following
requirements - The applicable non-residency requirement (for
joint return filers, both spouses must satisfy
the non-residency requirement) and - Have failed to file an FBAR with respect to a
foreign financial account OR foreign investment
related informational forms, and - The failure to file an FBAR/Foreign investment
related forms must have resulted from non willful
conduct. - U.S. Taxpayer living abroad who disclose their
foreign accounts and settle their tax bills under
Streamlined Foreign Offshore Procedure wont be
charged any penalties. Instead, they will simply
owe back taxes and interest. - File 3 years of delinquent or amended tax or
information return and pay tax and interest - File 6 years of delinquent FBARs
18Getting to know Streamlined Foreign
The non-residency requirement has two strands
- First, the taxpayer must have a non-U.S. abode.
- Second, the taxpayer must have lived outside of
the U.S. for 330 full days or more in at least
one of the most recent three years for which the
U.S. tax return due date (or properly applied for
extended due date) has passed.
A helpful formula that illustrates the extreme
scenario
19Getting to Know Streamlined Foreign
Example 2
- A taxpayer who spends 36 days in the U.S. in
year one, 36 days in the U.S. in year two, and 36
days in the U.S. in year three fails the
nonresidency requirement. - Why? Because there are 365 days in a year and in
no year could he have spent at least 330 days
outside of the United States. Instead, the
maximum number of days that he spent outside of
the U.S. in each year was 329 days, one day shy
of the 330-day threshold. - As you can see, the rigid requirements of the
nonresidency requirement can play the role of
spoiler to well intentioned taxpayers wanting
to "get right with the IRS.
20Getting to Know Streamlined Foreign
Interesting question to ponder
- Is the taxpayer in example 2 who is deemed
ineligible for streamlined foreign, eligible for
streamlined domestic? - Only if he has filed his U.S. tax returns for
each of the most recent three years for which the
U.S. tax return due date - or extended due date -
has passed (a key requirement for streamlined
domestic) - If the taxpayer in example 2 filed U.S. tax
returns in two of the most recent three years for
which the U.S. tax return due date has passed,
but neglected to do so in just one year, not only
would he be ineligible for streamlined foreign
but he would also be ineligible for streamlined
domestic!
21Getting to Know Streamlined Foreign
Remaining Requirements
- U.S. taxpayer must file delinquent or amended tax
returns, together with all required information
returns (e.g, Forms 3520, 5471, and 8938) for
each of the most recent three years for which the
U.S. tax return due date or extended due date
has passed and - File any delinquent FBARs for each of the most
recent six years for which the FBAR due date has
passed.
22Polling Question
How Many years of delinquent FBAR needs to be
filed in Streamline Compliance Procedure?
A. 3 Years B. 6 Years
23Streamlined Assets
- Streamlined Assets refers to the assets which are
reportable either on FBAR or Form 8938. - Some assets like personal real estate investment
in foreign country are not included - Other assets such as Canadian RRSP (Registered
Retirement Saving Plan) is included on the FBAR
and Form 8938 but NOT computed as part of the
penalty. (Elect income deferral on retirement
plans permitted by Treaty)
24IRS Audit and Verification
- Returns submitted under either the foreign or
domestic offshore procedures are not
automatically selected for audit. Instead, they
are subject to verification. - Through verification, the examining agent can
request account statements and other relevant
documents to verify the information reported. - However, this does not mean that an examination
is impossible. On the contrary, such returns may
be selected for audit under the existing audit
selection processes applicable to any U.S. tax
return - Taxpayers who are eligible to use the streamlined
procedures and who follow all of the instructions
are not subject to failure-to-file and
failure-to-pay penalties, accuracy-related
penalties, information return penalties, or FBAR
penalties, even if their returns are subsequently
selected for audit. - First, any previously assessed penalties relating
to the years that are selected for audit will not
be abated. - Second, to the extent that the IRS determines an
additional tax deficiency for a return submitted
under these procedures, it can assert additional
tax and penalties relating to that additional
deficiency. - Finally, the IRS will unleash the full arsenal of
penalties if it determines that the original tax
noncompliance was due to fraud and/or that the
FBAR violation was willful.
25IRS Audit and Verification
- Tax returns will be processed no different than
any other returns submitted to the IRS. Reading
between the lines, what the IRS seems to suggest
is not to expect confirmation for receipt of the
returns. - Assuming a taxpayer's streamlined submission is
rejected, the only remaining option for coming
into compliance with one's U.S. tax obligations
is to file amended 1040s and delinquent
international returns in what is known as a
quiet disclosure. - With respect to the Streamlined Domestic Offshore
Procedures, the five-percent miscellaneous
penalty is imposed on a broader base of foreign
assets - not just those relating to FBAR
reporting.
26Who Is Ineligible?
- Those taxpayers who cannot certify that their
failure to report all income, pay all tax, and
submit all required information returns was due
to nonwillful conduct. - Those taxpayers who are under criminal
investigation by IRS Criminal Investigation. - Those taxpayers who are undergoing a civil
examination, regardless of whether that
examination relates to unreported foreign assets.
27Polling Question
Is late filing and late payment penalties
applicable for tax returns filed under
Streamlined Filing Procedures?
A. Yes B. No
28Do You Have Any Questions?
An Informative Session On STREAMLINED FILING
PROCEDURES
DO LET US KNOW YOUR QUERIES )
29NEXT STEPS
For those interested in learning more, asking
questions or signing up for one of our groups or
trainings,
Stay in the meeting after the end OR schedule
some time to talk
Email info_at_smartaccts.com Phone 1 850 788
2090