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SERVICING CENTRAL NJ FOR OVER 25 YEARS

Tax Service Planning

Foreign Asset Reporting

Do you have income overseas you forgot to report?  Did Grandpa leave you his foreign bank account when he passed away?   Foreign tax matters are very complex and nerve-wracking.   Our firm works with attorneys who specialize in this field and as a team we can obtain the best possible outcome. 

 

Contact us for evaluation of your foreign asset reporting dilemma.  We work with US citizens who have assets and income  in numerous countries:  Europe, the Middle East, the Far East and Latin America.  

 

Our staff is fluent in Hebrew and Spanish.  We frequently review and analyze tax returns, bank statements, contracts and other tax documents in both languages.     

 

FinCEN Report 114 – FBAR (Foreign Bank Account Report)

If you have foreign bank or investment accounts holding more than $10,000 in the aggregate anytime during the year, you are now required to file FinCEN Report 114 (Report of Foreign Bank and Financial Accounts) by April 15th of the following year, with an automatic six month extension granted (Note new due date in 2017). Report 114 is required to be e-filed through the Bank Secrecy Act (BSA) e-filing system. It doesn’t matter whether the foreign accounts generate income or not; just owning them, or having signature authority, requires you to file.

Failure to file can result in serious consequences. The sanctions for not completing FinCEN Report 114 include numerous severe civil penalties and potential prosecution followed by a term in federal prison.

 

 

Form 8938

Beginning in 2011, the IRS has added Form 8938 to the individual 1040 tax return, further tightening the noose on taxpayers failing to report ownership of overseas accounts. The sanctions for not completing and attaching the form (when required) include numerous severe civil penalties and potential prosecution followed by a term in federal prison. If you fail to file Form 8938 or fail to report a specified foreign financial asset that you are required to report, the statute of limitations for the tax year may remain open for your income tax return (Form 1040) until three years after the date you file a complete and accurate Form 8938.

 

Assets that must be reported include: Any financial account maintained by a foreign financial institution

  • To the extent held for investment and not held in a financial account:
    • Stock or securities issued by someone that is not a U.S. person
    • Interest in a foreign entity
    • Any financial instrument or contract with an issuer or counterparty that is not a U.S. person

 

IRS Disclosure

Taxpayers who did not report foreign income or assets but who can certify that their non-compliance was “non-willful” can participate in the Streamlined Filing Compliance Procedures (“SFCP”) by filing 3 years amended returns and 6 years of FinCEN Report 114. No income tax penalty and  a 5% “FBAR-related” penalty are due.  Please note that non-filers cannot participate in this program.

 

 

The penalties are far greater if you don’t get with the program and then get caught. In addition, disclosing now allows you to transfer the money to your American accounts as well as to implement gifting and other estate planning strategies.

 

An Additional Wrinkle: PFICs

Passive Foreign Investment Companies (PFICs) sound like an exotic and highly specialized investment and it’s easy to assume that you don’t own any.  However, this conclusion would be a mistake as PFICs include hedge funds, money market accounts, mutual funds, private equity funds and a long list of other foreign investments.  The tax calculation on unreported PFIC income is  both onerous and complicated.

 

Foreign Inheritance: Form 3520

Even when a foreign inheritance is not taxable, the IRS likes to keep tabs on it. Generally, U.S. citizens receiving the aggregate amount of $100,000 or more in gifts and/or bequests or a foreign estate must report those amounts on the IRS Form 3520 -Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Failure to file (and even late filing of the form) may result in substantial penalties, unless the taxpayer can demonstrate that failure to comply was due to a reasonable cause and not willful neglect. To view the Form 3520 click here: Form 3520

 

Form 5471

Form 5471 is used by certain U.S. citizens and residents who are officers, directors, or shareholders in certain foreign corporations.   Form 5471 was created by a law that required domestic corporations to provide their asset and balance sheets on their foreign corporations. IRS Form 5471 requirements aren’t just for large multi-nationals anymore; US taxpayers are often surprised to learn that they are not in compliance.   There are stiff penalties for non-filing.

 

Please contact us for a free consultation as to how we can assist you with these issues.