| Q: Do the ownership attribution rules apply in determining ownership for FBAR filing requirements? |
Yes. Attribution rules do apply. Specifically, US persons (individuals, corporations, partnerships) who directly or indirectly own more than 50% of the total value of shares or profits of an entity that has foreign financial accounts are required to file FBARs. In addition, beneficiaries who receive more than 50 percent of a trust are subject to reporting.
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| Q: If a taxpayer with a $3 million bank account bought a car for $250,000, is the current value of the car included in the tax base? |
The IRS might want to take the purchase price of the car into the asset base. First, was the interest on the $3 million bank account reported? How did the money get there? Was it legitimate money that came from a dividend from a company that was reported and then was put into another bank account? If there’s no taint or blacklisting associated with that account and how the money got out of the account to purchase the car, then no. It’s yes if the money for the car came out of an offshore account or a holding company structure that wasn’t reported. The IRS may very well likely include the value of the car in the penalty computation.
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| Q: Does this apply for people who are US citizens who have long-standing/life-long connections in another country? |
Yes. The IRS expects any US citizen – no matter where they live, how long they’ve lived there, no matter why they’re living there, and no matter how they got their citizenship – to file.
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| Q: Is the IRS actively working with banks other than UBS? |
Yes – both formally and informally – not only through the UBS network of information that they have, but also through the FACTA provisions, the IRS is significantly upgrading its efforts with all foreign financial intermediaries around the globe. The Foreign Account Tax Compliance Act (FATCA) of 2010 requires foreign banks to fully disclose the identity of any US payees of dividends and interest.
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| Q: What are the primary factors to consider when determining whether or not to participate in the Offshore Voluntary Disclosure Initiative? |
If there are multiple accounts over multiple years, which were unreported and the income in these accounts was unreported, consider participation in the Offshore Voluntary Disclosure Initiative.
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| Q: What is the deadline for this initiative? |
- FBARs for the calendar year 2010 must be mailed so as to be received by the Treasury Department in Detroit no later than June 30, 2011. Filers cannot request an extension of the FBAR due date.
- All of the necessary Offshore Voluntary Disclosure Initiative documentation requirements including tax returns, and payments of tax, interest, and penalty must be made and accepted by the IRS by Aug. 31, 2011. This process takes a long time so start as early as possible.
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| Q: Does the Offshore Voluntary Disclosure Letter include the information for eight years? |
Yes.
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| Q: Will there be another amnesty program offered? |
Based upon comments from the IRS, this is the last chance for amnesty. “This new disclosure initiative is the last, best chance for people to get back into the system."
– Douglas H. Shulman, IRS Commissioner
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| Q: What is the financial threshold for reporting on an FBAR? |
Any financial account(s) in a foreign country with a value – in aggregate – which exceeds US$10,000 at any point in time during a calendar year.
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| Q: Who must file the FBAR? |
A US person that has: - a financial interest in; or
- signatory authority over; or
- any other authority (e.g., a compulsion power) over any financial account(s) in a foreign country and the aggregate value of the account(s) exceeds US$10,000 at any time.
- A citizen or resident of the United States
- Citizen: US birth certificate or naturalization process
- Resident: Green card, substantial presence in the US, or other residency rules
- All forms of business entities created or formed or organized in the US
- Trusts and estates
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Q: What is “substantial presence"? |
A US residency test. To meet this test, a taxpayer must be physically present in the United States on at least: - 31 days during the current year, and
- 183 days during the three-year period that includes the current year and the two years immediately before that, counting:
- All the days you were present in the current year, and
- One-third of the days you were present in the first year before the current year, and
- One-sixth of the days you were present in the second year before the current year.
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| Q: What is the definition of a financial account? |
A US person that has (account must be held outside the US): - Bank accounts (e.g., checking, savings, time deposits)
- Securities accounts (e.g., brokerage, derivatives, etc.)
- Insurance policies with a cash surrender value
- Mutual fund or similar pooled fund, which issues shares available to the general public that have regular net asset value determinations and regular redemptions
- Any other type of account maintained by a foreign financial institution
Note: does not include physical stock certificates, bonds, or notes held by the individual
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| Q: What are the penalties for FBAR noncompliance? |
- For nonwillful violations: US$10,000 per account per year
- For willful violations: Up to the greater of US$100,000 or 50 percent of the amount in applicable foreign accounts
- Criminal penalties may apply in addition to the civil penalties
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| Q: What is the definition of willful? |
Someone who knows he should have filed the form and, despite that knowledge, intentionally decided not to file the form.
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| Q: What does the Offshore Voluntary Disclosure Initiative filing process involve? |
Filing is not simply filing a letter and some forms. There is a whole series of documents the IRS requires. The required Offshore Voluntary Disclosure Initiative package includes the following: - Completed FBARs for all calendar years covered by the initiative
- Copies of originally filed tax returns for all years
- Amended returns with all applicable schedules and attachments properly reporting all income (including any previously unreported income from an account or entity)
- Copy of signed Offshore Voluntary Disclosure Letter
- Full payment of tax, interest, accuracy-related, and failure-to-file and failure-to-pay penalties, as applicable
- Must include Forms 433-A and 433-B (collection information statements) if taxpayer is unable to pay amounts in full
- Foreign account or asset statement for each previously undisclosed foreign account or asset, as applicable
- Penalty computation worksheet signed by the applicant and the applicant’s representative (if applicable)
- Completed and signed agreements to extend the period of time to assess tax (including tax penalties) and to assess FBAR-related penalties
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| Q: Does relief provided by the Offshore Voluntary Disclosure Initiative for other foreign forms (3520, 5471, 5472, etc.) only come if a taxpayers enters the initiative? What other options are available to a taxpayer who is otherwise compliant with respect to income reporting and tax payments, but needs to catch up on foreign information return compliance? |
A taxpayer who has failed to file tax information forms such as Form 3520, 5471, etc., but who has reported and paid tax on all taxable income with respect to all transactions related to the foreign entity or trust should not enter the Offshore Voluntary Disclosure Initiative. Instead the taxpayer should file all delinquent information returns with the appropriate IRS service centers by Aug. 31, 2011 with an explanation for the late filing. The IRS will not impose penalties for failure to file these information returns if there are no underreported tax liabilities and the information returns are filed by Aug. 31, 2011.
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| Q: Can you appeal the results from the Offshore Voluntary Disclosure Initiative? |
No. There is no appeal process. You can request that the case be referred for full examination (i.e., audit). You must, however, withdraw from the initiative, proceed with the full examination, and in that process you can then be subject to full penalties.
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| Q: What assets will the IRS include when calculating the penalty equal to 20% of the high value of the foreign account? |
The IRS will consider not only the assets held in the foreign account, but it will also consider any assets acquired through the use of the foreign account. The IRS will also include the value of any businesses operating in foreign jurisdictions where the income from these businesses has not been properly reported.
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| Q: If someone has foreign bank accounts, all of the income has been reported, and the tax has been paid; but they’ve never filed an FBAR. Is the Offshore Voluntary Disclosure Initiative the program for them? |
No. These taxpayers should just file their FBARs to be received by Aug. 31, 2011 (note that the FBAR for 2010 must be received by June 30, 2011.
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| Q: Does a US hedge fund qualify for the Offshore Voluntary Disclosure Initiative if they are available to the general public, but the investors are qualified investors? |
Yes, if they have outstanding tax liabilities that are still owed and they are concerned that they may be subject to serious fines and penalties going forward. A hedge fund of a fund is still one of the taxpayers – if it’s a US person, an entity that must file the required forms and report the income and pay taxes on that income. If they have not done that then they would be eligible for this initiative.
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| Q: Someone inherits a US$30,000 foreign bank account from their grandmother. If the person is unsure whether the grandmother reported all the income in prior years or filed FBARs, should that person participate in the Offshore Voluntary Disclosure Initiative? |
The answer is, “It depends." First, spend the necessary time to determine whether the amounts in the foreign bank account are subject to US tax and if so, whether these amounts were reported. Next, determine whether the income from the account is subject to US tax and whether it was reported. If everything was reported, there is no reason to participate in the initiative. If you are unable to make these determinations, consult your tax advisor. NOTE: THIS IS A TOUGHER QUESTION AS TECHNICALLY, IF YOU CANNOT TELL WHAT’S BEEN REPORTED, THEN THE INITIATIVE MIGHT BE THE RIGHT CHOICE; THEN AGAIN, IT MIGHT NOT.
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