Offshore Tax Reporting Requirements and the 2016 FBAR due April 18, 2017

Annual tax season is upon us, and we remind readers of important tax reporting requirements that must be met with respect to foreign assets.

  1. “Check the Box” on IRS Form 1040, Schedule B

If you had signature authority or a financial interest (e.g., ownership) in a foreign financial account (including a bank account, securities account, brokerage account, etc.) at any time during 2016, you must “check the box” on your IRS Form 1040, Schedule B, Part III, Line 7.  If your foreign account(s) were valued at more than $10,000 in the aggregate, you must also “check the box” on line 7 regarding the FBAR form, FinCEN 114 (see item 5, below).  This requirement is applicable to taxpayers who had beneficial ownership of, or signature authority or other authority over, such financial accounts in a foreign country.  Even if you closed the accounts during 2016, you must still “check the box” if you maintained the accounts during any part of 2016.  If you received a distribution from, or were the grantor of, or a transferor to, a foreign trust or foreign foundation, you must “check the box” on Line 8 and also file IRS Form 3520.

  1. Report Foreign Income

In addition to “checking the box” on IRS Form 1040, Schedule B, U.S. taxpayers must report all income (including interest, capital gains, dividends and pension distributions) realized during 2016, on IRS Form 1040.  If you held investments in foreign mutual funds or hedge funds, you may be required to file additional tax forms applicable to “PFICs” (Passive Foreign Investment Companies) for tax year 2016 (e.g., IRS Form 8621).  If you received rental income from foreign real estate or realized gains from the sale of foreign real estate, you must declare it.  You may be eligible to deduct real estate expenses and real estate taxes paid to a foreign tax authority.  In many cases, if foreign income was taxed in a foreign country, you may be able to get a credit for foreign taxes paid.  Even so, all foreign income should still be declared.

  1. IRS Form 8938

IRS Form 8938, Statement of Specified Foreign Financial Assets, first introduced in 2012, is yet another IRS form to report foreign bank, brokerage accounts and other foreign financial assets (including interests in offshore trusts and corporations, bonds, foreign mutual funds, foreign annuity and insurance policies).  IRS Form 8938 is due with your annual tax return (April 18, 2017, unless you obtain an extension).

  1. Additional Forms for Entities (Foreign Trusts, Foreign Corporations, etc.)

If you had an interest in a foreign entity such as a foreign trust or foreign foundation, and/or during 2016 you received assets from the a foreign entity, then you may also be required to file IRS Forms 3520 and 3520A.  Please contact us for a copy of our memorandum about this issue.  If you had an interest in a foreign corporation, and the foreign corporation is deemed to be a “Controlled Foreign Corporation” (CFC), then IRS Form 5471 is also due.  These forms are usually due with your income tax return (IRS Form 1040, due April 18, 2017).

  1. The FBAR – due April 18, 2017

This year, 2017, is the first year that the deadline for the FBAR, Report of Foreign Bank and Financial Accounts (FinCEN Form 114), is the same as the deadline for submission of income tax returns (1040s), for calendar year 2016.  The FBAR must be filed by taxpayers who had beneficial ownership of, or signature or other authority over, foreign financial accounts, including bank and securities accounts, if the aggregate value of such accounts exceeded $10,000 at any time during 2016.  The FBAR also applies to foreign insurance policies, annuity policies, retirement plans and other financial products.  Recent authority also extends the FBAR to on-line gambling/gaming accounts.  If you participated in the IRS Offshore Voluntary Disclosure Program (OVDP), Streamlined procedures or submitted retroactive FBARs, you should ensure ongoing compliance by timely submitting the 2016 FBAR.  If the accounts existed at any point during 2016, then the FBAR must be submitted by April 18, 2017.  Note that the FBAR is now known as FinCEN Form 114, and must be filed electronically.  This year, also for the first time, a taxpayer may obtain an automatic extension to file the FBAR.  The extended due date is the same as one’s extended income tax deadline (October 15, 2017).

  1. Strategic Concerns

If you have not yet filed an application for the OVDP or submitted a Streamlined application, or if your application is pending at the IRS, or you are undecided as to whether or not to make a disclosure, you may want to consider requesting an extension for your 2016 tax returns and FBAR.

You may request an extension for filing your income tax return by filing IRS Form 4868.  Note that this is an extension to file the tax return, not pay tax due.  You still need to pay your tax liability by April 18, 2017, while you have until October 15, 2017 to file your tax return and FBAR.  This means that your voluntary disclosure strategy needs to be formulated prior to reporting to the Government the existence of foreign accounts via the FBAR, Form 8938, etc.

Conclusion

Please ensure that your offshore assets are tax compliant by adhering to the ongoing reporting and tax requirements.  If you have any questions or would like our assistance in formulating a disclosure strategy or in preparing the 2016 FBAR, please feel free to contact us.

 

 

 

 

The FBAR form, Report of Foreign Bank and Financial Accounts, is due by June 30, 2016 for Offshore Assets

Once again, the FBAR deadline is upon us.  The FBAR, the Report of Foreign Bank and Financial Accounts, previously known as Treasury Department Form TD F 90-22.1 and now known as FinCEN Form 114, is due by June 30, 2016, for foreign financial accounts that existed during 2015.  Even if you are on extension to file your 2015 U.S. income tax return, there is no extension for the FBAR filing.  The FBAR must be filed electronically.

We’ve written extensively about the FBAR and the many different types of foreign assets that are considered to be “foreign financial accounts” and are required to be reported:

Do You Have an Offshore Account?

FBAR Reporting for Foreign Annuities, Life Insurance and Trusts

Offshore Asset Protection Trusts and FBAR Reporting

Ongoing U.S. Tax Compliance for Foreign Assets

Our attorneys advise U.S. taxpayers on whether their foreign assets are subject to the FBAR.  We also advise on how to correct past FBAR non-filings.  In some cases, FBAR non-filing can be corrected without penalties.  In other cases, such as when a taxpayer did not file an FBAR and also did not report foreign income to the IRS (interest, dividends, rents, etc.), then it may be possible to come into compliance via a pre-emptive Voluntary Disclosure to the IRS.  However, if the IRS already has information about the offshore assets (from the foreign bank, for example), or if the taxpayer is already under investigation or audit, then it may be too late for a voluntary disclosure.  Thus, proper timing is critical.  We can assist you with these issues regarding reporting foreign assets and minimizing penalties.  Please contact Rubinstein & Rubinstein for a confidential consultation.

Asher Rubinstein quoted by CNBC regarding offshore assets and the Panama Papers

Asher Rubinstein was quoted by CNBC on the issue of offshore banking secrecy and asset protection:

“Good asset protection does not rely upon banking secrecy.  Foreign accounts, and foreign trusts and corporations which own foreign accounts, must be disclosed … reliance on secrecy to protect offshore assets is no longer a viable strategy in today’s world,” stated Asher Rubinstein, an asset protection attorney at New York-based practice Rubinstein & Rubinstein, in an April note.

The full CNBC article is here, and also appears on Yahoo! Finance, here.

The original quote appears in our article, Is Offshore Asset Protection Still Viable?

 

Foreign Assets and IRS Reporting: A Primer for Tax Season

It’s tax season once again and we take this opportunity to remind readers of important ongoing tax reporting requirements that must be met with respect to foreign financial assets.  Whether you have been properly reporting your foreign financial assets to the IRS regularly, or you have recently come into compliance via a Voluntary Disclosure or FBAR submission, you must ensure ongoing tax compliance.  And if you’re just beginning to learn about IRS filing requirements for foreign financial assets, you need to know of some filing deadlines that are right around the corner.  You’ll have to move fast to report foreign financial assets properly and carefully, or else face yet another tax year of non-compliance.

  1. “Check the Box” on IRS Form 1040, Schedule B

If you maintained foreign financial account totaling more than $10,000 in the aggregate at any time during 2015, you must “check the box” on your IRS Form 1040, Schedule B, Part III, Line 7.  This requirement is applicable to taxpayers who had beneficial ownership of, or signature authority or other authority over, such financial accounts in a foreign country.  Even if you closed the accounts during 2015, you must still “check the box” if you maintained the accounts during any part of 2015.  If you received a distribution from, or were the grantor of, or a transferor to, a foreign trust or foreign foundation, you must “check the box” on Line 8 and also file form 3520.

  1. Report Foreign Income

In addition to “checking the box” on IRS Form 1040, beneficial owners of foreign accounts must report all income (including interest, capital gains and dividends) realized during 2015 in the foreign accounts, on IRS Form 1040.  If you held investments in foreign mutual funds or hedge funds, you may be required to file additional tax forms applicable to “PFICs” (Passive Foreign Investment Companies) for tax year 2015 (e.g., IRS Form 8621).  If you received rental income from foreign real estate or realized gains from the sale of foreign real estate, you must declare it.  You may be eligible to deduct real estate expenses and real estate taxes.  In many cases, if foreign income was taxed in a foreign country, you may be able to get a credit for foreign taxes paid.  Even so, all foreign income should be declared.

  1. IRS Form 8938

IRS Form 8938, Statement of Specified Foreign Financial Assets, first introduced in 2012, is yet another IRS form to report foreign bank, brokerage accounts and other foreign financial assets (including interests in offshore trusts and corporations, bonds, foreign mutual funds, foreign annuity and insurance policies).  IRS Form 8938 is due with your annual tax return (usually April 15, but April 18 this year, unless you obtain an extension).

  1. Additional Forms for Entities (Foreign Trusts, Corporations, etc.)

If you had an interest in a foreign entity such as a foreign trust or foreign foundation, and/or during 2015 you received assets from such a foreign entity, then you may also be required to file IRS Forms 3520 and 3520A.  If you had an interest in a foreign corporation, and such foreign corporation is deemed to be a “Controlled Foreign Corporation” (CFC), then IRS Form 5471 is also due.  These forms are usually due with your income tax return (IRS Form 1040, due April 18, 2016).

  1. The FBAR – due June 30, 2016

The FBAR, Report of Foreign Bank and Financial Accounts (FinCEN Form 114), must be filed by June 30, 2016 for calendar year 2015.  The FBAR must be filed by taxpayers who had beneficial ownership of, or signature or other authority over, foreign financial accounts, including bank and securities accounts, if the aggregate value of such accounts exceeded $10,000 at any time during 2015.  The FBAR also applies to foreign insurance policies, annuity policies, retirement plans and other financial products.  Recent authority also extends the FBAR to on-line gambling/gaming accounts.  If the accounts existed at any point during 2015, then the FBAR must be submitted by June 30, 2016.  Note that the FBAR is now known as FinCEN Form 114, and must now be filed electronically.  There are no extensions for the 2015 FBAR, even if you obtain an extension to file your annual income tax returns (e.g. Form 1040).

  1. Strategic Concerns

If you have not yet filed an application for the OVDP or Streamlined program, or if your application is pending at the IRS, or you are undecided as to whether or not to make a disclosure, you may want to consider requesting an extension for your 2015 tax returns.

You may request an extension by filing IRS Form 4868.  Note that this is an extension to file the tax return, not pay tax due.  You still need to pay your tax liability by April 18, 2016, while you have until October 17, 2016 to file your tax return.

Note that there are no extensions for your 2016 FBAR form.  This means that your voluntary disclosure strategy needs to be formulated prior to reporting to the Government the existence of foreign accounts via the FBAR.

 

If you have any questions or would like our assistance in formulating a disclosure strategy or in preparing the 2015 FBAR, please feel free to contact us.

 

 

 

 

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