Leimbergservices.com
OFFSHORE ACCOUNT REPORTING REQUIREMENTS
MARK E. OSBORNE
Co-Authors:
Mark E. Osborne
Julia E. Jonas
Osborne, Helman, Knebel & Deleery, LLP
Austin, Texas
Texas Society of Certified Public Accountants
59TH ANNUAL TEXAS CPA TAX INSTITUTE
November 13-14, 2012
Dallas, Texas
San Antonio, Texas
Copyright © 2012 by Mark E. Osborne. All rights reserved. Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.
TABLE OF CONTENTS
I. INTRODUCTION 1
II. RECENT BACKGROUND 1
III. IRS VOLUNTARY DISCLOSURE PROGRAM UPDATE 2
A. Program Success 2
B. 2012 Offshore Voluntary Disclosure Program 3
1. General Rules 3
2. Highlighted Changes of 2012 OVDP 3
3. Updated Frequently Asked Questions and Answers 3
a. Overview. Questions 1-6 3
b. Key Features of Program. Questions 7-11 3
c. Eligibility for This Program. Questions 12-21 4
d. OVDP Process. Questions 22-30 4
e. Calculating the Offshore Penalty. Questions 31-41 4
f. Statute of Limitations. Questions 42-43 5
g. FBAR Questions. Questions 44-46 5
h. Taxpayer Representatives. Questions 47-48 5
i. Case Resolution. Questions 49-55 5
C. Compliance Procedures for Low-Risk U.S. Taxpayers 6
IV. FATCA 6
A. Payments to FFIs 6
B. Payments to NFFEs 7
C. Foreign Trust Classification 7
D. International Cooperation 7
E. Effective Dates 8
V. FBAR 8
A. Background 8
B. FBAR Reporting Requirements 9
1. Form Overview, IRS and FinCEN Guidance 9
2. Who Must File? 9
a. U.S. Person. 9
b. Financial Interest. 10
c. Signature or Other Authority. 11
3. What Is Reportable? 12
a. General Rule. 12
b. Reportable Accounts. 12
4. What Is the Threshold Amount for Reporting Purposes? 13
a. Threshold Amount. 13
b. Supporting Records. 13
c. U.S. Dollar Amount. 13
d. Tax Return Reporting. 13
C. What Information Is Required? 13
1. General Information 13
2. Basic Filer Information 14
3. Individual and Joint Accounts 14
4. Signature Authority 14
5. Consolidated Report 14
D. When and Where to File? 14
1. General Filing Deadline 14
2. Filing Amended FBARs 14
3. Electronic Filing 14
E. Additional Rules Under Final Regulations and FBAR Instructions 14
1. Simplified Reporting for 25 or More Accounts 14
2. Consolidated Reporting 15
3. Retirement Account Participants and Beneficiaries 15
4. Anti-Avoidance Provision 15
5. Treatment of Spouses 15
F. FBAR Penalties, Enforcement, and Preparer Liability 15
1. FBAR Penalties 15
a. Negligence Penalty. 15
b. Willful Penalty. 16
c. Non-Willful Penalty. 16
d. Mitigation. 16
e. Criminal Penalties. 16
2. Enforcement 16
3. Preparer Liability 16
VI. SECTION 6038D REPORTING REQUIREMENTS 17
A. Temporary and Proposed Regulations 17
B. Form 8938 17
1. Form Overview and IRS Guidance 17
2. Who Must File? 17
a. Specified Person. 17
b. An Interest. 17
3. Specified Foreign Financial Assets: What Is Reportable? 18
a. General Rule. 18
b. Financial Account and Financial Institution. 18
4. What Is the Threshold Amount for Reporting Purposes? 18
a. Threshold Amount. 18
b. Joint Interests. 19
c. Valuation of Specified Foreign Financial Assets. 19
d. U.S. Dollar Amount. 19
C. What Information Is Required? 19
1. General Information and Part I Foreign Deposit and Custodial Accounts 19
2. Part II Other Foreign Assets 20
3. Part III Summary of Tax Items 20
4. Part IV Excepted Assets 20
D. When and Where to File? 20
E. Form 8938 Penalties and Statute of Limitations 20
1. Penalties 20
2. Statute of Limitations 21
F. Coordination with FBAR 21
VII. OTHER REPORTING OBLIGATIONS 21
A. Form 3520 21
B. Form 3520-A 21
C. Form 4970 22
D. Form W-8 Series 22
E. Form 5471 22
F. Form 8621 22
G. Form 8865 22
H. Form 926 22
VIII. CONCLUSION 23
OFFSHORE ACCOUNT REPORTING REQUIREMENTS
INTRODUCTION
As technological and digital growth has soared in the last several decades, American interest in international markets and opportunities has flourished. The corresponding emergence of an interconnected global community has eroded ancient notions of economic isolationism and provided a platform for a multijurisdictional marketplace. In more recent times, instability in real estate, debt, and financial markets have encouraged, if not driven, U.S. businessmen, investors, and entrepreneurs to consider foreign custody and alternate means of asset security. Consequently, it has become more common for United States individuals and businesses to hold assets in foreign countries.
The United States government, through the Department of Treasury and the Internal Revenue Service (the “IRS”) has evolved and adapted to the realities of international banking and commerce. The successes of the Offshore Voluntary Compliance Programs demonstrate two very clear points in this regard. First, the IRS is determined to minimize tax evasion through international banking centers. Second, the American tax-evading public has a healthy fear of the technological capabilities of the American government.
The result of these factors is an increased demand for U.S. tax accountants, tax attorneys, and other professional tax advisors to assist and appropriately counsel clients in their international affairs. Professionals who advise clients with respect to foreign assets should be aware of the opportunities and obligations associated with foreign holdings.
Chief among the reporting obligations is the Report of Foreign Bank and Financial Accounts (the “FBAR”) on Treasury Department form TD F 90-22.1 (Rev. January 2012). The FBAR provides that a U.S. person holding any financial interest in, or signature or other authority over, one or more bank, securities or other financial accounts in a foreign country must report that relationship to the IRS Commissioner for each year in which such relationship exists if the aggregate value of such account(s) exceeds $10,000 at any time during the calendar year.[1] The FBAR reporting requirements are found in Title 31 “Money and Finance” of the United States Code (“U.S.C.”). No tax is assessed under U.S.C. Title 26 in connection with the FBAR filing obligations. The FBAR is purely an informational return. As a Title 31 provision, the FBAR is not protected by the confidentiality rules found in the Internal Revenue Code (the “IRC”) regarding returns.
U.S.C. Title 26 also now requires U.S. taxpayers holding specified foreign financial assets to report their ownership of these assets by filing Form 8938. In 2010, Congress enacted the Hiring Incentives to Restore Employment Act of 2010 (the “HIRE Act”).[2] The HIRE Act includes a section titled the Foreign Account Tax Compliance Act (“FATCA”).[3] FATCA was enacted to “detect, deter, and discourage offshore tax evasion”[4] by using foreign financial institutions and businesses to identify and disclose their U.S. account holders.[5] Among the many rules under this legislation, there is a new reporting requirement for U.S. taxpayers holding “specified foreign financial assets” under IRC Section 6038D. Likewise, the Proposed Regulations under FATCA released in February 2012 (the “FATCA Regulations”) provide detailed guidance with respect to other reporting and withholding obligations. As of the date of this paper, the FATCA Regulations have not been finalized.
This paper provides (i) a summary update of the 2012 Offshore Voluntary Disclosure Program (the “2012 OVDP”), (ii) a brief overview of significant provisions of FATCA (and FATCA Regulations) as they relate to individual foreign account disclosure, (iii) a detailed review of the FBAR reporting requirements, (iv) guidance regarding new Form 8938, and (v) a general list of other potential reporting requirements for U.S. taxpayers with an interest in foreign assets.
RECENT BACKGROUND
The recent success of governmental enforcement of tax evasion in the U.S. and abroad began in 2008 when an employee of LGT bank in Liechtenstein allegedly sold confidential bank data to the German government.[6] The data revealed detailed information regarding tax evaders in Germany (and other countries) who were hiding assets in undisclosed Liechtenstein bank accounts. This acquisition led to the prosecution of several wealthy Germans. Subsequently, the German government shared the information they had obtained with other governments.
The first major U.S. incident involved undisclosed accounts held by UBS Bank in Switzerland. The U.S. government became aware of the existence of unreported UBS accounts through multiple sources including the disclosures of a former UBS employee, Bradley Birkenfeld.[7] Birkenfeld had participated in violations of Swiss law during his employment with UBS, and cooperated with the U.S. investigation of unreported UBS accounts in order to avoid prosecution by the Swiss government.[8] The U.S. investigation of UBS gave rise to a lawsuit, which ended in a settlement pursuant to which UBS paid approximately $780 million in fines and eventually turned over account information to the U.S. government.[9] Birkenfeld was sentenced to 40 months in U.S. prison.[10] However, upon his release, the IRS announced that Birkenfeld would receive a $104 million award under the whistle-blower statute.[11] This is the largest IRS whistle-blower award to be announced, and was confirmed in an IRS statement: “The whistle-blower statute provides a valuable tool to combat tax non-compliance, and this award reflects our commitment to the law.”
In the wake of its success in the UBS litigation, the U.S. government has launched investigations, and in some cases filed lawsuits, against other foreign banks, including several Swiss banks.[12] The Swiss government has announced that it is releasing information about current and former employees of several of these banks to the U.S. government.
Historically, the IRS has offered a longstanding Voluntary Disclosure Practice that encourages noncompliant taxpayers to disclose their unpaid taxes. Under the Voluntary Disclosure Practice the IRS takes a taxpayer’s voluntary disclosure into account in recommending whether to pursue criminal charges against the taxpayer.[13] In 2009, with the recent publicity of the UBS lawsuit, the IRS instituted a separate Offshore Voluntary Disclosure Program (the “2009 OVDP”) directed specifically at U.S. taxpayers with undisclosed foreign assets. Under the program, U.S. taxpayers with undisclosed foreign accounts who complied with the program requirements could limit the application of criminal and civil penalties. The successor to the 2009 OVDP was the 2011 Offshore Voluntary Disclosure Initiative (the “2011 OVDI”). As discussed in greater detail below, the IRS has issued recent guidance concerning an updated 2012 offshore voluntary disclosure program.
Contemporaneously with the UBS litigation and the 2009 OVDP, in 2010, Congress released new ground breaking and broad-sweeping legislation in the HIRE Act. The HIRE Act added the FATCA provisions that impose additional withholding obligations on foreign financial entities and/or reporting obligations in connection with payments to U.S.-owned foreign payees. The HIRE Act also added Section 6038D, the statutory basis for Form 8938.
In addition to U.S. legislation, there are several governments focused on international cooperation for asset reporting and accountability. The Global Forum on Transparency and Exchange of Information for Tax Purposes (the “Global Forum”) is an OECD program whose purpose is “to ensure that all jurisdictions adhere to the same high standard of international cooperation in tax matters.”[14] The Global Forum has issued model agreements for the exchange of information between jurisdictions.[15] The organization also conducts peer reviews of different countries’ compliance with transparency standards.[16] Also, the Financial Action Task Force (FATF) employs similar methodology in an effort to reduce money laundering and terrorism financing.[17] Note that neither of these organizations has the authority to impose sanctions on non-conforming jurisdictions.
IRS VOLUNTARY DISCLOSURE PROGRAM UPDATE
1 Program Success
The 2009 OVDP was open from March 23, 2009 to October 15, 2009, while the 2011 OVDI accepted applicants from February 8, 2011 to September 9, 2011.[18] The IRS reported that the 2009 and 2011 programs led to 33,000 voluntary disclosures.[19] The IRS reported that these programs generated more than $5 billion combined.[20]
2 2012 Offshore Voluntary Disclosure Program
1 General Rules
The IRS reopened the offshore voluntary disclosure program in early 2012.[21] The program allows U.S. taxpayers with undisclosed foreign accounts to come into compliance by disclosing certain information and paying reduced penalties. Taxpayers who meet the program requirements, discussed in more detail below, may enter the program by providing the IRS with the necessary documentation.
An OVDP applicant must provide: (i) previously filed income tax returns for the relevant years; (ii) an Offshore Voluntary Disclosure letter with attachment; (iii) a check for the applicable tax, interest, and penalty amount, calculated in accordance with the program guidelines; (iv) a Foreign Account or Asset Statement; (v) a penalty computation worksheet; (vi) agreements giving taxpayer consent to extend the period of time to assess tax and penalties; (vii) complete and accurate FBARs, if applicable; (viii) financial statements for disclosures of $500,000 or more; and (ix) other documents specific to the facts and circumstances.[22]
After acceptance into the program, a taxpayer’s civil and criminal liability is limited. A program participant must agree to cooperate with the IRS by providing information regarding financial accounts, institutions, and facilitators.[23] A participant may be asked to provide additional information as requested by the IRS even after the participant’s voluntary disclosure case has been closed.[24]
2 Highlighted Changes of 2012 OVDP
In general, IRS guidance for the 2012 OVDP is consistent with the guidelines issued for the 2011 OVDI. However, there are some notable changes from the 2011 OVDI.[25] First, there is currently no deadline for disclosures, meaning the program has no end date. Second, taxpayers in the highest penalty category will be subject to higher penalties (27.5 percent of the highest account balance, compared to 25 percent under the 2011 OVDI). Third, taxpayers who made disclosures after the 2011 OVDI deadline remain eligible in the new program.[26] Finally, the terms of the program, including penalty caps, eligibility rules, and deadlines, may be subject to revision in the future. As explained below, there are several additional changes, which may impact a particular set of circumstances.
3 Updated Frequently Asked Questions and Answers
The IRS issued the updated Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers (the “2012 OVDP FAQs”) on June 26th, 2012.[27] Any practitioner involved in or considering advising a client regarding the disclosure of a foreign account should be familiar with this publication in addition to the general program requirements. The 2012 OVDP FAQs consist of 55 questions, although there are several questions that are subparts of an initial question. The 2012 OVDP FAQs are divided into 9 categories, each with a varying number of questions and answers. A brief summary of these categories follows.
1 Overview. Questions 1-6
The Overview section provides explanations regarding the reasoning for re-opening the program, including no deadline and the possibility of increase penalties at a later date. There is an explanation of how the program is formally distinguished from the Voluntary Disclosure Practice, as discussed above.[28] There is a lengthy listing (not exhaustive) of civil penalties and the possible forms that should have been filed in connection with a delinquent account.[29] This is a fairly comprehensive listing of all possible forms if a practitioner is looking for a good starting point. This section also discusses possible criminal charges.[30]
2 Key Features of Program. Questions 7-11
The Key Features of the Program section covers the basic filing requirements to enter the 2012 OVDP. This section provides the practitioner with a good bullet point list of revised forms and paperwork that will be filed in the course of the program.[31] Practitioners dealing with Canadian taxpayers should pay particular attention to specific provisions in this section. Also, this section notes that domestic noncompliance may be included in the 2012 OVDP.[32] This section provides an Offshore Penalty framework (and examples), explanation of how to apply the disclosure period (8 years), and guidance on Passive Foreign Investment Company (“PFIC”) calculations and options. [33] Note that the voluntary disclosure period is the most recent eight tax years for which the due date has already passed.[34] Accordingly, participants who submitted a disclosure prior to April 15, 2012 must include disclosures with respect to 2003-2010, while participants who submit a disclosure after April 15, 2012 must include 2004-2011. Participants who can establish that they were compliant in recent years may be able to omit these years from disclosure.
3 Eligibility for This Program. Questions 12-21
The Eligibility for This Program section sets forth the general guidelines for entry into the program. Topics include personal eligibility, entity eligibility, and multiple issues associated with quiet disclosures. [35] Failure to file FBARs under certain circumstances, such as signatory authority for an employer or if all tax has been paid (but entity forms were not filed), is covered in this section.[36] Eligibility through U.S. treaty requests to a foreign government is also explained.[37] Members of a John Doe summons class may still be eligible for entry into the program.[38] However, a taxpayer who appeals a foreign tax administrator’s decision to provide account information to the IRS without providing the requisite notice of the appeal to the U.S. Attorney General cannot participate in the 2012 OVDP.[39] Additionally, the IRS may announce that taxpayers with accounts at specific financial institutions are ineligible to participate.[40]
4 OVDP Process. Questions 22-30
The OVDP Process section provides answers to practical questions that come up during the program. Accordingly, issues such as anonymous inquiries, pre-clearance procedures, spousal participation, and administrative steps following Criminal Investigation Division acceptance are explained.[41] As with the 2011 program, a participant must submit an Offshore Voluntary Disclosure letter providing detailed personal information.[42] However, participants in the 2012 OVDP must also complete a four-page attachment for each foreign financial account of which the participant has control or is a beneficial owner.[43] In contrast, the 2011 OVDI required a single-page Foreign Account or Asset Statement.[44] Note that is it not clear whether the omission of non-financial account assets from the 2012 attachment is intended to change the disclosure requirements.
The OVDP Process section also covers the possible timeline and extensions for participation in 2012 OVDP. Unlike the 2011 OVDI, there is no specific date by which disclosures in the 2012 OVDP must be received. Rather, participants must submit the full voluntary disclosure submission to the IRS within 90 days of the date of the Offshore Voluntary Disclosure letter.[45] There is a procedure for requesting up to an additional 90 days to submit the necessary documents.[46] Finally, this section provides guidance to prepare the Statement of Dissolved Entities, if a taxpayer only used a foreign entity for tax evasion and intends on dissolution following the program.[47]
5 Calculating the Offshore Penalty. Questions 31-41
The Calculating the Offshore Penalty section identifies the proper exchange rate and penalty percentage to use in determining the amount to pay. Issues such as real estate ownership, artwork, and other assets that the penalties apply to are explained.[48] Multiple accounts, such as personal, previously disclosed, non-income producing, jointly-owned, and signatory authority only are discussed in terms of whether the account is included in the penalty assessment.[49] There are several questions and answers in this section that cover FBAR related matters indirectly in connection with joint ownership.
In general, the applicable penalty is 27.5% of the aggregate value of the participant’s foreign assets in the year in which the assets had the highest aggregate value.[50] In some circumstances, participants may qualify for a reduced 12.5% or 5% penalty.[51] The proceeds from a foreign transaction occurring before the voluntary disclosure period are not included in the penalty base if the proceeds were repatriated before the disclosure period.[52] However, if the proceeds were held offshore at any time during the voluntary disclosure period, the proceeds will be included in the penalty calculation.
6 Statute of Limitations. Questions 42-43
The Statute of Limitations section covers the IRS position regarding the penalty assessment period. This section clarifies that program participants will be required to voluntarily extend the time period over which the IRS may assess the penalty (8 years, as opposed to the ordinary 3-year statute of limitations).[53] The extension is the basis for the reduced penalty framework. This section acknowledges that the extended period may not be applicable otherwise, unless the IRS was successful in arguing an exception or proved the failure to file informational returns (in which case the statute would not have begun to run).[54]
7 FBAR Questions. Questions 44-46
The FBAR Questions section covers some of the ambiguities associated with FBAR filing obligations under certain circumstances. For example, disclosed and undisclosed accounts that appear on a single FBAR are explained.[55] The section requires that the current form should be used for participants in the 2012 OVDP.[56] However, taxpayers may also rely on additional FBAR guidance that was applicable in the calendar year being reported, including references to IRS Announcement 2010-16 and IRS Notice 2010-23.
8 Taxpayer Representatives. Questions 47-48
The Taxpayers Representatives section explains tax preparer issues. The section explains the obligations a tax practitioner has in the course of the program including due diligence with respect to the accuracy of statements and documentation provided to the Department of Treasury.[57] The section specifically notes that return preparers may not prepare current year tax returns if the client has elected not to enter the program and the practitioner knows of the undisclosed account. The section also notes the importance of the Form 2848 authorization regarding representation for income tax, civil penalties, and FBARs.[58]
9 Case Resolution. Questions 49-55
The Case Resolution section addresses several issues related to concluding program participation. The section notes that mediation with Appeals is not available in the 2012 OVDP.[59] The section explains the procedures involved in opting out or withdrawing from the program with specific reference to the Opt Out and Removal Guide.[60] This section provides multiple examples of when participants may want (or may not want) to consider the possibility of opting out. While the examples are not formal authority, they are illustrative of the IRS perspective on opting out. This section sets forth the scenario in which a participant may qualify for the 5% or 12.5 % offshore penalties.[61] The section also references Canadian specific issues.[62] Finally, this section provides a 2012 OVDP hotline at (267) 941-0020.[63]
3 Compliance Procedures for Low-Risk U.S. Taxpayers
As a supplement to the 2012 OVDP, the IRS announced a streamlined filing procedure for non-resident U.S. taxpayers who present a low compliance risk.[64] The procedures are designed for non-resident, non-filer U.S. taxpayers (including dual citizens) who have failed to disclose foreign assets and have recently become aware of their filing obligations. A full summary of the applicable requirements and procedures is beyond the scope of this discussion, but a practitioner should consult the above-referenced materials to determine if a client could be eligible for the streamlined procedure.
FATCA
The HIRE Act added IRC Sections 1471-1474, commonly known as the Foreign Account Tax Compliance Act (FATCA). FATCA imposes withholding and reporting requirements on foreign financial institutions and non-financial foreign entities.[65] Treasury and the IRS have issued three notices providing guidance with respect to the FATCA rules (the “FATCA Notices”).[66] Treasury has issued proposed regulations under Sections 1471-1474 (the “FATCA Regulations”).[67] The FATCA Regulations incorporate, revise, and expand upon the guidance provided in the FATCA Notices.[68] Upon implementation, the FATCA regime will have far-reaching implications on the foreign financial services industry. The following summary provides an overview of how the regime affects foreign service providers, and is intended to alert U.S. practitioners to the potential implications of FATCA for clients with international holdings, including the imposition of a 30% withholding obligation.
A foreign financial institution (FFI) is defined as “any financial institution which is a foreign entity.”[69] A non-financial foreign entity (NFFE) is “any foreign entity which is not a financial institution.”[70] For FATCA purposes, a financial institution is an entity that “(A) accepts deposits in the ordinary course of a banking or similar business, (B) as a substantial portion of its business, holds financial assets for the account of others, or (C) is engaged (or holding itself out as being engaged) primarily in the business of investing, reinvesting, or trading in” securities, partnership interests, or commodities (including futures, forward contracts, and options).[71] The IRS has issued draft forms on which individuals and entities will be able to certify their FATCA status.[72]
1 Payments to FFIs
Under Section 1471, a withholding agent is required to withhold 30 percent of a withholdable payment made to an FFI that does not meet the requirements outlined in Section 1471(b).[73] A withholdable payment for FATCA purposes includes (i) any payment of U.S.-source fixed, determinable, annual, or periodical income (“FDAP income”); and (ii) any gross proceeds from the sale or other disposition of any property which can produce interest or dividends that are U.S.-source FDAP income for any sales or other dispositions occurring after December 31, 2016.[74] An FFI can satisfy the Section 1471(b) requirements by (i) entering into an FFI agreement with the IRS, (ii) complying with the requirements outlined in Section 1.1471-5(f) of the FATCA Regulations, or (iii) electing to be subject to withholding on payments made to the FFI that are allocable to recalcitrant account holders or nonparticipating FFIs.[75]
An FFI that enters into an FFI agreement is a participating FFI. A participating FFI must (i) identify its U.S. accounts using due diligence procedures prescribed by the IRS, (ii) make annual reports regarding U.S.-owned accounts, and (iii) withhold 30 percent of passthru payments made to recalcitrant account holders and nonparticipating FFIs.[76]
Certain FFIs can escape withholding without entering into an FFI agreement if they meet the requirements for deemed-compliant FFIs.[77] A registered deemed-compliant FFI must register with the IRS and must fall into one of the following categories: (i) local FFIs, (ii) nonreporting members of participating FFI groups, (iii) qualified collective investment vehicles, or (iv) restricted funds. Additionally, a registered deemed-compliant FFI must comply with certain procedural requirements, including certification of compliant status, regular renewal of certification, and notification of change in status.[78] An FFI can also become certified deemed-compliant if it is (i) a nonregistering local bank, (ii) a retirement fund, (iii) a non-profit organization, or (iv) an FFI with only low-value accounts.[79] A certified deemed-compliant FFI must certify its compliant status on the appropriate Form W-8.
In response to what commenters have termed “the operational and systemic challenges” to FFIs created by FATCA, there has been an outpouring of practitioner comment on the FATCA Regulations.[80] For example, comments published by American Citizens Abroad indicate that some FFIs are choosing to terminate the accounts of U.S. citizens resident abroad rather than take steps to comply with FATCA.[81]
1 Payments to NFFEs
Under Section 1472, a withholding agent must withhold 30 percent of a withholdable payment made to an NFFE if (i) the payment is beneficially owned by the NFFE or another NFFE and (ii) the NFFE has not met the requirements for waiver of withholding under Section 1472(b).[82] To waive withholding, an NFFE must either (i) certify that the beneficial owner of the payment does not have any substantial U.S. owners or (ii) provide identifying information of any substantial U.S. owners.[83] Payments owned by certain categories of persons are excepted from Section 1472 withholding.[84]
3 Foreign Trust Classification
Based on language in IRS Notice 2010-60, practitioners have concluded that foreign trusts may be included in the definition of FFIs.[85] As noted above, one of the categories of “financial institution” under Section 1471 includes entities engaged in investing, trading securities, partnership interests, commodities, or interests in such practices.[86] The FATCA Regulations provide that an entity is engaged primarily in the business of investing, reinvesting or trading if the entity’s gross income attributable to such business is greater than or equal to 50 percent of the entity’s gross income over a three year period.[87] Accordingly, a trust that directly holds securities, partnership interests or commodities may be deemed to be a financial institution if more than half of the trust’s gross income is generated from these investments. Consequently, a foreign trust with these attributes would fit the definition of an FFI. If a foreign trust is not considered a financial institution, it would likely be classified as an NFFE.[88]
1 International Cooperation
Treasury and the IRS are engaged in discussions with various foreign governments to alleviate the reporting obligations of FFIs in certain circumstances.[89]
Treasury has released two versions of a model agreement to be executed by the U.S. and foreign governments, a reciprocal version and a non-reciprocal version (the “Model Agreements”).[90] Both versions provide a framework for FFIs and NFFEs to report account information to their own government. Existing information exchange agreements or tax treaties would then govern disclosure from the foreign government to the U.S. The reciprocal Model Agreement obligates the U.S. to provide the foreign government with information regarding U.S. accounts held at U.S. financial institutions. A reciprocal agreement also obligates the U.S. to actively pursue legislation that would allow the U.S. to provide equivalent information to treaty partners. In contrast, the U.S. is not obligated to provide any information under the non-reciprocal agreement. The reciprocal version is available only to select countries in the discretion of Treasury.
Treasury also reportedly is considering an alternate approach to international cooperation (a “Model 2 Agreement”).[91] Under a Model 2 Agreement, FFIs and NFFEs in the relevant jurisdiction would report information directly to the IRS with client consent. If a client did not consent to disclosure, the FFI or NFFE would report to the IRS on an aggregate basis. The U.S. could make group requests to the foreign government to obtain detailed information about the latter category of accounts.
The United Kingdom was the first jurisdiction to enter into an intergovernmental information sharing agreement with the U.S.[92] The U.S.-U.K. agreement is substantially similar to the reciprocal Model Agreement that was issued earlier this year.[93]
1 Effective Dates
FATCA becomes generally effective on January 1, 2013. However, the IRS has recently extended the effective date for withholding agents to complete due diligence, depending on the type of account and the status of the withholding agent.[94] In general, withholding agents are not required to perform FATCA-mandated due diligence until June 30, 2014 or later with respect to preexisting accounts or until January 1, 2014 or later with respect to new accounts.[95] Additional transitional rules for completing due diligence may also be applicable.[96]
The withholding and reporting obligations will be phased in gradually with respect to different types of payees and payments. Withholding on payments of FDAP income begins on January 1, 2014.[97] Withholding on all withholdable payments other than foreign pass-thru payments will begin on January 1, 2017.[98] The FATCA Regulations applicable to FFIs phase in the reporting obligations as follows: (i) participating FFIs reporting with respect to calendar years 2013 and 2014 must report account holder identification and account balance information by March 15, 2015;[99] (ii) participating FFIs reporting in 2016 (for calendar year 2015) must additionally report income associated with U.S. accounts; (iii) full reporting will be required in 2017 (for calendar year 2016).[100] Note, the FATCA Regulations are not finalized as of the date of this paper. Final regulations are expected before the end of 2012.
FBAR
1 Background
The Bank Secrecy Act (the “BSA”) was enacted in 1970 “to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.”[101] The BSA established reporting requirements for domestic and foreign financial transactions designed to deter fraud, money laundering, terrorist financing, tax evasion and other financial crimes. The provisions of the BSA relating to foreign financial transactions arose from congressional concerns that financial institutions in foreign jurisdictions with bank secrecy laws were being used to violate or evade domestic tax and regulatory requirements.[102]
Under the BSA, Congress instructed the Secretary of the Treasury to (i) require a resident or citizen of the U.S., or a person in and doing business in the U.S., to keep records and file reports when making transactions or maintaining a relationship with a foreign financial agency, and (ii) promulgate regulations to accomplish this mandate.[103] One response to this mandate was the creation of the FBAR.[104] In addition to the FBAR, there are several other reporting requirements dealing with suspicious activity reports and currency transaction reports. Information gathered from these various reports is maintained in a BSA database and is available to Financial Crimes Enforcement Network (“FinCEN”) analysts, law enforcement and other authorities for use in criminal, tax and regulatory investigations and proceedings.[105]
In 1994, the Secretary of the Treasury made FinCEN responsible for the administration and enforcement of foreign bank account reporting.[106] In 2003, FinCEN delegated FBAR enforcement authority to the IRS while retaining its authority over administration of other BSA provisions and regulations.[107] This delegation was made both because the FBAR is a tax evasion detection tool and because the IRS is in a superior position to implement enforcement.[108]
Until recent years, the limited amount of FBAR guidance and oversight available from FinCEN and the IRS has been a problem for practitioners. However, on February 24, 2011, FinCEN issued final FBAR Regulations in 31 C.F.R. § 1010.350, effective March 28, 2011 (the “Final Regulations”).[109] In addition to the Final Regulations, a revised FBAR form and Instructions were issued in January 2012. The Instructions released in January 2012 are referred to hereinafter as the “FBAR Instructions.”
2 FBAR Reporting Requirements
1 Form Overview, IRS and FinCEN Guidance
There have been multiple revisions to the FBAR form over the years leading to the current January 2012 version. Practitioners should always use the current form, even when filing amended or delinquent FBARs.[110] This is the requirement regardless of whether the form was revised subsequent to the year of amendment or delinquency. According to the January 2012 form, the estimated average burden of collecting information for filing the FBAR is 75 minutes.[111]
As one commentator put it, “the instructions to [the FBAR] are deceptively simple… each part of these instructions requires parsing.”[112] The FBAR Instructions are similar but not identical to the Final Regulations. Accordingly, preparers should have both the Final Regulations and the FBAR Instructions available when preparing the FBAR.
In addition to the FBAR Instructions and Final Regulations, the IRS provides FBAR guidance on the IRS website (), the FBAR hotline (866) 270-0733 (U.S.) and (313) 234-6146 (outside the U.S.), FBAR e-mail: FBARquestions@, and IRS Notice 2011-54, 2011-29 I.R.B. 53 (modifying and supplementing Notice 2010-23). FinCEN has also issued FBAR guidance in FinCEN Notice 2011-1, FinCEN Notice 2011-2, and FinCEN Notice 2012-1 (extending deadline to report signature authority over foreign accounts to June 30, 2013 for certain individuals).
2 Who Must File?
A U.S. person who has a financial interest in or signature authority over a bank account, securities account, or other financial account in a foreign country must file an FBAR if the aggregate value exceeds $10,000 at any time during the calendar year. The underlined terms are defined in the Final Regulations as well as the FBAR Instructions and are examined in more detail below.
1 U.S. Person.
The Final Regulations define a “U.S. person” as a citizen or resident of the United States as provided under IRC § 7701(b). The definition also includes entities including, but not limited to, corporations, partnerships, or limited liability companies created or organized under the laws of the United States. A U.S. person also includes trusts and estates settled or formed in the U.S. It is important to note the Final Regulations reference IRC § 7701 in some contexts, such as for the definition of U.S. person. However, the practitioner should not assume all the provisions of IRC § 7701 or the IRC in general apply. Indeed, the Final Regulations note that the scope of the FBAR is intentionally broader than U.S. tax law.[113]
Under the FBAR rules, the “United States” includes any State, the District of Columbia, the Territories and Insular Possessions of the United States, or the Indian Tribes.[114] For purposes of this paper (unless otherwise noted), references to the “United States” or “U.S.” include the regions listed in the previous sentence. Note that with regard to U.S. residency, the definition of “United States” provided in 31 C.F.R. 1010.100(hhh) (which includes U.S. territories and possessions) applies, rather than the definition found in 26 C.F.R. 301.7701(b)-1(c)(2)(ii).[115]
Business entities formed under United States law that hold foreign accounts must file FBARs.[116] The tax classification of any entity under U.S. law is generally immaterial to the FBAR reporting obligation. As a result, a single-member LLC that is disregarded for U.S. tax purposes is nonetheless considered a U.S. person for FBAR purposes.[117] Indeed, the FBAR Instructions specifically provide that disregarded entities must file an FBAR, if otherwise required to do so.[118] Accordingly, both the entity and the single member U.S. taxpayer in his individual capacity may have to file separate FBARs regarding the same account.
Trusts settled in the United States are treated as U.S. persons for FBAR filing purposes. Similar to the application of the FBAR rules to business entities, the tax classification of a trust is inconsequential in determining the FBAR obligation. Therefore, a domestic grantor trust treated as owned by a U.S. taxpayer has a separate FBAR filing obligation from the grantor. It is important to note in the context of foreign trusts, IRC § 7701(a)(30) is immaterial for FBAR purposes.[119] IRC § 7701(a)(30) provides that a trust is foreign if (1) a U.S. court cannot exercise jurisdiction over the trust or (2) one or more non-U.S. persons has authority to control all substantial decisions of the trust. As a result, it is possible for a domestic trust with a foreign trustee to be considered a domestic trust for FBAR purposes and a foreign trust for tax purposes. In such a situation, the foreign trustee may have an FBAR obligation.
If an individual elects or is determined to be a U.S. resident for tax purposes under IRC § 7701(b), he or she is required to file an FBAR disclosing such foreign accounts.[120] A resident alien (e.g., a green-card holder, whether or not living in the United States) who elects or is determined to be a non-resident for tax purposes under a tax treaty is also required to file an FBAR.[121] However, a non-resident alien electing to be treated as a U.S. person under either IRC § 6013(g) or (h) is not considered a U.S. person for FBAR purposes.[122] Finally, the Final Regulations and FBAR Instructions do not require persons in and doing business in the United States to file FBARs, as they once did (unless such person is otherwise required to file).
2 Financial Interest.
The Final Regulations broadly define situations in which a U.S. person is treated as having a “financial interest.” It is clear the scope of this definition was intended to capture minority stakeholders and reach well beyond taxation ownership concepts. Note there are differences in the language in the FBAR Instructions and the Final Regulations. As suggested above, it may be helpful to have both documents available during preparation.
1 Owner of Record or Holder of Legal Title. Any U.S. person who is the owner of record, or holder of legal title, or in whose name an account is maintained, has a financial interest in that account for FBAR filing purposes. This rule applies regardless of whether the account is held for the U.S. person’s benefit.[123] Multiple owners of the same account must file separate FBARs in connection with the account.
2 Other Financial Interest. A U.S. person has a financial interest in a foreign account for which the owner of record or holder of legal title is one of the following:
1. an attorney, agent or nominee acting on behalf of the U.S. person with respect to the accounts;
2. a corporation in which the U.S. person owns directly or indirectly: (i) more than 50% of the total value of shares of stock or (ii) more than 50% of the voting power of all shares of stock;
3. a partnership in which the U.S. person owns directly or indirectly: (i) an interest in more than 50% of the partnership’s profits or (ii) an interest in more than 50% of the partnership capital;
4. a trust in which the U.S. person is a grantor and has an ownership interest in the trust for federal tax purposes (See IRC §§ 671-679);
5. a trust in which the U.S. person has a greater than 50% present beneficial interest in the assets or income in a trust; or
6. any other entity in which the United States person owns directly or indirectly more than 50 percent of the voting power, total value of equity interest or assets, or interest in profits.[124]
3 Trusts. It is noteworthy that the Final Regulations have a detailed discussion of trusts. The FBAR Instructions correspondingly include a separate paragraph related to trust beneficiaries. The FBAR Instructions provide that a trust beneficiary described in (5) above is not required to file an FBAR if the trust, trustee of the trust, or agent of the trust, is a U.S person and files the FBAR.[125] The Final Regulations also explain that a beneficiary of a discretionary trust should not (simply because of his status) be required to file an FBAR.[126] Similarly, remainder beneficiaries should generally not have a reporting obligation. On a final note regarding trusts, there is no longer an automatic filing requirement when a trust has a trust protector.[127]
3 Signature or Other Authority.
The Final Regulations and FBAR Instructions define “signature or other authority” as the authority of an individual (alone or in conjunction with another) to control the disposition of money or other assets in a financial account by direct communication (whether in writing or otherwise) to the person, bank or other financial institution where such account is maintained.[128] The signatory authority obligation only applies to individuals, a narrower category than U.S. persons. Accordingly, an FBAR form prepared for a “signature or other authority” filer will always check box “a” (for individual) under Item 2 of Part I.
Prior to the Final Regulations, an FBAR was required if the foreign financial institution could act on either direct or indirect oral or written communication from an authorized individual. The Final Regulations specifically exclude “indirect oral or written communication.” The test for determining an individual’s signature authority over an account is now whether the foreign financial institution will act upon a direct communication from such individual.[129]
The FBAR Instructions provide the following six exceptions for individuals who have signature authority over, but no financial interest in, a foreign financial account:
1. An officer or employee of a bank that is examined by a federal agency such as the Office of Comptroller of the Currency, the Board of Governors of the Federal Reserve, or the Federal Deposit Insurance Corporation does not need to file an FBAR to report signature authority.[130] See the FBAR Instructions for the complete listing. This exception does not extend to officers or employees of trust companies or credit unions that are not federally regulated.[131]
2. An officer or employee of a financial institution that is registered with and examined by the Securities and Exchange Commission or the Commodity Futures Trading Commission is not required to report signature authority over a foreign financial account owned or maintained by the financial institution.[132] This exception does not extend to registered investment advisers, because they are not included in the definition of “financial institution” under the BSA regulations.[133]
3. An officer or employee of an Authorized Service Provider is not required to report signature authority over a foreign financial account that is owned or maintained by an investment company that is registered with the Securities and Exchange Commission. An “Authorized Service Provider” is an entity that is registered with and examined by the Securities and Exchange Commission and provides services to an investment company registered under the Investment Company Act of 1940.[134]
4. An officer or employee of an entity that has a class of equity securities or American depository receipts listed on a U.S. national securities exchange is not required to report signature authority over a foreign financial account of the entity.[135]
5. An officer or employee of a U.S. subsidiary is not required to report signature authority over a foreign financial account of the subsidiary if its U.S. parent has a class of equity securities listed on a U.S. national securities exchange and the subsidiary is included in a consolidated FBAR. [136] If a U.S. parent does not file a consolidated FBAR, the subsidiary cannot rely on this exception and would have an FBAR filing obligation.[137] This exception does not apply to an officer or employee of a U.S. subsidiary of a foreign company listed on a U.S. national or foreign securities exchange. In this situation, the foreign parent company would not have an obligation to file an FBAR and its U.S. subsidiary would not be required to file the same reports with the Securities and Exchange Commission that a U.S. parent company would have to file.[138]
6. An officer or employee of an entity that has a class of equity securities or American depository receipts registered under section 12(g) of the Securities Exchange Act is not required to report signature authority.[139] Under current law, this exception would apply to officers or employees of corporations that have more than $10,000,000 in assets and over 500 shareholders.[140]
3 What Is Reportable?
1 General Rule.
A financial account located in a foreign country is reportable. “Foreign country” means anywhere outside the United States, its possessions and territories.[141]
2 Reportable Accounts.
In developing the Final Regulations, FinCEN indicated that it would focus on the relations between U.S. persons and their foreign financial institutions. Specifically, the proposed regulations provide “when a person maintains an account with a foreign financial institution, the person is maintaining a relation with a foreign financial agency.”[142] As a result, the Final Regulations define three separate categories of reportable accounts: Bank Accounts, Securities Accounts, and Other Financial Accounts (collectively referred to as “Foreign Financial Accounts”).
1 Bank Account. A “bank account” is a savings deposit, demand deposit, checking or any other account maintained with a person engaged in the business of banking.[143] The Final Regulations do not alter that definition, which includes time deposits and certificate of deposits.[144]
2 Securities Account. A “securities account” is an account with a person engaged in the business of buying, selling, holding or trading stock or other securities.[145] An example in the preamble to the Final Regulations clarifies that stock in a foreign company acquired by an individual through a U.S. broker is not a foreign account for FBAR purposes, because the individual maintains the account through a U.S. financial institution.[146] An “omnibus account,” or an account containing assets located outside the U.S. that are held by a U.S. financial institution in the name of the institution as global custodian, is also not considered a Foreign Financial Account if U.S. customers can only access the account through the U.S. financial institution.[147] However, if U.S. customers are permitted direct access to the account, it would be considered a Foreign Financial Account.[148]
3 Other Financial Account. The term “other financial account” includes the following additional accounts:
▪ an account with a person in the business of accepting deposits as a financial agency;
▪ an account that is an insurance or annuity policy with a cash value (note, the policyholder bears responsibility for filing an FBAR[149]);
▪ an account with a broker/dealer for futures or options in commodities; and
▪ an account with a mutual fund or similar pooled fund, which issues shares to the general public and has regular net asset value determinations and redemptions.[150] Note, hedge funds and private equity funds do not necessarily fall under this definition. However, FinCEN has reserved the right to issue hedge fund and private equity fund regulations in the future.[151]
4 Exceptions. There are four exceptions to the Foreign Financial Account FBAR reporting requirement (see the Final Regulations for full details):
▪ an account of the U.S. government, an Indian tribe, or a State government;
▪ an account of an international financial institution of which the U.S. government is a member;
▪ an account maintained in a U.S. military facility or operated by a U.S. institution for the U.S. military; and
▪ correspondent or nostro accounts maintained by banks for bank to bank transfers.[152]
4 What Is the Threshold Amount for Reporting Purposes?
1 Threshold Amount.
A U.S. person is required to disclose Foreign Financial Accounts that have a value in excess of $10,000 at any time during the calendar year. For purposes of this calculation, all foreign accounts of the U.S. person must be aggregated. If a filer is unable to determine whether the maximum aggregate value of his or her accounts exceeded $10,000 during the calendar year, the conservative approach is to file. In this situation, the filer should enter “value unknown” in Part II, III, IV, or V on the FBAR form, as appropriate.[153]
2 Supporting Records.
Periodic account statements, such as quarterly or monthly statements, can be used to determine the maximum or highest account value. Note, the highest amount used should be a fair representation of the account value. If such information is unavailable, the foreign financial institution may be willing to provide an explanation (which could be attached to a “value unknown” answer) in a particular year.[154]
A taxpayer who is required to file an FBAR must retain records of account information for five years, and those records must be available for inspection. However, an officer or employee reporting signature authority over an employer’s Foreign Financial Account is not required to personally maintain records of such accounts.[155]
Three Federal courts of appeal have recently held that a taxpayer cannot invoke the Fifth Amendment privilege against self-incrimination in response to an IRS subpoena for records required to be kept under the BSA.[156] The Ninth Circuit, the Seventh Circuit, and the Fifth Circuit held that the required records doctrine applied and ordered the respective taxpayers to comply with the IRS subpoenas.
3 U.S. Dollar Amount.
Foreign currency amounts must be converted to U.S. dollars to enter on the FBAR. To properly make the conversion, the preparer can use the Treasury Department’s Financial Management Service rate from the last day of the calendar year being reported, which can be found at fms..[157]
4 Tax Return Reporting.
If an FBAR is filed, the individual taxpayer should also report the existence of the account and identify the foreign country on their federal income tax return. This disclosure should be made regardless of whether the account generated any income or dividends.[158] The disclosure is found on Schedule B of Form 1040. As explained below, additional reporting with Form 1040 is required under IRC Section 6038D (reported on Form 8938).
3 What Information Is Required?
1 General Information
The current FBAR form has five parts. Only the applicable parts need to be completed and filed. If there is insufficient space to provide all account information, copies of additional pages of the required part should be completed and filed. The page number and the total number of pages should be indicated in the upper right corner of the form. Attachments are generally prohibited unless permitted or required by the FBAR Instructions.[159]
3 Basic Filer Information
Part I requires basic filer information, such as the type of filer (individual, partnership, corporate, consolidated, fiduciary, etc.), taxpayer identification numbers (if applicable), foreign identification (if applicable), an individual’s date of birth, name, address (physical street address, not a post office box), and whether the filer has a financial interest in 25 or more financial accounts.[160]
5 Individual and Joint Accounts
Part II requires identifying information on Foreign Financial Accounts owned separately
. Part III requests the same information on accounts owned jointly, except that the identifying information of the principal joint owner (excluding the filer) should be reported. In addition, the total number of joint owners (not counting the filer) is required.[161]
7 Signature Authority
Part IV requests information on financial accounts when a filer has signature authority over, but no financial interest in, the accounts being reported
. If there is more than one owner of the account, the information for the principal joint owner (excluding the filer) should be reported. If more than one account is reported for the same owner, the filer can identify the owner once and write “Same Owner” for additional accounts rather than reentering the same information. U.S. persons residing and employed outside the United States with signature authority over an account owned or maintained by an employer need only report that employer’s information once in the appropriate sections.[162]
9 Consolidated Report
Part V requires information on financial accounts where the filer is filing a consolidated report (discussed below), which is indicated by checking box “d” under Item 2 of Part I. If a consolidated FBAR is filed where there are 25 or more accounts, only the identifying information for each entity (items 34-42) should be provided in Part V. Additional accounts with the same owner can be identified by writing “Same Owner” for these accounts in the succeeding sections (item 34).[163]
4 When and Where to File?
1 General Filing Deadline
The Treasury Department requires that FBARs are received in the Detroit, Michigan office no later than June 30th, regardless of the filer’s taxable year or tax return due date. There are no extensions for this filing, and if an FBAR is filed late, a statement should be attached explaining the late filing.[164]
3 Filing Amended FBARs
An FBAR may be amended after filing. However, the FBAR Instructions provide that such amendment should be filed at least 120 calendar days after the filing of the original FBAR. The “Amended” box should be checked on the amended FBAR.[165] The FBAR Instructions specifically provide that a copy of the original FBAR should not be included when filing an amended FBAR.[166] However, please note that the FBAR FAQs, which are not binding authority, directly contradict this guidance. The FBAR FAQs provide that a taxpayer should include a copy of the original FBAR with the amended FBAR, as well as a statement explaining the changes.[167] The FBAR Instructions do not directly address whether an explanation should be attached to an amended FBAR, however, elsewhere in the Instructions there is language indicating that attachments should be used only where specified in the Instructions.[168]
5 Electronic Filing
On July 18, 2011, FinCEN announced that the FBAR could be electronically filed in the future if only one signature is required.[169] FinCEN cannot currently accept multiple electronic signatures. FinCEN has announced that electronic filing will be mandatory for FBARs filed after July 1, 2013.[170]
5 Additional Rules Under Final Regulations and FBAR Instructions
1 Simplified Reporting for 25 or More Accounts
A U.S. person who has a filing obligation with respect to 25 or more Foreign Financial Accounts need only provide the number of financial accounts and certain other basic information on the FBAR, unless the Secretary of the Treasury requires the person to provide detailed information.[171] In addition to reporting the number of accounts and identifying personal information, filers with signature authority over 25 or more accounts must also report information about others who have a financial interest in the account.[172] FinCEN notes that this is required “to ensure that law enforcement receives meaningful information about these accounts.”[173]
3 Consolidated Reporting
A U.S. entity that directly or indirectly owns a greater than 50% interest in another entity that is required to file an FBAR is allowed to file a consolidated FBAR for itself and such other entity.[174] Also, the FBAR Instructions no longer include the word “Corporate” in the title of this section. This deletion is a change from the March 2011 form.[175] Presumably this change was made to clarify the section applies to non-corporate entities or filers.
4 Retirement Account Participants and Beneficiaries
Participants in retirement plans governed by IRC §§ 401(a), 403(a) or 403(b) do not have an FBAR reporting obligation with regard to a Foreign Financial Account held by or on behalf of the retirement plan.[176] Likewise, owners and beneficiaries of IRAs and Roth IRAs do not have to file an FBAR to report a Foreign Financial Account held by or on behalf of the IRA.[177] However, trustees and administrators of pension and welfare benefit plans are not exempt from FBAR filing obligations.[178]
6 Anti-Avoidance Provision
The Final Regulations include a provision that encompasses “all situations in which entities, including trusts, are used to evade an FBAR reporting obligation.”[179] If a U.S. person causes an entity to be formed for the purpose of evading an FBAR reporting obligation, that person will be deemed to have a financial interest in any Foreign Financial Account for which the entity is the owner of record or holder of legal title.[180] The term “evading” under the Final Regulations is not intended to apply to U.S. persons who make a good faith effort to comply with the Final Regulations.[181]
8 Treatment of Spouses
The FBAR Instructions provide that a spouse of an FBAR filer is not required to file a separate FBAR if (i) all accounts the non-filing spouse is required to report are jointly owned with the filing spouse, (ii) the filing spouse reports such accounts on a timely-filed FBAR, and (iii) both spouses sign the FBAR.[182] However, note that the FBAR form provides only one line for filer signatures.[183]
6 FBAR Penalties, Enforcement, and Preparer Liability
1 FBAR Penalties
The IRS has the authority to assess FBAR penalties for negligence, willful, and non-willful FBAR violations, in addition to criminal penalties. The Internal Revenue Manual also provides mitigating factors that the IRS may consider in determining penalties.[184] Examiners have broad discretion in determining whether to issue a warning letter or impose a penalty in connection with delinquent FBARs. The IRS is given this discretion because the total amount of penalties can greatly exceed an appropriate amount depending on the nature of the violation. An important factor in the balance of this discretion is a filer’s attempt to conceal reportable accounts. One foreign account may be subject to multiple FBAR civil penalty assessments. The penalties apply to each person with financial interest or signatory authority over the account. Each filer can be fully liable for the penalty.
1 Negligence Penalty.
A financial institution or non-financial trade or business is negligent for FBAR purposes when it should have known that an FBAR was required to be filed.[185] Penalties associated with negligence only apply to trades or businesses, and generally not to individuals.[186] There is a $500 penalty for simple negligence (i.e., negligence with no pattern of violations).[187] If there is a pattern of negligent violations, a civil penalty of not more than $50,000 may be imposed in addition to the $500 penalty for simple negligence.[188] This penalty is typically asserted in egregious cases and is not subject to mitigation guidelines.[189]
2 Willful Penalty.
A business or individual commits a willful violation when they have knowledge of the FBAR reporting requirement, but choose not to comply with the obligation.[190] The test for willfulness is whether there was a voluntary, intentional violation of a known legal duty. The burden of proof is on the IRS and must be supported by evidence of willfulness. The Internal Revenue Manual provides examples of fact patterns and evidence to illustrate the concept of willfulness. Willfulness may be imputed to a person who makes a conscious effort not to learn about the FBAR reporting and recordkeeping requirements when the person is shown to have made such efforts (called “willful blindness”).[191] The Internal Revenue Manual provides detailed guidance regarding the calculation of the willfulness penalty. Generally, a willfulness penalty may be imposed up to the greater of $100,000 or 50% of the amount in the account at the time of the violation.[192]
3 Non-Willful Penalty.
A business or individual commits a non-willful violation when they fail to comply with an FBAR reporting obligation without knowledge of the obligation.[193] The maximum penalty for a non-willful violation is $10,000.[194] The FBAR Instructions provide that the $10,000 penalty is on a per violation basis.[195] There is no penalty imposed if the violation was due to reasonable cause and the account balance is properly reported on an FBAR.[196]
4 Mitigation.
The Internal Revenue Manual provides examiners with extensive guidelines for mitigating circumstances, considerations, and penalty calculations. The practitioner should consult the IRS website or the Internal Revenue Manual for further guidance.
5 Criminal Penalties.
Failure to comply with the FBAR reporting obligation may result in criminal penalties ranging from $250,000 to $500,000, imprisonment, or both.[197] The monetary fine is dependent upon whether any other U.S. law was violated or there was a pattern of illegal activity.[198] Criminal penalties are not exclusive of civil penalties.[199] However, the violation must be willful in order for criminal penalties to apply.[200]
2 Enforcement
Although the IRS is charged with administering the FBAR penalty process, the IRS is limited to collection methods authorized by U.S.C. Title 31, which provides for civil suits to collect civil penalties.[201] For example, the IRS cannot use liens or levies to collect FBAR filing penalties. Any FBAR matter, whether criminal or civil, is reviewed by the Department of Justice which decides whether criminal prosecution or a civil suit is appropriate.[202] The IRS has six years from the date of a violation to assess an FBAR filing penalty and two years to collect on the penalty.[203] Tax courts lack jurisdiction over issues related to FBAR penalties, and FBAR penalties are generally not dischargeable in a bankruptcy proceeding.[204]
3 Preparer Liability
Tax practitioners who prepare FBARs may be subject to certain penalties for improper reporting of Foreign Financial Accounts. A tax practitioner has a duty under Treasury Department Circular 230 to make reasonable inquiries which could lead to a possible FBAR filing requirement. Specifically, tax practitioners have a duty “to inquire of their clients with sufficient detail to prepare proper and correct responses to the foreign bank account questions” on a tax return.[205]
Under Treasury Department Circular 230, a tax practitioner can also in good faith and without verification, rely on information provided by a client. Further, a practitioner is not obligated to prepare an FBAR (if one is required) unless he feels competent to do so and the taxpayer agrees.[206] Although the practitioner is not obligated to prepare an FBAR, such practitioner “does have an affirmative obligation to advise the client of the need to file the FBAR and the consequences of failing to do so.”[207]
SECTION 6038D REPORTING REQUIREMENTS
The HIRE Act added Section 6038D to the Internal Revenue Code (“Section 6038D”) as part of the legislative effort to improve offshore tax compliance.[208] As a result, in addition to the FBAR filing requirement, U.S. taxpayers who have an interest in certain foreign assets may now have to file an additional report disclosing those assets. Form 8938 is a personal return attached to and filed with the taxpayer’s Form 1040.[209]
1 Temporary and Proposed Regulations
Treasury has issued temporary regulations Sections 1.6038D-1T through 1.6038D-8T under Section 6038D (the “Temporary Regulations”). The Temporary Regulations provide guidance to specified individuals filing Form 8938. Treasury has also issued proposed regulations that include the Temporary Regulations and add Section 1.6038D-6 (the “Proposed Regulations”). Proposed Section 1.6038D-6 addresses the filing obligations of specified domestic entities (as opposed to specified individuals). However, as of the date of writing, Proposed Section 1.6038D-6 is not effective. The Form 8938 Instructions provide that “Until the IRS issues [final] regulations, only individuals must file Form 8938.”[210]
2 Form 8938
1 Form Overview and IRS Guidance
Form 8938 is a four-part form. The IRS estimates the average amount of time needed to complete the form to be one hour and five minutes.[211] The form instructions provide detailed guidance about most relevant issues, but for a complete picture of the IRS position on Form 8938, a practitioner should also review the Temporary Regulations and the guidance on the IRS website. Additionally, the IRS has published a chart aimed at clarifying the differences and similarities between the FBAR and Form 8938 filing obligations.[212]
2 Who Must File?
A specified person with an interest in a specified foreign financial asset must file Form 8938 if the value of the assets exceeds the applicable reporting threshold.[213] A specified person that meets the requirements to file Form 8938 must file even if the specified foreign financial assets do not affect the person’s tax liability.[214] If the specified person is not required to file an income tax return, the person does not need to file Form 8938 for that tax year, even if the value of the specified person’s interest in the specified foreign financial assets exceeds the reporting threshold.[215]
1 Specified Person.
Specified persons who are subject to Section 6038D include specified individuals and specified domestic entities.[216] A specified individual includes: (i) a U.S. citizen, (ii) an individual who is a resident alien of the U.S. during the tax year, (iii) a nonresident alien who makes a Section 6013(g) or (h) election to be treated as a U.S. resident, and (iv) a nonresident alien who is a bona fide resident of American Samoa or Puerto Rico.[217]
Proposed Regulation Section 1.6038D-6 provides a definition of a specified domestic entity: “a domestic corporation, a domestic partnership, or a trust described in section 7701(a)(30)(E), if such corporation, partnership, or trust is formed or availed of for purposes of holding, directly or indirectly, specified foreign financial assets.”[218] However, as noted above, specified domestic entities are not required to file Form 8938 until the IRS issues additional guidance.[219]
4 An Interest.
A specified person has an interest in a specified financial asset if “any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the asset are or would be required to be reported, included, or otherwise reflected on [the person’s] income tax return.”[220] Such interest should be reported on Form 8938 even if there are no taxes incurred with respect to the asset during the tax year.
A specified person who has an interest in a financial account that holds specified foreign financial assets is not required to report the assets on Form 8938.[221] The owner of a disregarded entity has an interest in foreign financial assets held by the entity for Section 6038D purposes. However, a specified person generally does not have an interest in foreign financial assets held by a partnership, corporation, trust or estate based solely on the person’s status as a partner, shareholder or beneficiary. The grantor of a grantor trust that holds foreign financial assets is deemed to have an interest in the trust’s assets. As to foreign trusts and foreign estates, a beneficial interest is not a specified foreign asset unless the beneficiary knows or has reason to know based on readily accessible information of the interest. A beneficiary who receives a distribution from the trust or estate is considered to know of the interest.
3 Specified Foreign Financial Assets: What Is Reportable?
1 General Rule.
An interest is only reportable on Form 8938 if it is an interest in a specified foreign financial asset.[222] Financial accounts maintained by a foreign financial institution are specified foreign financial assets.[223] The following assets are also specified foreign financial assets if they are held for investment (and not in an account maintained by a financial institution): (i) stock or securities issued by a non-U.S. person, (ii) an interest in a foreign entity, and (iii) a financial instrument or contract with a non-U.S. person issuer or counterparty. An asset is held for investment if it is not used or held for use in the conduct of a trade or business. Foreign real estate is not a specified foreign financial asset if held directly.[224] In addition, directly held tangible assets, such as art, antiques, jewelry, and precious metals, including physical gold, are not specified foreign financial assets for filing purposes.[225]
3 Financial Account and Financial Institution.
Under Form 8938, a foreign financial institution is any non-U.S. entity that (i) accepts deposits in the ordinary course of banking or similar business, (ii) holds financial assets for the account of others, or (iii) is engaged primarily in the business of investing, reinvesting, or trading in securities, partnership interests, or commodities (including futures, forward contracts, and options). [226] In contrast to the FBAR under some circumstances, investment vehicles such as foreign mutual funds, foreign hedge funds, and foreign private equity funds may be classified as foreign financial institutions for Form 8938 purposes.[227]
A financial account includes a depository account or a custodial account maintained by a foreign financial institution, as well as any debt or equity interest in a foreign financial institution other than interests that are regularly traded on a securities market.[228] A financial account maintained by a financial organization organized under the laws of a U.S. possession is a specified foreign financial asset.[229]
4 What Is the Threshold Amount for Reporting Purposes?
1 Threshold Amount.
The threshold amount that applies to a taxpayer depends on (i) whether the taxpayer is married or single, and (ii) whether the taxpayer lives in the United States or abroad.[230] A single taxpayer living in the United States who meets the other requirements for filing Form 8938 must file if the total value of his specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the year. The applicable threshold amount for married taxpayers filing jointly who live in the United States is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the year.[231]
A taxpayer is deemed to live abroad if she is (i) a U.S. citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or (ii) a U.S. citizen or resident who is present in a foreign country or countries at least 330 full days during any period of twelve (12) consecutive months that ends in the tax year being reported.[232] The applicable threshold for a single taxpayer living abroad is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year. Married taxpayers who live abroad and file a joint return are subject to the Section 6038D reporting requirement only if the value of their foreign financial assets exceeds $400,000 on the last day of the tax year or $600,000 at any time during the year.[233]
3 Joint Interests.
The Form 8938 Instructions provide guidance for specified persons who hold joint interests in a specified foreign financial asset to assist in determining the value that should be reported.[234] The value to be reported depends on (i) whether the joint owners are spouses, (ii) whether the joint owners are both specified individuals, and (iii) whether married joint owners file a joint return.[235] The Instructions provide examples of several different fact situations applying the joint interest rules on pages 3-4. A practitioner should consult this section of the Instructions to determine which, if any, examples apply to his client.
4 Valuation of Specified Foreign Financial Assets.
The relevant value for Section 6038D purposes is an asset’s maximum fair market value during the tax year.[236] A taxpayer may rely on periodic account statements in valuing an asset.[237] If the asset is not held in a financial account, the taxpayer may determine the fair market value based on information publicly available from verifiable sources.[238] It is not necessary to obtain an appraisal of an asset for reporting on Form 8938. An asset whose maximum value is less than zero should be reported using a value of zero.
If a taxpayer does not know or have reason to know based on readily accessible information the fair market value of his interest in a foreign trust, the value to be reported is the maximum value of the taxpayer’s interest in the trust.[239] The maximum value of a beneficiary’s interest in a foreign trust is the sum of (i) the value of the property distributed from the trust to the beneficiary and (ii) the value of the beneficiary’s right to receive mandatory distributions as of the last day of the tax year, valued using the tables under IRC Section 7520.[240]
If a taxpayer does not know or have reason to know based on readily accessible information the fair market value of her interest in a foreign estate, the value to be reported is the fair market value of the estate property distributed to the taxpayer as a beneficiary.[241] If no such distributions were made during the tax year, the beneficiary should use a value of zero for the interest.
5 U.S. Dollar Amount.
If the value of a specified foreign financial asset is denominated in a foreign currency, the maximum value must be determined in the foreign currency and then converted to U.S. dollars.[242] The Instructions direct a taxpayer to convert foreign currency to U.S. dollars using Treasury’s Financial Management Service foreign currency exchange rate, available on the Treasury website. However, if Treasury’s service does not list an applicable exchange rate, a taxpayer must use another publicly available currency exchange rate. In any case, the exchange rate to be applied is the rate that is in effect on the last day of the tax year, even if the asset was disposed of before that date, and even if the asset’s maximum value as assessed in foreign currency was attained on a different date.
3 What Information Is Required?
1 General Information and Part I Foreign Deposit and Custodial Accounts
Form 8938 has a preliminary section and Parts I - IV. The preliminary section of the Form 8938 requires identifying information about the taxpayer, including name, identifying number (social security number or individual taxpayer identification number), address, and type of filer.[243] Part I of Form 8938 is the section where foreign accounts are reported. If a taxpayer has more than one reportable foreign account, the additional accounts should be reported on continuation sheets.[244] The name of the financial institution, account number, and maximum value of the account during the tax year must all be reported. Additionally, specific information about the exchange rate used for a conversion is reported in Part I if applicable.
2 Part II Other Foreign Assets
A taxpayer must report all other specified foreign financial assets in Part II. The taxpayer must provide a description of the asset and an identifying number or other designation, as well as information regarding acquisition or disposition of the asset, if applicable.[245] Reporting the maximum value of an “other foreign asset” differs from reporting the maximum value of a foreign account, which requires stating the value. For other financial assets, there are a series of boxes in $50,000 increments, up to $200,000. For an asset worth $200,000 or less, the taxpayer must simply check the appropriate box. For an asset worth more than $200,000, the value must be listed. Information regarding the exchange rate used must be included in Part II, if applicable.
If the asset being reported is an interest in a foreign entity, information with respect to the entity must be provided.[246] The required information includes (i) the entity’s name, (ii) the type of entity, and (iii) the mailing address of the entity. If the asset is not an interest in a foreign entity, the taxpayer must provide the name and type of the issuer or counterparty.[247]
3 Part III Summary of Tax Items
Part III of Form 8938 requires information regarding the tax consequences of specified foreign financial assets as reported on other forms.[248] Specifically, a taxpayer must report interest, dividends, royalties, other income, gains, losses, deductions, and credits attributable to specified foreign financial assets reported on other forms during the tax year. The taxpayer must also provide the value reported on the other form, as well as information regarding the form and schedule line on which the tax items attributable to the specified foreign financial asset appear.
4 Part IV Excepted Assets
Assets that are reported on certain other forms are not required to be reported on Form 8938, but the form on which they are reported must be indicated in Part IV.[249] Note that the value of assets reported on other forms is required to be taken into account in determining whether the taxpayer meets the filing threshold.[250] Forms that qualify for this treatment are Form 3520, Form 5471, Form 8621, Form 8865, and Form 8891.[251] Note that the FBAR is not included on this list, and consequently, assets must be fully reported on Form 8938 even if they are also reported on an FBAR, unless another reporting exception applies.
To satisfy the Section 6038D requirements with respect to assets reported on one of the qualifying forms, the taxpayer must check the box next to the relevant form and indicate how many forms have been filed.[252] Also note, the grantor of a foreign grantor trust is not required to report any specified foreign financial assets held by the trust on Form 8938 if he reports the trust on Form 3520 and the trust timely files Form 3520-A.
4 When and Where to File?
The reporting period for Form 8938 is the taxpayer’s tax year unless the taxpayer is a specified individual for less than the full tax year.[253] Form 8938 must be attached to a taxpayer’s annual income tax return and filed by the deadline applicable to the annual return.[254] If a taxpayer obtains an extension for filing the annual return, the Form 8938 deadline is automatically extended as well. The IRS has granted a one-year extension to taxpayers who (i) had a tax year that began after March 18, 2010 (the effective date of Section 6038D), (ii) were required to file Form 8938, and (iii) filed an annual return before Form 8938 was released. Taxpayers who meet this description may file in 2012, even though the form was due in 2011.[255] Forms filed for prior tax years should be designated by checking the box on page 1 of Form 8938. To report more than one account or other asset on Form 8938, a taxpayer should make the appropriate number of copies of the form and fill out Part I or Part II on a separate form with respect to each asset.[256]
5 Form 8938 Penalties and Statute of Limitations
1 Penalties
A taxpayer who is required to file Form 8938 but does not file a completed and timely form may be subject to a $10,000 penalty.[257] In addition, for each 30-day period in which a taxpayer fails to file Form 8938 after receiving an IRS notice of failure to file, the taxpayer may be fined an additional $10,000, up to a maximum of $50,000 total. There is a reasonable cause exception for the failure to file penalty.
An accuracy-related penalty may be assessed on underpayments of tax resulting from failure to disclose specified foreign financial assets.[258] This penalty is equal to 40 percent of the underpayment. In addition to the civil penalties, failure to file Form 8938 or underpayment of tax due to undisclosed specified foreign financial assets can result in criminal penalties.
2 Statute of Limitations
Failure to file Form 8938 or failure to report a specified foreign financial asset can result in the statute of limitations remaining open for all or part of the taxpayer’s income tax return for three (3) years after the required Form 8938 is actually filed.[259] Additionally, there is a six (6) year statute of limitations on assessment of tax owed for any amount of specified foreign financial assets in excess of $5,000 omitted from a taxpayer’s gross income.
6 Coordination with FBAR
A U.S. taxpayer who has a Section 6038D filing obligation will also likely have an FBAR filing obligation. Many commentators have complained that the additional reporting is unnecessary. However, from the IRS perspective, it should ease some of the non-tax collection hurdles associated with the FBAR proceedings. The deadlines may present some problems for practitioners if the FBAR continues to have a no-extension filing date of June 30th. Finally, in the event the taxpayer fails to meet both filing requirements, both penalties would apply. As noted above, the IRS has issued a helpful chart comparing the FBAR and Form 8938 filing obligations.[260]
OTHER REPORTING OBLIGATIONS
Foreign accounts are frequently held in various types of foreign legal entities or structures. Accordingly, in addition to the FBAR and Form 8938, there are several other important forms that may be required to be filed in connection with a foreign account that has U.S. beneficial owners. In many instances, these reporting obligations carry punitive penalties for failure to file. The following list of possible filings is not exhaustive (and note, penalties are not covered), rather is it intended to identify some additional reporting obligations depending on the ownership of the foreign account.
1 Form 3520—Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts
IRC § 6048 requires a U.S. person to file Form 3520 to report “reportable events” with a respect to a foreign trust. The following reportable events must be reported by the corresponding “responsible party”: (1) the grantor must report creation of an inter vivos foreign trust, (2) the transferor must report an inter vivos transfer of property to a foreign trust (or the executor of a decedent who made a transfer at death), and (3) the executor of a decedent who was the owner of a foreign trust under the grantor trust rules or if the trust assets were includible in the decedent’s gross estate.[261] The U.S. owner (under the grantor trust rules) of a foreign trust must also file Form 3520 for each year of the trust, regardless of whether he or she made a transfer to or received a distribution from the trust in the applicable year.[262] A beneficiary who receives a distribution from a foreign trust must report the distribution on Form 3520, and an individual who received more than $100,000 from a nonresident alien or foreign estate or more than $14,375 from foreign corporations or partnerships that were treated as gifts must likewise file.[263] These values are adjusted annually for inflation.[264]
3 Form 3520-A—Annual Information Return of Foreign Trust with a U.S. Owner
The trustee of a foreign trust must file Form 3520-A for each year. However, a U.S. person who is taxable as the owner of a foreign trust under any of the grantor trust rules must ensure that the trustee files the annual return on Form 3520-A.[265] The Form must be filed with the IRS Service Center in Ogden, Utah by the 15th day of the third month after the end of the trust’s tax year unless the return has been extended.[266] Under most circumstances, the return will therefore be due on March 15. As part of the filing, the trustee must furnish certain statements to the U.S. grantor and beneficiaries of the trust at the same time the trustee files Form 3520-A.[267]
4 Form 4970—Tax on Accumulation Distribution of Trusts
A U.S. beneficiary of a foreign nongrantor trust who receives an accumulation distribution from such trust must calculate the “throwback” tax on such distribution on Form 4970 and attach it to Form 3520.[268] Form 4970 must also be filed for domestic trusts that were previously foreign trusts with undistributed accumulations subject to the throwback tax.[269]
5 Form W-8 Series
The Form W-8 series (W-8BEN, W-8ECI, W-8IMY, and W-8EXP) is the analogue of Form W-9 for foreign persons. A U.S. grantor of a foreign grantor trust may be erroneously subjected to U.S. source withholding because the U.S. payor does not realize that the payee, while ostensibly foreign and therefore subject to source withholding, is not the owner of the income for U.S. tax purposes. A U.S. withholding agent need not withhold on a payment to a foreign grantor trust with a U.S. owner if it receives from the trustee (i) a “flow-through withholding certificate” (Form W-8IMY) that includes a “withholding statement,” and (ii) the U.S. owner’s Form W-9 (Request for Taxpayer Identification Number and Certification). The instructions to Form W-8IMY set forth the information that must be included in the withholding statement.
Note that as of the date of publication, the IRS has issued a draft Form W-8IMY to reflect the changes in reporting and withholding requirements enacted under FATCA. Revised instructions have not been issued, and draft forms cannot be filed or relied upon. The draft form expands the two-page 2006 version of Form W-8IMY to seven pages, and requires a certification of Chapter 4 status (under FATCA) in addition to certification of Chapter 3 status.[270] The IRS has also issued draft forms W-8BEN (certification by foreign individuals) and W-8BEN-E (certification by foreign entities) that include options for certification of Chapter 4 status.[271]
6 Form 5471—Information Return of U.S. Persons with Respect to Certain Foreign Corporations
Form 5471 is used to report the interest, whether direct, indirect, or constructive, of U.S. persons in certain foreign corporations. If a foreign trust’s investment in a foreign corporation reaches 10% of the equity ownership of the entity, the U.S. beneficial owner(s) (and, in some instances, any U.S. officer or director) of such corporation must file Form 5471 with his or her income tax return.[272]
7 Form 8621—Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund
A U.S. person or an entity with U.S. beneficial owners who is a shareholder in a passive foreign investment company (“PFIC”) must file Form 8621 under certain circumstances.[273] Several elections can be made with respect to a PFIC, including the first-year Qualified Electing Fund (QEF) election.[274] While the QEF election results in the current inclusion of PFIC income for the U.S. shareholder (regardless of whether it is distributed), the election subjects some income to the lower capital gains rates and avoids the PFIC “deferral” charge. Individuals filing Form 8621 may also be required to file Form 5471.
8 Form 8865—Return of U.S. Persons with Respect to Certain Foreign Partnerships
Form 8865 must be filed by a U.S. taxpayer who (i) controlled more than 50% of a foreign partnership at any time during the partnership’s tax year, (ii) owned 10% or more of the partnership while the partnership was controlled by U.S. persons each owning at least 10% interests; (iii) contributed property to a foreign partnership in exchange for an interest in the partnership if that person directly or constructively owned at least 10% of the partnership following the transfer or if the value of the contributed property exceeds $100,000; or (iv) had a “reportable event” under IRC § 6046A.[275]
9 Form 926—Return by a U.S. Transferor of Property to a Foreign Corporation
Certain transfers from a U.S. person to a foreign corporation must be reported on Form 926.[276] The types of transfers that give rise to a Form 926 filing obligation are generally nonrecognition transactions between a foreign corporation and one of the following: a U.S. citizen or resident, or a domestic corporation, trust or estate.[277]
CONCLUSION
When helping clients report foreign assets to the IRS, it is critical to understand current reporting requirements and regulations, as well as the proper forms to file. A working knowledge of FBAR and Section 6038D reporting requirements is essential to practitioners in this area of the law. FATCA presents new challenges and compliance obligations, while the offshore voluntary disclosure programs offer opportunities to spare previously noncompliant clients the most punitive outcomes. Due to the rapidly changing laws in this area and the unusually high penalties, practitioners with clients holding foreign assets should maintain an ongoing awareness of the recent developments to help keep their clients in full compliance.
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[1] 31 C.F.R. § 1010.350(a).
[2] P.L. 111-147, 124 Stat. 71 (2010).
[3] HIRE Act § 501.
[4] Cong. Rec. S10785 (daily ed., Oct. 27, 2009) (statement of Sen. Max Baucus, Chair, S. Comm. on Finance).
[5] See Marnin Michaels et al., The Unintended Consequences of the HIRE Act: Impact on Offshore Financial Transactions, J. Tax’n & Reg. of Fin. Inst., July-Aug. 2010, at 29.
[6] See Fury in Liechtenstein over German Tax Inquiry, The Independent (Feb. 20, 2008).
[7] Stuart Pfeifer, One Man Puts a Dent in Tax Evasions, LA Times (Oct. 26, 2009).
[8] Stuart Pfeifer, One Man Puts a Dent in Tax Evasions, LA Times (Oct. 26, 2009).
[9] Carrick Mollenkamp, Evan Perez & Stephen Fidler, Switzerland, UBS Settle U.S. Tax Case, Wall Street Journal (Aug. 13, 2009).
[10] Ann Woolner, UBS Whistleblower Gets Rewarded with Prison Time, Bloomberg (Aug. 25, 2009).
[11] Tom Schoenberg & David Voreacos, UBS Whistle-Blower Secures $104 Million Award from IRS, Bloomberg (Sept. 11, 2012).
[12] Daniel Pruzin, Swiss Bankers Fight, Fear Release of Names to DOJ in Tax Evasion Crackdown, BNA Daily Tax Report (Aug. 17, 2012).
[13] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #3 (June 26, 2012).
[14] OECD, The Global Forum On Transparency And Exchange Of Information For Tax Purposes: Information Brief 2 (2012).
[15] See Global Forum Working Group on Effective Exchange of Information, Model Agreement on Exchange of Information on Tax Matters (2002).
[16] See Tax transparency - Global Forum launches country-by-country reviews, (last visited Oct. 13, 2012).
[17] Financial Action Task Force – About Us, (last visited Oct. 13, 2012).
[18] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #3 (June 26, 2012).
[19] IRS Offshore Programs Produce $4.4 Billion To Date for Nation’s Taxpayers; Offshore Voluntary Disclosure Program Reopens, IR 2012-5 (Jan 9, 2012).
[20] IRS Says Offshore Effort Tops $5 Billion, Announces New Details on the Voluntary Disclosure Program and Closing of Offshore Loophole, IR 2012-64 (June 26, 2012).
[21] See IRS Offshore Programs Produce $4.4 Billion To Date for Nation’s Taxpayers; Offshore Voluntary Disclosure Program Reopens, IR 2012-5 (Jan 9, 2012).
[22] Offshore Voluntary Disclosure Program Submission Requirements, .
[23] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #7 (June 26, 2012).
[24] Alison Bennett, Taxpayers Required to Talk to IRS Even After Voluntary Disclosure Cases Closed, BNA Daily Tax Report (Sept. 18, 2012).
[25] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #1 (June 26, 2012).
[26] IRS Offshore Programs Produce $4.4 Billion To Date for Nation’s Taxpayers; Offshore Voluntary Disclosure Program Reopens, IR 2012-5 (Jan 9, 2012).
[27] See Offshore Voluntary Disclosure Program Frequently Asked Question and Answers (June 26, 2012).
[28] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #3 (June 26, 2012).
[29] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #5 (June 26, 2012).
[30] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #6 (June 26, 2012).
[31] See Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #7 (June 26, 2012).
[32] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #7.1 (June 26, 2012).
[33] See Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #8, #9, #10 (June 26, 2012).
[34] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #9 (June 26, 2012).
[35] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #12, #13, #14, #15, #16 (June 26, 2012).
[36] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #17 (June 26, 2012).
[37] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #21 (June 26, 2012).
[38] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #21 (June 26, 2012).
[39] IRS Says Offshore Effort Tops $5 Billion, Announces New Details on the Voluntary Disclosure Program and Closing of Offshore Loophole, IR 2012-64 (June 26, 2012).
[40] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #21 (June 26, 2012).
[41] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #22, #23, #24, #25 (June 26, 2012).
[42] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #24 (June 26, 2012).
[43] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #24 (June 26, 2012).
[44] 2011 Offshore Voluntary Disclosure Initiative Frequently Asked Questions and Answers, #25 (Page reviewed Aug. 4, 2012).
[45] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #25 (June 26, 2012).
[46] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #25.1 (June 26, 2012).
[47] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #29 (June 26, 2012).
[48] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #34, #35, #36 (June 26, 2012).
[49] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #38, #39, #40, #41 (June 26, 2012).
[50] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #8 (June 26, 2012).
[51] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #52, #53 (June 26, 2012).
[52] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #34 (June 26, 2012).
[53] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #42, #43 (June 26, 2012).
[54] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #43 (June 26, 2012).
[55] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #45 (June 26, 2012).
[56] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #44 (June 26, 2012).
[57] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #47 (June 26, 2012).
[58] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #48 (June 26, 2012).
[59] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #49 (June 26, 2012).
[60] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #51 (June 26, 2012).
[61] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #52, #53 (June 26, 2012).
[62] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #54 (June 26, 2012).
[63] Offshore Voluntary Disclosure Program Frequently Asked Question and Answers, #55 (June 26, 2012).
[64] Instructions for New Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers (June 26, 2012); see also IRS Announces Efforts to Help U.S. Citizens Overseas Including Dual Citizens and Those with Foreign Retirement Plans, IR-2012-65 (June 26, 2012).
[65] See Regulations Relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities, Reg-121647-10, at p. 5.
[66] Notice 2010-60, Notice 2011-34, Notice 2011-53.
[67] See Regulations Relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities, Reg-121647-10.
[68] Regulations Relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities, Reg-121647-10, at p. 14.
[69] I.R.C. § 1471(d)(4).
[70] I.R.C. § 1472(d).
[71] I.R.C. § 1471(d)(5).
[72] See Draft Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding (Dec. 2012); Draft Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (Individuals) (Dec. 2012); Draft Form W-8BEN-E, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (Entities) (Dec. 2012; Version A, Cycle 3).
[73] I.R.C. § 1471(a).
[74] Proposed Treas. Reg. § 1.1473-1(a)(1)(ii); IRS Announcement 2012-42, 2012-42 I.R.B. (Nov. 19, 2012). For the definition of “grandfathered obligations,” which are generally exempt from withholding, see Proposed Treas. Reg. 1.1471-2(b)(2) and IRS Announcement 2012-42.
[75] I.R.C. § 1471(b).
[76] I.R.C. § 1471(b)(1).
[77] Proposed Treas. Reg. § 1.1471-5(f).
[78] Proposed Treas. Reg. § 1.1471-5(f)(1)(ii).
[79] Proposed Treas. Reg. § 1.1471-5(f)(2).
[80] See Institute of International Bankers, European Banking Federation Comments on Proposed Rules on FATCA Information Reporting, Withholding by Foreign Financial Institutions (Apr. 30, 2012).
[81] American Citizens Abroad Comments on FATCA (Apr. 4, 2012).
[82] I.R.C. § 1472(a).
[83] I.R.C. § 1472(b).
[84] See I.R.C. § 1472(c).
[85] See Ellen Harrison, Application of Proposed FATCA Withholding Regulations to Foreign Trusts (Apr. 21, 2012); American Bar Association Section of Real Property, Trust and Estate Law Comments on Proposed Rules on FATCA Information Reporting, Withholding by Foreign Institutions (Apr. 25, 2012); IRS Notice 2010-60, at pp. 6-7.
[86] I.R.C. § 1471(d)(5)(C).
[87] Proposed Treas. Reg. § 1.1471-5(e)(4).
[88] See I.R.C. § 1472(d).
[89] See U.S. Treasury Department, Joint Statement from the United States, France, Germany, Italy, Spain and the United Kingdom Regarding an Intergovernmental Approach to Improving International Tax Compliance and Implementing FATCA. See also Alison Bennett, IRS, Treasury Working with Other Countries on Single Model Agreement Under FATCA, BNA Daily Tax Report (May 14, 2012).
[90] U.S. Treasury Department, Treasury Releases Model Intergovernmental Agreement for Implementing the Foreign Account Tax Compliance Act to Improve Offshore Tax Compliance and Reduce Burden (July 26, 2012).
[91] Heather M. Rothman, IRS Debuts Alternative [pic]FATCA[pic] Approach in Compliance Pacts with Switzerland, Japan, BNA Weekly Report (June 25, 2012). See also Rick Mitchell, Corwin Says Lack of Information Exchange Vehicle Need Not Bar FATCA Implementation, BNA Daily Tax Report (Sept. 24, 2012).
[92] Alison Bennett, U.S., U.K. Sign First Intergovernmental
Information Sharing Accord Under [pic]FATCA[pic], BNA Daily Tax Report (Sept. 17, 2012).
[93] See Agreement Between The Government Of The United States Of America And The Government Of The United Kingdom Of Great Britain And Northern Ireland To Improve International Tax Compliance And To Implement FATCA, available at .
[94] IRS Announcement 2012-42, 2012-47 I.R.B. (Nov. 29, 2012).
[95] IRS Announcement 2012-42, 2012-47 I.R.B. (Nov. 29, 2012).
[96] IRS Announcement 2012-42, 2012-47 I.R.B. (Nov. 29, 2012).
[97] Treasury and IRS Issue Guidance Outlining Phased Implementation of FATCA Beginning in 2013, IR-2011-76 (July 14, 2011); see also IRS Notice 2011-53, p. 8.
[98] Treasury and IRS Issue Guidance Outlining Phased Implementation of FATCA Beginning in 2013, IR-2011-76 (July 14, 2011); IRS Announcement 2012-42, 2012-47 I.R.B. (Nov. 29, 2012); see also IRS Notice 2011-53, p. 8.
[99] IRS Announcement 2012-42, 2012-47 I.R.B. (Nov. 29, 2012).
[100] Regulations Relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities, Reg-121647-10, at p. 26.
[101] Titles I and II of P.L. 91-508, as amended, codified at 12 U.S.C. § 1829b, 12 U.S.C. §§ 1951-1959, and 31 U.S.C. 31 U.S.C. § 5311-5330 (Oct. 26, 1970).
[102] See U.S. v. Clines, 958 F.2d 578, 581 (4th Cir. 1992).
[103] See 31 U.S.C. § 5314.
[104] See 31 U.S.C. § 5311.
[105] See Secretary of the Treasury, A Report to Congress in Accordance with § 361(b) of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act) (Apr. 24, 2003), at 3.
[106] See Secretary of the Treasury: A Report to Congress in Accordance with § 361(b) of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act) (Apr. 8, 2005), at 4.
[107] See 68 Fed. Reg. 26489 (May 16, 2003).
[108] See Secretary of the Treasury: A Report to Congress in Accordance with § 361(b) of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act) (Apr. 24, 2003), at 4.
[109] See 76 Fed. Reg. 10234 (Feb. 24, 2011).
[110] TD F 90-22.1, OMB 1545-2038, at p. 1.
[111] TD F 90-22.1, OMB 1545-2038, at p. 1.
[112] See Blum, Canale, Hester and O’Connor, 947 T.M., Reporting Requirements Under the Code for International Transactions.
[113] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10237 (Feb. 24, 2011).
[114] See 31 C.F.R. § 1010.350(b).
[115] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10238 (Feb. 24, 2011).
[116] Id.
[117] See FAQs Regarding Report of Foreign Bank and Financial Accounts (FBAR) – Filing Requirements, Q&A 5.
[118] See FBAR Instructions, General Definitions, at p. 6.
[119] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10238 (Feb. 24, 2011).
[120] Id.
[121] Id.
[122] Id.
[123] FBAR Instructions, General Definitions, at p. 6.
[124] FBAR Instructions, General Definitions, at p. 6.
[125] FBAR Instructions, General Definitions, at p. 6.
[126] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10240 (Feb. 24, 2011).
[127] Id.
[128] 31 C.F.R. § 1010.350(f)(1); See FBAR Instructions, Exceptions, at p. 6.
[129] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10236 (Feb. 24, 2011).
[130] FBAR Instructions, Exceptions, at p. 6.
[131] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10241 (Feb. 24, 2011).
[132] FBAR Instructions, Exceptions, at p. 7.
[133] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10241 (Feb. 24, 2011).
[134] FBAR Instructions, Exceptions, at p. 7. See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10241 (Feb. 24, 2011).
[135] FBAR Instructions, Exceptions, at p. 7.
[136] FBAR Instructions, Exceptions, at p. 7. See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10242, n. 16 (Feb. 24, 2011).
[137] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10242 (Feb. 24, 2011).
[138] Id.
[139] FBAR Instructions, Exceptions, at p. 7.
[140] 31 C.F.R. § 1010.350(f)(2)(v); See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10243, n. 18 (Feb. 24, 2011).
[141] See 31 C.F.R. § 1010.350(d).
[142] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts 75 Fed. Reg. 8844, 8846 (Feb. 26, 2010).
[143] 31 C.F.R. § 1010.350(c)(1).
[144] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10238 (Feb. 24, 2011).
[145] 31 C.F.R. § 1010.350(c)(2).
[146] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10235 (Feb. 24, 2011).
[147] Id.
[148] Id.
[149] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10239 (Feb. 24, 2011).
[150] 31 C.F.R. § 1010.350(c)(3).
[151] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10239 (Feb. 24, 2011).
[152] 31 C.F.R. § 1010.350(c)(4).
[153] FBAR Instructions, Part II, Item 15, at p. 8.
[154] FBAR Instructions, Part II, Item 15, at p. 8.
[155] FBAR Instructions, Filing Information, at p. 7.
[156] See In re M.H., 648 F.3d 1067 (9th Cir. 2011), In re Special February 2011-1 Grand Jury Subpoena Dated September 12, 2011, 691 F.3d 903 (7th Cir. 2012), In re Grand Jury Subpoena, No. 11-20750, 2012 WL 4343750 (5th Cir. Sept. 21, 2012).
[157] FBAR Instructions, Part II, Item 15, at p. 8.
[158] These tax returns include: (i) Form 1040, Schedule B, Part III; (ii) Form 1041, Scheduled G, Question 3; (iii) Form 1065, Schedule B, Question 10; (iv) Form 1120, Schedule N, Question 6; and Form 3520 (references FBAR filing obligation).
[159] FBAR Instructions, Part II, at p. 7.
[160] FBAR Instructions, Part I, at p. 7.
[161] FBAR Instructions, Part III, Item 24, at p. 8.
[162] FBAR Instructions, Part IV, at p. 8.
[163] FBAR Instructions, Part V, at p. 8.
[164] FBAR Instructions, Filing Information, at p. 7.
[165] FBAR Instructions, Filing Information, at p. 7.
[166] FBAR Instructions, Filing Information, at p. 7.
[167] FAQs Regarding Report of Foreign Bank and Financial Accounts (FBAR) – Filing Requirements, Q&A 15.
[168] See, e.g., FBAR Instructions, Part II, at p. 7.
[169] See Press Release, Fin. Crimes Enforcement Network, FinCEN Offers Optional Electronic Filing for FBAR Forms (July 18, 2011), available at .
[170] Fin. Crimes Enforcement Network, Temporary General Exemption From Mandatory Electronic Filing of the Report of Foreign Bank and Financial Accounts (FBAR) (Feb. 24, 2012).
[171] 31 C.F.R. § 1010.350(g)(1)-(2).
[172] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10243 (Feb. 24, 2011).
[173] Id.
[174] FBAR Instructions, Part V, at p. 8.
[175] See FBAR Instructions, Part V, at p. 8.
[176] 31 C.F.R. § 1010.350(g)(4).
[177] Id.
[178] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10237 (Feb. 24, 2011).
[179] Id. at 10241.
[180] 31 C.F.R. § 1010.350(e)(3).
[181] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10240 (Feb. 24, 2011).
[182] FBAR Instructions, Exceptions, at p. 6.
[183] See TD F 90-22.1, OMB No. 1545-2038, (Rev. January 2012) at p. 1.
[184] I.R.M. 4.26.16.4 (7-1-2008).
[185] Id. at 4.26.16.4.3.1 (7-1-2008).
[186] 31 U.S.C. § 5321(a)(6)(A).
[187] Id.
[188] 31 U.S.C. § 5321(a)(6)(B).
[189] I.R.M. 4.26.16.4.3.6 (7-1-2008).
[190] Id. at 4.26.16.4.5.3 (7-1-2008).
[191] Id.
[192] 31 U.S.C. § 5321(a)(5)(C).
[193] Id. § 5321(a)(5)(A)-(B); see also I.R.M. 4.26.16.4.4 (7-1-2008).
[194] 31 U.S.C. § 5321(a)(5)(B).
[195] FBAR Instructions, Penalties, at p. 8.
[196] 31 U.S.C. § 5321(a)(5)(B).
[197] See 31 U.S.C. § 5322.
[198] See id. § 5322 (b).
[199] See id. § 5321(d).
[200] See id § 5322.
[201] See id. § 5321(b)(2).
[202] See Secretary of the Treasury: A Report to Congress in Accordance with § 361(b) of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act) (Apr. 24, 2003), at 4.
[203] 31 U.S.C. § 5321(b)(1)-(2).
[204] See U.S. v. Simonelli, 614 F.Supp.2d 241 (D. Conn 2008).
[205] See Professional Responsibility and the Report of Foreign Bank and Financial Accounts, (last visited June 13, 2012).
[206] Id.
[207] Id.
[208] See Cong. Rec. S10785 (daily ed., Oct. 27, 2009) (statement of Sen. Max Baucus, Chair, S. Comm. on Finance).
[209] Instructions for Form 8938, Statement of Specified Foreign Financial Assets (Nov. 2011).
[210] Instructions for Form 8938, Who Must File, at p. 2.
[211] Instructions for Form 8938, Paperwork Reduction Act Notice, at p. 9.
[212]Comparison of Form 8938 and FBAR Requirements, available at .
[213] Instructions for Form 8938, Who Must File, at p. 1.
[214] Instructions for Form 8938, Who Must File, at p. 1.
[215] Instructions for Form 8938, Who Must File, at p. 1.
[216] Instructions for Form 8938, Who Must File, at p. 1.
[217] Instructions for Form 8938, Who Must File, at pp. 1-2.
[218] Proposed Treas. Reg. § 6038D-6(a).
[219] Instructions for Form 8938, Who Must File, at p. 2.
[220] Instructions for Form 8938, Interests in Specified Foreign Financial Assets, at p. 4.
[221] Instructions for Form 8938, Interests in Specified Foreign Financial Assets, at p. 4.
[222] I.R.C. § 6038D(a).
[223] Instructions for Form 8938, Specified Foreign Financial Assets, at p. 4.
[224] Question 3, Basic Questions and Answers on Form 8938, .
[225] Questions 19 and 20, Basic Questions and Answers on Form 8938, .
[226] Instructions for Form 8938, Specified Foreign Financial Assets, at p. 4.; I.R.C. § 1471(d)(5).
[227] See Preamble to Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234, 10239 (Feb. 24, 2011).
[228] Instructions for Form 8938, Specified Foreign Financial Assets, at p. 4; I.R.C. § 1471(d)(2).
[229] Instructions for Form 8938, Specified Foreign Financial Assets, at p. 4.
[230] Instructions for Form 8938, Determining the Reporting Threshold That Applies to You, at p. 2.
[231] Instructions for Form 8938, Determining the Reporting Threshold That Applies to You, at p. 2. Married taxpayers who file separate income tax returns are subject to the threshold amount applicable to single U.S. resident taxpayers.
[232] Instructions for Form 8938, Determining the Reporting Threshold That Applies to You, at p. 2.
[233] Instructions for Form 8938, Determining the Reporting Threshold That Applies to You, at p. 2.
[234] Instructions for Form 8938, Determining the Total Value of Your Specified Foreign Financial Assets, at p. 2.
[235] Instructions for Form 8938, Determining the Total Value of Your Specified Foreign Financial Assets, at p. 3.
[236] Instructions for Form 8938, Determining the Total Value of Your Specified Foreign Financial Assets, at p. 2.
[237] Question 23, Basic Questions and Answers on Form 8938, .
[238] Question 23, Basic Questions and Answers on Form 8938, .
[239] Instructions for Form 8938, Determining the Total Value of Your Specified Foreign Financial Assets, at p. 2.
[240] Instructions for Form 8938, Reporting Maximum Value, at p. 5.
[241] Instructions for Form 8938, Determining the Total Value of Your Specified Foreign Financial Assets, at p. 2.
[242] Instructions for Form 8938, Reporting Maximum Value, at p. 5.
[243] Instructions for Form 8938, Specific Instructions, Identifying Information, at p. 7.
[244] Instructions for Form 8938, Specific Instructions, Part I. Foreign Deposit and Custodial Accounts, at p. 7.
[245] Instructions for Form 8938, Specific Instructions, Part II. Other Foreign Assets, at p. 8.
[246] Instructions for Form 8938, Specific Instructions, Part II. Other Foreign Assets, at p. 8.
[247] Instructions for Form 8938, Specific Instructions, Part II. Other Foreign Assets, at p. 9.
[248] Instructions for Form 8938, Specific Instructions, Part III. Summary of Tax Items Attributable to Specified Foreign Financial Assets, at p. 9.
[249] Instructions for Form 8938, Specific Instructions, Part IV. Excepted Specified Foreign Financial Assets, at p. 9.
[250] Instructions for Form 8938, Determining the Total Value of Your Specified Foreign Financial Assets, at p. 2.
[251] Instructions for Form 8938, Exceptions to Reporting, at p. 6.
[252] Instructions for Form 8938, Exceptions to Reporting, at p. 6.
[253] Instructions for Form 8938, Reporting Period, at p. 5.
[254] Instructions for Form 8938, When and How to File, at p. 1.
[255] Instructions for Form 8938, When and How to File, at p. 1; IRS Notice 2011-55, 2011-29 I.R.B. 53.
[256] Instructions for Form 8938, Specific Instructions, at p. 7.
[257] Instructions for Form 8938, Penalties, at p. 6.
[258] Instructions for Form 8938, Penalties, at p. 6.
[259] Instructions for Form 8938, Statute of Limitations, at p. 7.
[260] See Comparison of Form 8938 and FBAR Requirements, available at .
[261] I.R.C. § 6048(a)(3)(A), (b)(1); Rev. Notice 97-34; Instructions for Form 3520, “Who Must File” (2011).
[262] Instructions for Form 3520, “Who Must File” (2011).
[263] I.R.C. § 6039F; Instructions for Form 3520, “Who Must File” (2011).
[264] I.R.C. § 6039F(d).
[265] I.R.C. § 6048(b)(1); Instructions for Form 3520-A, “Who Must File” (2011).
[266] Instructions for Form 3520-A, “When and Where to File” (2011).
[267] Rev. Notice 97-34; Instructions for Form 3520-A, “When and Where To File” (2011).
[268] Form 4970, “Who Must File” (2011).
[269] Form 4970, “Who Must File” (2011).
[270] Draft Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding (Dec. 2012).
[271] Draft Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (Individuals) (Dec. 2012); Draft Form W-8BEN-E, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (Entities) (Dec. 2012; Version A, Cycle 3).
[272] Instructions for Form 5471, “Categories of Filers” (Dec. 2011).
[273] Instructions for Form 8621, “Who Must File” (Dec. 2011).
[274] See I.R.C. § 1295; Instructions for Form 8621, “Definitions and Special Rules Qualified Electing Fund” (Dec. 2011).
[275] Instructions for Form 8865, “Categories of Filers” (2011).
[276] See Instructions for Form 926, “Who Must File” (Dec. 2011).
[277] See I.R.C. § 6038B.
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LISI Asset Protection Planning Newsletter #214 (November 29, 2012) at Copyright © 2012 by Mark E. Osborne. All rights reserved. Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.
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