Tag: FBAR


IRS Reminds About FBAR Requirement

Sanjiv Gupta CPA - 8 years ago
In a recent bulletin, the IRS reminded U.S. citizens and dual citizens of the United States and foreign countries who live abroad about U.S. filing requirements, including Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).Last year IRS and Tax professional promoted the importance of FBAR requirement.  Nonetheless, many dual-citizen taxpayers may still be unaware of this requirement. So, here is another quick overview of FBAR.Generally, FBAR must be filed by U.S. taxpayer having a financial interest in or signature authority or other authority over any financial account in a foreign country if the aggregate value of the accounts exceeds $10,000 at any time during the calendar year. The filing date for FBAR is June 30 and reported on TD F 90-22.1. The form is filed with the Treasury Department and is not filed as part of the tax return of a taxpayer.  Your tax professional can help you file FBAR or you can file yourself by filling out the form TDF 90-22.1.It is estimated by the Association of Americans Resident Overseas that some 6.32 million Americans live abroad.  However, according to the Treasury Inspector General for Tax Administration, only a little more than 534,000 FBARs were filed in 2009.  To close this gap IRS introduced an offshore voluntary disclosure initiative that allowed taxpayers to settle the FBAR requirement for all previous years.Do I have to pay tax if I file FBAR?No – FBAR discloses the foreign interest or account to the IRS and does not impose a tax. However, failure to file it can incur penalties and get you in trouble with the IRS. In fact, A willful failure to file can be subject to civil penalty (up to $100,000 or 50% of the balance of the foreign account, whichever is greater) and criminal penalties.  Non-willful failure to file may be penalized by up to $10,000 per violation unless the failure was due to reasonable cause.In the fact sheet issued by the IRS gave many examples of factors that could point to the reasonable cause of non-willful failure to file an FBAR.Reliance upon the advice of a professional tax adviser who was informed of the existence of a foreign financial account;A lack of any intentional effort to conceal income or assets related to an unreported foreign account that was established for a legitimate purpose; andA lack of any material tax deficiency related to an unreported foreign account.Factors identified as potentially weighing against a finding of reasonable cause, on the other hand, were:Failure by the taxpayer to disclose a foreign financial account to his or her tax return preparer;Background and education of the taxpayer indicating that he or she should have known of the FBAR reporting requirements; andA tax deficiency related to the unreported foreign account.Statue of limitation to file the delinquent FBARs is six-year.  So even if you were not aware of FBAR requirement, you must file the FBAR for the last six years and attach a statement explaining why they are late.

FBAR | Forign Bank Account Reporting: June 30th 2012

Sanjiv Gupta CPA - 8 years ago
FBAR | Foreign Bank Account Reporting Deadline June 30th, 2012If you live in San Francisco Bay Area, you must have heard Sanjiv Gupta CPA talk about FBAR filing.   Sanjiv has been explaining FBAR on TV and Radio for the last couple of years.  We have talked about FBAR on our blog a lot as well.  None the less, there are many questions still floating around and folks are sill finding confusion about FBAR.One of the most common questions our client ask us is:Do I need to file FBAR on April 17th along with my tax return?No – FBAR deadline is June 30th and you need to send it to a different address (than your tax return)I filed FBAR this year but didn’t file for the last several years. What should I do?Well, it depends if you were required to file the FBAR or not.   You should start by consulting with your CPA or Attorney to make sure if you were required to file the FBAR or not.   Once you the answer, you can work on the strategy to deal with the situation.Can I file past due FBAR?Of course, you can but please do note there are penalties for late filing.Is there a way to avoid penalties?Maybe – you will need a good reason.  You will be required to explain why you didn’t file FBAR in the first place?I live in San Jose, Santa Clara, Cupertino, Palo Alto area and didn’t know that I have to file FBAR?More than likely this statement won’t work.   You need to work with your accountant or attorney to clearly explain why you didn’t file FBAR.  You may not know about FBAR but you still need to articulate your argument.  According to the IRS website, Here are the penalties for not filing the FBAR :Failure to file FBAR PenaltiesThere are very heavy penalties for failure to file FBAR.  The following chart highlights the civil and criminal penalties that may be asserted for not complying with the FBAR reporting and recordkeeping requirements.ViolationCivil PenaltiesCriminal PenaltiesCommentsNegligent ViolationUp to $500N/A31 U.S.C.§ 5321(a)(6)(A)31 C.F.R. 103.57(h)Non-Willful ViolationUp to $10,000 for each negligent violationN/A31 U.S.C. § 5321(a)(5)(B)Pattern of Negligent ActivityIn addition to the penalty under § 5321(a)(6)(A)with respect to any such violation, not more than $50,000N/A31 U.S.C. 5321(a)(6)(B)Willful – Failure to File FBAR or retain records of accountUp to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation.Up to $250,000 or 5 years or both31 U.S.C. § 5321(a)(5)(C)31 U.S.C. § 5322(a)and 31 C.F.R. § 103.59(b) for criminal.The penalty applies to all U.S. persons.Willful – Failure to File FBAR or retain records of the account while violating certain other lawsUp to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation.Up to $500,000 or 10 years or both31 U.S.C. § 5322(b) and 31 C.F.R. § 103.59(c) for criminalThe penalty applies to all U.S. persons.Knowingly and Willfully Filing False FBARUp to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation.$10,000 or 5 years or both18 U.S.C. § 1001,31 C.F.R. § 103.59(d) for criminal. The penalty applies to all U.S. persons.Civil and Criminal Penalties may be imposed together. 31 U.S.C. § 5321(d). Want to Learn more about FBAR | Foreign Bank Account ReportingHere are some links to other FBAR discussion on Sanjivcpa.com Offshore voluntary disclosureSanjiv explains FBAR on TVIRS reminds FBAR requirementsDo office of Sanjiv Gupta CPA files FBAR | Foreign Bank Account Reporting?Yes | We help both businesses and individuals with FBAR filing.  You can call our office at 510-825-7563 to make an appointment. Do you only offer FBAR for Fremont Residents?We have clients from across the globe filing FBAR using our services.   However, most of our customers filing FBAR are of Indian origin and usually located in Fremont, Hayward, Santa Clara, Sunnyvale, Palo Alto, Cupertino, San Jose.  We serve clients from the San Francisco Bay Area.Are you open on weekends?Yes, we are open to atleast on Saturday.I am not sure if I need to file FBAR, Can you help?It is a good idea to make an appointment to understand if you should file the FBAR or not.  As you know, the consequences of not filing (if required) can be painful.  Sanjiv Gupta CPA can sit down and learn more about your situation and advise if you should or you should not file FBAR?I live in the San Francisco Bay Area but can not come to your office?We offer an appointment by phone and video conferencing.  Give us a call and we will try to find a solution for you.

Do I Need To File FBAR If I Didn't Earn Any Interest ?

Sanjiv Gupta CPA - 8 years ago
Recently a gentleman asked a simple question,” Do I need to file FBAR ?”.And we asked him a few other questions:Do you live in the United States (Citizen, Green Card Holder, H1 or any other kind of visa)?Do you have a kind of foreign account?At any given time, did you have more than $10K in your foreign account?If the answer is YES to these questions then you must file FBAR.  But this was very hard for the client to understand and he gave us many reasons why he should not be required to file FBAR.  Let me share those reasons with you.I am not a US Citizen or Green Card Holder.  I am on H1B Visa.The United States does not have any right to know my investment in a foreign country.I declared the money when I sent it to India via Bank and therefore the US already knows about this.IRS is confused about the FBAR and has no clue about the requirements.I didn’t make any kind of money in a foreign country.Some of you may or may not agree with these reasons but all of you will love this reason.“I read online that I don’t need to file FBAR.”  This statement made me curious to find some information about FBAR online to see what others are saying and here is what I found:Comments Posted on immigrationvoice.comI think 2011 FBAR is only for the previous calendar year (2010). I doubt that IRS would go back to 2008 and check. Also you have hardly accumulated any interest for that $25K. But if you still want to be 100% compliant do it. Its just paperwork and hassle.I know another friend who has a similar situation where he deposited some funds in 2009 to pay off a loan but it sat in his account for just a week or so before it was removed. There is no intention of gaining interest…only signature authority and such cases are exempt. $25 K for a week or so won’t gain more than Rs 500 (maybe less) or so interest. If IRS wants they can have his $10 in interest.My CPA told me that having amounts like $25K or so previous to the current calendar year is irrelevant and just additional paperwork. The IRS is looking for people who have huge amounts of money sitting and accumulating interest. They are not going to chase and trouble individuals who have no intent to do money laundering or not gaining any significant interest.This is an imaginative post by some users.   I am sure his CPA won’t stand behind this statement and will never give this statement on paper.   FBAR may sound like a complex legal requirement but basics are fairly simple.   If you are a US person (regardless of your visa status), you have a foreign account with a balance of $10K or more at any given time during last year than you need to file FBAR.   If your CPA or financial advisor is telling you otherwise then you should get it in writing or email.   Even if you have this kind of advice in writing it may not protect you from penalties but it may help in avoiding the criminal penalties. I found another post that says that IRS had suspended FBAR during the year 2010. You can read it online at trackitt.comThe Internal Revenue Service has temporarily suspended the requirement to file a Report of Foreign Bank and Financial Accounts for the 2009 and earlier calendar years, for people who are not U.S. citizens, residents or domestic entities.Announcement 2010-16 temporarily suspends the requirement to file Form TD F 90-22.1, also known as the FBAR, as the IRS tries to clear up the definition of “United States person.” In addition, the IRS issued Notice 2010-23, which provides FBAR filing relief for some persons with signature authority and who own commingled funds.In October 2008, the IRS published a revised FBAR form, together with accompanying instructions, changing the definition of “United States person.” The IRS received numerous questions and comments from the public concerning the changed definition. In response, and to reduce the burden on the public, the IRS issued Announcement 2009-51, 2009-25 I.R.B. 1105, which directed people to refer to the definition of “United States person” in the July 2000 version of the FBAR instructions to determine if they had a filing obligation.Once again, this is an online post.  Do not rely on such communications unless you have personally written to IRS and got similar advice in the mail by the IRS.  Even if you receive such communication in the mail by IRS, you will still be required to file FBAR but you may not have to penalty for that specific period of time.FBAR law is much simpler than most people think.  The issue is that many US persons with accounts in foreign countries have not filed FBAR for years and now they are willing to file the FBAR but do not want to file because penalties for previous years are huge.  There is an amnesty program that can help in cleaning up the mess but you are still required to pay some penalties.We strongly recommend our readers “NOT TO DEPEND” upon online blogs and other media.   Please speak with your CPA or get written advice from the IRS.   Our bias allows us to find blog posts in our favor but we may ignore the official blogs of the CPA and IRS website for real advice.  Don’t be a victim of misinformation. This won’t protect you from penalties.Want more on FBAR? Stay tuned for a TV interview with Sanjiv Gupta on FBAR?

Will Mitt Romney (Republican) File for OVDI 2012?

Sanjiv Gupta CPA - 8 years ago
The easiest way to evade tax and pile personal savings is to tuck away money in offshore/overseas accounts. Mitt Romney, the Republican presidential candidate is currently enjoying attention for having put away his ‘vast wealth’ into overseas establishments. However it is not Romney alone, who stocks money in Swiss bank accounts, provides funds to third world countries (money laundering) and clever as he is he has allocated all asset listings to a certain omnipresent ‘Uncle Sam’.But can Romney rest in peace? Can the ‘Uncle Sam alibi’ silence his political foes and also the common mass?  This is, in fact, a warning for the others to take due notice of summons for the Tax Justice Network. TJN conceptualized by British Houses of Parliament is a research center that analyzes and reports on ‘how tax evasion on part of high net worth investors affects national economy’. In its latest report ‘The Price of Offshore revisited’ it presents a detailed study on financial assets invested in foreign fiscal centers and secrecy structures. It traced $21 trillion (a total of US and Japanese economy combined) as reserved with overseas banks.  This amount is exclusive of non-financial assets like real estate holdings, yachts & bonds, and equities, etc. if these non-cash assets are added to $21 trillion, the amount increases to $32 Trillion, TJN reports.The IRS is trying hard to convince high net worth investors to reveal detailed property holdings in order to clear tax with the US government. In fact, the IRS has designed two amnesties to encourage the investors to bring back national currency from their foreign bank accounts.  Offshore voluntary disclosure programs this year have brought in more than $5 million as taxes, interests, and penalties. Almost 33,000 taxpayers revealed their financial holdings in order to dodge criminal charges for evading taxes.The offshore voluntary disclosure endeavor is an ongoing process. Penalty charges for those that have avoided paying taxes for overseas assets have gone up by 27.5 % from 25% in last year’s program. However, the amnesty is far better for high net worth investors for it charges only a penalty fee. On the other hand, if the IRS discovers foreign assets after the amnesty period is over then they might as well confiscate all fiscal assets or might even send the investor to federal jail.

IRS Wins Foreign Account Case Over Former Mobil Senior Executive

Sanjiv Gupta CPA - 7 years ago
IRS (Internal Revenue Service) has achieved a great victory over the former Mobil senior executive Bryan Williams. He was alleged in a case of offshore tax evasion. He concealed foreign bank accounts of him holding millions from IRS.Between 1993 and 2000 this former executive opened two Swiss offshore in order to hush up his financial activities. He was also accused of purposely failing to fill out documents like foreign bank and financial account forms aka FBAR.In recent years IRS has become more stringent about the regulations. Different cases like this have prompted them to take such an action.  The authority has been petitioning for the more financial resource so that they can expand the tax evasion programs effectively. Their focus is now to catch and prosecute lawbreakers.Initially, the judgment was in favor of Williams. But in the year of 2003, Williams was convicted in a separate case. His case involved fraud and conspiracy. He pleaded guilty for this case. This year finally the fourth circuit court of appeals in Richmond, Virginia ruled in favor of the IRS (Internal Revenue Service). According to the court documents, he has committed fraud.Now IRS will impose heavy penalties on Williams for committing such a crime. He will have to pay a huge amount for each year of evasion.This is a great lesson for taxpayers. This is the high time everyone should be concerned about the consequences of such fraud. So it’s better to avoid the ways to take the help of abusive tax shelter. Going with a legal tax shelter is a quite beneficial way to reduce the taxable amount. A charitable donation is a perfect way of legal tax shelter. Apart from this, you can go for investments. Investments in real estate or health insurance are also considered as a better way of tax shelter.If you are holding an illegal foreign account, then you should stop such financial activity. Any day and any time IRS authority can accuse of doing such frauds. And the rest you know.

Avoiding FBAR By Keeping Balances Low

Sanjiv Gupta CPA - 7 years ago
One of our readers made a comment about avoiding FBAR by keeping the balance low in your foreign bank account.  I am sure many of our readers have at least thought about this scenario at one point or another and therefore I would like to discuss this question in a blog format to point out a couple of important factors. Let’s start with our reader's comment:Thanks. I got a very good understanding of FBAR with your videos. a silly question that arises in my mind is, what if I always transfer $9000 to Indian bank and immediately transfer to Parent’s bank account thus making room for another $9000. Hence avoiding “$10000 worth INR at any point in time in foreign bankHere are a few things you want to keep in mind.Number One:-According to the Department of Treasury, you must file FBAR if you have written or verbal control over a financial asset in a foreign country. So, if you are transferring the funds to your parent's account but keeping control of that account then you should file FBAR.  Although it might be a bit hard for Govt. to prove that you had control over your parent's account if you are not listed as an account holder but the law is always open to interpretation by smart attorneys of this fine nation. Number Two:An individual is only entitled to gift up to $14000 per year without having to take their lifetime estate exemption and filing the proper paperwork.   If you simply transfer $9000 to your parent's couple times than you will be required to report this as a GIFT to your parents and you must file the proper paperwork to deal with estate taxes.Please note that the year gift exemption threshold increased every year. Here are some historic figures. YearAnnual Exclusion Amount1997$10,0001998$10,0001999$10,0002000$10,0002001$10,0002002$11,0002003$11,0002004$11,0002005$11,0002006$12,0002007$12,0002008$12,0002009$13,0002010$13,0002011$13,0002012$13,0002013$14,000Number Three: Lastly, you should also consider how you will bring the money back to the US if needed.  I won’t get into this topic today but if you don’t send the money via proper disclosure than you are simply postponing the problem.  You will run into various issues at some point.The question I have for you is that why don’t we simply file the FBAR?  As discussed much time by Sanjiv, FBAR is not a tax. It is simply a disclosure requirement.Our office can file your FBAR for last year or help with filing proper documents for delinquent FBAR’s.

Employers (Dental Practices) Engaging Independent Contractors are Prone to Scrutiny

Sanjiv Gupta CPA - 7 years ago
The government acts strictly with employers who make attempts at evading taxes by resorting to unscrupulous means.  Many employers project their permanent employees as being independent contractors in order to avoid employment tax.Hiring independent contractors are legal in certain businesses and professions, provided the conditions allowing for the same are adequately satisfied.  Dentistry also falls under the same purview. The government is liable to identify and arrest any practice by an employer wherein he manipulates or misuses this provision of law with the intention of avoiding employment tax.To be considered as an independent contractor, one needs to fulfill certain conditions, so that status as an independent contractor can be defended in the court of law if the need arises.  The conditions which validate a person as a contractor require to include the ability of the person to work freely in the premises of the owner is liable to be paid by the owner for the project based on any frequency other than on an hourly basis, the person uses his own appurtenances, recruits and pays for his own employees, and has a control on the final product of the service he is giving.The person who doesn’t fulfill the stated criteria cannot be validated as an independent contractor.  Let’s consider the case of a dental specialist. He doesn’t practice on his own as an individual practitioner but works in the facility owned by some other practitioner. He is compensated for his services separately from the regular employees of the facility owner, He comes with his own team – which does not fall under the owner’s supervision – and is totally responsible for the quality of the services he provides.The owner cannot supervise his work and operates as a business entity; thus his company has signed a contract with the owner’s entity for delivering a certain service for a particular period.  The way the workers connect to the owner’s facility in terms of financial and business relations is what decides the exact status of the worker.The owner who wrongly classifies an employee as an independent contractor can be assessed for social security and medicare tax attributed to the employer. The owner can also be held responsible for the employee portion of Medicare and social security taxes.The owner can also be additionally penalized for not covering the wrongly classified employee under any benefit plans like health and retirement. An independent contractor is a self-employed individual and has certain tax obligations to be met, which are listed on the IRS website’s Self Employed Tax Centre page.Any worker that does not fulfill the criteria required of an independent contractor will be deemed as being wrongly classified by the employer. Even an associate uses the employer’s resources and his work is dirigible by the employer, keeping him out of the purview of being an independent contractor.In case of any discrepancies are proved related to the same, the onus of taking the beating would fall on the owner. There have been cases where larger firms have been penalized for classifying an employee as an independent contractor due to the inconsistencies being discovered in their terms of employment by the IRS. Such owners had been forced to pay the payroll taxes and related penalties.

The Historic US Indictment of The Swiss Wegelin Bank Lays The Foundation For Additional Cases

Sanjiv Gupta CPA - 6 years ago
Wegelin and Co. was the oldest private bank in Switzerland but they were unable to escape US indictment. They became the first non-US bank to be indicted by the US government because they facilitated tax evasion by US taxpayers. They were accused of conspiring to hide $1.2 billion dollars from the US Internal Revenue Service.A key to the case was a Wegelin correspondent account held in Connecticut at a UBS branch. These correspondent accounts are held by banks at another bank to handle the financial intuitions transactions with each other. The United States Justice Dept. alleged that the account held by Wegelin did not have that legitimate purpose.Although Wegelin did not have a physical location in the US, it used its UBS account so its United States customers could access their Swiss held funds. The Wegelin indictment alleged that millions flowed through the account to US citizens who were evading taxes. A default was entered against Wegelin and they were ordered to forfeit $16.2 million from the correspondent account.Only days before the indictment was returned, the bank was dissolved by the owners. Their operations and assets were sold to the Raiffeisen Bank in Switzerland. Wegelin now only exists to finalize United States relationships with clients and to negotiate with the United States Justice Department. The correspondent account is alleged to be used by 2 or more other Swiss banks for the same purpose.This indictment was ground-breaking for the United States. Since this case, the United States has begun to intensify the legal pressure they put on financial institutions in Switzerland. The Swiss and the Americans have not been able to reach an agreement on the disclosure of US account holders.Wegelin is said to have recruited US clients that were leaving UBS in 2008 when there was news of tax fraud at USB. Wegelin saw this as a great business opportunity. Managers were instructed to approach customers and tell them about an alternative that was safe for tax evaders.In late 2011, Wegelin did not take any more new customers from the US but it was too late by then to avoid the Justice Department’s scrutiny. Their illegal conduct became apparent when the IRS put forth the Offshore Voluntary Disclosure Initiative.The smaller banks in Switzerland are still not affected by United States enforcement efforts. However, the United States can target any Swiss banks with correspondent accounts in the US. There are many jurisdictional issues that still have to be answered.

Streamlined Domestic Offshore Procedures (SDOP) – The New Game Changer

Sanjiv Gupta CPA - 6 years ago
On June 18, 2014, the Internal Revenue Service announced SDOP (Streamlined Domestic Offshore Procedures), which will change offshore disclosure programs significantly. The SDOP changes the game for both non-resident and resident taxpayers. The IRS claims that the new changes will help ease the burden for taxpayers who have failed to report to the United States government certain foreign financial accounts and pay the taxes on the income that is associated with their non-compliance.What Is The Difference Between The SDOP And The Current OVDP program?The Streamlined Offshore Procedures loosens the restrictions of the old rules and rewards taxpayers that disclose their offshore assets with a lower penalty and a minimal tax. Taxpayers will only have to file 3 years of amended income tax returns instead of the current OVDP program’s requirement of 8 years of amended income tax returns. They will be assessed a penalty of only 5% of the account with the highest balance instead of the OVDP program’s 27.5% penalty.In addition, the SDOP radically and significantly expands the previous Streamlined Program for Non-US residents which was only for non-tax filers with under $1,500 of income that was unreported.SDOP Filing Risk FactorsIt is extremely important that a taxpayer’s eligibility is carefully analyzed because once the SDOP is elected and the taxpayer claims the violations were non-willful, the taxpayer will not be eligible for the OVDP any longer. There are possible risk factors that need to be considered and analyzed such as the evidence of willfulness including the intent of laws, knowledge, and violations.Although filing an SDOP does not automatically select the taxpayer for an IRS audit, the taxpayers are still subject to the possible normal audit selection. The taxpayer needs to be prepared to defend filing an SDOP and be able to demonstrate their non-willfulness and show there was no fraud.What Should Be Included In A SDOP Filing Submission?A Streamlined Offshore Procedure filing must include:3 previous years of amended U.S. tax returns. “Streamline Domestic Offshore” needs to write in red, which will indicate the tax returns are being filed under the Streamline Domestic Offshore Procedures.The IRS form “Certification by US Person Residing in the US for Streamlined Domestic Offshore Procedures” must be fully executed. The Internal Revenue service asks you for specific reasons that you failed to report all of your income and pay the required taxes. They also require you submit the required tax returns including FBAR’s. This document should be drafted by a qualified and experienced lawyer or CPA based on your individual situation.Payment of the full amount of all Interest and tax due in connection with tax filings.The misc. the offshore penalty of 5%.You need to include a statement that your FBAR’s are being filed via the online FinCen web portal.SDOP EligibilityBoth resident and non-resident U.S. taxpayers are eligible for the Streamlined Domestic Offshore Procedures. In the past, only taxpayers that lived outside of the United States were eligible. A taxpayer is not eligible for SDOP if the Internal Revenue Service has already initiated an examination of their tax returns for an eligible year.The Streamlined Domestic Offshore Procedures should persuade more taxpayers to voluntarily come forward through one of the IRS’s programs if they are not in compliance. Only time will tell how the IRS will generally review the applications or how they will determine whether the taxpayer’s non-compliance was non-willful.

Don't Forget About FBAR This Tax Year

Sanjiv Gupta CPA - 6 years ago
Although FBAR is not due for another six months but we want to remind you to keep FBAR in mind.  Also consider filing the tax return in India if you had any income during 2013. Here are the basics of FBAR:What Is FBAR?The Foreign Bank Account Report is also known as its acronym FBAR. It is an annual report used by Americans that is filed with the U.S. Treasury to report the existence of both foreign bank accounts and any other financial accounts that are held abroad. The Treasury Department Form 90-22.1, Report of Foreign Bank and Financial Accounts is required to be filled out by anyone that has had $10,000 or more that was held in a foreign account at any point in the prior calendar year.Who Must File A FBAR?The Foreign Bank Account Report is required to be filed by U.S citizens, U.S. residents, estates or trusts that were formed under United States laws and entities including partnerships, corporations, limited liability companies or any other entity that was organized or created under United States laws or in the United States.FBAR will be required to be filled out if you have signature authority or financial interest in a foreign financial account which includes a bank account, mutual fund, trust, brokerage account or any other type of foreign financial account if they exceed the $10,000 threshold. The Secretary Act requires that you file the Report of Foreign Bank and Financial Accounts on a yearly basis.Reporting InformationEven if the account did not produce any taxable income during the year, a person may still have an obligation to report the financial account. To meet the reporting obligation, specific questions on your tax return regarding foreign accounts must be answered and the Foreign Bank Account Report must be filed.The FBAR needs to be filed yearly with the Department of Treasury. The deadline is June 30th the year that follows the reported calendar year. Normally an extension of time for FBAR filings will not be granted. It is important to understand that the FBAR should not be filed with the federal tax return. Additionally, an extension of time for filing a tax return that is granted by the IRS is not extended to the FBAR’s filing deadline.A person or entity that fails to file a correct and complete Foreign Bank Account Report when required to do so could be subject to a civil penalty up to $10,000 for each violation if they are not due to a reasonable cause. An example of a reasonable cause would be natural disasters.In addition to the FBAR, a U.S. taxpayer who holds foreign financial assets could also have to file a form with the IRS. These assets need to be filed with the income tax return using Form 8938, Statement of Specified Foreign Financial Assets. The IRS has reopened its Offshore Voluntary Disclosure Program which offers an opportunity for taxpayers to resolve any information and tax reporting obligations for unreported taxable income includes the FBAR. Even though there is no official end date, the Internal Revenue Service can end the Offshore Voluntary Disclosure Program at any time.Reporting Requirement ExceptionsThere are some exceptions to the Foreign Bank Account Report reporting requirements for certain financial accounts, U.S. citizens, U.S. residents, entities, trusts, and estates. Exceptions include: Some foreign financial accounts that are jointly owned by spousesCorrespondent/Nostro accountsTaxpayers that are included in a consolidated FBARForeign financial accounts that are owned by an international financial institutionForeign financial accounts that are owned by a government entityIRA beneficiaries and ownersBeneficiaries and participants of tax-qualified retirement plansSome individuals that have the signature authority of a financial account but no financial interestTrust beneficiaries if the account has been reported on an FBAR filed on behalf of the beneficiariesAny foreign financial accounts that are maintained in a U.S. military banking facilityFor further information about all of the reporting requirements and exceptions, carefully review the FBAR instructions.

The Tax Liabilities For Business Ventures in The USA

Sanjiv Gupta CPA - 5 years ago
Business ventures can thrive in the land of promise (USA) reasonably well provided they do not default on their obligation of tax towards the federal government. The business that employs people is responsible not only towards what they pay for their employees, in addition, they have to take responsibility for the society for its social welfare schemes, the healthcare of the elderly in the society and also the medical facilities for their own employees. By means of tax reduction at the source of the pay of the employees, the employers withhold a certain percentage in the pay-roll amount. This income is taxable and there are cases where proper reporting has not been there. To avoid having to face hassles in the form of the IRS (internal revenue service), stringent measures and punishment; employers are required to comply with the payroll taxes.Some employers instead of remitting the payroll taxes use that amount for funding their companies’ requirements or for rotation of funds as quick-fix measures to address the shortage of cash. This may be due to the high rent and business not up to the expectations. This willful noncompliance, in the long run, leads to heavy damage for non-disclosure and willful abetment of tax law. Criminal proceedings may also be instigated for such offenses.It is mandatory for employers to withhold a certain amount from the employees and submit the details to the IRS and based on this the pay-roll taxes are computed. They are obliged to submit the details of their employees and their pay-roll periodically. Employers are required to file the reports of the payroll on a quarterly basis in the states and annually to the federal government. Failure to remit the payroll tax will invite a penalty or 2 -10%. The IRS is a long-handed arm of the government that can punish both the employee and employer when they discover the default in payroll taxes.Just as the FBAR is the long-handed arm to check the proliferation of unaccounted money in foreign banks similarly the IRS is the arm working with the country.Any business whether small or big should work in tandem with the government authorities to iron out their differences and if in case of appeal they can always take it to the office of appeal for reversal. The ways in which tax evasion can happen areOmission and understatement of incomeImproper deduction and fictitious deductionsFalse information of employeesImproper allocation of incomeAny responsible business venture should approach a tax consultant and see to it that their business does not undergo stress with tax evasions and non-reporting. Know all the details of tax law! Become the master of your own business with the right input of running the business, with the proper input of managing the business- coupled with proper reporting to the tax authorities and be a good employer who inspires the employees to remain steadfast and innovate in their field.

Evaluate the Repercussions of Non Disclosure and Make a Speedy Effort and Comply with The Tax Through SFOP

Sanjiv Gupta CPA - 5 years ago
Every individual or a small concern or a big company has to comply with the financial obligation of filing the tax due to the government. Any institution can hope to flourish only if they act in consonance with their duty as a responsible citizen of a country/state, which has allowed them to function on their soil, to do business with their people and earn well. Tax procedures have been updated as per the requirements of the times and now the new IRA has come into force there is more trouble for people who willfully default on tax payments.The government has introduced the streamlined domestic offshore procedure (SDOP) and the streamlined foreign offshore procedures (SFOP) to bring into the net of tax all those people who have not fulfilled the responsibility of tax payment for a period of time. The term ‘willfulness’ has assumed importance in that there is a chance of opting for SDOP or SFOP if the error in not filing is not due to willfulness in not reporting the asset or earnings through foreign assets. With the dictum ‘better late than never’ all citizens who have a stake in the country as citizens either with assets or earnings held within the country or outside, are duty-bound to pay all the taxes due for all the missed years even if it involves penalties of 5% as given. In fact, SDOP and SFOP have the procedures to soften the impact of the repercussions of negligence.FBAR is the reporting of the Foreign Bank Account Reporting. Many Americans are earning in different areas both within the country and outside, the result is they have accounts in banks wherever they run their business outside the country. The government has brought in the provision of FBAR to show that all citizens who have been earning through these in the form of bonds and assets and business earnings should report the same and comply with the tax as per value. In fact just by compliance with tax regulation whether with stakes within the country or outside it is possible to use our time for genuine business instead of watering down the progress through nondisclosures of earnings. The following are considered as foreign assets:Financial accounts in foreign institutionsFinancial accounts of a US institution in a foreign countryForeign stocks and securitiesForeign mutual fundsPrivate equity funds or hedge funds of foreign countriesDepending on which of these categories a person falls in he has to take the time to evaluate the repercussions of nondisclosure and make a speedy effort and comply with the tax through SFOP and for this make it a point to meet the tax consultant.

RBI Guidelines | Acquisition and Transfer of Immovable Property in India

Sanjiv Gupta CPA - 6 years ago
You may have heard Sanjiv talk about RBI Guidelines on Radio or at the Live Events. What are those RBI Guidelines? Who is impacted by those guidelines?Acquisition and Transfer of Immovable Property in India By Reserve Bank of India – You can get the complete RBI Guideline here.(updated as on July 2, 2012)IntroductionAcquisition of immovable property in India by persons resident outside India (foreign national) is regulated in terms of section 6 (3) (i) of the Foreign Exchange Management Act (FEMA), 1999 as well as by the regulations contained in the Notification No. FEMA 21/2000-RB dated May 3, 2000, as amended from time to time. Section 2 (v) and Section 2 (w) of FEMA, 1999 defines `person resident in India’ and a `person resident outside India’, respectively. A person resident outside India is categorized as Non- Resident Indian (NRI) or a foreign national of Indian Origin (PIO) or a foreign national of non-Indian origin. The Reserve Bank does not determine the residential status. Under FEMA, residential status is determined by the operation of law. The onus is on an individual to prove his / her residential status if questioned by any authority.A person resident in India who is not a citizen of India is also covered by the relevant Notifications.2. In terms of the provisions of Section 6(5) of FEMA 1999, a person resident outside India can hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was a resident in India or inherited from a person who was a resident in India.3. The regulations under Notification No. FEMA 21/2000-RB dated May 3, 2000, as amended from time to time, permit an NRI or a PIO to acquire immovable property in India, other than agricultural land or, plantation property or farmhouse. Further, foreign companies who have been permitted to open a Branch or Project Office in India are also allowed to acquire any immovable property in India, which is necessary for or incidental to carrying on such activity. Such dispensation is however not available to entities that are permitted to open liaison offices in India.4. The restrictions on acquiring immovable property in India by a person resident outside India would not apply where the immovable property is proposed to be acquired by way of a lease for a period not exceeding 5 years or where a person is deemed to be resident in India.In order to be deemed to be a person resident in India, from the FEMA angle, the person would need to comply with the provisions of Section 2(v) of FEMA 1999. The Press Release dated February 1, 2009, issued by the Government of India in this regard is enclosed as Annex.Note: Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan cannot acquire or transfer immovable property in India, (other than on lease not exceeding five years) without the prior permission of the Reserve Bank.5. NRIs/ PIOs are allowed to repatriate an amount up to USD one million, per financial year (April-March), out of the balances held in the Non-Resident (Ordinary) Rupee (NRO) account, subject to compliance with applicable tax requirements. This amount includes sale proceeds of assets acquired by way of inheritance or settlement.6. The FAQs cover the following topics :A. Acquisition of Immovable Property in India by a person resident outside India, i.e., by an NRI / PIO / foreign national of non-Indian origin by way of purchase/gift/inheritance.B. Transfer of immovable property in India by a person resident outside India by way ofi) saleii) giftiii) mortgageC. Mode of payment for the purchase of immovable property in India.D. Repatriation of sale proceeds of residential/commercial property, in India, outside India acquired by NRI / PIO by way ofi) purchasedii) giftiii) inheritanceE. Provisions for Foreign Embassies / Diplomats / Consulates GeneralF. Other Aspects.A. Acquisition of Immovable Property in India throughpurchase/gift/ inheritanceQ.1. Who can purchase immovable property in India?Ans. Under the general permission available, the following categories can purchase immovable property in India:i) Non-Resident Indian (NRI)1[1][1][1]ii) Person of Indian Origin (PIO)2[2][2]The general permission, however, covers only the purchase of residential and commercial property and is not available for the purchase of agricultural land/plantation property/farm house in India.Q.2. Can NRI/PIO acquire agricultural land/ plantation property / farm house in India?Ans. No.Q.3. Are any documents required to be filed with the Reserve Bank after the purchase?Ans. No. An NRI / PIO who has purchased residential/commercial property under general permission is not required to file any documents/reports with the Reserve Bank.Q.4. How many residential / commercial properties can NRI / PIO purchase under the general permission?Ans. There are no restrictions on the number of residential/commercial properties that can be purchased.Q.5. Can a foreign national of non-Indian origin be a second holder to immovable property purchased by NRI / PIO?Ans. No.Q.6. Can a foreign national of non-Indian origin resident outside India purchase immovable property in India?Ans. No. A foreign national of non-Indian origin, resident outside India cannot purchase any immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India. However, he/she can acquire or transfer immovable property in India, on the lease, not exceeding five years. In such cases, there is no requirement of taking any permission of /or reporting to the Reserve Bank.Q.7. Can a foreign national who is a person resident in India purchase immovable property in India?Ans. Yes, a foreign national who is a ‘person resident in India’ within the meaning of Section 2(v) of FEMA, 1999 can purchase immovable property in India, but the person concerned would have to obtain the approvals and fulfill the requirements, if any, prescribed by other authorities, such as, the State Government concerned, etc. The onus to prove his/her residential status is on the individual as per the extant FEMA provisions, if required by any authority. However, a foreign national resident in India who is a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan would require prior approval of the Reserve Bank.Q.8. Can the branch/liaison office of a foreign company purchase immovable property in India?Ans. A foreign company which has established a Branch Office or other place of business in India, in accordance with the Foreign Exchange Management (Establishment in India of Branch or Office or other Place of Business) Regulations, 2000, can acquire any immovable property in India, which is necessary for or incidental to carrying on such activity. The payment for acquiring such a property should be made by way of foreign inward remittance through the proper banking channels. A declaration in form IPI should be filed with the Reserve Bank within ninety days from the date of acquiring the property. Such a property can also be mortgaged with an Authorised Dealer as a security for the purpose of borrowings. On winding up of the business, the sale proceeds of such property can be repatriated only with the prior approval of the Reserve Bank. Further, acquisition of immovable property by entities incorporated in Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan and who have set up Branch Offices in India and would require prior approval of the Reserve Bank.However, if the foreign company has established a Liaison Office in India, it cannot acquire immovable property. In such cases, Liaison Offices can acquire property by way of lease not exceeding 5 years.Q.9. Can an NRI/PIO acquire immovable property in India by way of gift? Cana foreign national acquire immovable property in India by way of gift?Ans. (a) Yes, NRIs and PIOs can freely acquire immovable property by way of gift either fromi) a person resident in India; orii) an NRI; oriii) a PIO.However, the property can only be commercial or residential in nature. Agricultural land/plantation property/farm house in India cannot be acquired by way of gift.(b) A foreign national of non-Indian origin resident outside India cannot acquire any immovable property in India by way of gift.Q.10. Can a non-resident inherit immovable property in India?Ans. Yes, a person resident outside India i.e. i) an NRI; ii) a PIO, and iii) a foreign national of non-Indian origin can inherit and hold immovable property in India from a person who was resident in India.Q.11. From whom can a non-resident person inherit immovable property?Ans. A person resident outside India (i.e. NRI or PIO or foreign national of non-Indian origin) can inherit immovable property from(a) a person resident in India(b) a person resident outside IndiaHowever, the person from whom the property is inherited should have acquired the same in accordance with the foreign exchange law in force or FEMA regulations, applicable at the time of acquisition of the property.B. Transfer of immovable property in India(i) Transfer by way of saleQ.12. Can an NRI/ PIO/foreign national sell his residential/commercial property?Ans. (a) NRI can sell property in India toi) a person resident in India; orii) an NRI; oriii) a PIO.(b) PIO can sell property in India toi) a person resident in India; orii) an NRI; oriii) a PIO – with the prior approval of the Reserve Bank(c) Foreign national of non-Indian origin including a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan can sell property in India with prior approval of the Reserve Bank toi) a person resident in Indiaii) an NRIiii) a PIOQ.13. Can a non-resident owning/holding an agricultural land / a plantation property / a farmhouse in India sell the said property?Ans. (a) NRI / PIO may sell agricultural land /plantation property/farmhouse to a person resident in India who is a citizen of India.(b) Foreign national of non-Indian origin resident outside India would need prior approval of the Reserve Bank to sell agricultural land/plantation property/ farm house in India.(ii) Transfer by way of giftQ.14. Can a non-resident gift his residential/commercial property?Ans. Yes.(a) NRI / PIO may gift residential/commercial property to –(i) a person resident in India or(ii) an NRI or(iii) PIO.(b) A foreign national of non-Indian origin requires the prior approval of the Reserve Bank for gifting the residential/commercial property.Q.15. Can an NRI / PIO / foreign national holding an agricultural land / a plantation property / a farmhouse in India, gift the same?Ans. (a) NRI / PIO can gift an agricultural land / a plantation property / a farmhouse in India only to a person resident in India who is a citizen of India.(b) A foreign national of non-Indian origin would require the prior approval of the Reserve Bank to gift an agricultural land / a plantation property / a farmhouse in India.(iii) Transfer through mortgageQ.16. Can residential/commercial property be mortgaged by NRI/ PIO?Ans. i) NRI / PIO can mortgage a residential/commercial property to:(a) an Authorised Dealer / the housing finance institution in India without the approval of Reserve Bank(b) a bank abroad, with the prior approval of the Reserve Bank.ii) A foreign national of non-Indian origin can mortgage a residential/commercial property only with prior approval of the Reserve Bank.iii) A foreign company which has established a Branch Office or other place of business in accordance with FERA/FEMA regulations has general permission to mortgage the property with an Authorised Dealer in India.C. Mode of payment for the purchase of immovable property in India.Q.17. How can an NRI / PIO make payment for the purchase of residential/commercial property in India?Ans. Payment can be made by NRI / PIO out of:(a) funds remitted to India through normal banking channels or(b) funds held in NRE / FCNR (B) / NRO account maintained in IndiaNo payment can be made either by traveler’s cheque or by foreign currency notes or by other modes except those specifically mentioned above.Q.18 Is repatriation of application money for booking of flat/payment made to the builder by NRI/ PIO allowed when the flat or plot is not allotted or the booking/contract is canceled?Ans. The Authorised Dealers can allow NRIs / PIOs to credit refund of application/ earnest money/ purchase consideration made by the house building agencies/ seller on account of non-allotment of flat/ plot/ cancellation of bookings/ deals for purchase of residential, commercial property, together with interest if any, net of income tax payable thereon, to NRE/FCNR account, provided, the original payment was made out of NRE/FCNR account of the account holder or remittance from outside India through normal banking channels and the Authorised Dealer is satisfied with the genuineness of the transaction.Q.19. Can NRI / PIO avail of loan from an authorized dealer for acquiring flat / house in India for his own residential use against the security of funds held in his NRE Fixed Deposit account / FCNR (B) account? How the loan can be repaid?Ans. Yes, such loans are permitted subject to the terms and conditions laid down in Schedules 1 and 2 to the Notification No. FEMA 5/2000-RB dated May 3, 2000, viz. Foreign Exchange Management (Deposit) Regulations, 2000, as amended from time to time. Banks cannot grant fresh loans or renew existing loans in excess of Rs. 100 lakhs against NRE and FCNR (B) deposits, either to the depositors or to third parties. The banks should also not undertake artificial slicing of the loan amount to circumvent the ceiling of Rs. 100 lakh.Such loans can be repaid in the following manner:(a) by way of inward remittance through normal banking channel or(b) by debit to the NRE / FCNR (B) / NRO account of the NRI/ PIO or(c) out of rental income from such property(d) by the borrower’s close relatives, as defined in section 6 of the Companies Act, 1956, through their account in India by crediting the borrower’s loan account.Q.20. Can NRI / PIO, avail of housing loan in Rupees from an Authorised Dealer or a Housing Finance Institution in India approved by the National Housing Bank for purchase of residential accommodation or for the purpose of repairs/renovation/improvement of residential accommodation? How can such a loan be repaid?Ans. Yes, NRI/PIO can avail of housing loan in Rupees from an Authorised Dealer or a Housing Finance Institution subject to certain terms and conditions laid down in Regulation 8 of Notification No. FEMA 4/2000-RB dated May 3, 2000, viz. Foreign Exchange Management (Borrowing and lending in rupees) Regulations, 2000, as amended from time to time. Authorized Dealers/ Housing Finance Institutions can also lend to the NRIs/ PIOs for the purpose of repairs/renovation/ improvement of residential accommodation owned by them in India. Such a loan can be repaid (a) by way of inward remittance through normal banking channel or (b) by debit to the NRE / FCNR (B) / NRO account of the NRI / PIO or (c) out of rental income from such property; or (d) by the borrower’s close relatives, as defined in section 6 of the Companies Act, 1956, through their account in India by crediting the borrower’s loan account.Q.21. Can NRI/PIO avail of housing loan in Rupees from his employer in India?Ans. Yes, subject to certain terms and conditions are given in Regulation 8A of Notification No. FEMA 4/2000-RB dated May 3, 2000, and A.P. (DIR Series) Circular No.27 dated October 10, 2003, i.e.,(i) The loan shall be granted only for personal purposes including the purchase of housing property in India;(ii) The loan shall be granted in accordance with the lender’s Staff Welfare Scheme/Staff Housing Loan Scheme and subject to other terms and conditions applicable to its staff resident in India;(iii) The lender shall ensure that the loan amount is not used for the purposes specified in sub-clauses (i) to (iv) of clause (1) and in clause (2) of Regulation 6 of Notification No.FEMA.4/2000-RB dated May 3, 2000.(iv) The lender shall credit the loan amount to the borrower’s NRO account in India or shall ensure credit to such account by specific indication on the payment instrument;(v) The loan agreement shall specify that the repayment of loan shall be by way of remittance from outside India or by debit to NRE/NRO/FCNR Account of the borrower and the lender shall not accept repayment by any other means.D. Repatriation of sale proceeds of residential/commercial propertypurchased by NRI / PIOQ.22. Can NRI / PIO repatriate outside India the sale proceeds of immovable property held in India?Ans.(a) In the event of sale of immovable property other than agricultural land/farmhouse/plantation property in India by an NRI / PIO, the Authorised Dealer may allow repatriation of the sale proceeds outside India, provided the following conditions are satisfied, namely:(i) the immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations;(ii) the amount to be repatriated does not exceed:· the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels, or· the amount paid out of funds held in Foreign Currency Non-Resident Account, or· the foreign currency equivalent (as on the date of payment) of the amount paid where such payment was made from the funds held in Non-Resident External account for acquisition of the property; and(iii) in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.For this purpose, repatriation outside India means the buying or drawing of foreign exchange from an authorized dealer in India and remitting it outside India through normal banking channels or crediting it to an account denominated in foreign currency or to an account in Indian currency maintained with an authorized dealer from which it can be converted in foreign currency.(b) in case the property is acquired out of Rupee resources and/or the loan is repaid by close relatives in India (as defined in Section 6 of the Companies Act, 1956), the amount can be credited to the NRO account of the NRI/PIO. The number of capital gains, if any, arising out of the sale of the property can also be credited to the NRO account.NRI/PIO are also allowed by the Authorised Dealers to repatriate an amount up to USD 1 million per financial year out of the balance in the NRO account/sale proceeds of assets by way of purchase / the assets in India acquired by him by way of inheritance/legacy. This is subject to production of documentary evidence in support of acquisition, inheritance or legacy of assets by the remitter, and a tax clearance / no objection certificate from the Income Tax Authority for the remittance. Remittances exceeding US $ 1,000,000 (US Dollar One million only) in any financial year requires prior permission of the Reserve Bank.(c) A person referred to in sub-section (5) of Section 6 of the Foreign Exchange Management Act 3[3][3], or his successor shall not, except with the prior permission of the Reserve Bank, repatriate outside India the sale proceeds of any immovable property referred to in that sub-section.Q.23. Can an NRI/PIO repatriate the proceeds in case the sale proceeds were deposited in the NRO account?Ans. Please refer to the answer at Q.22 above. NRI/PIO may repatriate up to USD one million per financial year (April-March) from their NRO account which would also include the sale proceeds of immovable property. There is no lock-in period for sale of immovable property and repatriation of sale proceeds outside India.Q.24. If a Rupee loan was taken by the NRI/ PIO from an Authorised Dealer or a Housing Finance Institution for purchase of the residential property can the NRI / PIO repatriate the sale proceeds of such property?Ans. Yes, Authorised Dealers have been authorized to allow repatriation of sale proceeds of residential accommodation purchased by NRIs/ PIOs out of funds raised by them by way of loans from the authorized dealers/ housing finance institutions to the extent such loan/s repaid by them are out of the foreign inward remittances received through normal banking channel or by debit to their NRE/FCNR accounts. The balance amount, if any, can be credited to their NRO account and the NRI/PIO may repatriate up to USD one million per financial year (April-March) subject to payment of applicable taxes from their NRO account balances which would also include the sale proceeds of the immovable property.Q.25. If the immovable property was acquired by way of gift by the NRI/PIO, can he repatriate abroad the funds from the sale of such property?Ans. The sale proceeds of immovable property acquired by way of gift should be credited to the NRO account only. From the balance in the NRO account, NRI/PIO may remit up to USD one million, per financial year, subject to the satisfaction of Authorised Dealer and payment of applicable taxes.Q.26. If the immovable property was received as inheritance by the NRI/PIO can he repatriate the sale proceeds?Ans. Yes, general permission is available to the NRIs/PIO to repatriate the sale proceeds of the immovable property inherited from a person resident in India subject to the following conditions:(i) The amount should not exceed USD one million, per financial year (ii) This is subject to production of documentary evidence in support of acquisition/inheritance of assets and an undertaking by the remitter and certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes vide their Circular No.4/2009 dated June 29, 2009 (iii) In cases of deed of settlement made by either of his parents or a close relative (as defined in section 6 of the Companies Act, 1956) and the settlement taking effect on the death of the settler (iv) the original deed of settlement and a tax clearance / No Objection Certificate from the Income-Tax Authority should be produced for the remittance (v) Where the remittance as above is made in more than one installment, the remittance of all such installments shall be made through the same Authorised Dealer (vi) In case of a foreign national, sale proceeds can be repatriated if the property is inherited from a person resident outside India with the prior approval of the Reserve Bank. The foreign national has to approach the Reserve Bank with documentary evidence in support of inheritance of the immovable property and the undertaking and the C.A. Certificate mentioned above.The general permission for repatriation of sale proceeds of immovable property is not available to a citizen of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan and Iran and he has to seek specific approval of the Reserve Bank.FEMA, 1999 specifically permits transactions only in Indian Rupees with citizens of Nepal and Bhutan. Therefore, the question of repatriation of the sale proceeds in foreign exchange to Nepal and Bhutan would not arise.E. Provisions for Foreign Embassies / Diplomats / Consulates GeneralQ.27. Can Foreign Embassies / Diplomats / Consulates General purchase / sell immovable property in India?Ans. In terms of Regulation 5A of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations 2000, Foreign Embassies/ Diplomats/ Consulates General may purchase/ sell immovable property (other than agricultural land/ plantation property/ farm house) in India provided –(i) Clearance from the Government of India, Ministry of External Affairs has been obtained for such purchase/sale; and(ii) The consideration for the acquisition of immovable property in India is paid out of funds remitted from abroad through the normal banking channels.F. Other AspectsQ.28. Can NRI / PIO rent out the residential/commercial property purchased out of foreign exchange/rupee funds?Ans. Yes, NRI/PIO can rent out the property without the approval of the Reserve Bank. The rent received can be credited to NRO / NRE account or remitted abroad. Powers have been delegated to the Authorised Dealers to allow repatriation of current income like rent, dividend, pension, interest, etc. of NRIs/PIO who do not maintain an NRO account in India based on an appropriate certification by a Chartered Accountant, certifying that the amount proposed to be remitted is eligible for remittance and that applicable taxes have been paid/provided for.Q.29. Can a person who had bought immovable property, when he was a resident, continue to hold such property even after becoming an NRI/PIO? In which account can the sale proceeds of such immovable property be credited?Ans. Yes, a person who had bought the residential/commercial property / agricultural land/ plantation property/farm house in India when he was a resident, continue to hold the immovable property without the approval of the Reserve Bank even after becoming an NRI/PIO. The sale proceeds may be credited to the NRO account of the NRI /PIO.Q.30. Can the sale proceeds of the immovable property refer to in Q.No. 29 be remitted abroad?Ans. Yes, From the balance in the NRO account, NRI/PIO may remit up to USD one million, per financial year, subject to the satisfaction of Authorised Dealer and payment of applicable taxes.Q.31. Can foreign nationals of non-Indian origin resident in India or outside India who had earlier acquired immovable property under FERA with specific approval of the Reserve Bank continue to hold the same? Can they transfer such property?Ans. Yes, they may continue to hold the immovable property under holding a license obtained from the Reserve Bank. However, they can transfer the property only with the prior approval of the Reserve Bank.Q.32. Is a resident in India governed by the provisions of the Foreign Exchange Management (Acquisition and transfer of immovable property in India) Regulations, 2000?Ans. A person resident in India who is a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan is governed by the provisions of Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000, as amended from time to time, i.e. she/he would require prior approval of the Reserve Bank for acquisition and transfer of immovable property in India even though she/he is resident in India. Such requests are considered by the Reserve Bank in consultation with the Government in India.The citizens of countries other than those listed above can be PIOs who are covered under the general permission (please refer to Q.No.1). The provisions relating to foreign national of non-Indian origin are covered in detail in Q Nos. 6 and 7.Note:The relevant regulations covering the transactions in the immovable property have been notified vide RBI Notification No. FEMA 21/2000-RB dated May 3, 2000, and this basic notification have been subsequently amended by the notifications detailed below:i) Notification No.FEMA 64/2002-RB dated June 29, 2002;ii) Notification No.FEMA 65/2002-RB dated June 29, 2002;iii) Notification No.FEMA 93/2003-RB dated June 9, 2003;iv) Notification No. FEMA 146/2006-RB dated February 10, 2006, read with A.P.(DIR Series) Circular No. 5 dated 16.8.2006; andv) Notification No. FEMA 200/2009-RB dated October 5, 2009All the above notifications and A.P. (DIR Series) Circulars are available on the RBI website: www.fema.rbi.org.in. The Master Circular on Acquisition and Transfer of Immovable Property in India by NRIs/PIOs/Foreign Nationals of Non-Indian Origin is also available on the website under the link “www.rbi.org.in ® Sitemap ® Master Circulars”.1 [1][1] Non-Resident Indian (NRI) is a citizen of India resident outside India.2 [2][2] A ‘Person of Indian Origin’ means an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan) whoat any time, held an Indian Passport orwho or either of whose father or mother or whose grandfather or grandmother was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).3 [3][3] A person resident outside India may hold, own, transfer or invest in Indian currency, security or immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.

FBAR Filings Are Electronic This Year

Sanjiv Gupta CPA - 6 years ago
Major Change to FBAR This Year – It's ElectronicFBAR has become a great revenue source for the US Govt. in the last few years.  Although there is no tax revenue that is generated directly from the FBAR filings FBAR does bring much-needed transparency and makes it very hard for people to hide income/assets in foreign countries.This year the US Govt is becoming more serious about FBAR and making its grip even stronger by asking all filers to use the new electronic system.  This new system will make the analysis of the FBAR filings much easier and much faster.  The Department of Treasury will be able to identify the red flags and take swift actions.  I have a feeling that the system might be already tied up with the IRS and may find unreported foreign income and can also flag individuals who might have not filed the FBAR in previous years.Will you file FBAR this year?If yes then I suggest that you are extremely careful with numbers.  Depending upon the dollar amount of your reporting you will be asked a different set of questions.  You should carefully understand each question before filling in the data.  Not all income/assets need to be reported in the FBAR filings.  Over declaring your assets/income can be as troublesome as not declaring or not filing FBAR.I can suggest a couple of things to ensure the compliant filing of your FBAR this year.A.) Print detailed instructions of the FBAR forms (There are different forms based upon your earnings).   Carefully read each form and understand what kind of data needs to report.  If you are not 100% sure then you may write to the Department of Treasury for clarification.  Do not rely on the verbal explanation as that may not be sufficient in case of a future audit.B.) Consult with your Tax Professional who has experience in foreign taxes and the US taxes.  I recommend that you set up a consultation appointment to discuss your international affairs.  This will allow you to clearly understand the rules and remove any ambiguity.You can also have your tax professional file the FBAR.  They will also have to do it electronically but you will have some peace of mind that it got done right.Still confused – Join our upcoming webinar about FBARThere is a special perk for joining our FBAR webinar – you can win a free pair of tickets to the marine world 6 flags.

FBAR: Who Should File?

Sanjiv Gupta CPA - 3 years ago
Under the American tax law, if you are a U.S. citizen who has either signature authority over or financial interest in any foreign financial account, you are required to report your account annually to the Department of Treasury via electronic filing.May your foreign financial account by a bank account, trust, or mutual fund, you have the obligation to file both the Financial Crimes Enforcement Network (FinCEN) 114 and Report of Foreign Bank and Financial Accounts (FBAR).Unfortunately, many U.S. citizens are not very familiar with the FBAR so before they know it, the U.S. government is already there to go after them and their penalties have already piled up.Cases of U.S. citizens residing outside the U.S. were up the creek for not filing their FBARs are rampant these days, thanks to these people’s ignorance of the law. But since ignorance of the law excuses no one, you can’t just say no one told you about this FBAR thing and expect to be absolved at the end of the day.Case in PointRecently, a U.S.-Canadian citizen was in trouble for failure to file his Report of Foreign Bank and Financial Accounts (FBAR).Jeffrey Pomerantz, a dual citizen who currently resides in Vancouver, Canada, is now being sued by the U.S. Justice Department for failing to file to the U.S. government his FBAR. The department filed the case in the U.S. District Court in Seattle and is now seeking civil and late payment penalties amounting to $860,300.While Pomerantz filed his income tax returns to both the Canada Revenue Agency (CRA) and Internal Revenue Service (IRS) in 2007, 2008 and 2009 he failed to file the other form known as the FBAR.According to Toronto-based lawyer Hari Nesathurai, the past couple of years have seen an increase in cases of Canadian residents being chased by the U.S. government for failing to file their FBAR reports. The lawyer said FBAR is a problem for many Canadian residents who are subject to U.S. tax laws because they do not realize that even a Registered Retirement Savings Plan (RRSP) calls for disclosure.“Many people don’t realize that and it’s troubling because it’s a penalty which applies on a non-disclosure even though there may be no tax payable,” he said, adding that the FBAR is particularly a major concern among Americans and U.S. citizens or green card holders who do not fully understand their reporting obligations.Going back to Pomerantz’s case, the lawsuit against him filed in May 2016 indicates that the events that led to the U.S. government chasing him for his failure to file his FBAR seem to have begun in 2010 with an audit, which is now before a different court.The lawsuit reveals that even before the income tax examination commenced, Pomerantz had already failed to file a Treasury Form TD F 90-22.1 (FBAR) for the three years in question to offer disclosure of his existing foreign accounts. However, the U.S. Justice Department said Pomerantz opened at least two personal checking accounts at the Canadian Imperial Bank of Commerce prior to Jan. 1, 2001, and both accounts were active from 2007 to 2009.The Justice Department also said in 2003, Pomerantz established a corporation in the Turks and Caicos Islands named Chafford Ltd., which held his personal investments. That same year, he also opened three bank accounts in Sal Oppenheim JR & Cie in Switzerland, and in 2007, he opened two more accounts in the same country and the same bank.The lawsuit also reveals that during each of the three years, he incurred balances not only in the CIBC bank accounts but also in different Swiss accounts over $10,000.Although the complaint of the U.S. Justice Department says that Pomerantz resided in the United States from 2007 to 2009, the documents presented by his camp claim that he and his wife, also a dual citizen of Canada and Norway, had only resided in California for part of 2008 and 2009 before they moved back to Canada.The documents prepared by the department read, “The petitioners were residents of Canada during the tax years in question and cannot be liable to double taxation and are entitled to relief under the U.S.” Contrary to that, those prepared by Pomerantz’s side pointed out that the Justice Department’s documents contained several mistakes, both on the IRS’s information and the calculations made in relation to his bank accounts.In the midst of the controversy, Pomerantz’s camp maintains that whatever mistake or omission was found in his IRS filings was purely unintentional and would not count as fraud, since he filed everything he knew he had to file to the best of his abilities.On March 3, the U.S. Justice Department issued the last entry in the court file in Pomerantz’s FBAR case by seeking an order to serve the complaint on Pomerantz and his lawyer.Meanwhile, a controversial agreement has reportedly caused the CRA to transfer to the IRS information about Canadian bank accounts. This transfer has been an issue for many Canada-based U.S. citizens under the American tax law, as this could result in the U.S. government pursuing more Canadian residents for failure to file their FBAR reports. Should You File an FBAR? Pomerantz’s FBAR woes stemmed from his failure to know that considering his status, he was actually required to file an FBAR.Like Pomerantz, there are many others out there who do not know what an FBAR is, what it is for and who should file it. If you are not sure whether to file it or not, here’s the rule. As per the American tax law, you are required to file an FBAR if you are any of the following:You are a U.S. person who had signature authority over or financial interest in at least one financial account outside the U.S.At any time during the calendar year, you had foreign financial accounts whose aggregate value exceeded $10,000.But how do you know if you are a “U.S. person?” U.S. Person According to the law, you are considered a U.S. person if you are a U.S. citizen, U.S. resident, an entity such as a corporation, partnership, or limited companies created and organized in the U.S. or under U.S. laws, and trusts or estates created under U.S. laws.The IRS rule also specifies certain exceptions to the FBAR reporting requirements, such as the following:Certain foreign financial accounts jointly owned by spousesS. persons included in a consolidated FBARCorrespondent/Nostro accountsGovernment-owned foreign financial accountsInternational financial institution-owned foreign financial accountsS. IRAs owners and beneficiariesTax-qualified retirement plans beneficiaries and participantsCertain individuals with no financial interest in but have signature authority over a foreign financial accountTrust beneficiaries who are U.S. persons reporting the financial account on an FBAR filed on behalf of the trustForeign financial accounts maintained in a U.S. military banking facilityIn Pomerantz’s case, he is a U.S.-Canadian citizen who owns a foreign financial account so he is required to file an FBAR. How to Report and File Your FBARReporting and filing your FBAR is required regardless of the taxability of your income. The law states that if you hold a foreign financial account, you are obliged to report even when your account produces no taxable income. You meet your reporting obligation by answering questions about tax returns in foreign accounts and by filing an FBAR.Since the FBAR is considered a calendar year report, you need to do the filing on or before April 15 of the year following the year in question. You need to file electronically through the e-filing system of FinCEN.Filing FBAR with a Federal Tax ReturnIn any case, you should not file the FBAR with a federal tax return. Even when the IRS extends the filing period for the income tax return, that does not mean that the period for filing an FBAR is extended as well. The good news though is that the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 have already been passed, granting taxpayers a maximum six-month extension to file their FBARs. So, should you fail to meet the April 15 deadline for FBAR filing, you have until Oct. 15 of each year to file. Why You Need to File a Complete and Accurate FBARIf you want to save yourself from possible civil monetary penalties, make sure that you file your FBAR properly by ensuring its correctness and completeness. FBAR-related penalties depend on whether the violations are willful or non-willful.For the penalties assessed by the IRS after Aug. 1, 2016, for violations committed after Nov. 2, 2015, the IRS assesses an inflation-adjusted penalty so that it won’t exceed $12,459 per violation for non-willful violations. On the other hand, the inflation-adjusted penalty for willful violations may go above $124,588 per violation.For violations that occurred on or before Nov. 2, 2015, civil penalties usually do not exceed $10,000 per violation for non-willful violations and greater than $100,000 for willful violations. When You Are a U.S. Taxpayer Who Holds Foreign Financial AssetsIf you are a taxpayer who has foreign financial assets exceeding certain thresholds, you need to file another form in addition to the FBAR—the Statement of Specified Foreign Financial Assets (Form 8938). You file this form with an income tax return. When You Have Offshore Financial AccountsToday, the Offshore Voluntary Disclosure Program of the IRS allows those who have unreported taxable income from their foreign assets or other offshore financial accounts the chance to fulfill their reporting obligations, and that includes the FBAR. While this program does not have a particular closing date, you need to do your reporting obligations the soonest time possible as the IRS has all the mandate to close this program anytime.When You are a Non-Resident U.S. Taxpayer Who Failed To File Required U.S. Income Tax ReturnsFor U.S. taxpayers who don’t reside in the U.S. and have failed to file the required U.S. income tax returns, the IRS implements certain streamlined filing compliance procedures. These procedures are exclusive to non-resident U.S. taxpayers, whose submissions are reviewed on varying degrees, depending on the response of the taxpayer to a risk questionnaire and on the amount of tax due.In 2014, the IRS expanded these streamlined procedures to certain taxpayers residing in the U.S. The new procedure stipulates that penalties of eligible U.S. taxpayers who are non-residents should be waived, while penalties of eligible U.S. taxpayers who are U.S. residents will include a miscellaneous offshore penalty. This penalty is equivalent to five percent of the foreign financial assets of the taxpayer in question that caused the tax compliance issue. When You Failed to File FBAR and Are not Under a Civil/Criminal Investigation by the IRSIf there are streamlined filing compliance procedures in FBAR filing for U.S. taxpayers who are non-residents, there are also procedures that are exclusive to taxpayers who did not file the required FBAR and are not under any criminal investigation by the IRS. If the IRS has not contacted you about a delinquent FBAR, then you need to file any delinquent FBAR through FinCEN’s BSA E-Filing System.When you enter the system, you need to choose a valid reason for your late filing and enter an explanation using the “Other” option. If your income from your foreign financial accounts are properly reported and you paid your taxes on your U.S. tax return, rest assured that the IRS will not impose any penalty for your failure to file the delinquent FBAR.For the last handful of years, U.S. taxpayers, residents and non-residents alike, have been grappling with various changes on the IRS’ reporting requirements. Despite these changes, the need for U.S. taxpayers to disclose their foreign assets remains. Criminal and civil penalties as a result of not filing an FBAR have been alarmingly high in the last years and the U.S. government is now more stringent than ever in going after those who fail in this part of the IRS law. So if you don’t want to be in dire straits with the IRS, report when and what you should.

How to deal with US Taxes if you are living abroad?

Sanjiv Gupta CPA - 2 years ago
 US citizens or green card holders who live somewhere outside the USA are still required to file their taxes. They are required to do this if they have personal income like wages, commissions, consultancy fees, alimony, interest, capital gains, farm income, inheritance, salary, tips, pension fund, US and foreign social security interest, dividends, and rental property.It is important to note that they have US tax filing obligations even if they have been outside the United States for several years and all income accumulated is from foreign sources. They may also have some tax filing obligations even if some or all of the income has already been taxed or will be taxed by a foreign country. They are also required to file even if they are not accumulating any money and are married to an individual who does have income.Basically, they have to file an IRS form 1040 for the previous year that the income was above the threshold. These are the same as US residents. Filing 1040 is due on April 17, 2018. There is an automatic extension for those living abroad. For them, it is on June 15. However, if there are taxes that are due, then the interest is calculated. This starts on April 15 and ends on the payment date.How Does Living Abroad Mitigate US Tax?There are two methods that can reduce US tax by substantial amounts. These are the FEIE or the Foreign Earned Income Exclusion and the FTC or the Foreign Tax Credit. Neither can excuse the taxpayer abroad from filing their income especially when it is above the filing threshold.The FEIE or the Foreign Earned Income Exclusion lets the taxpayer exclude a certain amount of the Foreign Earned Income from the US tax. The exclusion also applies only to income that has been earned outside the United States. There are other incomes like pensions, dividends, US-sourced income, capital gains, and interest. They are also liable for the full US tax on this kind of income.The other method that is used to reduce the US tax bill uses IRS Form 1116. The FTC or Foreign Tax Credit use IRS Form 1116. If the income has been taxed by the foreign country, then the tax from the US is subtracted. It also substantially reduces the tax bill. However, Foreign Tax Credits for Foreign Taxes on Income cannot be claimed when it is excluded on Form 2555. To put it simply, taxpayers outside the United States can claim foreign tax credits for foreign taxes on a similar income that the US is taxing. The fraction of the foreign taxes that are taken as the tax credit is also determined by the ratio of the excluded income from the total income.With that being said, taxpayers outside the United States are better off by simply using the foreign tax credit and also not claiming the FEIE. If this is done, then there is no need to pay US taxes. In addition, the FTC or Foreign Tax Credit can also be applied against the tax on the unearned income. Therefore, by judiciously combining FEIE along with the FTC and also applying the FTC substantially reduces and even decreases the tax bill down to zero. This is merely an approximate calculation that also serves as an example of how the system operates.Taxpayers outside the United States must be reminded that even if the calculated tax bill amounts to zero then applying for the foreign tax credit and/or the FEIE is zero. In summary, the foreign earned income reduces US tax to zero. However, if the foreign income is above $102,100 then it is suggested for the taxpayer to explore every possibility using the foreign taxes in the form of credit alongside US taxes that are due.Taxpayers must remember that if they are claiming the FEIE from the previous years, then they can use the Form 2555 and then decide that this is the very year they can use the FTC or Foreign Tax Credit. However, once this is done, then they cannot go back to using the FEIE for the following six years unless they receive their permission from the Internal Revenue Services or IRS.In some cases, they can also exclude the qualified housing expenses from the taxable income. This can be calculated on Form 2555 which is found under Part VI. There are also other aspects that are considered when calculating the US taxes of a taxpayer outside the United States. One is the AMT or the Alternate Minimum Tax. This handles the unearned and passive income, specifically the capital gains and interest. There are also exclusions on foreign housing if lodgings are rented. Other examples are business expenses, state taxes in the specific US states that the taxpayer has lived in, itemizing deductions instead of applying the deduction that is standard on specific taxes and earnings of a spouse that is not an American citizen.Self-employment taxes such as Medicare and Social Security apply when the net annual earnings are more than $400 and they live in countries that do not have totalization of a social security agreement in the United States. If these elements are to be considered, they have to be well-advised to and consult an international tax expert.Social Security Number and ITINEvery tax return must have a Social Security Number and ITIN. Social Security Number is required for US citizens or residents. SSNs are valid for the individual and is theirs for a long time. For non-resident aliens spouses and dependents, they must have an ITIN.Passport RevocationThe IRS is also required to notify the State Department if the taxpayers as delinquents in tax debt. The State Department is also prohibited in issuing as well as renewing the passport to taxpayers with tax debt (usually over $51,000).The Affordable Care ActThis impacts US taxpayers in fiscal years for which the US income tax returns have been filed for the year 2018. Americans who live outside the United States must know how important it is to declare that they are not subject to the Affordable Care Act. This is a shared responsibility provision that indicates that they benefit from a status specifically obtaining a foreign health plan without the need to be part of the US plan or even pay the penalty fee.Foreign Bank AccountsNote that the US government is not there to tax wealth. On the other hand, the Internal Revenue System still requires to get to the nitty-gritty regarding money in bank accounts overseas especially the fact how it got there and if it has produced income like capital gains and interests. The downside to this is that because of the recent legislation, there are two different requirements for bank accounts that are overseas. These are the FATCA and the FBAR.The FATCA or the Foreign Account Tax Compliance is filed on Form 1040 if the foreign assets exceed the following limits:Married filing jointly and also residing in the United States. Obtain Form 8939 if the foreign holdings are around $100,000 or above these on the very last day of the tax year. This is also applicable when it is more than $150,000 at a time during tax years.Married filing jointly and residing abroad. This should be filed in Form 8938 if the foreign holdings are over $400,000 and even more than this amount on the last day of the applicable tax year or above $600,000 at any given time during the tax year.Unmarried or married filing as separate residing in the United States. This should be filed in Form 8938 if this aggregates the foreign holdings and are even more than $50,000 or above this amount on the very last day of the tax year or more than $75,000 at any given time during that tax year.Unmarried or those married that filed separately and also living abroad. This should then be filed in Form 8938 if there are foreign holdings that are more than $200,000 and even more than the last day of the tax year or more than $300,000 during that tax year.Foreign banks under FATCA have been reporting indirectly or directly to the IRS so it is very important to file form 8938 correctly. This has been the case since January 1, 2015.The Foreign Bank Account Report or the FBAR has been in existence since 1972 and this would have been filed if the foreign holdings are more than $10,000 or above this amount at any time during the mentioned tax year. There is a signature authority over one or even more than the foreign accounts. Since 2014, the FBAR is also filed electronically on Form 114 with the Department of Treasury. It should also be filed on April 15 every year and on the separate form 1040. Those who live abroad have an extension until October 15 if they are living abroad.FAQsShould I file a US Income Tax Return if I live and/or work abroad?In general, if you have resided and/or worked overseas during a specific Tax Year and you have accumulated the gross income from various worldwide sources, then at least the amount that is shown for filing the status must be filed as a tax return.For all US citizens and resident aliens, there are factors that determine whether a tax return must be filed:Filing StatusAgeIncome that has been earned when working for another country What Should I report on My US Income Tax Return if I Live And/Or Work Abroad? If you are a resident alien or a US citizen who has resided abroad during that given tax year, then here are the following items that must be filed on the tax return:Gross Income. This includes all the income that has been received through the Tax Year This includes goods, self-employment earnings, money and property that is not exempted from the taxes. This is reported on the Gross Income line found in Schedule C, Gross Receipt from Schedule C-EZ, Loss from the Business and the Net Profit from the Business. This also includes the income that has been excluded when the foreigner has earned income along with foreign housing amounts. Foreign Income. Foreign currency must be converted in US dollars if the taxpayer has either received part of it or paid some of the expenses. What is Foreign Earned Income? Foreign earned income is the income that has been received for services performed in foreign countries during the period of the income tax. This is usually the main place of business, a post of duty or employment where the taxpayer is indefinitely engaged to work or permanently assigned to work. This is qualified if it is done in foreign countries and the bona fide residence or physical presence test has been met. However, there are items that the IRS does not count when looking into foreign earned income:The income received as an employee in the US government.Annuity or pension payments also includes Social Security benefits.Amounts that are included in the income because of the contributions of the employer to the trust of the non-exempt employee or to the annuity contract that does not qualify.Previously excluded the value of lodging and meals that have been furnished for the convenience of the employer.Recaptured and allowable moving expenses.The payment that has been received at the end of the Tax Year which also follows the Tax Year that this has been performed in the services which resulted in the income that has been earned.In order to not be regarded as a tax delinquent, US citizens and permanent residents must be upon their toes when it comes to filing tax returns. They may not be in the United States but that is not enough reason to do a responsibility as an American.

Foreign Income & Asset Reporting By Sanjiv Gupta CPA Firm

Sanjiv Gupta CPA - 2 months ago
Under the American tax law, if you are a U.S. citizen who has either signature authority over or financial interest in any foreign financial account, you are required to report your account annually to the Department of Treasury via electronic filing.May your foreign financial account be a bank account, trust, or mutual fund, you have the obligation to file both the Financial Crimes Enforcement Network (FInCEN) 114 and Report of Foreign Bank and Financial Accounts (FBAR).Unfortunately, many U.S. citizens are not very familiar with the FBAR so before they know it, the U.S. government is already there to go after them and their penalties have already piled up.Cases of U.S. citizens residing outside the U.S. being up the creek for not filing their FBARs are rampant these days, thanks to these people’s ignorance of the law. But since ignorance of the law excuses no one, you can’t just say no one told you about this FBAR thing and expect to be absolved at the end of the day.Case in PointRecently, a U.S.-Canadian citizen was in trouble for failure to file his Report of Foreign Bank and Financial Accounts (FBAR).Jeffrey Pomerantz, a dual citizen who currently resides in Vancouver, Canada, is now being sued by the U.S. Justice Department for failing to file to the U.S. government his FBAR. The department filed the case in the U.S. District Court in Seattle and is now seeking civil and late payment penalties amounting to $860,300.While Pomerantz filed his income tax returns to both the Canada Revenue Agency (CRA) and Internal Revenue Service (IRS) in 2007, 2008 and 2009 he failed to file the other form known as the FBAR.According to Toronto-based lawyer Hari Nesathurai, the past couple of years have seen an increase in cases of Canadian residents being chased by the U.S. government for failure to file their FBAR reports. The lawyer said FBAR is a problem for many Canadian residents who are subject to U.S. tax laws, because they do not realize that even a Registered Retirement Savings Plan (RRSP) calls for a disclosure.“Many people don’t realize that and it’s troubling because it’s a penalty which applies on a non-disclosure even though there may be no tax payable,” he said, adding that the FBAR is particularly a major concern among Americans and U.S. citizens or green card holders who do not fully understand their reporting obligations.Going back to Pomerantz’s case, the lawsuit against him filed in May 2016 indicates that the events that led to the U.S. government chasing him for his failure to file his FBAR seem to have begun in 2010 with an audit, which is now before a different court.The lawsuit reveals that even before the income tax examination commenced, Pomerantz had already failed to file a Treasury Form TD F 90-22.1 (FBAR) for the three years in question to offer disclosure of his existing foreign accounts. However, the U.S. Justice Department said Pomerantz opened at least two personal checking accounts at the Canadian Imperial Bank of Commerce prior to Jan. 1, 2001, and both accounts were active from 2007 to 2009.The Justice Department also said in 2003, Pomerantz established a corporation in the Turks and Caicos Islands named Chafford Ltd., which held his personal investments. That same year, he also opened three bank accounts in Sal Oppenheim JR & Cie in Switzerland, and in 2007, he opened two more accounts in the same country and the same bank.The lawsuit also reveals that during each of the three years, he incurred balances not only in the CIBC bank accounts but also in different Swiss accounts over $10,000.Although the complaint of the U.S. Justice Department says that Pomerantz resided in the United States from 2007 to 2009, the documents presented by his camp claim that he and his wife, also a dual citizen of Canada and Norway, had only resided in California for part of 2008 and 2009 before they moved back to Canada.The documents prepared by the department read, “The petitioners were residents of Canada during the tax years in question and cannot be liable to double taxation and are entitled to relief under the U.S.” Contrary to that, those prepared by Pomerantz’s side pointed out that the Justice Department’s documents contained several mistakes, both on the IRS’s information and the calculations made in relation to his bank accounts.In the midst of the controversy, Pomerantz’s camp maintains that whatever mistake or omission was found in his IRS filings was purely unintentional and would not count as fraud, since he filed everything he knew he had to file to the best of his abilities.On March 3, the U.S. Justice Department issued the last entry in the court file in Pomerantz’s FBAR case by seeking an order to serve the complaint on Pomerantz and his lawyer.Meanwhile, a controversial agreement has reportedly caused the CRA to transfer to the IRS information about Canadian bank accounts. This transfer has been an issue for many Canada-based U.S. citizens under the American tax law, as this could result in the U.S. government pursuing more Canadian residents for failure to file their FBAR reports. Should You File an FBAR? Pomerantz’s FBAR woes stemmed from his failure to know that considering his status, he was actually required to file an FBAR.Like Pomerantz, there are many others out there who do not know what an FBAR is, what it is for and who should file it. If you are not sure whether to file it or not, here’s the rule. As per the American tax law, you are required to file an FBAR if you are any of the following:You are a U.S. person who had signature authority over or financial interest in at least one financial account outside the U.S.At any time during the calendar year, you had foreign financial accounts whose aggregate value exceeded $10,000.But how do you know if you are a “U.S. person?” U.S. Person According to the law, you are considered a U.S. person if you are a U.S. citizen, U.S. resident, an entity such as a corporation, partnership, or limited companies created and organized in the U.S. or under U.S. laws, and trusts or estates created under U.S. laws.The IRS rule also specifies certain exceptions to the FBAR reporting requirements, such as the following:Certain foreign financial accounts jointly owned by spousesS. persons included in a consolidated FBARCorrespondent/Nostro accountsGovernment-owned foreign financial accountsInternational financial institution-owned foreign financial accountsS. IRAs owners and beneficiariesTax-qualified retirement plans beneficiaries and participantsCertain individuals with no financial interest in but have signature authority over a foreign financial accountTrust beneficiaries who are U.S. persons reporting the financial account on an FBAR filed on behalf of the trustForeign financial accounts maintained in a U.S. military banking facilityIn Pomerantz’s case, he is a U.S.-Canadian citizen who owns a foreign financial account so he is required to file an FBAR. How to Report and File Your FBARReporting and filing your FBAR is required regardless of the taxability of your income. The law states that if you hold a foreign financial account, you are obliged to report even when your account produces no taxable income. You meet your reporting obligation by answering questions about tax returns in foreign accounts and by filing an FBAR.Since the FBAR is considered a calendar year report, you need to do the filing on or before April 15 of the year following the year in question. You need to file electronically through the e-filing system of FinCEN.Filing FBAR with a Federal Tax ReturnIn any case, you should not file the FBAR with a federal tax return. Even when the IRS extends the filing period for the income tax return, that does not mean that the period for filing an FBAR is extended as well. The good news though is that the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 has already been passed, granting taxpayers a maximum six-month extension to file their FBARs. So, should you fail to meet the April 15 deadline for FBAR filing, you have until Oct. 15 of each year to file. Why You Need to File a Complete and Accurate FBARIf you want to save yourself from possible civil monetary penalties, make sure that you file your FBAR properly by ensuring its correctness and completeness. FBAR-related penalties depend on whether the violations are willful or non-willful.For the penalties assessed by the IRS after Aug. 1, 2016 for violations committed after Nov. 2, 2015, the IRS assesses an inflation-adjusted penalty so that it won’t exceed $12,459 per violation for non-willful violations. On the other hand, the inflation-adjusted penalty for willful violations may go above $124,588 per violation.For violations that occurred on or before Nov. 2, 2015, civil penalties usually do not exceed $10,000 per violation for non-willful violations and greater than $100,000 for willful violations. When You Are a U.S. Taxpayer Who Holds Foreign Financial AssetsIf you are a taxpayer who has foreign financial assets exceeding certain thresholds, you need to file another form in addition to the FBAR—the Statement of Specified Foreign Financial Assets (Form 8938). You file this form with an income tax return. When You Have Offshore Financial AccountsToday, the Offshore Voluntary Disclosure Program of the IRS allows those who have unreported taxable income from their foreign assets or other offshore financial accounts the chance to fulfill their reporting obligations, and that includes the FBAR. While this program does not have a particular closing date, you need to do your reporting obligations the soonest time possible as the IRS has all the mandate to close this program anytime.When You are a Non-Resident U.S. Taxpayer Who Failed To File Required U.S. Income Tax ReturnsFor U.S. taxpayers who don’t reside in the U.S. and have failed to file the required U.S. income tax returns, the IRS implements certain streamlined filing compliance procedures. These procedures are exclusive to non-resident U.S. taxpayers, whose submissions are reviewed on varying degrees, depending on the response of the taxpayer to a risk questionnaire and on the amount of tax due.In 2014, the IRS expanded these streamlined procedures to certain taxpayers residing in the U.S. The new procedure stipulates that penalties of eligible U.S. taxpayers who are non-residents should be waived, while penalties of eligible U.S. taxpayers who are U.S. residents will include a miscellaneous offshore penalty. This penalty is equivalent to five percent of the foreign financial assets of the taxpayer in question that caused the tax compliance issue. When You Failed to File FBAR and Are not Under a Civil/Criminal Investigation by the IRSIf there are streamlined filing compliance procedures in FBAR filing for U.S. taxpayers who are non-residents, there are also procedures that are exclusive to taxpayers who did not file the required FBAR and are not under any criminal investigation by the IRS. If the IRS has not contacted you about a delinquent FBAR, then you need to file any delinquent FBAR through FinCEN’s BSA E-Filing System.When you enter the system, you need to choose a valid reason for your late filing and enter an explanation using the “Other” option. If your income from your foreign financial accounts are properly reported and you paid your taxes on your U.S. tax return, rest assured that the IRS will not impose any penalty for your failure to file the delinquent FBAR.For the last handful of years, U.S. taxpayers, residents and non-residents alike, have been grappling with various changes on the IRS’ reporting requirements. Despite these changes, the need for U.S. taxpayers to disclose their foreign assets remains. Criminal and civil penalties as a result of not filing an FBAR have been alarmingly high in the last years and the U.S. government is now more stringent than ever in going after those who fail in this part of the IRS law. So if you don’t want to be in dire straits with the IRS, report when and what you should.
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