Sunday, February 8, 2015

So Whats The New Buzz On Foreign Bank Accounts?


Pictures Courtesy: Google Images


When looking for a picture for this post, I came across the one above & remembered my college English Professor. She really loved the term, "Freudian Slip" for some reason! All I knew then was that Sigmund Freud was the father of psychoanalysis but I never quite understood how that related to a Business English class, unless that was the Professor's way of telling us we were driving her nuts! Now I know that the term, "Freudian Slip" is a "mistake in speech that shows what the speaker is truly thinking" or "to do what one is truly thinking about". 

No, this post is not about defining psychoanalytic terms, dare I say more interesting than tax stuff? Not quite, but this post is about the latest buzz from the Internal Revenue Service, about some situations US taxpayers having foreign accounts might be in & their compliance options. So here it goes!

I. You are a US taxpayer who has properly reported and paid tax on ALL worldwide taxable income. Oops! You did not know that with your account thresholds, you should have been filing FBARs in all those years as well. These accounts were not only your own foreign bank accounts but were also some that you had signatory authority over through an employer. {About thresholds in my post here}

Your Compliance Options: Voila! 
  • You can now file those delinquent FBAR reports per instructions. 
  • Attach a statement explaining why the statements are late. 
  • Mail the delinquent FBARs to- Department of Treasury, P O Box 32621, Detroit, MI 48232.

II. You only have certain delinquent returns but no tax due. So you are the "lucky" one, you did not have any tax due but you failed to file certain tax information returns such as, Form 5471 or Form 3520. Or you had reported all taxable income arising from taxable income with respect to transactions relating to these forms. 

Your Compliance Options: 
  • You should go ahead and file these delinquent forms with the proper authorities (as per form instructions) 
  • With a statement attached (of course) explaining why they are late. 
  • The IRS will not impose a penalty for the failure to file Forms 5471 or 3520 if there are no under-reported tax liabilities. 
  • You should also not have been already contacted by the IRS regarding these delinquent forms.  


III. You are a non-resident US Taxpayer, you have delinquent returns- however your tax owed is less than $1,500 per year. So you have been abroad and have not filed your tax returns and your FBARs. You only owe less than $1,500 per year.
Updated: The $1500 tax threshold has been eliminated in changes made to the Streamlined Procedures. 

Your Compliance Options: 
  • File your delinquent tax returns for the last 3 years. 
  • Include any delinquent tax information returns with the bullet point above. 
  • File any delinquent FBARs for the past 6 years. 
  • Give all the required additional information compliance risk. 


  • Pay any outstanding federal tax and interest due with the outstanding returns. 
IV. You are a taxpayer with undisclosed foreign accounts and unreported income or you are a taxpayer seeking protection from criminal prosecution. 

Your Compliance Option: The Offshore Voluntary Disclosure Program aka OVDP. 

Please note that to decide if any of the above four situations apply to you and for further guidance regarding your compliance options, I cannot stress enough how important it is to consult with an informed and experienced Enrolled Agent, CPA or Tax Attorney. 
Bibliography: FS-2011-13; Report of Foreign Bank and Financial Accounts (FBAR); Form 5471 ; Form 3520. 

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As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website, www.mntaxsolutionsllc.com.


  


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