On February 23, 2011, FinCEN issued amendment to the FBAR reporting requirements in the Bank Secrecy Act (BSA) that addresses the scope of persons required to file reports, the types of reportable accounts and provisions intended to prevent the rule from being circumvented by those persons subject to the reporting requirement.
Form 90-22.1, popularly known as FBAR – is used to report a financial interest in, or signature or other authority over, one or more financial accounts in foreign countries if the maximum aggregate balance meets the $10,000 threshold. When filed, FBARs become part of the BSA database. They are used in combination with Suspicious Activity Reports, Currency Transaction Reports, and other BSA reports to provide law enforcement and regulatory investigators with valuable information to fight fraud, money laundering, terrorist financing, tax evasion and other financial crime.
FinCEN delegated the authority to enforce the FBAR rules and to amend the form to IRS in 2003. However, FinCEN retained the authority to revise the applicable regulations.
On February 26, 2010, FinCEN published a Notice of Proposed Rulemaking (NPRM) proposing to amend the BSA implementing regulations regarding the FBAR. Amongst other things, the NPRM proposed to: define the scope of individuals required to file the FBAR; delineate the types of reportable accounts; and exempt certain persons and accounts from the reporting requirements.
The final rule issued by FinCEN:
- Clarifies if and account is foreign and must be reported (as well as addresses the treatment of custodial accounts);
- Modifies the definition of “signature or other authority” to extend the filing requirement to persons who have the authority to control the disposition of assets in the account by direct communication;
- Provides that officers/employees that file an FBAR are not expected to personally maintain their employer’s account records; and
- Clarifies that filers may rely on the final rules to determine their filing obligation for FBAR where their filing was properly deferred under prior Treasury guidance.
Generally if you are a US taxpayer and have foreign source income on which you paid taxes in foreign country, you can claim credit for such taxes in US. However, rules are not the same for the NRAs. Many times it is seen that the NRAs have to report their income both in US as well as in their home country. Generally, due to the foreign tax credit provisions, the same income is not taxed twice. However, NRAs and tax professionals need to be careful while claiming credit in US and examine if US source income is also taxed in their home country. In such cases, the credit cannot be claimed in US due to the fact that the corresponding income is US source income and not foreign source income.
IRS Publication 514 released on January 27, 2011, makes this point amply clear. Taxpayers and professionals should pay attention to this and many other requirements before correctly filling out Form 1116.
Just released IRS Newswire 2011-14 reports:
The Internal Revenue Service announced today a special voluntary disclosure initiative designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes. The new voluntary disclosure initiative will be available through Aug. 31, 2011.
“As we continue to amass more information and pursue more people internationally, the risk to individuals hiding assets offshore is increasing,” said IRS Commissioner Doug Shulman. “This new effort gives those hiding money in foreign accounts a tough, fair way to resolve their tax problems once and for all. And it gives people a chance to come in before we find them.”
The IRS decision to open a second special disclosure initiative follows continuing interest from taxpayers with foreign accounts. The first special voluntary disclosure program closed with 15,000 voluntary disclosures on Oct. 15, 2009. Since that time, more than 3,000 taxpayers have come forward to the IRS with bank accounts from around the world. These taxpayers will also be eligible to take advantage of the special provisions of the new initiative.
“As I’ve said all along, the goal is to get people back into the U.S. tax system,” Shulman said. “Combating international tax evasion is a top priority for the IRS. We have additional cases and banks under review. The situation will just get worse in the months ahead for those hiding assets and income offshore. This new disclosure initiative is the last, best chance for people to get back into the system.”
The new initiative announced today – called the 2011 Offshore Voluntary Disclosure Initiative (OVDI) — includes several changes from the 2009 Offshore Voluntary Disclosure Program (OVDP). The overall penalty structure for 2011 is higher, meaning that people who did not come in through the 2009 voluntary disclosure program will not be rewarded for waiting. However, the 2011 initiative does add new features.
For the 2011 initiative, there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. Some taxpayers will be eligible for 5 or 12.5 percent penalties. Participants also must pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.
Taxpayers participating in the new initiative must file all original and amended tax returns and include payment for taxes, interest and accuracy-related penalties by the Aug. 31 deadline.
It was 1 am in the morning today. At 1.05 am I joined the list of proud owners of Apple’s iPhone!
I am a “loyal” Verizon subscriber, so they sent me a link for getting the iPhone early this morning at 1 am on first come first served basis. I had heard stories that people lined up at the book stores in the past in the middle of the night for Harry Potter’s books (my kids included), but never understood the craze. I was surprised to mirror the same excitement this morning even though I have used iPad for past few months. Fortunately (!) I was working late last night thanks to the profession that we love – so it was not that difficult to order that late (or early).
This morning I also read a story on New York Times which also boosted my pride. Here is the link to that article – http://www.nytimes.com/2011/02/03/technology/personaltech/03pogue.html?_r=1&ref=technology
Well, as Verizon ads claim, I look forward to using “the phone that changed everything”.
The Treasury Department has reissued its list of the countries that require cooperation with or participation in an international boycott as a condition of doing business. The countries listed are Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, the United Arab Emirates, and the Republic of Yemen. The Treasury Department stated that Iraq is not included on the list but that its future status remained under review.
The listed countries are identified pursuant to IRC Section 999 which requires US taxpayers to file reports with the Treasury Department concerning operations in the boycotting countries. Such taxpayers incur adverse consequences under the IRC, including denial of US foreign tax credits for taxes paid to those countries and income inclusion under Subpart F in case of US shareholders of controlled foreign corporations that conduct operations in those countries.
It is important to review these provisions carefully before claiming foreign tax credits and other exclusions/ credits/ deductions for such taxpayers.