Last week IRS updated the FAQs on its website regarding reporting on Form 8938 and added few more questions. Few noteworthy clarifications are:
- Tangible assets held for investment (e.g., art, antiques, jewelry, and cars) do not have to be reported.
- Safe deposit box is not a financial account.
- The omission of Form 8938 with the original return requires an amended return to be filed with the form attached.
- Filing of Form 8938 does not remove the requirement to file Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts), if otherwise required.
- Directly held precious metals, such as gold, are not specified foreign financial assets. Note, however, that gold certificates issued by a foreign person may be a specified foreign financial asset that you would have to report on Form 8938, if the total value of all your specified foreign financial assets is greater than the applicable reporting threshold.
Foreign Account Tax Compliance Act (FATCA) come into force from January 1, 2013 when financial institutions worldwide must report US owners’ names to the IRS. Australia’s Financial Services Council (FSC) has expressed concerns that the Australian financial services industry will be unable to comply with the proposed regulations. The FSC has conveyed this to US Treasury seeking relief. It appears US Treasury is open and receptive to these concerns.
The FATCA provisions will require Australian foreign financial institutions, including superannuation funds, to collect detailed information on their members in order to determine whether an individual member’s financial and residency arrangements make them a US taxpayer. If a member is a US taxpayer, the FATCA regime requires the fund to report this information to the IRS. However, if the account holder does not provide the necessary information the fund will be required to withhold a 30% tax on US – connected payments for that member.
Nonresident alien (NRA) athletes and entertainers performing independent personal services or participating in the U.S. and embassy and consulate employees in the U.S. can expect more enforcement and litigation, an IRS official said May 12.
Speaking at the American Bar Association Tax Section meeting in Washington, Lindsey D. Stellwagen, Special Counsel International, Office of Chief Counsel said that although there had been a lot of publicity on IRS measures to enforce compliance on U.S. persons with offshore wealth, her agency is also stepping up enforcement of NRAs and resident aliens (e.g. green card holders) that owe U.S. tax. She discussed the IRS programs pertaining to athletes and entertainers and the embassy project.
Foreign athletes and entertainers may pose a challenge to IRS enforcement because they come into the U.S. for a brief period of time, earn a lot of money, then leave. Such persons may be able to evade paying tax on their U.S.-source income and enforcement may be futile if they money earned has exited the U.S. without the imposition of withholding at source.
Nonresident alien entertainers or athletes performing independent personal services or participating in athletic events in the U.S. are generally subject to a 30 percent withholding on gross income. Stellwagen explained that under the central withholding agreement (CWA) program, such persons may be subject to reduced withholding provided that certain requirements are satisfied. The agreement is entered into by the NRA athlete or entertainer, a withholding agent and the IRS and is valid for a specific tour or series of events. Withholding is based upon the budget provided and estimated net profits.
CPA Global Tax & Accounting PLLC can assist athletes and entertainers with the CWA program and work with the IRS to minimize the exposures.
If you have a loan from foreign parent, interest that can be deducted from US subsidiary’s income can be zero or limited under IRC 163(j).
IRS has a new Form 8926 this year that must be included along with the US subsidiary’s tax return.
The IRS is aggressively using intelligence gathered from the agency’s Offshore Voluntary Compliance Program to study the movement of undisclosed funds abroad and to deter tax avoidance, an IRS official said February 18.
“When [taxpayers] come in and tell us about their offshore account in one bank in one country, they may tell us about another account in another bank in another country and about the bankers they used,” said Rebecca Sparkman, Acting Executive Director Investigations and Enforcement Operations Division of the IRS at the American Bar Association Section of Taxation meeting in San Diego. “As you can imagine we start looking at all that intelligence and it points the way for the next criminal investigation.”
Although her comments had undertones of the recent indictment of Wegelin & Co., Switzerland’s oldest private bank, she declined to speak directly on any specific matter. The bank has been charged with aiding tax offenders move their undisclosed accounts from UBS.
“We want to assure you that we are reviewing all the information that comes in from your clients to match up [and provide direction on] where we should look next,” she said.
She cautioned practitioners to be fully truthful when bringing their clients into compliance.
“Please be fully, fully truthful,” she told the audience. “Because there may be those folks that are tempted to only disclose that account in that one bank that they think we know about in that one country because they think we don’t know about [an account] somewhere else. But guess what? They come in, they come through the whole program, we get their name on a list for some other bank, some other country, all bets are off! Now they are facing criminal investigation because they were not fully truthful.”
Sparkman stressed that the time to come forward with all offshore account information is at the time a voluntary disclosure is made, not subsequently.
“When you walk in the door, that is the time to be fully truthful,” she said. “Don’t be hiding anything else.”
The Treasury Department, in a joint statement with five European countries, said on Feb. 8 that the nations intend to pursue a government-to-government framework for implementing the Foreign Account Tax Compliance Act (FATCA).
Treasury sees this as a key step “toward addressing legal impediments” faced by financial institutions in complying with proposed FATCA regulations that were published on Feb. 8. “The statement does not contemplate an exemption from FATCA for any jurisdiction, but instead offers a framework for information sharing pursuant to existing bilateral income tax treaties and allows FFIs [Foreign Financial Institutions] to report the necessary information to their respective governments rather than to the IRS,” Treasury said. The countries that joined in the statement were France, Germany, Italy, Spain and the United Kingdom. In the joint statement, the U.S. acknowledged that the policy objective of FATCA centers on enhanced reporting rather than collecting withheld tax.
The U.S. also affirmed its willingness to reciprocate in the collection and exchange of information on accounts held in U.S. financial institutions by residents of the five European countries. In addition, the joint statement cited the need to keep compliance costs as low as possible and the desirability of achieving common reporting and due diligence standards. Based on these considerations, the countries “have agreed to explore a common approach to FATCA implementation through domestic reporting and reciprocal automatic exchange and based on existing bilateral tax treaties,” the joint statement said. The document also offers a possible framework for an intergovernmental approach that provides a valuable insight into Treasury’s thinking on the subject.
IRS recently announced (IRB 2011-48) that Panama is now included in the North American region for the purposes of IRC 274 in order to claim the travel expenses for attending conventions. Until recently, in order to claim expenses related to travel for convention in Panama taxpayers had to meet special conditions.
IRS Publication 463 states that “You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. You cannot deduct the travel expenses for your family.”
It further states that “You cannot deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless:
- The meeting is directly related to your trade or business, and
- It is as reasonable to hold the meeting outside the North American area as in it.”
The North American area per IRS includes American Samoa, Antigua and Barbados, Aruba, Bahamas, Bermuda, Costa Rica, Canada, Dominican Republic, Honduras, Jamaica, Mexico, Puerto Rico and US Virgin Island to list only a few. The North American area also includes U.S. islands, cays, and reefs that are possessions of the United States and not part of the fifty states or the District of Columbia.
Panama is included in the list now.