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Tag Archive for FBAR

Form 3520 And Substitute Form 3520-A For Foreign Trusts And Gifts From Nonresidents

Gary Carter Form 3520-A

Section 6048 of the Internal Revenue Code requires a United States person, as defined for FBAR reporting, (and the executor of the estate of a US decedent) to file Form 3520 to report:

  • Certain transactions with foreign trusts,
  • Ownership of foreign trusts, and
  • Receipt of certain large gifts or bequests from certain foreign persons.

Additionally, an owner of a foreign trust might be required to file a Substitute Form 3520-A if the foreign trust fails to file Form 3520-A (See SUBSTITUTE Form 3520-A below). Here is Form 3520 and Instructions.

What Is a Foreign Trust For Which Form 3520 Must Be Filed?

Although the Internal Revenue Code (IRC) refers to trusts in numerous sections, nowhere in the IRC is the term “trust” actually defined. There is a definition of foreign trust. IRC Section 7701(a)(31)(B) says: “The term ‘foreign trust’ means any trust other than a trust described in subparagraph (E) of paragraph (30).” Subparagraph (E) describes “any trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust, and (ii) one or more United States persons have the authority to control all substantial decisions of the trust.”

So a foreign trust is one that is not under the jurisdiction of United States courts or controlled by a United States person. But what is a “trust”?

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What Can Happen If You Fail To Disclose Offshore Accounts

Venar Ayar On FBAR

A failure to file FBARs and Form 8938 can result in numerous civil tax penalties. Criminal penalties are also a possibility, which could result in jail time.

FBAR Civil Penalties

The FBAR civil penalties have two tiers, depending on whether your conduct was willful or non-willful:

  • Willful penalties can result in a penalty of $100,000 or 50% of the aggregate foreign account balance
  • Non-willful penalties can result in a penalty of up to $10,000 per violation

These penalties can be assessed for each account and for each year a FBAR should have been filed, but wasn’t.  So a taxpayer with 5 foreign accounts and 5 years of unfiled FBARs could have 25 FBAR violations.  In practice, examiners may recommend only one penalty per year and may even  recommend a single penalty for multiple years of violations.

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How Could The IRS Find Out That I Am Not Tax Compliant As An Expat?

Olivier Wagner

You’re living your adventure and you’re settled in your new home, having non-US bank accounts, a non-US employer and a non-US social life. You have limited ties with the US and since the people who pay you (banks, employer) are not in touch with the IRS, you consider simply not filing US tax return. What could go wrong?

As you might know, on some level… US citizens are required to report their worldwide income on a US tax return, regardless of where they live.

Think AGAIN…

IRS has a few proven ways they use to track people down.

Below you will find the most common ways that IRS can track you down and check if you filed your US tax return, no matter where you live in the World.

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Presumptions Of Tax Residency In A FATCA World

John Richardson

Introduction – All The World Is A Multiple Choice Test

Q.1 – A tax resident of the United States is taxable on his worldwide income. According to the Internal Revenue Code of the United States, which one of the following is NOT a tax resident of the United States of America?

(A) A Congresswoman “Born In The USA”, head of her household, who does not and has never had a U.S. Passport
(B) An unmarried Green Card Holder who has never filed an FBAR who lives in El Paso Texas
(C) A fifty year old U.S. citizen who is divorced has never set foot in the United States, doesn’t have a U.S. Social Security Number and lives in and pays full taxes in Germany
(D) A citizen of only Canada who lives four months a year in Florida with his U.S. citizen wife, in a house he owns where he parks a car he owns with Florida license plates
(E) A citizen of Grenada who lives full time in the USA with an E1 visa operating a fast food franchise

For help in finding the answer see …

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Summary of FATCA Reporting For U.S. Taxpayers

IRS Logo 123

The Foreign Account Tax Compliance Act (FATCA) is an important development in U.S. efforts to combat tax evasion by U.S. persons holding accounts and other financial assets offshore. The Treasury Department and the IRS continue to develop guidance concerning FATCA. For current and more in-depth information, please visit FATCA.

Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. There are serious penalties for not reporting these financial assets (as described below). This FATCA requirement is in addition to the long-standing requirement to report foreign financial accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) (formerly TD F 90-22.1).

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The United States Imposes A Separate And Much More Punitive Tax On U.S. Citizens Who Are Residents Of Other Countries

John Richardson - The United States Taxes Citizens Who Reside In Another Country

On February 28, 2019 TaxConnections kindly posted my first post comparing the way that 19th Century Britain and 21st Century America Treated Its Citizens/Subjects. The post received a great deal of interest resulting in more than 120 comments (largely reflecting the frustration of Americans abroad and accidental Americans).

The purpose of that post focused largely on citizenship and the fact that the United States imposes worldwide taxation on U.S. citizens who are tax residents of other countries and do NOT live in the United States. What that post did NOT do was to focus on HOW the Internal Revenue Code applies to U.S. citizens who do NOT live in the United States.

The Bottom Line Is:

The United States is in effect imposing a separate and more punitive tax system on its citizens abroad. Strange but true. The purpose of this post is to explain how that works and to provide specific examples.

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Supreme Court Refuses To Review Million Dollar FBAR Penalty

Despite the taxpayer’s persistent challenges, the Supreme Court has refused to review a Ninth Circuit Court of Appeals’ decision affirming a lower court’s decision in favor of the IRS, which assessed a giant $1.2 million penalty for failing to disclose financial interests in an overseas account.

The April 30th decision, which is now final, is noteworthy for two reasons. First, it shows the magnitude of penalty that can be reached, even with respect to an individual and a single foreign account and tax year (in this case, the relevant tax year was 2006). Second, it shows the type of taxpayer arguments that courts will likely reject when reviewing an FBAR penalty case.

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Expatriates Required To File U.S. Individual Tax Return – Automatic Filing Extension Until June 15, 2018

All Americans are required to file annually the U.S. Individual Tax Return, wherever in the world they live. Here’s what US expats need to know about filing US taxes from abroad.

Expats have an automatic filing extension until June 15th, with a further extension available until October 15th upon request.

All Americans who earn over $10,400 ($4,050 if married filing separately), or just $400 of self-employment income are required to file, regardless of where their income is earned, where in the world they live, whether the U.S. has a tax treaty with that country, or whether they also pay foreign taxes.

The good news is that there are some IRS exemptions just for expats that allow them to reduce or in most cases eliminate their U.S. tax liability completely, although they still must file a US return to claim these exemptions.

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Get An Early Tax “Refund” By Adjusting Your Withholding And Foreign Accounts Reporting Requirements

Get An Early Tax “Refund” By Adjusting Your Withholding

Each year, millions of taxpayers claim an income tax refund. To be sure, receiving a payment from the IRS for a few thousand dollars can be a pleasant influx of cash. But it means you were essentially giving the government an interest-free loan for close to a year, which isn’t the best use of your money.

Fortunately, there’s a way to begin collecting your 2018 refund now: You can review the amounts you’re having withheld and/or what estimated tax payments you’re making, and adjust them to keep more money in your pocket during the year. Read more

District Court Broadens Scope Of Willful Requirement In Applying Enhanced FBAR Penalities

A new U.S. District court case has added to the recent upswing in cases tackling the issue of defining “willful” for purposes of applying the more severe penalties for failure to file the FBAR.

In U.S. v. Garrity, 2018 U.S. Dist. LEXIS 56888 (D. Conn. 2018), a United States District Court of Connecticut judge ordered that in moving to the next phase of trial, the IRS must prove the elements of its FBAR penalty claim only by a preponderance of the evidence, and the IRS can satisfy its burden to prove willfulness by evidencing reckless conduct by the taxpayer. Read more

IRS Reminds Those With Foreign Assets About U.S. Tax Obligations

WASHINGTON — The Internal Revenue Service today reminded U.S. citizens and resident aliens, including those with dual citizenship, to check if they have a U.S. tax liability and a filing requirement. At the same time, the agency advised anyone with a foreign bank or financial account to remember the upcoming deadline that applies to reports for these accounts, often referred to as FBARs.

Here is a rundown of key points to keep in mind:

Deadline For Reporting Foreign Accounts Read more