RS Extends Voluntary Disclosure Deadline

The Internal Revenue Service has given taxpayers an extra 90 days to provide a voluntary disclosure of their offshore bank accounts, foreign corporations, foreign partnerships and LLCs,  and Passive Foreign Investment Companies,  if they have made a “good faith” attempt to gather the necessary materials.

In an update  made on  June 2, 2011 to the 2011 Offshore Voluntary Disclosure Initiative, a new question asks about what happens if the taxpayer cannot comply by the August 31, 2011, deadline for the latest voluntary disclosure program.

The update expands upon an earlier answer, FAQ 25, describing all of the materials that must be sent to the IRS, including copies of previously filed tax returns and foreign account statements. The update noted, “A taxpayer may request an extension of the deadline to complete his or her submission if the taxpayer can demonstrate a good faith attempt to fully comply with FAQ 25 on or before August 31, 2011. The good faith attempt to fully comply must include the properly completed and signed agreements to extend the period of time to assess tax (including tax penalties) and to assess FBAR penalties.

“Requests for up to a 90 day extension must include a statement of those items that are missing, the reasons why they are not included, and the steps taken to secure them.  Requests for extensions must be made in writing and sent to the Austin Service Center on or before August 31, 2011.

Internal Revenue Service
3651 S. I H 35 Stop 4301 AUSC
Austin, TX 78741”

Extension of Time fo File FBAR Form - if you only sign but have no financial interest

The IRS has extended the time you have to file the FBAR (TDF 90-22.1form) to report Foreign Bank and Financial Accounts if you only sign on the account (signature authority) but have NO financial interest in the account for tax years 2009 and earlier. If this is your situation, you now have until November 1, 2011 to file all applicable FBAR forms with respect to such accounts.  This extension of time does not apply to the 2010 FBAR forms which are still due on 6/30/11 even if you only sign, but have no financial interest.

This extension of time does not affect the date requirement to file FBARs for the IRS 2009 or 2011 Offshore Voluntary Disclosure Programs.

Taxpayers outside the U.S. face a June 15 deadline

  Taxpayers outside the U.S. who qualify for an automatic two-month extension must file their 2010 federal income tax returns by June 15, IRS said in a reminder. This deadline applies to U.S. citizens and resident aliens who both live and work outside the country, and to members of the military serving outside the U.S. Taxpayers utilizing this extension must attach a statement to their return specifying which of these conditions applies, IRS stressed. Most taxpayers abroad now qualify to use IRS Free File to prepare and electronically file their returns, IRS said. According to the agency, higher-income taxpayers should explore this option due to the foreign earned income exclusion. The $58,000 income limit applies after the exclusion of up to $91,500 is subtracted. Consequently, this makes Free File available to many higher-income taxpayers. Taxpayers who cannot meet the June 15 deadline can receive an automatic extension until Oct. 17. This is an extension of time to file, not an extension of time to pay,

IRS FAILS INTERNATIONAL TAX QUESTION TEST

The IRS recently announced a new email form on their website, www.irs.gov  for the sole purpose of allowing tax payers to send them international tax questions with the promise they would respond with an answer from an expert within a reasonable time. We decided to test that question form and see what kind of answer was sent back.

We asked them a question on Form 5471 (foreign corporation tax form) involving a filing issue that was  specifically addressed and answered on page 1 or 2 of the IRS instructions to Form 5471.  We then waited for the email answer which came in about a week.

Their answer thanked us for our question and then state it was a complex question and we should consult a CPA or other tax professional for an answer because they were not able to answer it. The IRS response showed us:

• One more time that a taxpayer cannot rely on the IRS who writes and administers the International Tax system to answer questions even if they indicate they will do so and  should know the answer.
• A question that was answered on page 2 of the instructions for Form 5471 was too difficult for the IRS to handle....then how do they expect taxpayers to handle it.
• The IRS creates a lot of business for tax professionals like us.

IRS REVISES FREQUENTLY ASKED QUESTIONS ON 2011 VOLUNTARY OFFSHORE DISCLOSURE PROGRAM

The IRS on June 2, 2011, changed certain questions and answers on its Frequently Asked Questions page  which contains the rules to its 2011 Voluntary Offshore Disclosure Program. The new information provides some significant further guidance for those taxpayers trying to personally decide if they wish to enter the program.  Some of the additional information which is useful includes.

• Procedures to get an extension of time beyond the original 8/31/11 deadline
• Additional Questions and Answers (51.1 to 51.3) indicating factual situations when a taxpayer may elect to  Opt out of participating in the program because the civil penalties imposed outside of the program may be less than those imposed if the taxpayer chose to enter the program.

Look at the revised FAQ ..... note at the top of the page the Questions and Answers that have been changed or added as of June 2,2011   Contact us if you wish to discuss your individual situation or these new changes.

IRS ISSUES NEW DRAFT OF FORM 8938 TO BE USED IN 2011 TO REPORT FOREIGN FINANCIAL ASSETS

The IRS has issued a new draft of Form 8938, Statement of Specified Foreign Financial Assets which must be filed for 2011with returns to report foreign financial assets. The form is now more complex than the prior draft. This is not the final version  so there could be further changes before it is finalize. Download a pdf version of the draft form here.

FBAR Filing Deadline Extended for Certain Financial Professionals

WASHINGTON — The Internal Revenue Service and the Financial Crimes Enforcement Network (FinCEN) today announced that a small subset of individuals with only signature authority required to file the Report of Foreign Bank and Financial Accounts (FBARs) will receive a one-year extension beyond the upcoming filing date of June 30, 2011.

FinCen today issued Notice 2011-1 that extends the deadline until June 30, 2012, for the following individuals:

• An employee or officer of a covered entity who has signature or other authority over and no financial interest in a foreign financial account of another entity more than 50 percent owned, directly or indirectly, by the entity (a “controlled person”).
• An employee or officer of a controlled person of a covered entity who has signature or other authority over and no financial interest in a foreign financial account of the entity or another controlled person of the entity.

All other U.S. persons required to file an FBAR this year are required to meet the June 30, 2011, filing date. Unlike with federal income tax returns, extensions of time to file are not available.

Today’s notice was issued to facilitate more accurate compliance of FBAR filings in the wake of recent finalization of regulations. The FBAR filing requirements, authorized under one of the original provisions of the Bank Secrecy Act, have been in place since 1972.

On Feb. 24, 2011, FinCEN published a final rule that amended the Bank Secrecy Act regarding FBARs.

The FBAR form is used to report a financial interest in, or signature or other authority over, one or more financial accounts in foreign countries.

U.S. persons are required to file FBARs Form TD F 90-22.1 annually if they have a financial interest in or signature authority over financial accounts, including bank, securities or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year.

US Expatriate Tax Return Extension

US Expats get an automatic extension to file their IRS Form 1040 returns until 6/15/11 for 2010 if they live abroad on 4/15.  You can get a further extension until 10/15/11 if you file for one prior to 6/15 using form 4868.  We will electronically file that form for you without charge providing you ask us to prepare your expat return.  That form also extends the due date of Forms 5471, 8865, 3520 and form 5500EZ.

Though not officially confirmed by the IR S, many articles have appeared in the media stating extending your tax returns does reduce your chances of IRS Audit.  We have found that true in our 30 years of experience.  Therefore, extending your return even though it might be completed might be an excellent idea.

Keep in mind an extension does not extend the time you must pay any taxes due from the regular 4/15 date.  If you do not any taxes due, penalties and interest will accrue until any tax due for 2010 is paid in full.

US Tax Ramifications of Forming a Foreign Corporation to Do Business Abroad

There are significant consequences (on your US tax return) when you form a foreign corporation in a country outside of the USA to operate your business or make investments in any other country in the world. Most offshore accountants and attorneys do not know enough about US international taxation to advise you of the consequences which should be considered in advanced.  It is much harder to correct the US tax problems which WILL occur later if you do not do your US tax planning in advance.

You need to consider the following US IRS reporting and election consequences:

• Controlled foreign corporation rules
• Subpart F income possibilities
• Passive foreign investment company rules.
• Possible Flow Through Election for US tax purposes.
• Subpart F personal holding company rules
• The need to file FBAR forms to report foreign bank accounts
• Transfer Pricing
• Possible Tax on Transferring intangible property and tangible property to a foreign corporation

We can help you plan your foreign corporation structure to avoid unpleasant and possibly expensive consequences for failing to consider the rules set forth above.  Many of these items are difficult to deal with after you have already formed your foreign corporation.

Keep in mind their are also special rules which apply to foreign partnerships, foreign LLCs and foreign trusts which must also be considered.

IRS NOW LOOKING AT COUNTY RECORDER RECORDS TO LOCATE REAL ESTATE GIFT TRANSFERS WHICH ARE NOT REPORTED ON FORM 709

The Wall Street Journal reports the IRS is now investigating real estate transfers to determine if proper Gift Tax Returns (form 709) are reported.  The IRS is getting real estate transfer records in many states. This new procedure could naturally be extended at any time to discover real estate sales which have not been reported on personal tax returns.

Gift tax returns must be filed when the value of the gift exceeds $13,000. Real estate sales must be reported if there is any gain or loss.

This new procedure will result in many additional audits.  If you need help filing a Form 709 for any gift exceeding $13,000 let us know. This rule applies to gifts made by US Citizens and Permanent Residences whether living in the US or abroad. It also applies regardless of the location of the property gifted or to whom it is gifted.