Foreign Financial Transactions (FBAR Reporting)

Persons connected with the transportation into or out of the U.S. of monetary instruments exceeding a specified dollar amount on any one occasion must report the transaction, subject to a number of exceptions. 

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Except as provided below, each United States person (as defined below) who has a financial interest in or signature or other authority over bank accounts, securities accounts, or other financial accounts in foreign countries, must make a report of those relationships for each calendar year during any part of which the aggregate value of the accounts exceeded $10,000. The report is made on Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts or FBAR. 


A United States person means:

... a U.S. citizen,

... a individual who is a resident alien under Code Sec. 7701(b) of the U.S., the District of Columbia, the Indian lands (as that term is defined in the Indian Gaming Regulatory Act), and the Territories and Insular Possessions of the U.S.,

... an entity, including a corporation, partnership, trust or limited liability company organized or formed under U.S. laws or the law of any State, the District of Columbia, the U.S. Territories and Insular Possessions or Indian Tribes. 

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Signature or other authority means the authority of an individual (alone or in conjunction with another) to control the disposition of money, funds or other assets held in a financial account by direct communication (whether in writing or otherwise) to the person with whom the financial account is maintained. 

For this purpose, a reportable account includes:

... bank account , e.g., a savings deposit, demand deposit, checking, or any other account maintained with a person engaged in the business of banking,

... a securities account (an account with a person engaged in the business of buying, selling, holding or trading stock or other securities),

... an account with a person in the business of accepting deposits as a financial agency,

... an insurance or annuity policy with a cash value,

... an account with a broker or dealer for futures or options transactions in any commodity on, or subject to rules of, a commodity exchange or association, or

... a mutual fund or similar pooled fund which issues shares available to the general public that have a regular net asset value determination and regular redemptions. ²⁸

 

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In addition, a debit card account is a financial account, and a credit card account may be treated as a financial account under certain circumstances. ²⁹

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Accounts that are not subject to the FBAR reporting requirement include:

... an account of a department or agency of the U.S., a State or subdivision or Indian Tribe.

... an account of an international financial institution of which the U.S. is a member.

... an account in a U.S. military banking facility or a U.S. military finance facility operated by a U.S. institution designated by the U.S. government to serve U.S. government installations abroad.

... correspondent or nostro accounts that are maintained by banks and used solely for bank to bank settlements

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A U.S. person with a financial interest in 25 or more foreign financial accounts need only provide the number of financial accounts and certain other basic information on the report. The person will be required to provide detailed information when requested. 

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Participants and beneficiaries in retirement plans under Code Sec. 401(a) , Code Sec. 403(a) , Code Sec. 403(b) as well as owners and beneficiaries of individual retirement accounts under Code Sec. 408 or Roth IRAs under Code Sec. 408A are not required to file an FBAR with respect to a foreign financial account held by or on behalf of the retirement plan or IRA. 

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The FBAR is due to be received by the IRS by June 30 following the year for which it applies. That due date cannot be extended for any reason.  It is filed separately from your personal tax return.

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Persons with signature authority over, but no financial interest in, a foreign financial account must file FBARs for the 2008, 2009, 2010 and earlier calendar years by June 30, 2011. 

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Corporations, partnerships, trusts, and LLCs  must all file Form TD F 90-22.1 on their foreign financial accounts.

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The Supreme Court has upheld the constitutionality of the foreign financial transaction reporting requirements. Extreme civil monetary penalties and criminal prosecution can result from failure to file these forms.

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US Expatriates Living and Working Abroad Get Automatic Extension of Time to File Return until 6/15/11 - All Others due 4/18/11

Your tax return is due on 4/18/11 for the 2010 tax year. You can extend your return and pay in any tax due (to avoid interest and penalties on late payment) by filing Form 4868.  You may also need an extension for state tax purposes if you owe taxes to any US state. You need to refer to the tax rules of each particular state to determine how to extend that tax return.

However, if you are a US expatriate living and working abroad on 4/18/11, you get an automatic extension of time to file your 2010 personal return until 6/15/11 and then that expatriate return can be extended until 10/15/11 using Form 4868.

It is important to extend your return because the late filing penalty for non extended returns is 5% per month of any tax due with that return up to a maximum of 25%.  The penalty for paying taxes late, if you file an extension, is only 1/2 % per month an a small interest charge.

TYPES OF INFORMATION AND QUESTIONS ASKED IN IRS AUDIT OF WEALTHY TAXPAYERS- DOWNLOAD ACTUAL AUDIT QUESTIONS

The IRS has stepped up audits of wealthy taxpayers and others at the higher income levels. The Wall Street Journal has released a copy of the audit requests given one of those taxpayers. You can download a copy of the IRS audit questionnaire here.

Though you may not consider yourself wealthy, this questionnaire will give you a good idea of the possible questions the IRS will ask you upon audit. Read it and plan to have you tax return prepared based on the types of questions you may be asked later on audit. Audits usually do not occur until 2-3 years after the return is actually filed. Remember, when audited if you have written documentation of an item of income or expense, it is probable that the IRS agent will accept that item on your tax return. If you have no written support, it is probable that item will be disallowed.


Do not ever represent yourself on an IRS or State Audit. It is always best to have an independent tax practitioner represent you so you can in most situations avoid talking with the IRS auditor in person and perhaps making statements that will hurt you.

IRS TAXATION ON NONRESIDENTS WORKING IN THE USA

IRS and immigration are working together.  If  a foreign executive visits the United States five times a year and works here and if eachh trip is for a week.  The visitor owes U.S. income tax on one-tenth (5/52) of his foreign salary.  The IRS tax scheme is outlined below:

• The Taxation of Nonresident Alien US Visitors
  
  • Who Must File an Income Tax Return 
  • What Income Is Taxed 
  • What Tax Forms You May Need 
  • Income Tax Withholding 
  • When and Where To File 
  • Departing Aliens and the Sailing or Departure Permit 
    • Aliens Not Required To Obtain Sailing or Departure Permits 
    • When To Get a Sailing or Departure Permit 
    • What Is Needed To Get a Sailing or Departure Permit 
• Index  
• Write us if you need help  US nonresident tax planning for or filing your US nonresident tax returns.

Enron Whistleblower Scores $1.1M Reward from IRS

The Internal Revenue Service has paid a $1.1 million reward to an anonymous whistleblower for information that exposed an alleged tax fraud scheme by Enron, Bankers Trust and others before the company collapsed. Many of these schemes involved use of offshore accounts and entities to avoid US taxation.

It is one of the few whistleblower rewards the new IRS Whistleblower Office has made since Congress created the IRS Whistleblower Office and a new tax whistleblower program in 2006. The IRS made the award under the previous whistleblower program (known as the IRS 211 program), which allowed the IRS to award whistleblowers nothing or up to 15 percent of the tax funds the IRS recovered as a result of the whistleblower’s information.

The whistleblower, a Wall Street banker who has chosen to remain anonymous to protect his job and career, received the maximum reward of 15 percent. 

This same program is being used to catch expatriates living and working abroad with unreported foreign income and assets.  Your foreign banker, investments advisor, friend, neighbor or accountant can decide it is more profitable to turn you in to the IRS, than to remain loyal to you. Be careful out there!

IT IS YOUR OBLIGATION TO KEEP IRS INFORMED OF YOUR CURRENT ADDRESS

Many  US expats who have moved abroad call us after learning of tax liens and other IRS change, letters, etc and state they never received them.  They want to use that as an excuse for their failure to respond or to get  additional taxes, penalties and interest abated.  That does not work.

It is your obligation as a US Taxpayer to keep the IRS Informed of your current mailing address. If you do not, you are solely responsible for any adverse consequences, not the IRS.  If the mail delivery is poor in the country you plan to live, it is best to use a friend or relative's address in the US so you are certain you will receive all IRS communications.

 Change Your IRS Address Records  You can change your address on file with the IRS in several ways:

• Write the new address in the appropriate boxes on your tax return;
• Use Form 8822, Change of Address, to submit an address or name change any time during the year.  It can be downloaded at www.irs.gov;
• Give the IRS written notification of your new address by writing to the IRS center where you file your return. Include your full name, old and new addresses, Social Security Number or Employer Identification Number and signature. If you filed a joint return, be sure to include the information for both taxpayers. If you filed a joint return and have since established separate residences, each spouse should notify the IRS of their new address.

MEXICO RENTAL INCOME…………….PAYING TAX IS NOW EASIER THAN EVER AND WITH STATESIDE BENEFITS!!

by Linda Jones Neil

Those who have rental properties in Mexico can now rest easy. SAT, Mexico’s Uncle Sam, has provided a straightforward and relatively simple way to declare and pay taxes on rental income for those foreigners who have long wished to be in compliance but did not know the way to do so.

As of February 2010, SAT eliminated the requirement for a taxpayer identification number (RFC) which had previously been obtained only through extreme efforts,

Now the foreign taxpayer has two options: One to obtain the taxpayer identification number (RFC), file monthly declarations whether there is income or not, and enjoy a deduction of expenses. This is Option One.

Option Two provides for the taxpayer to make a declaration when income is received, pay a flat tax and obtain a receipt to take to the tax authorities in his/her tax residence, for credit or deduction of taxes in the home country.

On any rental the owner, or his/her property managers, are responsible for collecting the IVA tax (the added value tax) which is 11% on the Baja Peninsula and the Yucatan peninsula and 16% elsewhere. Owner or property manager must also collect the state hospitality tax which is 2 to 4% of the rental amount. These taxes must be delivered to the federal and local governments, as applicable.

It is important for the foreign person with rental property in Mexico to make arrangements for payment of these taxes since penalties can be high in Mexico for non-payment and, additionally, these same tax payments and expenses can be deducted or credited against income in taxpayer’s home country.

The next part of the equation for the US taxpayer has been deciding how to declare this income and enjoy the deductions in their US returns.

Don Nelson, Attorney and Certified Public Accountant located in California reports the following regarding tax treatment for U.S. taxpayers:

• If the Mexican rental property owned in an individuals name or through a Fideicomiso, all rental income and expenses are reported on Schedule E of the form 1040.
• Allowable rental expenses are the same as for a US property.
• Management fees, interest, property taxes, utilities, repairs, maintenance, association dues, insurance…ALL are deductible!
• Depreciation on a Mexican property is 40 years straight line
• Taxpayer can take a Foreign Tax Credit against the US income tax paid on the net rental income for income taxes paid in Mexico on that income.
• IVA (added value tax) collected from the renter must be included in rental income, but then deducted out so no double taxation.
• The special Vacation Home rules applicable to US rental property occupied part time by the owner is also apply to Mexican rental property.
• IN A SALE OF THE PROPERTY, net gain is taxed in the US at the applicable lower capital gains rates and Mexican ISR paid is a credit against that US tax on that profit.

For further information on the Rental Payment Program for Mexican properties, please contact: Lic. Quirino Parra: quirino.parra@settlement-co.com.

For further information on the payment of US taxes when Mexican income is involved, please contact attorney and CPA Don D. Nelson: ddnelson@gmail.com . His website is at www.taxmeless.com.

Author Linda Neil is the founder of The Settlement Company. It is the first escrow company in Mexico, and is dedicated to counseling buyers and sellers, processing the trusts and title transfers of Mexican real estate for foreign buyers and sellers for properties located ANYWHERE in Mexico and, now, for payment of taxes on rental income for foreigners with properties in Mexico.. Ms. Neil is also licensed as a Real Estate Broker in California, is an Accredited Buyer Representative through NAR, and has over thirty five years of hands on experience in all aspects of Mexican real estate. She holds membership in AMPI, NAR and FIABCI and PROFECO Certificate 00063/96.

E-Mail; linda.neil@settlement-co.com Web Site: http://www.settlement-co.com.

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copyright 2011, Consultores Phoenix, S.C., reproduction prohibited without permission.

Offshore Potential Employers Are Doing Credit Checks of Potential Employees

We have recently learned that foreign companies hiring US expatriates abroad are now having pre-employment credit checks done before hiring those US expats.  US companies as well have been doing this type of credit check on potential employees for some time.

Those pre-employment credit checks will reveal the existence of IRS and state tax liens if you have not filed all required US returns or have unpaid taxes in the US.  If the credit report shows unpaid US taxes,  those offshore employers are choosing not to employ the US expatriate.

To avoid this problem, US expatriates need to keep current on current IRS tax filing requirements and file any past tax returns that are in arrears.  If there are any IRS and state tax liens outstanding, it is best to pay them off or get assistance with the resolution of any liens you dispute.  Let us know if you need help with past returns or resolving past tax liens.

COLLECTING SOCIAL SECURITY WHEN RETIRED ABROAD

You can still get US social security

If you are a U.S. citizen, you may receive your benefits in most foreign countries, usually by check or direct deposit. If you are not a U.S. citizen, the answer is more complicated, with certain rules applying to certain countries. For specifics, see the Social Security publication "Your Payments While You Are Outside the United States." 


You generally must pay into social security for ten years to get benefits. Many US expats who work for foreign employers do not pay into US social security and therefore may not have enough credits to collect benefits.  You cannot receive it just because you are a US Citizen if you did not pay into the system. Read more at www.ssa.gov

IRS Announces 2011 Voluntary Offshore Disclosure Program (new program)

The IRS TODAY announced a New 2011 Voluntary Offshore Disclosure Program which will be available through August 31, 2011. It gives taxpayers who are hiding assets abroad, or not disclosing those assets on their tax returns as required by tax law , or those who failed to  file the required forms disclosing their assets abroad a second chance to come out of the closet. The new program will give participants  reduced penalties from those they would have paid if they did not enter the program. The new program's penalties however are in many circumstances higher than those charged participants in the 2009 Offshore Voluntary Disclosure Program which ended 10/15/09.  Over 15,000 taxpayers participated in the original program and over 3,000 taxpayers have  since that time have filed to  disclose foreign bank accounts which had not previously been disclosed to the IRS.

Read more about the program here.  Our firm counseled and represented many  clients involved in the previous IRS Offshore Disclosure program with great results. Please contact us if you need assistance of an Attorney CPA with this New program. Anything you tell us is totally confidential under the attorney-client privilege rule.

2011 IRS Voluntary Offshore Disclosure Program Frequently Asked Questions and Answers

Associated Press Says American Taxes are the Lowest since 1950

By STEPHEN OHLEMACHER, Associated Press 

WASHINGTON – Taxes too high? Actually, as a share of the nation's economy, Uncle Sam's take this year will be the lowest since 1950, when the Korean War was just getting under way. Read More of the Story

IRS INDIVIDUAL TAX RETURN STATISTICS

The IRS now published extensive table showing information and statistics from individual tax returns that have been filed.  You can use this information to determine just how rich or poor you are compared with other taxpaying Americans. You can also use this information to see if your income and deductions are in line with other taxpayers who have similar incomes.  The IRS in some way uses these tables to determine which taxpayers to audit. The IRS Individual Taxpayer Statistics Page Can be accessed here.