Category: International

In the Streamlined Filing post of this blog on November 4 2016, I mentioned the 6 year FBAR filing requirements. You may be wondering, what is an FBAR?

An FBAR, or Form 114 “Report of Foreign Bank and Financial Accounts” is required to be filed annually by all U.S. citizens or residents who have greater than $10,000 USD in reportable foreign bank and financial accounts any time during the year. (https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar [accessed 12/9/16]).

The definition of ‘reportable foreign bank and financial accounts’ is very broad. For example, any savings accounts, checking accounts, brokerage accounts or any other account maintained in a financial institution outside of the U.S. would be included. It includes accounts that the taxpayer has only signature authority on.

As you can imagine, if you live outside the U.S., this $10,000 USD threshold is easy to exceed very quickly. In my experience, for U.S. citizens living outside the U.S., the FBAR is the most common filing requirement. It was even more common than having to file a U.S. tax return. Remember that there are minimum income filing requirements for filing a U.S. return. So even if a homemaker living in a foreign country does not have a U.S. tax filing requirement, they usually were joint owners with their spouse on bank accounts that caused them to have to file an FBAR.

FBARs are the most common filing requirement, but they also have some of the most stringent penalties for non-compliance. The penalties can be as much as $10,000 “per violation for nonwillful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50% of the balance in the account.” (https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar [accessed 12/9/16]).

Along with FBAR filing, The Foreign Account Tax Compliance Act (FATCA) also requires certain U.S. taxpayers holding foreign financial assets to report these assets on Form 8938 Statement of Specified Foreign Financial Assets (https://www.irs.gov/businesses/corporations/summary-of-fatca-reporting-for-u-s-taxpayers [accessed 12/9/16]). The reporting thresholds are higher than the FBAR threshold (thresholds start at $50,000 USD). There are slight differences in reporting on the Form 8938 vs the FBAR reporting requirements (for example, accounts in which a taxpayer has signature authority only are not reported on the Form 8938, but are reported on the FBAR).

To add to the complexity, FBARS do need to be e-filed through FinCEN (Financial Crimes Enforcement Network). Plus, the due dates for FBARS have changed this reporting year (for the 2016 tax filing year). In prior years, FBARs were due on June 30. They are now due on the due date of most taxpayer’s tax returns (April 18, 2017 for the 2016 tax year). FBARs can now be extended with the U.S. tax return.

Do you need help on your U.S. tax returns? Please contact CPA WorldTax for help and support at taxinfo@cpaworldtaxllc.com.

U.S. passports can now be denied or revoked due to non-payment of a U.S. tax liability.

The tax liability must be considered “seriously delinquent tax debt”[1]. IRC §7345 states that if the Secretary of State receives certification from the Commissioner of the IRS that an individual has “seriously delinquent tax debt” of greater than $50,000 USD, then the Secretary of State can deny or revoke or limit the individual’s U.S. passport.[2]

There actually has to be a notice of lien or a notice of levy in place for the revocation or denial to occur.[3] If a taxpayer is in the process of disputing a tax liability, then this section will probably not apply. Or, if the IRS and the taxpayer have negotiated an installment agreement or an offer-in-compromise and the taxpayer is making timely payments, then this section will probably not apply.

This is the first time that the IRS has linked U.S. tax liability to issuing of passports. The concern is always that now that the precedence is in place, the IRS could become more aggressive by reducing the applicable U.S. tax liability or link non-filing of U.S. tax returns to passport issuance.

Many U.S. citizens who live in foreign countries are not aware of their U.S. tax filing obligations. The U.S. requires all U.S. citizens to file a tax return, if they meet U.S. filing requirements, no matter what country they actually live in. The IRS’ Offshore Voluntary Disclosure Program (OVDP) can help individuals “catch up” on their U.S. tax filings. A future blog will discuss these programs. In the meantime, if you have any U.S. tax questions, feel free to contact CPA WorldTax at taxinfo@cpaworldtaxllc.com

[1] IRC §7345

[2] IRC §7345 [http://uscode.house.gov/view.xhtml?req=(title:26%20section:7345%20edition:prelim), accessed October 17, 2016].

ITINs (Individual Taxpayer Identification Numbers) now can expire.

An ITIN is a tax processing number issued by the IRS to individuals who need to have a U.S. taxpayer ID number (for example, for individuals who need to file a U.S. tax return). These individuals are not eligible for a social security number.

Some of the most common reasons to have an ITIN is if the individual needs to file a U.S. tax return because they have U.S. source income (such as a U.S. rental property or the sale of U.S. real estate). It used to be that ITINs did not expire. So if an individual didn’t have to file a U.S. return every year they could continue to use the ITIN only when they needed to file a return.

A good example of this is a U.S. nonresident alien who only needed to file a U.S. tax return when they sold a U.S. property. This has now changed. ITINs which have not bee used on a federal tax return at least once in the last three years will need to be renewed.

Other ITINs (depending on the #) may also expire. This may catch some U.S. tax filers unawares. Check out https://www.irs.gov/uac/newsroom/irs-now-accepting-itin-renewal-applications-taxpayers-encouraged-to-act-soon-to-avoid-processing-delays-in-2017.