Foreign Account Tax Compliance Act

Own a foreign mutual fund? You may have a PFIC problem!

August 17, 2017 by Admin

PFIC is not a disease but, thanks to the IRS, if you’ve got one, you want to find a cure ASAP.

If you own shares in a foreign-based mutual fund, you have a PFIC (Passive Foreign Investment Company). If you don’t do something about it, you are subject to the onerous PFIC taxation regime imposed by the IRS. You pay tax at the highest ordinary income tax rate plus an interest charge whenever you take a distribution or the fund has a capital gain. This means that your capital gains get taxed at 39.6%+ rather than 15%. Ouch!

Example: The fund reinvests all income in 20×5, 20×6 and 20×7. You pay no tax. In 20×8 you take a 10,000 distribution. You pay 3,960 tax plus interest on the tax you did not pay in the prior three years.

What can you do?

There are two possible elections that can be made:

Make the QEF election and you treat your PFIC as a regular mutual fund. You pay ordinary or capital gains tax on your share of the funds income annually.. OR

Make the Mark to Market election and you pay tax on the annual increase in FMV.

In either case, if you didn’t make the election in the first year you owned the fund, you have to pay the steep PFIC tax on all prior income and increases in FMV. For assistance with these difficult tax issues, please contact us.

Foreign Bank Accounts? Don’t Miss the June 30, 2016 Deadline

June 6, 2016 by Admin

The FBAR: Who Should File? Do you have income overseas you forgot to report? Did Grandpa leave you his foreign bank account when he passed away? If you have foreign bank accounts holding more than $10,000 in the aggregate anytime during the year, you are required to file an FBAR (Report of Foreign Bank Accounts) by June 30^th of the following year (the 2015 FBAR must be received by the IRS by June 30, 2016). It doesn’t matter whether the foreign accounts generate income or not; just owning them, or having signature authority, requires you to file.

What’s the Big Deal? Failure to file can result in serious consequences. The sanctions for not completing the FBAR include numerous severe civil penalties and potential prosecution followed by a term in federal prison.

What Can I Do? , do not need to enter the OVDP, but can participate in the )penalty are due.

Time is Running Out Under the new rules, any taxpayer seeking to participate in the OVDP, who at any point in the 8 year look back period had an account at a bank which has been publically identified as a target of an IRS criminal tax investigation or as having reached a non- prosecution agreement with the IRS, will be subject to a FBAR penalty of 50% (not 27.5%) on all foreign accounts and assets. Close to 100 Swiss banks are currently negotiating to enter into Non-Prosecution Agreements with the IRS, so the risk of facing a 50% penalty is growing.

Better Safe than Sorry While the current voluntary disclosure program is currently running indefinitely, the rules can change at any time. In addition, disclosing now allows you to transfer the money to your American accounts as well as to implement gifting and other estate planning strategies. Finally, for a “Get Out of Jail Free Card” it’s a pretty good deal. Now you will be able to sleep at night!

Unreported Assets Overseas? The Clock is Ticking

May 29, 2014 by Admin

Do you have income overseas you forgot to report? Did Grandpa leave you his foreign bank account when he passed away? If you have foreign bank accounts holding more than $10,000 in the aggregate anytime during the year, you are required to file an FBAR (Report of Foreign Bank Accounts) by June 30^th of the following year (the 2013 FBAR must be received by the IRS by June 30, 2014). There is no extension to file the FBAR.

It doesn’t matter whether the foreign accounts generate income or not; just owning them, or having signature authority, requires you to file. Failure to file can result in serious consequences. The sanctions for not completing the FBAR include numerous severe civil penalties and potential prosecution followed by a term in federal prison.

The 2012 Offshore Voluntary Disclosure Program (OVDP) continues well into 2014, with no definite final deadline in sight. It’s important to realize that the Voluntary Disclosure Program essentially sets up a race between you and the IRS. Diplomatically, as a result of the Foreign Account Tax Compliance Act (FATCA) country after country has recently declared that they intend to disclose US citizen account owners to the IRS. Do not “relax” if the country in which your Offshore Account is located has not yet turned over documentation to the IRS. Diplomatic and economic pressure is being exerted by the U.S. globally. The metaphorical “noose” will only tighten.

While the voluntary disclosure program is currently running indefinitely, the rules can change at any time. The FBAR penalty is 27.5% of the largest balance during the period covered by the voluntary disclosure. Sounds like a steep price to pay? The penalties are far greater if you don’t “get with the program” and then get caught. In addition, disclosing now allows you to transfer the money to your American accounts as well as to implement gifting and other estate planning strategies. Finally, for a “Get Out of Jail Free Card” it’s a pretty good deal. Now you will be able to sleep at night!

Reporting Foreign Assets: It Pays to do the Right Thing

April 29, 2013 by Admin

Two recent verdicts involving unreported foreign asset reporting highlight the same moral: do the right thing (or go to jail).

In one case, Michael Canale, a physician, pleaded guilty in New York federal court last December to willful failure to notify the IRS about Swiss bank accounts that in 2010 held nearly $1.5 million. While acknowledging that Canale “made a serious mistake,” attorney Robert Fink wrote that his client inherited the account from his father, who gave orders to keep it a secret. The defense lawyer characterized Canale as “a genuine American hero, who served his country selflessly as a combat military doctor”. The Manhattan U.S. Attorney’s office argued, however, that he evaded at least $216,000 in federal taxes on income form the Swiss accounts and “he could have, at any time, ceased his criminal conduct by disclosing the account or even simply closing the account.” Canale was sentenced to six months in federal prison, fined $100,000, ordered to pay more than $216,000 in restitution and perform 400 hours of community service. [Read more…] about Reporting Foreign Assets: It Pays to do the Right Thing

Got Unreported Assets Overseas? June 2013 Deadline Approaching

April 26, 2013 by Admin

The FBAR: Who Should File?

Do you have income overseas you forgot to report? Did Grandpa leave you his foreign bank account when he passed away? If you have foreign bank accounts holding more than $10,000 in the aggregate anytime during the year, you are required to file an FBAR (Report of Foreign Bank Accounts) by June 30^th of the following year. It doesn’t matter whether the foreign accounts generate income or not; just owning them, or having signature authority, requires you to file.

What’s the Big Deal?

Failure to file can result in serious consequences. The sanctions for not completing the FBAR include numerous severe civil penalties and potential prosecution followed by a term in federal prison.

New in 2011: Form 8938

Beginning in 2011, the IRS has added Form 8938 to the individual 1040 tax return, further tightening the noose on taxpayers failing to report ownership of overseas accounts.

If you fail to file Form 8938 or fail to report a specified foreign financial asset that you are required to report, the statute of limitations for the tax year may remain open for your income tax return (Form 1040) until three years after the date you file a complete and accurate Form 8938.

What Can I do Now?

In order to encourage taxpayers to correct previously filed returns that were false, or to remedy past failures-to-file tax returns, the IRS created in the early 1950s the “Voluntary Disclosure Policy” – a policy under which no criminal prosecution will be initiated if the taxpayer comes forward before the IRS is onto

him. In 2009, as the IRS became aware of increased offshore tax abuse, it initiated the formal Voluntary Disclosure Program for offshore accounts. While making a voluntary disclosure doesn’t guarantee immunity from prosecution, taxpayers making truly valid disclosures are rarely, if ever, prosecuted.

Time is Running out

It’s important to realize that the Voluntary Disclosure Program essentially sets up a race between you and the IRS. In order to avoid criminal prosecution you must come forth before the IRS comes knocking, so time is of the essence. Many experts are expecting dozens of banks worldwide to turn over the names of U.S. taxpayers within the next year, including Credit Suisse Group, Julius Baer Group, HSBC Holdings, and the three Israeli banks, Bank Hapoalim, Bank Leumi, and Mizrahi-Tefahot.

Better Safe than Sorry

While the current voluntary disclosure program is currently running indefinitely, the rules can change at any time. The FBAR penalty has been raised in 2012 to 27.5% of the largest balance during the period covered by the voluntary disclosure. Sounds like a steep price to pay? The penalties are far greater if you don’t “get with the program” and then get caught. In addition, disclosing now allows you to transfer the money to your American accounts as well as to implement gifting and other estate planning strategies. Finally, for a “Get Out of Jail Free Card” it’s a pretty good deal. Now you will be able to sleep at night!

Swiss Banks Looking to Drop American Customers

October 26, 2012 by Admin

If you’re an American citizen and own a Swiss bank account, there’s a good chance you’ll be receiving a letter from the Swiss bank politely asking you to take your business elsewhere. A pending U.S. regulation, known as the Foreign Account Tax Compliance Act, or Fatca, requires foreign banks to identify Americans among their clients and to provide their financial information to the Internal Revenue Service. A devastating penalty equivalent to 30% of a bank’s U.S. income could be assessed if even one person is overlooked. Swiss banks are particularly on edge, as the U.S. has alleged that 11 Swiss banks have helped Americans avoid paying taxes. As a result they have begun ushering American clients out or limiting the range of products offered to them. The administrative cost of complying with the law, given the relatively small number and size of U.S. accounts, just isn’t worth it. While the impact can already be felt in Switzerland, banks world-wide are also concerned about the complexity of the new rules, and the difficulties and costs involved with Fatca, whose full enactment is viewed as inevitable.