IR-2015-86, June 10, 2015

WASHINGTON—The Internal Revenue Service today reminded all taxpayers with an FBAR filing requirement to report their foreign assets by the June 30 deadline. FBAR filings have risen dramatically in recent years as FATCA phases in and other international compliance efforts have raised awareness among taxpayers with offshore assets.

The IRS encourages taxpayers with foreign assets, even relatively small amounts, to check if they have a filing requirement. Separately, certain taxpayers living abroad may also have to file the FATCA-related Form 8938 with their tax returns by the June 15 deadline. (Domestic filers may also be required to file Form 8938, which would have been due by April 15 with their tax returns.)

“The vast majority of taxpayers pay their fair share. The FBAR and FATCA filing requirements make it tougher for that relatively small number of taxpayers trying to hide assets and income offshore,” said IRS Commissioner John Koskinen. “Taxpayers are encouraged to review the rules and disclose their offshore assets.”

FBAR Requirements

FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts, that must be filed with the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the Treasury Department. The form must be filed electronically and is only available online through the BSA E-Filing System website.

Who needs to file an FBAR? Taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014 generally must file. For more on filing requirements, see Current FBAR Guidance on IRS.gov. Also see the one-hour webinar explaining the FBAR requirement.

The FBAR filing requirement is not part of filing a tax return. The FBAR Form 114 is filed separately and directly with FinCEN.

FBAR filings have surged in recent years, according to data from FinCEN. FBAR filings exceeded 1 million for the first time in calendar year 2014 and rose nine of the last 10 years from about 280,000 back in 2005.

FATCA Requirements

FATCA refers to the Foreign Account Tax Compliance Act. The law addresses tax non-compliance by U.S. taxpayers with foreign accounts by focusing on reporting by U.S. taxpayers and foreign financial institutions.

In general, federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax returns. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and generally requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938 Statement of Special Foreign Financial Assets.  Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions of this form for details.

The FATCA Form 8938 requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR Form 114.  A brief comparison of the two filing requirements is available on IRS.gov.

U.S. Income Tax Obligations

U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2014, may have a U.S. tax liability and a filing requirement in 2015.

A filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the foreign earned income exclusion or the foreign tax credit, that substantially reduce or eliminate their U.S. tax liability. These tax benefits are not automatic and are only available if an eligible taxpayer files a U.S. income tax return.

The filing deadline is Monday, June 15, 2015, for U.S. citizens and resident aliens whose tax home and abode are outside the United States and Puerto Rico, and for those serving in the military outside the U.S. and Puerto Rico, on the regular due date of their tax return. To use this automatic two-month extension, taxpayers must attach a statement to their returns explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for details.

Nonresident aliens who received income from U.S. sources in 2014 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 15 depending on sources of income. See Taxation of Nonresident Aliens on IRS.gov.

More Information Available

Any U.S. taxpayer here or abroad with tax questions can refer to the International Taxpayers landing page and use the online IRS Tax Map and the International Tax Topic Index to get answers. These online tools assemble or group IRS forms, publications and web pages by subject and provide users with a single entry point to find tax information.

Taxpayers who are looking for return preparers abroad should visit the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

To help avoid delays with tax refunds, taxpayers living abroad should visit the Helpful Tips for Effectively Receiving a Tax Refund for Taxpayers Living Abroad page.

More information on the tax rules that apply to U.S. citizens and resident aliens living abroad can be found in, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, available on IRS.gov.

The IRS has launched new online videos and has expanded other online resources to help taxpayers, especially those living abroad, meet their U.S. tax obligations. For details see IR-2015-85 issued on June 4, 2015.

Many businesses have recently received a letter from the IRS notifying them about incorrect payee information and that they may need to begin backup withholding. Here is an explanation of what these notices mean.

The bottom line is this is a warning and a reminder to request correct Social Security numbers or federal EIN’s from the individuals and businesses listed in the notice and to start back-up withholding if you cannot obtain the correct information.

According to IRS regulations, you are required to withhold 28% of any amounts paid to an independent contractor if they have not given you their federal ID number or Social Security number. That’s why you are supposed to obtain a completed W-9 before you make any payments to an independent contractor.

If you have received one of these notices what has happened is you filed 1099’s for 2013 with either incorrect or missing numbers. Accordingly, the IRS is informing you that if you make any FUTURE payments to these individuals and companies, you are required to withhold the 28% and IF YOU DON’T the IRS will assess a penalty on us. You do not have to do anything about the prior year payments.

Fortunately, there is no penalty for first-time offenders. So as long as you correct the situation you will not be penalized.

If you need a W-9 to send to any of your independent contractors, you can download a copy on my Website Resource page

Yesterday I got a phone call from a client indicating they had just been called by the IRS and they were threatening to send the sheriff to arrest him unless he made immediate payment. He asked to talk to their supervisor and supervisor told him the same thing.

I told him it was a scam and not to worry about it. He tried to discuss it with me and I told him there was nothing to discuss, that it is a scam.

On my Webinar today, the IRS confirmed that threatening phone calls pretending to be from the IRS are the biggest scam going. Their recommendation is to immediately hang up the phone and not engage in a conversation with them. If they call back hang up again. They will then probably move on to someone else.

Now having said that, if you have been talking with the IRS for an extended period of time about a specific issue then, yes, the IRS may tried to call you. But, they should not threatening in the phone call and they will not tell you they will be calling the sheriff.

Here is a link to the IRS page if you need to report a scam http://www.treasury.gov/tigta/contact_report_scam.shtml

You don’t have all your information. You’re too busy to get it together. You don’t have the money to pay. I’ve heard these and many other reasons why people cannot file their tax returns on time. Whatever your reason, you need to file an extension.

The most important reason for this is that if you owe money, the penalty for not filing your tax return on time is 5% per month up to 25%. So if you wait two months, it will cost you an extra 10% of the amount you owe to the IRS.

This doesn’t mean it’s not going to cost you anything. You still have interest accruing on your unpaid balance and there is a late payment penalty of 1/2% per month. But these are small compared to the late filing penalty described in the previous paragraph.

And filing an extension is as simple as filling out a Form 4868 and mailing it into the IRS. Please note that you are supposed to make a reasonable estimate of any tax liability in order for the extension to be valid. That’s why, when clients tell me to file an extension for them, I let them know that I need their W-2 or basic information in order for the extension to be valid.

Blog | REUVEN I. RUBINSON, CPA, MBA

First, the CYA – I am not providing legal advice. What I am stating is my understanding as a CPA and former CFO of a publicly-traded company. Before you take any actions, you should consult with counsel.

Two weeks ago I posted a Blog stating that a CA corporation generally cannot save taxes by incorporating in say Nevada. So now the question is “why would you incorporate in another state?”

The first answer is that the “home” state of a corporation is where many legal issues need to be decided. So many corporations incorporate in a “business friendly” state rather than the state in which the officers live. They then register in the state of the officers as a foreign corporation doing business in that state.

A second reason is that if confidentiality is important to you, in some states it may be easier to maintain the confidentiality of the officers and shareholders.

Lastly, it may be possible to shift taxes by legitimate means. For example, let’s say you are corporation with its operations based in CA and have material sales to the east coast. If you set up as a Nevada corporation, have a real operating office in Nevada and sign contracts in Nevada, you may be able to not pay CA taxes on them because they do not go thru CA. And your trips to the Nevada office in Las Vegas may be a tax deduction for you 🙂 .

The bottom line is there are some good reasons to choose certain states to incorporate in. Please consult with accounting and counsel in order to make sure you can legally accomplish your goals before do so.

I have recently had a couple of conversations with people about incorporating in Nevada and I wanted to share them. Scammers are making money and putting companies at risk.

First, the CYA – I am not providing legal advice. What I am stating is my understanding as a CPA and former CFO of a publicly-traded company. Before you take any actions, you should consult with counsel.

At a meeting two weeks ago, someone stated that they had just incorporated in Nevada and were going to save CA taxes, IE the $800 minimum tax. I asked them where they were doing business and they told me San Diego. I asked them if they were aware that foreign corporations (corporations incorporated in another state) that are doing business in CA were required to register in CA and pay CA taxes as if they were incorporated in CA. They said no. So I had to tell them that they needed to register in CA and the money they had spent to incorporate in Nevada was probably thrown away.

Please do not shoot the messenger 🙂