PowerPoint Presentation

1818 SocietyForm 8938 and Other Important Reporting Issues

Bob Len, CPA, CFP Wolf Group Capital Advisors

Dale Mason, CPA The Wolf Group

Grant Miller, The Wolf Group

The Wolf Group, PC 4401 Fair Lakes Court, Suite 310, Fairfax, VA 22033 Tel: (703) 502-9500

Background

Designed to force U.S. citizens and residents to report all foreign income

FATCA provisions add an entirely new Chapter to the Internal Revenue Code

400 pages of regulations

FATCA Overview

IRS Agreement:

Required of all worldwide foreign financial institutions (FFI) and certain non-financial institutions who receive any U.S. source payments

5 European Countries Joint Statement

OTHERWISE:

30% withholding tax applied to any Withholdable Payment

FATCA Overview

FATCA - Practical Implications

Many foreign financial institutions have and will decide to terminate U.S. clients accounts

Strict enforcement of PFIC rules and cost of information reporting will also cause U.S. persons to move financial assets to the U.S.

Self-reporting will be cross checked with institutional (foreign government) reporting. Discrepancies will be easy to identify.

Form TD F 90-22.1 andForm 8938

The Wolf Group, PC 4401 Fair Lakes Court, Suite 310, Fairfax, VA 22033 Tel: (703) 502-9500

Foreign Bank Account Reporting: Form TD F 90-22.1

Who should file:

U.S. citizens and residents

Persons with financial interest in or signature authority over foreign financial account(s)

Aggregate value exceeding $10,000 at any time during the year

Deadline is June 30 of the following year

(No extensions)

Not filed with tax return

Schedule B question

Also domestic entities

Dont need ben ownership for FI (POA), constructive ownership too

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Foreign Financial Account

Bank, savings and checking accounts

Securities accounts such as mutual funds and brokerage accounts

Even foreign annuity or insurance policy with a cash surrender value

Not individual bonds, notes or stock certificates

Even if held with a US bank

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Maximum Value

Must file if the sum of all foreign financial accounts maximum values during the year exceeds $10,000

Look first at the maximum value of each account

Then add all maximum values and compare to $10,000

Odd result: $5,000 transferred between accounts is reportable

Convert foreign currencies at the 12/31 exchange rate

Must use Treasurys FMS rate if available

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Joint Accounts

Each U.S. person who owns part of a joint account that exceeds $10,000 must report the account on an FBAR

Each joint owner reports the full value of the account

No joint FBARs except for MFJ husband and wife

Not allowed if each spouse has separate accounts

Form TD F 90-22.1 Penalties

Non-willful failure penalty

$10,000

May be waived due to reasonable cause

Willful failure penalty

Greater of $100,000 or 50% of account balance

Criminal penalties

6 year statute of limitations

IRS Offshore Voluntary Disclosure Program

Partial amnesty program

FBAR and certain international tax reporting

Pay all taxes and interest for past 8 years

Accuracy or delinquency penalty

Waiver of penalties for informational forms

Penalty: 27.5% of the highest account balance

Penalty: 12.5% if unreported foreign account < $75K

Currently no deadline; subject to change

New Specified Foreign Financial Assets Report Form 8938

Effective for individuals for 2011

Interest in Specified Foreign Financial Assets with an aggregate value exceeding $50,000

Information statement attached to the individual's U.S. income tax return

This reporting requirement is in addition to FBAR!

Specified individuals citizens, residents, 6013g

Entities dont need to file until regs finalized

No SA

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New Specified Foreign Financial Assets Report Form 8938

Specified foreign financial asset

Any financial account maintained by a foreign financial institution

Any stock or security issued by a foreign person

Any financial instrument/contract foreign issuer

Any interest in a foreign entity

Information statement - Maximum value of assets, account numbers, names and addresses of foreign financial institutions, etc.

Foreign soc sec is not a SFFA

HF/PE are SFFAs

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Form 8938 Filing Thresholds

Year-End Aggregate Value of All Specified Foreign Financial Assets Exceeds:Highest Annual Balance Exceeds:Single, living in the U.S.$50,000$75,000Single, living outside the U.S.$200,000$300,000MFS, living in the U.S.$50,000$75,000MFS, living outside the U.S.$200,000$300,000MFJ, living in the U.S.$100,000$150,000MFJ, living outside the U.S.$400,000$600,000

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Jointly Owned Assets

Joint Ownership each specified person must report

Spouse, MFJ file a joint 8938; include asset value once

Specified Individual Spouse, MFS include asset value to determine threshold, but report full amount on 8938

Non-Specified Individual Spouse, or Non-Spouse each joint owner includes entire value of asset

Examples on page 3 of Form 8938 Instructions

MFJ- reports each SFFA that either spouse has an interest in

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Form 8938 Valuation

Accounts: may generally rely on periodic statements

Other assets: may rely on year-end value, dont need appraisal

Unless individual has reason to know the above does not provide reasonable maximum value

Foreign pension plan year-end value

If not known, value of distributions received during the year

If no distributions received, value is zero

Convert to USD at December 31 spot rate

Must use Treasurys FMS rate if available

Foreign publicly traded stock: should look up high price readily available information

WB pension

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Form 8938 Penalties

$10,000 penalty for failing to file Form 8938

Additional penalties following notification

40% underpayment penalty

Criminal penalties

Reasonable cause exception

Extended statute of limitations

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FBAR vs. 8938

FBAR (TD F 90-22.1)Form 8938Who Must FileU.S. PersonsSpecified PersonsWhat is Reported?Foreign financial accountsSFFAs Signature Authority?YesNoFiling Threshold$10,000$50,000 - $600,000Minimum PenaltiesNo minimum$10,000Due Date6/30, no extensions4/15, plus extensionsStatute of Limitations6 years from filing date3 years from filing date

Largely duplicative

31 v 26 sources and uses (Reduced administrative burdens dont need to sue in Federal Court TC doesnt have FBAR jurisdiction)

8938 broader

Ownership vs. signature authority

6013 elections

Entities

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Form 8938: World Bank Pension

Subject to special valuation rules

Value of participants share of defined benefit plans generally not ascertainable

Value equal to distributions received during the year

Gross distribution reported on Form 1099-R

May have received alert from WB w/1099-R saying it is a foreign plan and a SFFA

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Example: Facts

Single individual living in the U.S.

Retired from the World Bank

Receives an annual gross distribution of $75,000

Example: Sample 8938

Example: Sample 8938

Other Important International Filing Requirements

Form 8621 Passive Foreign Investment Companies

Form 3520 U.S. owner of a foreign trust

Form 5471 U.S. owner of a foreign corporation

Questions?