FOREIGN BANKS HAVE NOW SENT ITS U.S. CUSTOMERS’ PRIVATE INFORMATION TO THE U.S. TREASURY, WHAT DO YOU DO?
Foreign bank accounts’ details belonging to hundreds of thousands of American expatriates, including U.S. citizens, Green Card Holders and U.S. Residents have now been passed on to Washington, D.C.; marking the start of a new era of data exchange by governments who are intent on clamping down on individuals who have foreign bank accounts and so not report these accounts or cheat on their taxes. One category can easily exist without the other in that individuals with foreign bank accounts may pay U.S. taxes on the interest generated from the foreign bank account but failed to report the foreign bank accounts on one or all forms; (1) Form 1040 Schedule B, Part III, (2) FBAR Form 114, and/ or (3) Federal form 8938.
Although the these government-to-government or financial institutions-to-U.S. Treasury agreements are held as major benchmarks by the U.S. Treasury, both foreign financial institutions and governments realize that the mandated deadline for compliance will not be met by a significant portion of the almost 100 countries that face a January 2016 compliance.
The U.S. Treasury is looking at a possible extension of time for many financial institutions and governments to September 30, 2016 while these same entities are mentioning a lessening of penalties for failing to make the original deadline.
However, Canada has already make transfers of individual account holders and on September 29, 2015 they transferred specific details on over 155,000 accounts. The United Kingdom and Australia have also complied with details on over 30,000 accounts holders.
As you may recall, the foreign account tax compliance act (FATCA), materialized in 2010 following an outcry over Swiss tax evasion which cost the U.S. government hundreds of millions in lost tax revenue. Other governments watched the U.S. government’s use of threats to impose withholding taxes to force foreign banks to pass on information about the bank accounts of U.S. taxpayers and/or citizens. Other governments built on the U.S. model to develop their own, yet similar, exchange bank data and criteria. In addition, the U.S. Treasury has finally agreed with 34 other countries’ tax authorities to reciprocate by transferring on banking information on U.S. situs accounts where standards of “stringent safeguard, privacy, and technical standards” deem to be met.
Many US expatriates who have failed to file U.S. tax returns will be eligible for a partial amnesty, known the “Streamlined Filing”, see below for a more detailed list of criteria to see if you may qualify. Whether or not qualifying, you will still need to file past tax returns and FBAR returns; an exercise you will need to do to determine what IRS programs you may qualify for before making the Streamlined Filing” option.
The streamlined filing compliance procedures describe below are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The streamlined procedures are designed to provide to taxpayers in such situations with
- a streamlined procedure for fling amended or delinquent returns, and
- terms for resolving their tax and penalty procedure for filing amended or delinquent returns, and
- terms for resolving their tax and penalty obligations.
As reflected below, the streamlined filing procedures that were first offered on September 1, 2012 have been expanded and modified to accommodate a broader group of U.S. taxpayers. Major changes to the streamlined procedures include:
- extension of eligibility to U.S. taxpayers residing in the United States
- Elimination of the $1,500 tax threshold, and
- elimination of the risk assessment process associated with the streamlined filing compliance procedure announced in 2012.
Eligibility criteria for the streamlined procedures
The modified streamlined filing compliance procedures are designed only for individual taxpayers, including estates of individual taxpayers. The streamlined procedures are available to both U.S. individual taxpayers residing outside the United States and U.S. individual taxpayers residing in the United States. Descriptions of the specific eligibility requirements for the streamlined procedures for both non-U.S. residents (the “Streamlined Foreign Offshore Procedures”) and U.S. residents (“Streamlined Domestic Offshore Procedures”) are set forth below.
Taxpayers must certify that conduct was not willful. Taxpayers using either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, will be required to certify, in accordance with the specific instructions set forth below, that the failure to report all income, pay all tax and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22,1) was due to non-willful conduct.
IRS has initiated a civil examination of taxpayer’s returns for any taxable year. If the IRS has initiated a civil examination of taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures. Taxpayers under examination may consult with their agent. Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.
Taxpayers eligible to use streamlined procedures who have previously filed delinquent or amended returns must pay previous penalty assessments. Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns in a attempt to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called “quiet disclosures” made outside of the Offshore Voluntary Disclosure Program (OVDP) or its predecessor programs) may still use the streamlined procedures by following the instructions set forth below. However, any penalty assessments previously made with respect to those filing will not be abated.
Taxpayers who want to participate in the streamlined procedures need a valid Taxpayer Identification Number. All returns submitted under the streamlined procedures must have a valid Taxpayer Identification Number. For U.S. citizens, resident aliens, and certain other individuals, the proper TIN is a valid Social Security Number (SSN). For individuals who are not eligible for an SSN or ITIN will not be processed under the streamlined procedures. However, for taxpayers who are ineligible for an SSN but do not have an ITIN, a submission my be made under the streamlined procedures if accompanied by a complete ITIN application. Additional information on getting an ITIN is available.
The above information was provided to give you a brief overview of the current situation and to allow you to make un-counseled decisions on how best to proceed. If you feel that you do need to be proactive and seek the best option for your particular situation, give us a call so you can talk with us about how best to proceed. Many of my clients have expressed distress over mixed and/or conflicting advice on how to proceed, the number of years required to prepare past tax returns and FBAR filings. Just give us a call, we are U.S. lawyers licensed to prepare tax returns, provide advice that is protected under Attorney Client Privilege and licensed to represent you before the IRS, U.S. Treasury and Federal Tax Court. We practice almost exclusively in this area and are up to date with current laws.
Michael B. Nelson, Esq.
P.S. U.S. Taxpayers include U.S. Citizens, Green Card Holders and U.S. Resident. U.S. Resident is the “catch all” category, which is calculated by the number of full and fractional days in the U.S.; see the calculations below to see if you fall into this physically present category.
Physically present in the United States at any time during the day on at least 31 days during the year in question and 183 days during the 3-year period that includes the year in question and the 2 years immediately before that, counting: – all days present in the U.S. in the year in question, and – 1/3 of days present in the U.S. in the first year before the year in question, and – 1/6 of days present in the U.S. in the second year before the year in question.