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Signature Authority Means FBAR Filing
By Jim Curtis, JD – International Tax Senior Manager

Posted on by admin

Do you have signature authority over any foreign accounts which you do not own or have a financial interest in?  If the answer is yes, get ready to file an FBAR.

“Signature authority” is defined as, “the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the bank or other financial institution that maintains the financial account.”

It does not matter whether your name is on the account designation itself or included on bank signature cards.  Control of the funds is the key element in this situation. If you can communicate with a bank or financial institution to withdraw money out of a foreign account, you have signature authority.   If the aggregate of all foreign accounts in which you have a financial interest and/or have signature authority exceeds $10,000 at any time during a calendar year, then you must file an FBAR.

Examples of Signature Authority

Signature authority is often present with company accounts where employees have access to, or control over, the administration of the account and the funds for business operations abroad. If you are a U.S. employee of a company that has foreign accounts, and you have signature authority over those accounts, you may have FBAR filing obligations which are independent of your employer. There are limited exceptions to this general rule, which can be found in the latest instructions to FinCEN 114.

Another common situation involving signature authority, but no financial interest, occurs when a U.S. individual is a signor on foreign financial accounts of a dependent, extended family member or friend. This is a major pitfall for individuals who file FBARs because they do not realize that these foreign accounts have to be reported on their FBAR even though they have no ownership of the accounts (such accounts, however, do not have to be reported on Form 8938, which is discussed below).

Extensions

In December, the Treasury Financial Crimes Enforcement Network (FinCEN) made the following announcement:

To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required. (Please note: The due date for FBAR filings for foreign financial accounts maintained during calendar year 2016 is April 18, 2017, consistent with the Federal income tax due date.)

Therefore, at least for 2016 calendar year FBARs, there is no reason to panic if they electronically filed by the extended due date of October 15, 2017. The FBAR extension is automatic and not contingent on filing a federal tax return extension by April 18th. The Treasury announcement also seems to indicate that for future years, six-month extensions would be automatic; however, there may be future announcements or more clarification provided by FinCEN later regarding this point.

Don’t Forget to Check for Form 8938 Filing Requirements

Many people are still unaware of the Form 8938, Statement of Specified Foreign Financial Assets, and it is often confused with FBARs. Form 8938 has separate and distinct filing thresholds from FinCEN 114, and the Form 8938 must be included with your federal income tax return if it is required. Unlike the FBAR, the definition of specified foreign financial and other assets is broader. It can include not only foreign financial accounts, but also ownership of foreign entities, trusts, loans or obligations.

There will be more information regarding Form 8938 in the next post.  For now, just remember that filing an FBAR does not excuse you of filing Form 8938 if it is required, and filing Form 8938 does not excuse you from filing an FBAR.

You may think you have all your income tax and FBAR filings taken care of, but have you doubled-checked for FBAR signature authority and Form 8938 filing requirements closely enough?

Penalties

                Separate from the FBAR, the penalty for failure to file Form 8938 on time can result in a civil penalty of $10,000. The fine increases by $10,000 every 30 days until it is filed up to $50,000.  The penalty exposure alone is not worth the risk, so it is always a good idea to double check whether you must file Form 8938 with your income tax return when you file an FBAR.

For additional information, visit the latest FinCEN 114 form instructions here and contact Jim Curtis.

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By Jim Curtis, JD – International Tax Senior Manager

Commonly Overlooked FBAR Filing Requirements
By Jim Curtis, JD – International Tax Senior Manager

Posted on by admin

You may think you have all your tax filings taken care of, but have you doubled-checked the FBAR filing requirements closely enough?

Legal entities that are disregarded for income purposes, such as single member limited liability companies (SMLLCs), grantor trusts and estates, may still be required to file an FBAR even if they are not required to file federal income tax returns. The same goes for what is deemed a “U.S. person” such as tax residents or children who are U.S. citizens.

 

Kids and FBARs

Foreign accounts that are opened by parents, grandparents, other family members or guardians are common these days as multiple generations live to see their families grow and want to provide for the youngest members. It is important to remember that foreign accounts, when owned by or held in the name of U.S. children, still require FBAR filings regardless of whether other income tax filings may be required.

Foreign accounts in the name of minors must still be reported on FinCEN 114 if the aggregate of all foreign accounts exceeds $10,000 at any time during the calendar year. Parents or other tax residents also must report the same foreign accounts on their own FBAR if they have “signature authority” over the accounts.

Other FBAR Traps

While family accounts can result in “surprise” FBAR filings, foreign accounts owned by disregarded entities (for income tax purposes) also can cause additional FBAR problems. Living trusts, which are often grantor trusts disregarded from their owners, still must  file FBARs if the thresholds for filing are met. An SMLLC may not have a separate tax return filing requirement (California excluded), but would have an FBAR filing requirement if the SMLLC owned foreign accounts greater than $10,000 in aggregate.

Also, there are other types of foreign financial accounts which U.S. persons may be required to report on an FBAR, above and beyond traditional bank and securities accounts. For instance, financial accounts held at a foreign branch of a U.S. financial institution are required to be reported on FBARs. The same applies for foreign retirement or pension accounts, foreign insurance or annuity policy accounts with cash value, and shares in foreign mutual funds or pooled funds (which are generally publicly available with regular net asset value determinations and redemptions).

The Internal Revenue Manual points out that individually owned bonds, loan notes or stock certificates are not considered “financial accounts” for FBAR reporting purposes (however, they may be reportable on Form 8938, Statement of Specified Foreign Financial Assets). The IRS announcement from mid-2014, regarding Bitcoin and other virtual currency not being subject to FBAR reporting, has remained unchanged for 2016 calendar year FBARs, although this could change in the future (and currently, Bitcoin may be subject to Form 8938 reporting requirements).

Is There a Penalty for Not Filing the FBAR?

Yes, there are penalties for failing to file an FBAR properly. According to the FinCEN 114 instructions, “A person who is required to file an FBAR and fails to properly file may be subject to a civil penalty not to exceed $10,000 per violation. If there is reasonable cause for the failure and the balance in the account is properly reported, no penalty will be imposed. A person who willfully fails to report an account or account identifying information may be subject to a civil monetary penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation.”

FinCEN 114 must be filed electronically through the Treasury Bank Secrecy Act division, and the normal deadline is April 18, 2017.  For 2016 FBARs, there is an automatic extension for six months until October 15, 2017.

There will be more information to come regarding the FBAR and Form 8938 in our next series of posts.  In the meantime, for additional information, visit the latest FinCEN 114 form instructions here and contact Jim Curtis.

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By Jim Curtis, JD – International Tax Senior Manager

American Health Care Act Amendment Accelerates Tax Changes
By Don Dahl, Director – Tax

Posted on by admin

Updates to the Republican healthcare plan would reduce taxes as soon as this year – a full year ahead of the original timeline proposed in the Obamacare overhaul introduced last week.

Republicans in the U.S. House of Representative have released more information for the American Health Care Act (AHCA), their follow up to Obamacare in a Manager’s Amendment. The amendment includes multiple changes to the AHCA, notably changes to the timeline for implementing some proposed tax changes.

The amendment calls for the acceleration of the repeal of the 3.8% net investment income tax (NIIT), and the acceleration of the repeal of the 0.9% additional Medicare tax, although it provides some transition time to accommodate for employer withholding.  The changes made by this amendment are largely based on timing, as the repeal of both the NIIT and additional Medicare tax were included in the original AHCA.

The amendment also lowers the floor for medical expenses deductions to 5.8% from 10%. Each of these changes could be implemented this year, earlier than the previously suggested 2018 timeline. It remains to be seen whether these changes will have enough of an impact on the legislations support to ensure the bill passes through the House of Representatives.

Posted in News, Tax | Comments Off on American Health Care Act Amendment Accelerates Tax Changes
By Don Dahl, Director – Tax

New FBAR Deadline is April 18th
By Jim Curtis, JD, Senior Manager – International Tax

Posted on by admin

Attention U.S. persons with foreign financial accounts: your filing deadline has been moved up!

FinCEN 114, Report of Foreign Bank and Financial Accounts, which is better known as the “FBAR,” is now due on April 18, 2017 for the 2016 calendar year.  The deadline has been moved up from the traditional June 30th deadline used in the past.  For 2016 FBARs only, extensions are automatic without having to file for an additional extension request.  The automatic extension is limited to a period of six months, making 2016 FBARs due no later than October 15, 2017.

What is an FBAR?

The FBAR is a disclosure of foreign bank and financial accounts which U.S. citizens, green card holders and tax residents must file with the U.S. Treasury Financial Crimes Enforcement Network (FinCEN).  The FBAR must be filed electronically and is completely separate from the filing of income tax returns.  There is no taxable income effect from the filing of FBARs, but you must disclose the following for each foreign financial account:  the financial institution’s full name, address, the type of account, the specific account number and the maximum balance (in U.S. dollars) at any time during the calendar year.

Do I need to file an FBAR?

U.S. tax residents are required to file an FBAR form if they have a “financial interest” or “signatory authority” over financial accounts located outside of the U.S., where the aggregate value between all foreign accounts exceeds $10,000 or more at any time during a calendar year.

The FBAR instructions state that, “A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution). A financial account also includes a commodity futures or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions).”

For FBAR filing purposes, a “person” includes individual, including children, and legal entities such as limited liability companies (LLCs), corporations, partnerships, trusts and estates.  Therefore, kids who have no requirement to file U.S. income tax returns, but who have foreign accounts under their names exceeding $10,000 in aggregate, must still electronically file FBARs.

 

There will be more information to come regarding the FBAR in our next series of posts.  In the meantime, for additional information, visit the latest FinCEN 114 form instructions here and contact Jim Curtis.

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By Jim Curtis, JD, Senior Manager – International Tax

Obamacare Replacement Plan Contains Tax Changes
By Don Dahl, Director – Tax

Posted on by admin

Republicans in the U.S. House of Representatives released preliminary bills to repeal and replace the Patient Protection and Affordable Care Act, also known as Obamacare. Collectively, these bills will be called The American Health Care Act.

They are designed to enable taxpayers to afford health insurance, but it is hard to say which provisions will prevail through the process of developing a bill that will eventually be enacted.

Clients of Hall & Company should be aware of two key tax provisions that are proposed. The first is the repeal of the 3.8% net investment income tax. This proposed provision would be repealed for tax years beginning next year.

The other proposed provision would repeal the 0.9% Medicaid surtax. The effective date would also be for tax years beginning in 2018.

It will be interesting to watch the evolution of this proposed legislation. The House Ways and Means Committee is scheduled to mark up these bills on March 15.

Posted in News, Tax | Comments Off on Obamacare Replacement Plan Contains Tax Changes
By Don Dahl, Director – Tax

Due March 15:
Foreign Income Form 1042
By Jim Curtis, JD, Senior Manager – International Tax

Posted on by admin

Foreign persons receiving U.S. Source FDAP Income: the deadline is coming up quick!

Form 1042, the Annual Withholding Tax Return for U.S. Source FDAP Income of Foreign Persons, is due by March 15th for the 2016 year. Form 1042 reports federal tax which is required to withheld on FDAP (fixed, determinable, annual or periodical) income for a given calendar year, which is not effectively connected to a U.S. trade or business.  Form 1042 returns are required for nonresident aliens, foreign partnerships, foreign estates, foreign corporations and foreign trusts with FDAP income subject to withholding. Every withholding agent MUST file Form 1042 / 1042-S / 1042-T returns and have remitted U.S. withholding tax timely, or be liable for the tax withholding amount plus penalties.  An extension can be requested by filing Form 7004, but it does not extend the time to pay any withholding tax due.  It only extends the time to file withholding tax returns.

What is the difference between Forms 1042 / 1042-S / 1042-T?

U.S. withholding must issue Form 1042-S to each foreign person who received payments of FDAP income and had U.S. federal tax withheld.  It is similar to U.S. persons receiving a Form 1099 for payments of FDAP income from domestic sources.  Form 1042-S must be provided to foreign persons even if no amount was actually withheld due to exceptions under the Internal Revenue Code or a U.S. tax treaty.

Form 1042-S reports not only the type of FDAP income which foreign persons receive, but also the exceptions asserted to not withhold U.S. tax either under the Code or a treaty.  Form 1042 reports the aggregate amounts of FDAP income and U.S. withholding tax for all foreign persons in a given calendar year.  On the other hand, Form 1042-S reports the total income and withholding allocated to each foreign person.  Finally, Form 1042-T is a transmittal page for all of the 1042-S forms being submitted.

What if I fail to file?

Generally, withholding agents are personally liable for any U.S. tax required to be withheld. The liability is independent of the foreign income recipient’s U.S. tax liability. If a withholding agent fails to withhold and the foreign recipient fails to satisfy its U.S. tax liability and filing obligations, then BOTH the withholding agent and the foreign recipient are liable for the full amount of withholding tax plus interest and penalties.

A withholding agent is any U.S. or foreign person, acting in whatever capacity, who has control, receipt, custody, disposal, or payment of U.S. source FDAP income subject to withholding tax.  A person may be a withholding agent even if there is no requirement to withhold OR if another person has withheld the required amount from the payment of income.  The withholding tax amount due is collected only once, so if the foreign income recipient satisfies its U.S. tax liability and filing obligations, the withholding agent would not liable for the tax amount due, but would remain liable for interest and penalties for failing to withhold.

For more information visit the IRS instructions to Form 1042 and contact Jim Curtis.

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Foreign Income Form 1042
By Jim Curtis, JD, Senior Manager – International Tax

Foreign Trust Owners:
Form 3520-A due March 15
By Jim Curtis, JD, Senior Manager – International Tax

Posted on by admin

Attention owners of foreign trusts: your deadline is approaching quickly!

For calendar year-end foreign trusts with U.S. owners, the Form 3520-A information return is due by March 15th. Six-month extensions may be granted by filing Form 7004. Remember, Form 3520-A is filed separately from Form 3520 information returns, which report personal transfers to and/or from foreign trusts to U.S. persons.  Filing Form 3520 alone DOES NOT satisfy the requirements to file Form 3520-A information returns.

 

Not sure if you need to file Form 3520-A?

Form 3520-A is the annual information return required for revocable or irrevocable foreign trusts with U.S. owners.  The purpose of the form is to provide information regarding the foreign trust, its U.S. beneficiaries and U.S. citizens who are treated as owners of foreign trust under the grantor trust rules.

IRS guidelines state that, “A foreign trust with a U.S. owner must file Form 3520-A in order for the U.S. owner to satisfy its annual information reporting requirements under Section 6048(b). Each U.S. person treated as an owner of any portion of a foreign trust under the grantor trust rules (Sections 671 through 679) is responsible for ensuring that the foreign trust files Form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries.”

 

What happens if I fail to file Form 3520-A?

Like other U.S. international tax information returns, the penalties for failure-to-file can be quite severe.  However, unlike most forms which cap failure to file penalties at $10,000 per form per year, the penalties for failure to file Form 3520-A can exceed $10,000.  U.S. owners can become subject to, “…an initial penalty equal to the greater of $10,000 or 5% of the gross value of the portion of the trust’s assets treated as owned by the U.S. person at the close of that tax year, if the foreign trust: (a) fails to file a timely Form 3520-A or (b) does not furnish all of the information required by section 6048(b) or includes incorrect information.”

Because of how enforcement-minded the IRS has been lately with civil penalties related to U.S. international tax information returns, it is not worth the risk to ignore such important tax filing obligations.

For more information, visit the IRS instruction guide for Form 3520-A here and contact Jim Curtis.

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Form 3520-A due March 15
By Jim Curtis, JD, Senior Manager – International Tax

** NEW FILING REQUIREMENTS FOR FORM 1099 **

Posted on by HallCPAManager

Starting in 2017, for the 2016 reporting year, both the W-2 and 1099-MISC recipient copies need to be submitted by January 31, whether by paper or electronic filing.

Historically, filers have been required to provide both W-2 and 1099-MISC forms to their recipients by January 31. However, in the past they were not required to submit the forms to the Social Security Administration or the IRS until February 28 for paper forms or March 31 for e-filing. 

Please call us at (949) 910-HALL (4255) with any questions or for further assistance with 1099 filings.

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WINTER 2016 CLIENT UPDATE

Posted on by HallCPAManager

Dear Client,

We have posted the WINTER 2016 CLIENT UPDATE on our website.
Here are a few headlines from that issue. To read any of these articles, click on the link at the end of this email.

KEEP YOUR BUSINESS HEALTHY WITH A COMPREHENSIVE ANNUAL CHECKUP
Monitoring your business activities is a good “preventive care”  approach to maintaining financial health. Here’s what to review.

FINANCIAL FINE-TUNING: GET YOUR FINANCES IN SHAPE FOR 2017
Do you intend to make major changes to your financial situation during 2017?

THIS VALUABLE TAX BREAK OFFERS BENEFITS AND SURPRISES
It’s a silent deduction, but valuable, and so common you might forget how complex it can be. What is it? If you answered “depreciation,” you have probably bumped into these complex tax rules over the years. Here are two that may surprise you.

SEASONAL WORKERS CAN AFFECT YOUR “AFFORDABLE CARE ACT” RESPONSIBILITIES
Do you intend to hire workers during the busy holiday season? Then you need to plan for those extra payroll responsibilities, plus the cost of training your new employees. In addition, you’ll want to be aware of “Affordable Care Act” (ACA) rules.

Just click here to read the full articles: Hall & Company CPAs 2016 Winter Client Update

 

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FALL 2016 CLIENT UPDATE

Posted on by HallCPAManager

FALL 2016 CLIENT UPDATE

Here are a few headlines from that issue. To read any of these articles, click on the link at the end of this email.
HEALTH ACCOUNTS – WHICH SHOULD YOU CHOOSE?
As you’re reviewing your options for making changes to your benefits during your employer’s open enrollment period, consider the differences between a health savings account (HSA) and a health care flexible spending account (FSA).

CAN PARTNERS BE EMPLOYEES? NOT LIKELY.
Suppose you’re a partner in a partnership where the agreement requires you to work some of the time for the business. Can you ever be treated as an employee of the partnership for tax purposes instead of as a partner?

WHAT’S NEW IN EMPLOYEE BENEFITS?
Does your workforce include a variety of age groups, with some employees just beginning careers, and some getting ready to retire? If so, you may be scrambling to provide the right mix of benefits. Here’s a sampling of offerings that you might want to consider.

DON’T REACT BADLY TO BAD ECONOMIC NEWS
Reacting badly to bad national economic events can turn a challenging situation into a devastating one. When troubling headline news comes your way, consider these tips before making financial moves.

Just click on the link to read the full articles: FALL 2016 Client Update

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