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Newly Released Form 8938 – Statement of Specified Foreign Financial Assets

October 4, 2011

The IRS just released a new DRAFT of Form 8938 and a first DRAFT set of Instructions.

This Statement of Specified Foreign Financial Assets needs to be attached to and filed with the taxpayer's tax return (eg Form 1040) in addition to filing the FBAR (TDF 90.22.1) for all tax years starting after March 18, 2010.  Therefore calendar year taxpayer's are technically required to attach this form to their Form 1040, starting with their 2011 filing.

Foreign Financial Asset and PFIC Shareholder Reporting Requirements Are Temporarily Suspended by Notice 2011-55, 2011-29 I.R.B. (7/18/11). According to the notice, once previous hitForm 8938next hit and revised Form 8621 have been released, taxpayers for whom the reporting requirements have been suspended must attach Form 8621 or previous hitForm 8938next hit, as the case may be, for the suspended taxable year with their next income tax or information return.

For many each of the 7 million US persons overseas and hundreds of thousands back home in the States this new reporting immediately represents a significant increase in annual US tax data collection and reporting and will be highly complex to understand.
Here are some highlights from a first reading of the instructions:

  1. For unmarried taxpayers living in the United States, the new form must be completed if one had either more than $50,000 in foreign financial accounts on the last day of the tax year (usually December 31st) or if one had more than $100,000 at any time during the tax year. If married filing jointly, the amounts double (to $100,000/$200,000).
  2. Unmarried taxpayers living outside of the United States who are either bona fide residents of a foreign country or physically present abroad, must file this form if they had more than $200,000 on the last day of the tax year or more than $400,000 at any time during the tax year. If married filing jointly, the numbers increase to $400,000/$600,000.
  3. As for the types of accounts and assets that are reportable:
    1. Any financial account maintained by a foreign financial institution; 
    2. Other foreign financial assets, held for investment but not maintained by a financial institution, including stocks not issued by a US person, interests in foreign entities, and various financial instruments issued by non-US persons. The words "for investment" appear to eliminate interests in active businesses even if not reportable on any other return, but the wording is slightly unclear as drafted.
    3. A foreign financial institution is a non-US financial institution that is a bank (or similar entity), hold financial assets for others, and is engaged in investing, holding partnership interests, or other financial roles.
    4. Foreign mutual funds, foreign hedge funds, and foreign private equity funds are covered.
    5.  Foreign pension plans are not specifically mentioned, but may well be foreign grantor or non-grantor trusts so may be covered or reportable elsewhere.
    6.  Foreign real property is not mentioned specifically.
The instructions are 11 pages long.
While for the sophisticated investor it is still possible to structure foreign assets in ways that minimise US reporting; this new filing obligation may create increasing confusion for the Average American living outside of the US as well as costing more in annual accounting fees.

The draft instructions for Form 8938 are available on the IRS website at http://www.irs.gov/pub/irs-dft/i8938--dft.pdf. The draft Form 8938 is available at http://www.irs.gov/pub/irs-dft/f8938--dft.pdf.

Read more at: Tax Times blog

IRS Chief Counsel Reissues Tax Levy Guidance

October 4, 2011

The IRS Small Business/Self-Employed Division Sept. 29 reissued interim guidance for issuing a notice of intent to levy/notice of a right to a hearing in a collection field function to a taxpayer.

In SBSE-05-0911-081, dated Sept. 26, the memorandum said after issuing Letter 1058 to a taxpayer, 15 extra days must elapse after the 30-day period before levying a taxpayer.
 
This is to allow for the possibility that the taxpayer mailed a request for a hearing on the 30th day of the period, the memorandum said.

The earlier guidance, SBSE-05-0910-051, was issued Sept. 27, 2010.

Read more at: Tax Times blog

HSBC India Client Indicted by U.S. Over $8.7 Million Account

September 29, 2011

Sept. 28 (Bloomberg) --  A Wisconsin neurosurgeon was re- indicted by a U.S. grand jury on new charges that he failed to declare an HSBC Holdings Plc account in India valued in 2009 at $8.7 million.

Arvind Ahuja was indicted again by a federal grand jury in Milwaukee, where he was initially charged June 28 with concealing accounts from the Internal Revenue Service. The nine- count indictment added a charge that Ahuja conspired with two HSBC India bankers to defraud the IRS from 2006 to 2009.

The charges against Ahuja come amid a widening U.S. crackdown on offshore tax evasion that includes grand jury investigations of eight foreign banks. Prosecutors have filed criminal tax charges against more than three dozen former U.S. clients of UBS AG and Credit Suisse Group AG, Switzerland’s two biggest banks, and London-based HSBC, Europe’s biggest bank.

Ahuja took steps to hide his offshore accounts, according to the indictment made public today. In 2007, an HSBC India banker told a colleague that Ahuja “has requested that he does not want any kind of mail at his US or India address,” according to the indictment. “He wants a HOLD on all his accounts.”

Prosecutors said Ahuja failed to report more than $1.2 million in interest income, pay taxes due or file Reports of Foreign Bank and Financial Accounts, or FBARs.

In New Jersey a businessman Vaibhav Dahake pleaded guilty in April to conspiring with five HBSC bankers to hide his Indian accounts from the IRS. His plea came four days after a U.S. judge in California gave permission to the IRS to serve a so- called John Doe summons on HSBC for information about Americans who may have banked in India to hide accounts from U.S. tax authorities.

In both the Dahake and Ahuja cases, prosecutors said HSBC ran a U.S. division called NRI Services that marketed offshore banking services to U.S. citizens of Indian descent. Through NRI, HSBC India “encouraged U.S. citizens to open undeclared bank accounts in India,” according to the Ahuja indictment.

If convicted, Ahuja, who lives in Greendale, Wisconsin, faces as long as 10 years in prison on the FBAR charges, five years on conspiracy and three years on charges of filing false tax returns.

Read more at: Tax Times blog

FATCA Postponed – Implementation Time Table

September 28, 2011

 IRS Notice 2011-53 delays both the FATCA §1471 withholding and reporting requirements one year to January 1, 2014, and phases in those requirements over two years starting in 2014.
The revised version of Notice 2011-53 extends the application of the phase-in to §1472 as well. 
We have provided a Table Below listing the details of the time schedule as it relates to FATCA implementation.
This delay in the withholding and reporting procedures should allow enough time to permit FFIs to build their computer systems, request and receive any required regulatory approvals, and train appropriate personnel to comply with the rules.
Of course, whether enough time has been provided depends on the resolution of the conflict-of-law issues and the promulgation of proposed regulations by December 31, 2011, and final regulations by the summer of 2012.
Implementation of FATCA Requirements
Execution of FFI Agreements
Date on which the IRS will begin accepting applications to enter into FFI Agreements. January 1, 2013
Last date to enter into an FFI Agreement to ensure that there is no withholding beginning on January 1, 2014. The effective date of all FFI Agreements entered into before July 1, 2013, will be July 1, 2013. FFI Agreements entered into after June 30, 2013, may not forestall withholding beginning on January 1, 2014. June 30, 2013
Reporting of U.S. Accounts

Due Diligence
New Accounts Transition Date Under Notice 2011-53
Participating FFIs must implement account opening procedures described in Notice 2010-60 to identify U.S. accounts. On or after the effective date of the FFIA
Pre-Existing Accounts Transition Date Under Notice 2011-53
Large Private Banking Accounts. Completion of Step 3 (Notice 2011-34) due diligence for private bank accounts with balances or values greater than or equal to $500,000. Within one year of the effective date of the FFIA
Smaller Private Banking Accounts. Completion of private banking procedures for pre-existing private bank accounts with balances or values less than $500,000. Later of December 31, 2014, or one year after the effective date of the FFIA
All Other Pre-Existing Accounts. Completion of due diligence procedures in Notices 2010-60 and 2011-34. Two years after the effective date of the FFIA

New Accounts, Documented U.S. Accounts, Transition Date Under 2011-53
and Private Banking Accounts

Limited Reporting for First Year: This limited reporting also applies to FFIs that elect to report as a U.S. FFI under §1471(c)(2)

• Name, address, and U.S. TIN of each U.S. person who is an account holder or, if the account is owned by a U.S.-owned foreign entity, name, address, and U.S. TIN of each substantial U.S. owner;

• The account balance as of December 31, 2013, or, for closed accounts, the balance immediately before closure; and

• The account number.

May elect to report under Notice 2011-34.

Must report any recalcitrant account holders.
 Form W-9 received by June 30, 2014, must be reported to IRS by September 30, 2014
Post-2013 Years
Reporting in accordance with Notice 2011-34 as implemented in future regulations.
Withholding
Types of Withholdable Payments Transition Date Under Notice 2011-53
U.S.-Source FDAP Payments (e.g., interest, dividends, royalties, rent, etc.). Payments made on or after January 1, 2014
Gross Proceeds (i.e., gross proceeds from the sale of assets that produce or may produce U.S.-source FDAP income). Payments made on or after January 1, 2015
Passthru Payments. Note that a U.S.-source FDAP payment that also would be a passthru payment is subject to the January 1, 2014, effective date. Payments made on or after January 1, 2015
Other
Expiring QI, WFP, and WFT Agreements Transition Date Under Notice 2011-53
Original expiration date of December 31, 2012 Automatic extension until December 31, 2013

Read more at: Tax Times blog

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