U.S. Treasury Publishes Official FBAR Exchange Rates for 2014

Anyone filing an “FBAR” (Report of Foreign Bank and Financial Accounts – FinCEN Form 114) or IRS Form 8938 (Statement of Foreign Financial Assets) for calendar year 2014 will be pleased to know that the official exchange rates for 2014 have been published. As U.S. law states that no other exchange rate is permitted, it is really helpful to have these exchange rates available so early in January.

The rates for the major foreign currencies are listed below:

Country / Currency

December 31, 2014

Official Exchange Rate To $1.00

Australia – Dollar

1.2190

Canada – Dollar

1.1580

China – Renminbi

6.2050

Europe – Euro

0.8220

Hong Kong – Dollar

7.7560

India – Rupee

63.2000

Israel-Shekel

3.8810

Japan – Yen

119.4500

Korea – Won

1086.8700

Mexico – New Peso

14.7020

New Zealand – Dollar

1.2750

Singapore – Dollar

1.3210

Switzerland – Franc

0.9890

United Kingdom – Pound Sterling

0.6420

Exchange rates for other currencies can be found by clicking here.

What is an FBAR?

Separate from United States income tax returns, many U.S. persons are required to file with the US Treasury a return commonly known as an “FBAR” (or Report of Foreign Bank and Financial Accounts; known as FinCEN Form 114), listing all non-US bank and financial accounts. These forms are required if on any day of any calendar year an individual has ownership of or signature authority over non-US bank and financial accounts with an aggregate (total) balance greater than the equivalent of $10,000.

These are separate to and in addition to United States income tax returns and are due to be filed by June 30th each year in relation to the previous calendar year. This date cannot be extended and putting your 2014 Form 1040 on extension does not change the June 30th filing deadline.  The 2014 FBAR is due no later than June 30, 2015 and can only be filed electronically through the U.S. Financial Crimes Enforcement Network {FinCEN) which is a bureau of the U.S. Treasury Department that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes.

How The Government Examines Data From Your FBAR.

The electronic filing system on the FinCEN website is called the BSA E-Filing System (BSA standing for the Bank Secrecy Act) and it allows you to save changes to your form, track progress of the processing of your form and receive electronic notices. Either you or your tax preparer can file this form. By having your foreign account information submitted electronically to the U.S. Treasury, the government will be able to more quickly and effectively match this information to foreign sourced income reported on your current and past Federal income tax returns.

Discrepancies would be identified by the government’s computer and those taxpayers would be referred for examination or investigation by the IRS.

Big Penalties For Non-compliance – Jail-time Is Possible.

The penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes.

Failing to file an FBAR can carry a civil penalty of $10,000 for each non-willful violation. But if your violation is found to be willful, the penalty is the greater of $100,000 or 50% of the amount in the account for each violation—and each year you didn’t file is a separate violation. By the way the IRS can go back as far as 6 years to charge your with violations.

Go to Jail? Criminal penalties for FBAR violations are even more frightening, including a fine of $250,000 and 5 years of imprisonment. If the FBAR violation occurs while violating another law (such as tax law, which it often will) the penalties are increased to $500,000 in fines and/or 10 years of imprisonment. Many violent felonies are punished less harshly.

In assessing whether penalties are to be applied, especially willfulness, the IRS looks at such issues as inheritance, how other accounts are treated, etc. Although filing prospectively is easy, determining how to address past transgressions isn’t. With the option for taxpayers to include why FinCEN Form 114 for any prior year is being filed late, taxpayers may be tempted to use this option in an attempt to come into compliance for failing to report foreign income on prior year’s income tax returns and/or failing to disclose foreign bank accounts. Beware that such disclosure does not protect you from the heavy fines and possible criminal charges.

What Should You Do?

If you have not reported your foreign income and you have not disclosed your foreign bank accounts, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Program (OVDP) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS. Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law.  Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in San Francisco, Los Angeles, San Diego and elsewhere in California qualify you for OVDP.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

IRS Simplifies Reporting of Canadian Retirement Plans (RRSP’s); Eliminates Form 8891

A new revenue procedure makes it easier for taxpayers who hold interests in certain Canadian retirement plans to get favorable U.S. tax treatment.

On October 7, 2014, the IRS made it easier for taxpayers who hold interests in certain popular Canadian retirement plans to get favorable U.S. tax treatment. Rev. Proc. 2014-55. As a result of the change, many Americans and Canadians with either registered retirement savings plans (RRSP’s) and registered retirement income funds (RRIF’s) now automatically qualify for tax deferral similar to that available to participants in U.S. individual retirement accounts (IRA’s) and 401(k) plans. In addition, the IRS is eliminating a special annual reporting requirement that has long applied to taxpayers with these retirement plans.

In general, U.S. citizens and resident aliens will qualify for this special treatment as long as they have filed and continue to file U.S. income tax returns for any year they held an interest in an RRSP or RRIF and include any distributions as income on their U.S. returns.

Under a longstanding provision in the U.S.-Canada Tax Treaty, U.S. citizens and resident aliens can defer tax on income accruing in their RRSP or RRIF until it is distributed. Otherwise, U.S. tax is due each year on this income, even if it is not distributed. In the past, however, taxpayers generally were required to elect-in to get tax deferral by attaching Form 8891 to their return and choosing this tax treaty benefit, something many eligible taxpayers failed to do. Before this change, a primary way to correct this omission and retroactively obtain the treaty benefit was to request a private letter ruling from the IRS, a costly and often time-consuming process.

Many taxpayers with an interest in a RRSP or RRIF also failed to comply with a reporting requirement of the yearly filing of Form 8891, U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans, reporting details about each RRSP and RRIF, including contributions made, income earned and distributions made. This requirement applied regardless of whether the taxpayer chose the special tax treatment. In Rev. Proc. 2014-55, the IRS said it is eliminating Form 8891, and taxpayers are no longer required to file this form for any year, past or present.

Taxpayers Still Subject To FBAR and Form 8938 Reporting

Rev. Proc. 2014-55 does not modify any other U.S. reporting requirements that may apply under Code Sec. 6038D or under any other provision of U.S. law, including the requirement to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), imposed by 31 U.S.C. § 5314 and the regulations thereunder. Failure to comply with these reporting requirements can result in steep penalties to the unwitting taxpayer. Failure to file a Foreign Bank Account Report (“FBAR”) may result in civil penalties for negligence, pattern of negligence, non-willful, and willful violations. These penalties range from a high penalty for willful violations, equal to the greater of $100,000 or 50% of the balance in the account at the time of violation, to a low penalty of $500 for negligent violations. For failing to file a correct Schedule B or Form 8938, the taxpayer could face a failure-to-file penalty of $10,000, criminal penalties, and if the failure to file results in underpayment of tax, an accuracy-related penalty equal to 40% of the underpayment of tax and a fraud penalty equal to 75% of the underpayment of tax.

Federal Relief Does Not Extend To State Income Taxation

Such is the case in California. The State Board of Equalization has previously held that tax treaties between the United States and other countries which expressly limit their application to federal income taxes do not prevent California from taxing persons otherwise covered by such treaties.” Appeal of M. T. de Mey van Streefkerk, 85-SBE-135, Nov. 6, 1985. The United States Supreme Court noted that “the tax treaties into which the United States has entered do not generally cover the taxing activities of subnational governmental units such as States … and if the treaty does apply to the States it will be specified in the treaty itself. Container Corp. v. Franchise Tax Board (1983) 463 U.S. 159, 196. Accordingly, the federal election to defer taxation on earnings of the RRSP is inapplicable for California income tax purposes.

Basically, the Franchise Tax Board considers a RRSP to be similar to a savings account. The Franchise Tax Board will treat a taxpayer’s original contributions to the RRSP, made while a Canadian resident, as a capital investment in the RRSP. A California resident must include any earnings from their RRSP in their taxable income and pay taxes on this income in the year earned. After a taxpayer pays tax on these earnings, the earnings will also be treated as capital invested in the RRSP. Therefore, when a taxpayer receives a distribution from their RRSP, the amount consisting of the contributions and the previously taxed earnings is considered a nontaxable return of capital.

What Should You Do?

California taxpayers who have an interest in a Canadian RRSP would benefit from the experienced tax attorneys of the Law Office Of Jeffrey B. Kahn, P.C. representing you to avoid the pitfalls associated with failure to comply with the reporting requirements associated with having an interest in an RRSP.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

U.S. Citizens And Permanent Residents Living Abroad Have No Where To Hide From IRS

It is quite easy for U.S. Citizens and permanent residents (green card holders) who reside in a country other than the U.S. to either forget or not be aware of their U.S. tax obligations. The rules for filing income, estate and gift tax returns and for paying estimated tax are generally the same even if you do not live in the U.S. Citizens and permanent residents of the U.S. like U.S. Citizens are taxed on their worldwide income. Your income is reportable even if you did not receive a form W-2 or Form 1099.

The increased attention by the U.S. government on its overseas citizens might have caught your attention especially with the introduction of the Foreign Account Tax Compliance Act (FATCA). FATCA, enacted as part of the Hiring Incentives to Restore Employment Act of 2010, P.L. 111-147, requires U.S. withholding agents to withhold tax on certain payments to foreign financial institutions (FFIs) that do not agree to report certain information to the IRS regarding their U.S. accounts and on certain payments to certain nonfinancial foreign entities (NFFEs) that do not provide information on their substantial U.S. owners to withholding agents. FATCA withholding goes into effect July 1, 2014.

You may be thinking that you are already paying taxes in the country where you are now living and therefore not obligated to pay taxes to the U.S. as well. But U.S. tax law requires U.S. Citizens and permanent residents (green card holders) to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

If you have been delinquent with your taxes, living overseas does not provide relief from your obligations. Given the increased efforts on the part of the U.S. government to discover delinquent U.S. taxpayers worldwide and the increased pressures on foreign governments and financial institutions imposed by FATCA, it is in your best interest to comply voluntarily before the IRS discovers your delinquency.

You should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI).  Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law.  Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in San Francisco, Los Angeles, San Diego and elsewhere in California qualify you for OVDI.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

What You Must Know About IRS FBAR Penalty Negotiations

Recently, the IRS has made the Report of Foreign Bank and Financial Accounts (FBAR) penalty enforcement a top priority and this is alarming the taxpayers worldwide. Even in the course of every routine domestic IRS audit, IRS agents are looking for undisclosed foreign bank accounts. In this blog I will discuss some things that you need to keep in mind when negotiating FBAR penalties with the IRS.

1. The penalties for noncompliance in FBAR enforcement are staggering.

FBAR penalties can be unfair as the penalties are based on the account size and not on how much tax you avoided. This is a stark contrast to other IRS penalties which are based on how much additional tax is owed. Given this difference you will always have a bigger risk and more to loose when dealing with FBAR penalties.

2. The two types of FBAR penalties.

The “get off gently FBAR penalty” – If the IRS feels that you made an innocent mistake and “not willfully” ignored to file your FBAR, your “get off gently penalty” will be $10,000 per overseas account per year not reported. To illustrate, if you have five foreign accounts that you failed to report on your FBAR in each of five years, the IRS can penalize you $250,000 regardless of whether you even have that amount sitting in your foreign accounts.

The “disastrous FBAR penalty” – If the IRS can show that you “intentionally” avoided filing your FBAR’s, your minimum “disastrous FBAR penalty” will be 50% of your account value. Additionally, the IRS may also press for criminal charges and if convicted of a willful violation, this can also lead to jail time. The “disastrous FBAR penalty” can also be assessed multiple times thus wiping out your entire savings.

3. The taxpayer’s burden of proving “reasonable cause”

You are obligated to pay the penalty the IRS deems necessary. The IRS can assume the “disastrous FBAR penalty” and they are not required to prove willfulness. It will be the taxpayer that bears the heavy burden of proving that the taxpayer’s failure to comply was due to reasonable cause and not from “willful neglect”.

4. Your appeal option.

Having exhausted all administrative remedies within the IRS first, you can then appeal the proposed FBAR penalties to a Federal District Court but for that court to have jurisdiction you must pay the assessments in full and then sue the IRS in a district court for refund. Since coming up with the money may be impossible for most taxpayers, you should hire an experienced tax attorney to make the most of the IRS appeals process and perhaps avoid the need for litigation. Keep in mind that in the appeals process, you do not have to pay any FBAR penalty until the end. Second, you can be successful if IRS remedies itself thus making court filings unnecessary. And third, even if the administrative remedies do not yield you success, your tax attorney can attempt to negotiate with the IRS to lower your FBAR penalties without going for a trial.

5. The Offshore Voluntary Disclosure Initiative (OVDI) route.

When compared to past Voluntary Disclosure Programs used by people to avoid criminal charges, the OVDI amnesty program is intended to save people with undisclosed foreign accounts from the threat of huge or disastrous FBAR penalties. So to minimize your FBAR penalty, we recommend using the OVDI program as a starting point.

When you make use of OVDI, there is more chance of getting favorable review during the discussion of your potential claim of “reasonable cause”. But outside OVDI, the IRS does not treat people as favorably as those who make themselves visible under the OVDI. It does not matter whether you made an innocent mistake or made an unadvised “quiet” or “soft” disclosure, the ground for your case will be much less sturdy when it is outside OVDI.

The IRS audit division has a way of reaching into the every corner of a taxpayer’s life. By not facing the Federal District Court, you may avoid the prison time but losing your entire wealth through these audits can be nearly as devastating as sitting in a prison. Some people will look at the OVDI route and feel that its terms are unfair and thus not bother entering into the program. What they fail to realize is that the consequences when they get caught are a lot worse in that outside of OVDI the minimum penalty is 50% of your highest balance and the IRS can pursue criminal charges. They also do not realize that the OVDI route is not necessarily set in stone but can serve as a springboard for something better than the maximum penalty of 27.5% of your highest balance. OVDI also provides the benefit that you avoid criminal prosecution.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Description: Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and elsewhere in California qualify you for OVDI.

Tax Tips For U.S. Expat Taxpayers

If you have fallen behind on your U.S. expat taxes and the IRS has contacted you about delinquent tax returns, what should you do? Here are a few tips on what to do next.

Tip #1 – Do Not Ignore The Notice.

The worst thing you can do is ignore the notice. If you don’t think that you will be able to gather the proper documentation and file the return(s) by the deadline they provide, call them right away. Explain that you are aware of the delinquency and you are doing your best to resolve it. Often they will give you a few extra weeks if you are honestly trying to resolve the situation. If you do nothing at all, the IRS can file a return on your behalf and assess a liability of what they think you owe. Expats in particular want to avoid this, as the IRS won’t include any deductions or credits you may be eligible for—this could be very costly! Hiring a tax attorney would be most helpful to you to secure the additional time and get the information you need.

Tip #2 – Form A Plan.

The IRS may have only requested a particular year or two, but it’s important to determine exactly how many years you are behind and get caught up on all delinquent returns (up to six years is recommended). Most expats who are behind on their returns were unaware of their need to file and will be delinquent for more than one year. While they may only currently be aware of a certain year you failed to file, it is very likely they will eventually uncover the others and then you’ll need to do the entire process all over again. Hiring a tax attorney would be most helpful if you aren’t sure how many years you are behind. A tax attorney can also qualify you for amnesty in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI).

Tip #3 – Gather Your Documents.

The first step, and arguably the most time-consuming, is digging up the documents necessary to file back taxes. Most importantly, you will need to gather any 1099s, W2s or other US income reporting statements. Hiring a tax attorney would be most helpful if you have misplaced these documents, as copies can be requested from the IRS. A tax attorney can also help you identify exactly what you need to collect.

Tip #4 – Prepare And File.

With the complexity surrounding tax reporting by expats, a tax attorney would be most helpful in making sure that all reporting obligations are satisfied and that you are utilizing all tax breaks including carryovers from the Foreign Tax Credit or any capital losses.

Tip #5 – Evaluate Your Options.

Sometimes there are taxes owed on back tax returns and if you can’t pay everything you owe, there are options to avoid collection action by the IRS. Most taxpayers will apply for an Installment Agreement but keep in mind that with this option, interest and penalties continue to accrue so long as you have a balance, so paying as much as possible will help reduce the total debt over time. A tax attorney would be most helpful in determining your options and whether penalties can be abated.

The process of becoming compliant with your U.S. expat taxes can be stressful, but hiring a tax attorney with experience in this area and getting caught up as soon as possible is clearly your best option. The longer you wait, the more expensive it can be. This is particularly important if you need to file past FBARs, as the IRS is cracking down on tax evaders and stiff penalties can be assessed for every year you are delinquent.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Description: Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and elsewhere in California qualify you for OVDI.

IRS Says “Foreign” Online Gambling Accounts Must Be Reported On An FBAR

Given all the press surrounding the “Report of Foreign Bank and Financial Accounts” or so-called FBARs, by now we all know about what should be reported on an FBAR, right? Well, given the Internal Revenue Service’s latest assertion in United States v. John C. Hom (Case No. C 13-03721 in the U.S. District Court for the Northern District of California), maybe we had better start studying once again.

Online Gambling Accounts

Mr. Hom was an avid and professional internet gambler with online gambling accounts maintained with various popular overseas entities such as FirePay.com (based in London), PokerStars.com (based in Isle of Man), and Partypoker.com (based in Gibraltar). The overseas gambling accounts circumvent U.S. laws that prohibit the interstate operation of betting businesses in the United States thus making online gambling technically illegal.

Mr. Hom was randomly selected for an audit when during the course of the audit the IRS agent discovered the online gambling accounts. The IRS then assessed the FBAR negligence $10,000 penalty for each unreported online gambling account for each year at issue. While

While these online accounts may not be a traditional type of financial accounts (such as a bank account), the IRS contends that they functioned in the same way as such traditional accounts. For example, taxpayer opened the accounts in his own name, he had a user name and password, funds were transferred or disbursed from the accounts at taxpayer’s discretion, taxpayer could transfer funds from one account to another, deposit and withdraw funds at will and could carry a balance in the accounts. For these reasons, the IRS maintains that the accounts at FirePay.com, PokerStars.com, and Partypoker.com are “bank, securities, or other financial account[s]” for purposes of FBAR reporting under the Bank Secrecy Act provisions.

This issue is currently being considered by the judge. We will keep you updated on what happens.

Who Must File FBAR?

The Bank Secrecy Act requires that a Report of Foreign Bank and Financial Accounts (FBAR), be filed if the aggregate balances of such foreign accounts exceed $10,000 at any time during the year. This form is used as part of the IRS’s enforcement initiative against abusive offshore transactions and attempts by U.S. persons to avoid taxes by hiding money offshore.

The FBAR covers a calendar year and must be filed no later than June 30th of the following year (regardless of whether you file an extension for you Form 1040) and includes any interest a U.S. person has in:

Offshore bank accounts
Offshore mutual funds
Offshore hedge funds
Offshore variable universal life insurance policies
Offshore variable annuities a/k/a Swiss Annuities
Debit card and prepaid credit card offshore accounts
Effective September 30, 2013, Form TD F 90-22.1 (the old FBAR form used in previous years) has been replace by FinCEN Form 114. Also, unlike the old FBAR form which was filed in paper format only, FinCEN From 114 can only be filed electronically. The deadline to file remains June 30th following the reporting calendar year (i.e., the 2013 FBAR is due June 30, 2014). No extensions are available.

The penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. The penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

The Solution For Past Noncompliance

The IRS is giving taxpayers one last chance to come forward and voluntarily disclose foreign accounts and unreported foreign income before the IRS starts investigating non-compliant taxpayers.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Description: Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and elsewhere in California qualify you for OVDI.

Reminder For Taxpayers with Foreign Assets of 2014 U.S. Tax Filing Obligations

U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2013 who will have a U.S. tax liability need to be mindful of their filing requirements in 2014.

The filing deadline is Monday, June 16, 2014, for U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular due date of their tax return. Eligible taxpayers get one additional day because the normal June 15 extended due date falls on Sunday this year. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies.

Nonresident aliens who received income from U.S. sources in 2013 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 16 depending on sources of income.

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 fill out and attach Schedule B to their tax return. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets.
Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds.

Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2013 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). This form replaces TD F 90-22.1, the FBAR form used in the past. It is due to the Treasury Department by June 30, 2014, must be filed electronically and is only available online through the BSA E-Filing System website.

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

The IRS is giving taxpayers one last chance to come forward and voluntarily disclose foreign accounts and unreported foreign income before the IRS starts investigating non-compliant taxpayers.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Description: Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and elsewhere in California qualify you for OVDI.

IRS Guidance Issued On Bitcoin Tax Reporting Requirements

Bitcoin has been in the news frequently lately, particularly since the collapse of the Japanese-based Bitcoin exchange, Mt. Gox.  Bitcoin is a digital currency and peer-to-peer payment system created in 2009. Since 2009, the use of bitcoins has expanded significantly.  Bitcoins can be bought and sold for various currencies, generally through a series of online exchanges where participants can bid on bitcoins from individuals or buy them at market price from companies.

The unique characteristics of Bitcoin as a digital currency left many questions about tax reporting requirements, such as whether users of Bitcoin must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).  U.S. taxpayers who have an interest in, or signatory or other authority over a foreign financial account, such as a bank account, securities or other similar foreign accounts must file an FBAR if the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year. As of October 1, 2013 the FBAR form must be filed through the Financial Crimes Enforcement Network’s (FinCEN’s) Bank Secrecy Act E-Filing System on or before June 30th of the year following the calendar year being reported. For example, to report foreign accounts held open in 2013, the taxpayer must file the FBAR by June 30, 2014.

Prior to the Internal Revenue Service’s release of Notice 2014-21 on March 25, 2014, we did not know whether the IRS would treat a virtual currency as currency or property. The IRS has now said – treat it as property. [IRS Information Release IR-2014-36 and Notice 2014-21].  I think that is a good answer. After all, Bitcoin is not used as the currency of any government and generally, are convertible to a currency of a government. For example, you can buy Bitcoin with U.S. dollars and convert it back to U.S. dollars.

So, what does it mean that Bitcoin is property? Here are a few tax examples.

• If you mine Bitcoin, you generate income equal to the value of the Bitcoin when mined. And if you are doing this as a business, you’ll also owe self-employment tax. [See Q&A 8 and 9 of Notice 2014-21].

• If you buy Bitcoin so you can use it instead of dollars, you’ll have some extra recordkeeping to handle. For example, you bought 1 Bitcoin (BTC) when it was worth $700. You later use half of that BTC to buy goods and at that time, 1 BTC is worth $800. You have a $50 gain. A few months later, you use the remaining .5 BTC to buy goods and at the time, 1 BTC is worth $1,000, you will report a gain of $150. The tax principle here is that if your wealth has increased and you cash out that wealth (realize it), you have income. When you can use something you paid $700 for to buy $900 of goods, you have income of $200. This is the same result you’d have if you had converted the Bitcoin back to dollars right before making the purchase of the goods in dollars. [See Q&A 6 and 7 of Notice 2014-21]

• Your employer pays you in Bitcoin. You’ll have income equal to the value of the Bitcoin on the day you receive it. And, yes, the employer will include this income in your W-2. Same answer if you are instead a contractor; it will be included in the Form 1099 your employer gives you. [See Q&A 10-14 of Notice 2014-21]

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide.  The knowing omission of such income can result in a minimum fine of $10,000 and/or potential incarceration of at least 1 year besides the standard civil penalties associated with the increase in tax and interest thereon.  U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year.  Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

U.S. taxpayers who have bitcoins would benefit from the experienced tax attorneys of the Law Office Of Jeffrey B. Kahn, P.C. representing you to avoid the pitfalls associated with failure to comply with the reporting requirements associated with owing bitcoins.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

FBAR: Goodbye Form TDF 90.22-1 and Hello FinCEN Form 114

The Financial Crimes Enforcement Network (FinCEN) is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes. On September 30, 2013, FinCEN posted on their internet site, a notice stating that the FinCEN Form 114, Report of Foreign Bank and Financial Accounts (the current FBAR form) would replace Form TD F 90-22.1 (the old FBAR form used in previous years). If you have a financial interest in, or you are signatory authority over foreign account(s) that total more than $10,000 at any time during the calendar year, you are required to file Form 114 no later than June 30th for the following year. The 2013 Form 144 is due June 30, 2014.

Some of the new features of Form 114 include:

1) The requirement that From 114 must be filed electronically. The old FBAR allowed paper filing but that is no longer the case with Form 114. It must be filed electronically.

2) An option where you can “explain a late filing”. You can also indicate whether the filing is made in conjunction with an IRS compliance program.

The electronic filing system on the FinCEN website is called the BSA E-Filing System (BSA standing for the Bank Secrecy Act) and it allows you to save changes to your form, track progress of the processing of your form and receive electronic notices. Either you or your tax preparer can file this form. By having your foreign account information submitted electronically to the U.S. Treasury, the government will be able to more quickly and effectively match this information to foreign sourced income reported on your current and past Federal income tax returns. Discrepancies would be identified by the government’s computer and those taxpayers would be referred for examination or investigation by the IRS.

The penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. The penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

With the option for taxpayers to include why this Form for any prior year is being filed late, taxpayers may be tempted to use this process in an attempt to come into compliance for failing to report foreign income on prior year’s income tax returns and/or failing to disclose foreign bank accounts. Beware that such disclosure does not protect you from the heavy fines and possible criminal charges. Instead, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.