The FBAR, which was developed to discourage and prevent tax evasion, has become increasingly important as more US citizens and residents move overseas.

How Does the FBAR Impact You?

If you had $10,000 or more in a foreign bank or financial institution at any period (even just for a day) during the last year, you are required to file the FBAR by June 30, 2013. It is important to understand that the total amount — not the number of accounts —determines whether you qualify under FBAR requirements. If, for example, you have five foreign bank accounts with $2,000 in each, you have reached the $10,000 minimum FBAR requirements.

The FBAR applies to United States persons, which refers to:

• Citizens
• Resident aliens
• Trusts
• Estates
• Domestic entities

If you fall under any of the above categories, you should start to become familiar with the FBAR.

How to File

To ensure you are compliant with the FBAR, you’ll need to complete Form TD F90-22.1.  Unlike other tax forms, this must be returned to the US Treasury, not the IRS. Another important difference is that the US Treasury deadline is June 30^th regardless of your tax filing deadline.  There are no extensions.

So, if you plan to mail your forms, be sure you send the forms well in advance of the June 30^th deadline. All forms can be sent to:

United States Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621

Penalties

Choosing not to complete the FBAR (Financial Bank Accounts Report) can result in severe penalties, including being charged civilly, criminally, or both. The harshest penalties could result in a $500,000 fine or 10 years in jail or both. That said, we have yet to see an expat hit with any fines.

For more detailed information on the FBAR, see this blog post. If you have additional questions or would like help completing the FBAR forms, please contact us.

The post FBAR Deadline Approaching – Do You Need to File? appeared first on Greenback Expat Tax Services.

On May 15th, Treasury Secretary requested and received the IRS Tax Commissioner Stephen Miller’s resignation over the agency’s mishandling of tax exempt status applications from early 2010 to 2012. According to the Treasury Inspector General’s report, additional screening measures were put into place after an influx of applications from political groups in the wake of the 2010 Supreme Court Citizens United case loosened restrictions. The IRS Commissioner’s response to the report puts the focus of the issue on inefficient management rather than criminal intent and recommends instating more thorough documentation and processing for tax exempt status applications.

On top of the IRS’s existing struggles with upcoming furlough dates and budget cuts, the high level firings expected as fallout from the Commissioner’s scandal could impact US expats moving forward. Expats planning to file their taxes or extensions by the June 17th deadline should keep in mind the planned furlough dates of May 24th, June 14th, July 5th, July 22nd, and Aug 30th. On those dates all offices, hotlines, the Taxpayer Advocate Service, and taxpayer assistance centers will be closed. There will be a number of online tools that will also be unavailable. The deadlines themselves for filing and payment are unchanged.

With the anticipated upheaval within the IRS it is unclear if the recent leniency towards US expats, highlighted by the current streamlined procedure for late filers, will continue. Anyone who has fallen behind on their US tax filings should seriously consider catching up on their US expat taxes as soon as possible to avoid any complications that may arise due to people and potential policy changes at the IRS. The streamlined process and the Offshore Voluntary Disclosure Initiatives are still open, but with no stated closing date we do not know how much longer they will be open to new applicants.

Need Help Filing Your Expat Tax Returns?

For additional information on the IRS deadlines for US expats, check out this FAQ page. If you have questions about filing your tax returns please contact us.

The post IRS Tax Commissioner Resigns From IRS appeared first on Greenback Expat Tax Services.

D. McKeegan: Hi everybody. I’m David McKeegan with Greenback Expat Tax Services and our question this week is, ”What is FATCA and how does it affect me as a US expat?” The Foreign Account Tax Compliance Act is designed to improve tax compliance involving foreign assets at offshore accounts. It’s similar to the FBAR, which is a US Treasury form, but it’s not the same and the rules around it aren’t the same and to be honest I don’t know why the Treasury and the IRS can’t communicate better and eliminate one form that people need to file, but they don’t.

Under FATCA, US taxpayers with specified foreign financial assets, bank accounts, foreign stock, partnership interests, foreign mutual funds, these type of things, foreign life insurance, that exceed certain thresholds must report those assets to the IRS and this is done on form 8938. We have another video about that if you’re interested. This is submitted along with your US tax return to the IRS in accordance with your tax deadline. If you’re living overseas, so if you qualify as an expat under the bona fide resident program or the physical presence test, then your thresholds are higher than for people who live in the US. If you live in the US, the threshold starts at $50,000 in overseas accounts, but if you’re living abroad, it starts at account values of $200,000 on the last day of the tax year or $300,000 as a peak value throughout the year for single filers and that is double for people who are married filing jointly.

In addition FATCA rule require foreign financial institutions to report directly to the IRS about Americans who have accounts there. That’s why you’ve probably heard about this. That is one of the things that makes people most nervous about this is the IRS is requiring these foreign financial accounts to report directly to the IRS. If you do have foreign financial accounts, you’re going to want to make sure you’re compliant with this because the IRS is going to be getting that information directly as well. If you have any questions, please let us know and have a look at our website, GreenbackTaxServices.com. Thank you.

Need Help Assessing Your Compliance?

For more in depth information, you can refer to our blog post on this topic, too. If you have questions about reporting foreign bank accounts or if you would like help assessing your compliance, please contact us.

The post What is FATCA and how does it affect me as an US expat? appeared first on Greenback Expat Tax Services.

It’s a common misconception among Americans living abroad that once they move overseas and no longer have US sourced income, they no longer have to file expat tax returns.  Unfortunately, this is not the case. Even though US citizens living abroad are likely eligible for tax breaks on their foreign income, such as the foreign tax credit, they are required to report their worldwide income on their annual US expat tax returns. If you are a US expat and have just become aware of your requirement to file your expat tax returns, don’t worry: becoming compliant may be easier than you think.

Possible Penalties and Interest on Late Expat Tax Filing

If you owe money to the IRS and have failed to pay this money by the due date (April 15^th), you will be assessed penalties and interest on the balance. If you do not have a liability or, even better, expect a refund, you will not be assessed penalties and interest (unless you are required to file additional forms, see below).

There are three types of penalties that can be assessed against your delinquent Form 1040:

The penalties above are assessed on your expat tax liability.  Thus, no liability means no penalties or interest.

Come April 15^th, if you are living abroad and working, you will receive an automatic extension of time to file your expat tax return until June 15^th. This extension is granted to all Americans living abroad and working overseas. However, this extension does not apply to the payment due date of your expat tax liability. Therefore, if you have a balance due on your expat tax return, this balance must be paid by April 15^th to avoid any assessment of interest and penalty.

It’s important to remember that if you are claiming a refund, you have three years to claim this refund before the opportunity expires. On the other hand, if you have a balance due, the IRS can pursue collection of the balance for ten years.

If you fail to file your own expat tax return, the IRS may file a substitute return on your behalf based on information that has been reported to them. When they do this, they do not make any allowances for deductions or exemptions. In other words, they do not file for all available exclusions, credits, and benefits available for expat tax returns, including the foreign tax credit. This is the IRS’ way of assessing a balance due in order to formally begin pursuit of collections of your US expat tax liability. The best way to counteract this substitute return is to file a return yourself.

Special Penalties

If you engage in certain activities outside of the US, you may have additional tax reporting requirements. The failure to file these special forms can result in many additional (and significant) penalties. Situations that could prompt the filing of one of these “special forms” include:

This list is not comprehensive but just describes some of the more common situations for Americans living abroad. Please consult your accountant for more information on special reporting requirements of your US expat taxes.

Have Questions About Your Expat Tax Returns?

If you would like help with your expat tax returns, or would like to enlist our services to file your US expat taxes, please contact us.

The post What Happens If I Fail To File My Expat Tax Return? appeared first on Greenback Expat Tax Services.

As of Sept. 1, 2012, the IRS has launched a new Streamlined Procedure designed specifically for delinquent taxpayers living abroad. This new procedure enables taxpayers to get caught up on their US taxes by filing tax returns for the last three years and FBAR forms for the last six years. For US expats who haven’t filed in several years, this is a welcome relief. Under normal circumstances, the IRS requires individuals to file at least 6-8 years of back taxes and FBAR forms.

Qualifying for the Program

To qualify for the Streamlined Program, individuals must have resided outside of the US since January 1, 2009. In addition, the IRS requires that US expats meet certain low-risk compliance requirements to be eligible. In essence, this means an individual must owe $1,500 or less in back taxes for each of the past three years. However, according to the IRS, the risk level may increase if one or more of the following are present:

• If any of the returns submitted through this program claim a refund;
• If there is material economic activity in the United States;
• If the taxpayer has not declared all of his/her income in his/her country of residence;
• If the taxpayer is under audit or investigation by the IRS;
• If FBAR penalties have been previously assessed against the taxpayer or if the taxpayer has previously received an FBAR warning letter;
• If the taxpayer has a financial interest or authority over a financial account(s) located outside his/her country of residence;
• If the taxpayer has a financial interest in an entity or entities located outside his/her country of residence;
• If there is U.S. source income; or
• If there are indications of sophisticated tax planning or avoidance.

Additional Information

For US expats who meet the requirements of the Streamlined Procedure, the filing process will be expedited and no penalties will ensue. However, US expats who file under this procedure but are deemed high risk by the IRS will be subject to additional tax examination and possible criminal prosecution. In these cases, the Voluntary Offshore Disclosure Program (OVDP) may be more suitable.

Although this procedure has no deadline, US expats who qualify for the Streamlined Procedure are advised to complete their delinquent tax returns and FBAR forms as soon as possible. The IRS may end this program at any time.

Need Help Filing Your Delinquent Tax Returns?

For additional information on the Streamlined Procedure, check out this FAQ page. If you have questions about filing your delinquent tax returns or if you would like help completing your US expat tax return, please contact us.

The post Streamlined Procedure Offers Relief for US Expats Filing Late Taxes appeared first on Greenback Expat Tax Services.

D. McKeegan:  Hi everybody.  My name is David McKeegan.  I’m with Greenback Expat Tax Services and our question this week is, ”What’s the story with form 8938?”  This is the statement of foreign financial assets.  This is part of the FATCA regulations.  Basically, the form 8938 is very similar to the FBAR, but the FBAR gets reported to the US Treasury and 8938 goes to the IRS.  What you’re going to be doing with this form is disclosing your foreign assets, your foreign interests in partnerships, if you have foreign bank accounts, if you have foreign mutual funds or stockholdings, any of these kind of items, need to be disclosed on the form 8938.

The thresholds are different.  For the FBAR, it’s a $10,000 threshold across all your accounts out of the US.  For the 8938, if you’re married filing singly and your balance in these accounts was over $200,000 on the last day of the year or over $300,000 on any day during the year, then you have to file form 8938 and report these accounts.  If you’re married filing jointly, those numbers get doubled.  So it’s over $400,000 on the last day of the year or over $600,000 on any day during the year.

This includes things like foreign pensions, again, foreign stockholdings, if you have foreign partnership interests; all of these kind of things need to get reported on this form.    A couple of things to note.  First, even if you’re not required to file an 8938, you may still be required to file an FBAR.  You should know that.  The other thing to note is that if you’re already reporting items via form 5471 for foreign corporations or foreign trusts on the 3520, if you’re reporting things on that, you don’t need to double report them.  So you wouldn’t also need to fill out the form 8938.  It gets into a lot of detail, so I would recommend reading over the form or speaking to an accountant to help you determine if you need to file.  Thank you very much.

The post What is Form 8938 and how does it differ from the FBAR? appeared first on Greenback Expat Tax Services.

A taxpayer can amend their tax return via Form 1040X, Amended U. Individual Income Tax Return, within three years of the due date of the original return. This form is structured similarly to a Form 1040 Individual Tax Return though it asks the taxpayer to show figures before and after the changes as well as an explanation of the reason for the change.

What Types of Mistakes Are NOT Worth an Amendment

Not all mistakes made on an American tax return require an amendment. The IRS has an elaborate electronic method for processing returns. This electronic system will catch any mathematical errors made in the return as well as any omissions of income that were already reported to the IRS.

For example, if you forgot to include $150 of interest income reported to you on a 1099-INT issued by your bank, the IRS will catch this in their processing. They will likely send you a notice of the changes and assess additional tax due, if any. However, if the amount of income that you forgot to include is material to your return and will result in a large balance due, you will want to take proactive measures to amend your return as soon as possible to minimize penalties and interest on the balance.

Likewise, if you failed to include a necessary schedule, the IRS should also catch this in their processing and will either choose to ignore it or send you a notice requesting that particular schedule.

It should be noted that the IRS does not allow taxpayers who filed jointly on their original return to change their filing status to “Married Filing Separate” after the due date of the original return.

You will also not want to file an amended return simply to change an address, dependent details or other non-financial information.

What Types of Mistakes Are Worth an Amendment

Errors for which you will want to amend a return include failing to claim deductions or credits for which you qualify, including income that was not reported to you (via a 1099, K-1, W-2, etc.) or other types of financial revisions that the IRS is not likely to discover on their own.

If you have noticed an error that requires an amendment, Form 1040X should be filed and submitted regardless of whether the error is in your favor. If you prepare an amended return that calculates a refund due to you, the return must be received by the IRS within three years of the due date of the original return. For example, if you discover that your 2009 return requires an amendment, you have until 4/15/2013 (6/15/2013 if you were overseas on 4/15/2010) to file the Form 1040X with the IRS.

If your amended return shows that you have a balance due, you will likely have to pay additional penalties and interest on the balance due. If the amount is material enough, the IRS will send an invoice after processing the amended return for the additional amount due.

Amended tax returns cannot be filed electronically, and any refunds resulting from the amended return must be sent via paper check. Direct deposit refunds are not an option with amended returns.

Other Items of Note When Amending American Taxes

If you have noticed an error that requires amending multiple years, you will need to prepare a separate Form 1040X for each year that you’ll be amending. Although the returns can be mailed in one package together, the IRS recommends that they be mailed separately to ensure they don’t get mixed together.

Also, amended returns have a history of being more susceptible to IRS audit. If you are amending to fix one thing in particular, ensure that you have the documentation to substantiate the change in the event of an audit. Also, be sure that the entire return is completely accurate to the best of your knowledge.

If a taxpayer has an existing balance due with the IRS for any tax year, refunds claimed from amended returns (and originally filed returns) will be applied to the existing balance due. Furthermore, refunds from amended returns can be applied to the estimated American taxes of future years.

More information regarding amended returns on American taxes can be found on the IRS website.

The post Help! I Found A Mistake On My American Taxes — Now What? appeared first on Greenback Expat Tax Services.

A few years ago the IRS launched a major effort to combat money-laundering and tax evasion by US taxpayers using non-US financial accounts. No doubt you have read about how even the secretive Swiss banks have been brought to heel by the IRS and the US government. UBS, a Swiss-based financial conglomerate, has divulged the names of their US clients to the IRS (and received considerable fines for helping to hide clients’ money from the IRS). Other financial institutions in Switzerland and a number of other countries have followed suit.

In addition, the IRS has offered a number of “amnesties” to US taxpayers who have not been declaring their foreign accounts. These amnesties involve payment of tax and penalties in exchange for avoiding further prosecution.

These programs have been so successful that the IRS has come to realize that there is a great deal more they could do – and so now we have FATCA, the Foreign Account Tax Compliance Act. The IRS has apparently realized that it alone does not have the manpower to pursue all US taxpayers living abroad and so, through this Act, it seeks to make all non-US financial institutions partners in their tax evasion efforts.

FATCA affects American expats (for the sake of this article the term “American expat” should include non-US citizens with US tax obligations) in
two broad ways.

On a personal level, there is another IRS form to be completed, form 8938, which asks about your foreign assets (not just financial accounts, but also other holdings, such as non-US businesses). This form is in addition to the US Treasury “FBAR” form that needs to be filed if a taxpayer has foreign financial accounts holding greater than $10,000 in aggregate.

The extra form is just an inconvenience and in fact does not even apply to many American expats whose non-US assets fall below certain minimums. The real meat of FATCA is at the institutional level – the reporting it seeks to impose on non-US financial institutions.

In essence, FATCA seeks to turn foreign financial institutions (FFIs) into reporting agencies for the IRS. Here is how it works in a nutshell:

• FATCA is phased-in over the next several years beginning in 2013.
• FFIs will have to check their clients’ accounts for “indicia” of US ties; things such as a US mailing address, income from US sources, birth in the USA, etc.
• If such indicia are found, the FFI must request certain information from the account holder to confirm whether they may be subject to US tax.
• If the account holder does not provide such information, then the FFI must report the account to the IRS and may have to withhold on any income payable to the account holder.

As you can imagine, these regulations place a considerable time and cost burden on non-US financial institutions, so one might ask why they simply wouldn’t tell the IRS to get lost. The reason is two-fold: First of all, since this is all in the interest of combating money-laundering, FFIs and governments feel a moral obligation to act. Secondly, the IRS will impose a 30% withholding on US source income to the FFI if they do not comply.

You may ask what the big deal is since most likely you are like the vast majority of American expatriates and are not trying to hide your income from the IRS and don’t mind disclosing that you are a US taxpayer. The big deal is that the alternative for FFIs to reporting to the IRS is to simply get rid of any client who has any ties to the US – they may feel that it simply isn’t worth the bother, especially for smaller accounts, to deal with US
clients. So, as if it isn’t already difficult enough for Americans living abroad, it may become yet more difficult thanks to FATCA.

The “good” news from this regard is that so far it seems like many governments and FFIs are choosing to comply with FATCA. In many cases, there are local privacy laws that do not allow disclosure of FFI client information but the workaround seems to be that the FFI discloses the information to a local government agency and this agency reports to the IRS (as is the case in Mexico, for example). This is good news in the sense that US clients are not being thrown out by the FFIs.

There is another interesting, and potentially more important, aspect to FATCA in that the agreements being entered into by foreign governments most often call for exchange of information rather than just sending information to the IRS. That is, US institutions will have to report on their non-US clients to the appropriate foreign government under the FATCA-based reciprocal agreements.

This has implications not only for non-US citizens with US accounts but also for US citizens living abroad. The greatest FATCA issue for American expats may end up being that their US bank or brokerage may no longer want to deal with them. The fact is that most US financial institutions have relatively few non-US resident clients – so they might decide that it isn’t worth the hassle to comply with these reciprocal reporting requirements. Imagine if you run a US bank, and you have some customers who live outside the USA but they are scattered in various countries, each of which requires reciprocal reporting under FATCA – what a mess. Now imagine if you have an IRA or 401k with a US financial institution that decides to get rid of their non-US resident clients – that could be a real issue. Furthermore, many US expats living in countries where, shall we say, tax reporting is not a priority, are not even aware of their local tax obligations with respect to their US accounts – they could be in for a nasty surprise somewhere down the line.

Tom Zachystal, CFP, CFA
President
Individual Asset Management

IAM is a Registered Investment Advisor in the USA that specializes in financial planning and investment management for US expatriates.

Need Help With Your US Expat Taxes?

For more detailed information regarding FATCA, check out this blog post. If you have questions about filing your US expat taxes or would like help completing your tax forms, please contact us.

The post What FATCA Means to the American Expat appeared first on Greenback Expat Tax Services.

Hi everybody.  My name is David McKeegan and our question this week is, “How does the IRS streamlined process work?”  The streamlined process is different from the offshore voluntary disclosure program.  The streamlined process is designed for people who are considered low risk by the IRS.  This procedure is available for nonresident US taxpayers who have resided outside the US since January 1, 2009, and who have not filed a US tax return during the same period.

What do you need to do?  You need to file three years of federal tax returns with all the appropriate forms and schedules and then you need to file six years of your foreign bank account reports; so you’re disclosing your foreign bank account reports.  The streamlined procedure, again, is for people who are considered to be low risk.  One of the thresholds to be considered for low risk is having a tax liability of less than $1,500 per year.  There are a couple of other risk factors that the IRS has on their website about this.

One of them is you would be considered high risk if there are indications of sophisticated tax planning or avoidance or the taxpayer has a financial interest in an entity or entities located outside of his or her country of residence.  Presumably, this is if you live in the UK but you own corporations that are based out of Singapore, this may disqualify you from the low risk process.  Each of these returns will be looked at individually.

There is also a special process for submitting the returns.  There is a lot of detail about this but I will just give you some of the basics.  There is a separate mailing address, so you don’t send this into the regular IRS mailing address.  You need to write ‘streamlined’ at the top of the first page of each of the returns.  There is also a special questionnaire that the IRS will have you fill out.

If you have more questions about this, we’ve got a good blog post up about this that has a lot more detail.  So you can have a look at our blog for that or have a look at the IRS website.  If you go into the site and you search for ‘streamlined’, you’ll find the page with all the detailed information.  Obviously, if you have any questions and would like to speak to us about that, we’re more than happy to help and you can contact us via our website, which is GreenbackTaxServices.com.  Thank you.

Need Help With Your US Expat Taxes?

For more detailed information regarding the Streamlined Process, check out this blog post. If you have questions about filing your US expat taxes or would like help completing your tax forms, please contact us.

The post How does the new “Streamlined Process” work for American Expats? (Video) appeared first on Greenback Expat Tax Services.

The following list explains the documents and information needed to prepare your annual US tax return. As income is reported on most US tax returns using a calendar year, these records should give calendar year information.

* You should provide the totals. Your tax records should include your supporting documentation such as check registers, bank statements and vendor bills.

** You should provide a total for each type of expense. Your tax records should include supporting documentation.

You should list any other income you received, showing the amount, the type of income received and the source of the income. You should keep verification of other income with your tax records.

It is also important for US expats to provide information about their citizenship, residency and international travel during the year. Travel information should include the following for each trip:

• Country traveled to
• Dates of arrival and departure
• Number of business days in the US
• Income earned in the US.

If you have FBAR filing requirements, you should provide documents that include the following information for each account:

• Bank name and address
• Account number
• Names on the account
• The highest balance in each of your foreign accounts during the year.

Many US expats find it is helpful to organize this information and these documents throughout the year. If you keep this information in mind during the year, the burden of gathering your documents at tax time may be lessened.

Need Help With Your US Expat Taxes?

For more detailed information regarding US expats taxes, check out this blog post. If you have questions about filing your US expat taxes or would like help completing your tax forms, please contact us.

The post Documents For US Expats In No-Tax Zones appeared first on Greenback Expat Tax Services.