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• Foreign Bank Accounts Reporting

• 2013 Tax Updates

• Open Questions

Underreporting = 84% $376 billion

Underpayment = 10% $46 billion

Non-Filing = 6% $28 billion

Background: The Tax Gap

Foreign Account and Asset Reporting

FBAR

FATCA

Required as part of Bank Act Since 1970s

US taxpayer with foreign accounts have two obligations:

1. answer “ Yes” on Form 1040, Schedule B 2. File Form TD F 90-22.1

Foreign Bank Accounting Reporting

Required to be filed annually by 6/30 Mail to Detroit Service Center or drop

off to IRS office No extensions Mailbox rule does not apply

Form TD F 90.22-1 (FBAR)

U.S. taxpayer U.S. person has a financial account in a

foreign country U.S. person has as financial interest in,

or signature of other authority over the financial account

The aggregate account balance > $10,000 (USD) at any time during the calendar year

Who is required to file an FBAR

(TD F 90.22-1)

Bank account

Security and stock account

Reportable Financial Account?

Criminal penalties for willful violation:

-- up to 5 years imprisonment and $250K fine Civil penalties --non-willful violation : up to $10,000 for each violation --Willful violation: greater of $100K or 50% of the balance in the account at the time of violation Both Civil and criminal penalties can be imposed

Penalties for Non-Compliance

Form 2004 and 2009, increased to 145% FBAR related examinations increased

96% FBAR penalty assessments increased

from $4.2 million

2010 – increased to 173% 2011 - increased to 184%

Increasing Rates of FBAR

The Foreign Account Tax Compliance Act

( FATCA)

“The FATCA is an important development in U.S. efforts to improve tax compliance involving foreign financial assets and offshore accounts.”

FATCA was enacted in 2010

What is FATCA?

U.S. taxpayer with specified foreign financial assets that exceed thresholds must reports those assets to IRS.

Beginning in 2013, foreign financial institutions will be requires to report directly to the U.S. government information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayer hold a substantial ownership interest

Requirements

File with U.S. income tax return You have an interest in specific foreign

financil assets The aggregate value of your specific

foreign financial assets in more than the reporting threshold that applies to you.

FORM 8938 requirement

Foreign bank accounts Foreign mutual funds Foreign hedge funds Foreign private equity funds Certain foreign insurance products

What is Specified Foreign Financial

Assets?

Stock or securities issued by someone other than U.S. person

Any interest in a foreign entity Any Financial instrument or contract

that has an issuer that is other than a U.S. person

Foreign pensions and deferred compensation plans

Foreign trust and estates

Continued (SFFA)

Unmarried taxpayer living in the U.S.

- $50,000 on the last day of year or $75,000 at any time during the year Married taxpayers-MFJ -$100,000 or $150,000 Married taxpayers- MFS -$50,000 or $75,000

Reporting Thresholds

File with income tax return – Form 1040 If you do not have to file an income tax

for the tax year, you do no need to file form 8938, even if the value of your specified foreign assets is more than the appropriate reporting threshold.

Rules for Form 8938

May result $10,000 civil penalty + $10,000 continuation penalty for each 30 days period after the taxpayer is notified by IRS (max $50K)

Exception if failure is due to reasonable cause and not willful neglect

Criminal penalties may apply

Penalties for non-Filing of form 8938

2013 Tax UpdateAmerican Taxpayer Relief Act of 2012

Filing Status

Married Individuals Filing Joint Returns and Surviving Spouses

$20,000

Heads of Households $16,770

Unmarried Individuals/ Single

$10,000

Married Individuals Filing Separate Returns

$10,000

65 years older or BlindAdditional $1,200 –MFJ$1,500 - Single

Filing Requirement

Tax Rate Married Filing Joint

10% up to $17850

15% $17,851- $72,500

25% $72,501 - $146,400

28% $146,401- $223,050

33% $223,051 - $398,350

35% $398,351 -$450,000

39.60% over $450,000

**Single =39.6% over $225,000

Tax Brackets

Long term capital gain and qualified dividend = 15% tax rate

Capital loss deduction = $3000

Capital Gains and Dividends

American Opportunity Tax Credit – max $2500

Tuition and Fee Deduction - $4000

Extended for five years to 2017

Education Tax Credit

1/1/2014 all American must have health insurance

Penalty 2014 is greater of $95 or 1% of household income 2015 is greater of $325 or 2% of household income 2016 is the greater of $695 or 2.5% of household

income Children = 50% of normal penalty up to $2250 for

all children

Affordable Care Act