IRS "Reminders" Issued Days Before Filing Deadline
The tax filing deadlines have passed, and with them the updated deadlines for the disclosure of foreign bank accounts and financial assets. In the last days before the filing deadline on April 18, the IRS issued "reminders" that could have created a crisis for a number of U.S. taxpayers.
IRS Reminders Rely on Subscriptions for Publications
On April 13, 2017, the IRS issued a press release which said "The Internal Revenue Service today reminded U.S. citizens and resident aliens, including those with dual citizenship, to check if they have a U.S. tax liability and filing requirement." However, the press release itself is the reminder. In order to obtain that reminder, a person needed to have subscribed to the IRS Newswire in advance.
The IRS relies on the media to do publications on its behalf. Unless a reporter publishes press release, the taxpaying public at large will not receive these reminders about their important legal obligations. Even though the deadline has passed, the reminders remain important for U.S. citizens and alien taxpayers alike.
Deadlines for Tax Returns and FBARs
2016 is the first filing year in which the deadlines for the annual Report of Foreign Bank and Financial Accounts (FBAR) and federal income tax returns are the same: April 18, 2017. Anyone who failed to electronically file their FBARs with the Financial Crimes Enforcement Network (FinCEN) by the deadline will receive an automatic extension to October 16, 2017.
Who Needs to File FBAR Forms?
The IRS reminded taxpayers that anyone who had an interest in, or signature authority over, foreign financial accounts that had a value of $10,000 or more at any time during the year is required to file an FBAR. That includes most foreign filers. Even if a taxpayer qualifies for a Foreign Earned Income exclusion or a Foreign Tax credit, substantial reductions in U.S. tax liability will not excuse the the non-disclosure of foreign financial assets. Nonresident aliens who earn income from U.S. sources may also have a U.S. tax obligation, which needs to be reported.
Taxpayers who relinquished their U.S. citizenship, or gave up their lawful permanent resident status, may still have to file FBARs. In addition, they will need to attach Form 8854, Initial and Annual Expatriation Statement, to their U.S. tax returns.
Foreign Resident Taxpayer Requirements
U.S. citizens and resident aliens who live and work abroad have a little more time to meet their U.S. tax disclosure requirements. U.S. taxpayers who live outside the U.S. and Puerto Rico have until June 15, 2017 to file their tax returns. However, if tax is owed, foreign taxpayers will still be charged interest calculated from April 18. These tax payers may chose two options to file their tax returns for free:
- Taxpayers with adjusted gross income (AGI) of $64,000 or less can use commercial tax-filing software to prepare and e-file their tax returns for free.
- Any taxpayer can also use Free File Fillable Forms available on the IRS website until October 16, 2017.
Don't Forget About Schedule B
U.S. tax returns include a Schedule B form which inquires into foreign financial accounts, including trusts, bank accounts, and securities. Schedule B, and related Form 8938, Statement of Foreign Financial Assets, require U.S. taxpayers to disclose any worldwide income and the country in which the assets are located.
Canadian Retirement Account Reporting
In October 2014, the IRS eliminated a special annual reporting requirement that applies to U.S. taxpayers who hold interests in two types of Canadian retirement accounts: registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs). These taxpayers no longer have to file Form 8891 to get their tax savings. However, depending on the size of the Canadian retirement accounts, they may still need to file FBARs or Form 8938 along with their tax returns.
Domestic Entity Reporting Requirements
Some domestic corporations, partnerships, and trusts that are designed to hold foreign financial assets (either directly or indirectly), must also file Form 8938 if the entity's total foreign assets exceeded $50,000 on the last day of the tax year or $75,000 at any time during the year. The specifics of which foreign assets apply and which corporations must file can be found on the IRS instructions for Form 8938.
The U.S. tax code can be complicated. Domestic and foreign U.S. taxpayers may find it difficult to know what their reporting obligations truly are. It can take the advice of an experienced tax attorney to ensure that all the proper forms are filed on time to avoid penalties and late fees.
Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 30 years experience. If you have questions regarding FBAR requirements or penalties, contact Joe Viola to schedule a consultation.