Archive for the ‘International’ Category

Does a Nonresident Alien Spouse that Has Elected to be Treated as a US Person Need to File an FBAR?

Monday, June 29th, 2015

With the FBAR deadline upon us, an interesting question arose: Does a spouse covered by the §1.6013-6 regulation allowing a nonresident alien individual to be treated as a resident need to file an FBAR? Logic says no; the FBAR comes out of the Bank Secrecy Act, not the Tax Code. And the IRS agrees with logic: “If the wife is non us person for FBAR therefore she does not have a filing requirement.” (That quote comes from a question I submitted to the FBAR group at the IRS.)

But beware, if the taxpayers have a Form 8938 filing requirement the wife’s accounts will need to be reported on that form. That’s a tax form, so the accounts would need to be included.

BEA-10 Due on June 30th

Wednesday, June 24th, 2015

Just a reminder this morning that the BEA-10 mandatory survey of foreign investment by Americans is due on June 30th. If you own 10% or more of a foreign entity, you will need to file this form. New filers must mail the forms in.

There are significant penalties if you don’t file this, so it’s definitely something to take care of (if it applies to you).

FBAR Due in One Week

Tuesday, June 23rd, 2015

The Report of Foreign Bank and Financial Accounts (Form 114, the FBAR) is due on June 30th. The form must be electronically filed with FINCEN. Your tax professional may be able to do it through his software (we can) or you can do it yourself using the BSA EFile system. There is now an online form you can use (besides Adobe reader) that may work better (it certainly can’t work worse).

Because of the Hom decision of last year, we now must again report foreign online gambling accounts. That’s basically all online gambling sites except the legal sites in Delaware, Nevada, and New Jersey. I maintain a list of online gambling sites and their mailing addresses here.

There are ridiculous penalties if you willfully fail to file an FBAR (half the balance in the account or $100,000 (per account), whichever is greater). Thus, as I said last year, just file the FBAR…timely.

A Ship Over Troubled Waters Sinks Leeds’ Cellino For Now

Monday, December 1st, 2014

From the Sport (not Sports) page of the Telegraph and the BBC we find that Leeds beat league-leading Derby two to nil in football (or soccer for us colonials). Derby manager Steve McClaren was quoted by the BBC: “It’s just one of them days, a bad day at the office. We were below our best and when you’re not at your best, you can be beaten.” However, the real news was what happened away from the pitch.

Massimo Cellino owns Leeds United. Unfortunately, he’s also been found guilty of evading import taxes on a boat in Italy. The Football League ordered Mr. Cellino to resign because he was convicted of “…an offence involving a ‘Dishonest Act’….” Mr. Cellino vows an appeal.

In any case, his ouster will likely be very short-term. He can resume his ownership on March 18th; at that point his conviction will be “deemed spent.”

Lawsuits Against FATCA in Canada

Thursday, August 14th, 2014

A lawsuit was filed in Federal Court in Vancouver, British Columbia, challenging Canada’s complying with the US Foreign Account Tax Compliance Act (FATCA). This is the law that spawned Form 8938 (the “Son of FBAR”). This law, passed in 2010, mandates that account information on Americans be shared with the IRS from foreign bank accounts or there will be mandatory 30% withholding on any US payments to those accounts.

The lawsuit alleges that disclosing information on Canadian account holder is a violation of privacy and property rights of the account holders in violation of the Canadian constitution.

I have no idea how slow the Canadian tax system works, but I suspect this lawsuit will take years to work its way through the court system.

I’ll Drink to That!

Monday, August 11th, 2014

Some tax-related news today from the other side of the pond. In Birmingham, England, two stores have been barred from selling alcohol as they had fake export labels. The report in the Birmingham Mail notes that the shops had over 200 bottles of non-taxed liquor.

This is very similar to the smuggling of cigarettes in the United States. In New York City, state and local taxes on cigarettes will add nearly $10 to the cost of a pack; it’s $0.17 in Missouri. That kind of differential breeds illegal activity.

In any case, two stores lost £2,000 of alcohol and later lost their licenses.

IRS Releases New Forms W-8BEN and W-8ECI

Wednesday, March 19th, 2014

The IRS released a new version of Form W-8BEN. The new version should be used by an individual responding to a withholding request from the US. It’s commonly used to note tax treaty benefits.

There is a disclaimer on the form: “For use by individuals. Entities must use Form W-8BEN-E.” There’s only one problem with that: Form W-8BEN-E has not been released yet; it’s still in draft form. I suspect that until the Form W-8BEN-E is released, an entity can use the Form W-8BEN.

The IRS also released a new version of Form W-8ECI. This is the form used by individuals and businesses who are foreigners with a business in the US; that is, income that is effectively connected with the US. Individuals and entities completing this form are required to complete a US tax return.

People receiving either of these forms should make sure they receive the new forms (dated by the IRS as February 2014). The old forms should no longer be accepted.

FBAR Changes for 2014

Tuesday, January 7th, 2014

There have been some changes made by by FINCEN (the Financial Crimes Enforcement Network) for the Report of Foreign Bank and Financial Accounts (FBAR) for 2014. While overall these are minor, they will impact everyone who files an FBAR.

First, Form TD F 90-22.1 is no more. The FBAR has a new form number, Form 114.

Second, as of last July the FBAR must be electronically filed. The good news is that as of last October, your tax accountant can file the form for you as long as you complete Form 114a.

Third, as of January 1st, you don’t have to register to efile an FBAR. You can now just go the BSA efile website, follow the instructions and file the form. Do note that past experience is that the BSA efile website works well in Internet Explorer but might not work in Firefox or Chrome.

And most importantly, the definition of who must file has changed slightly. The new rule effective November 23, 2013, states:

United States persons are required to file an FBAR if:

The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported. [emphasis added]

It used to be that the rule was take the maximum value of each account, sum the maximums, and compare the sum to $10,000. Now, the rule (except for dollar amounts) matches that of FATCA (except for dollar amounts) in that it looks at your value in an account on one day.

Some things haven’t changed, though. The FBAR is due on June 30th and there are no extensions. If you have a foreign financial account you must check a box at the bottom of Schedule B even if you don’t need to file the FBAR. There’s a second box you must check if you need to file an FBAR, and you have to list the countries you have foreign accounts in (if you must file an FBAR) on your tax return. Thus, if you do need to file the FBAR, get your information together as your tax professional will need it in order to file your return.

It’s Nice to Know I’m Right, But…

Saturday, December 14th, 2013

I’ve written on a few occasions about my battles with the IRS over incorrectly assessed Failure to File and Failure to Pay penalties. (See here, here, and here.) As I noted in the last post linked to above, I submitted this to the IRS’s Systemic Advocacy Management System (SAMS). Well, progress has been made.

It turns out there’s not a systemic issue, but at least two of them (and almost certainly at least three). First, the regulation that exists does provide an automatic extension for taxpayers outside of the US on April 15th for any reason. Here’s that regulation again (it’s Treasury Regulation, 26 CFR § 1.6073-4 (c)):

(c) Residents outside the United States. In the case of a U.S. resident living or traveling outside the United States and Puerto Rico on the 15th day of the 4th month of a taxable year beginning after December 31, 1978, an extension of time for filing the declaration of estimated tax otherwise due on or before the 15th day of the 4th month of the taxable year is granted to and including the 15th day of the 6th month of the taxable year.

The woman I’ve been dealing with at SAMS confirmed that the plain language of the regulation does govern. It’s also noted in the Internal Revenue Manual (IRM), which is how the IRS is supposed to resolve penalties. But:

1. IRS publications are likely wrong. Publication 54 notes that an extension is available only if outside of the US on April 15th for business purposes and you have to reside outside of the US. The clear language of the regulation is different and governs, so publications are wrong. They’ll have to be rewritten, which won’t happen for 2013 publications (they’ve already been issued and have a July deadline).

2. IRS staff is not using the IRM to properly resolve the matter. Based on the experiences of my clients, these penalties should have been resolved at the service centers. The staff at the service centers may be using publications rather than the IRM to look up how the Tax Code works. (It’s also possible that the IRM needs to be rewritten in this area to note this situation.) There will be a need to determine why the penalties weren’t resolved at the service center; it’s possible that retraining some staff is required.

3. The IRS computer system likely needs to be reprogrammed to stop these penalties from being assessed in the first place. That’s almost certainly not going to happen before 2013 returns are processed, but the sooner the underlying problem(s) in the programming are discovered, the sooner they can be resolved.

Since SAMS now agrees that there is at least one systemic issue, the matter is being elevated and an analyst (and team) will be assigned to attempt to resolve this…hopefully before 2013 tax returns are filed. Unfortunately for my clients impacted by this for 2012 returns, each such case must be fought individually. While I am now fairly certain my clients will all win in the end, it’s still a pain in the neck.

There are two related matters. First, how many taxpayers were erroneously assessed these penalties and didn’t fight them? I noticed the systemic issue because I had multiple individuals impacted in multiple years. It’s likely there are hundreds or thousands of taxpayers who paid penalties that shouldn’t have. If you happen to be one of them (and the tax year in question is still open), I’d immediately write the IRS requesting a refund of the penalty(ies).

Second, I wish to praise the Taxpayer Advocate’s Office of Systemic Advocacy. They did not blindly assume that the IRS was right on these penalties, and did look fully at the evidence I brought up. While I would have liked SAMS to move somewhat faster, getting the acknowledgment of being correct in four months is probably quite fast in terms of the normal speed of the bureaucracy.

It’s All Greek to Me

Thursday, November 21st, 2013

In reading through the poker world today, news from Greece pushed to the forefront: The Greek government has implemented an up to 20% “Player Withholding Tax” on online gambling. It doesn’t sound like much, but like everything the devil is in the details.

Suppose you play online poker in Greece, and you win €1,000. The first €100 is not taxed. The next €400 are taxed at 15% and the remaining €500 at 20%. So you really win €840. Let’s further suppose you lose €1,000 the very next day. There is no tax, but you’re two break-even days net you a loss of the withheld tax, €140.

That’s doesn’t sound that bad. It’s withheld tax; I can recover it when I file my income tax return. No, you can’t. Although it’s called withholding it’s not the same as withholding in the US–this tax is lost (to the government) for good. Effectively, it’s like you’re playing in any of the bad states for US gamblers: You can’t deduct your losses.

Professional gamblers in Greece do have the availability of the moving truck. While the climate in the United Kingdom is anything but similar to Greece, the tax climate in the UK for professional gamblers is (at least for now) sunny with mild temperatures. Gambling, even for professionals, isn’t taxed in the UK.

The end result for this new tax in Greece is that it will bring in less money than projected. The big gamblers who would otherwise fill the Greek coffers will make economic decisions that benefit themselves but not the Greek government.