Reporting Income and Foreign Accounts Overseas

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At Gamarra, CPA we aid clients in complying with the Foreign Bank and Financial Accounts (FBAR). As such, below is a list of frequently asked questions.

Question: I have a rental property overseas and collect a minimal amount of rental income - do I need to report this on my income tax return?

Answer: Yes, rental income collected overseas is subject to reporting on your income tax return. In addition, you may be subject to FBAR reporting.

Question: Can I deduct the expenses incurred in managing my overseas rental property?

Answer: Yes, you can deduct the expenses you incur in managing your rental property overseas. In addition, you can depreciate the cost of the rental.

Question: If I am secondary owner of a foreign bank account, do I need to comply with FBAR?

Answer: If you are a secondary owner of a foreign bank account, then you may be subject to the FBAR filing. The filing is due by June 30th and there is no extension. The filing for FBAR is available online and must be electronically filed. Paper filings are not allowed.

Question: Is the overseas voluntary disclosure program in effect for 2014?

Answer: Yes, the overseas voluntary disclosure program (OVDI) is permanently in effect.

Question: Who enforces FBAR?

Answer: FinCEN is supposed to manage the enforcement but this right was transferred over to the IRS. As such, the IRS is now the enforcer of FBAR compliance.

Question: I have reported all foreign earned income and have not filed the FBAR. Will I be subject to penalties?

Answer: In this instance, the FBAR should be filed as this reduces the risk. However, the IRS has not be aggressive in auditing FBAR compliance nor penalizing taxpayers if the foreign income was reported.

Question: Should I amend my return to report the unreported foreign income?

Answer: This is one approach for discreetly reporting the foreign earned income. However, this approach may not necessarily avoid actions taken from the IRS.

Question: Do I need to the form 8938 "Statement of Specified Foreign Financial Assets" in addition to the FinCEN Form 114 Report of Foreign Bank and Financial Accounts (FBAR)?

Answer: The form 8938 is separate and distinct from the FBAR filing requirements. The 8939 has specific requirements and should be attached to the personal income tax return 1040. The filing deadline for the 8938 is April 15th. Unlike the 8938, the FBAR filing deadline is June 30th and there is no extensions.

Question: Will FinCEN enforce the FBAR compliance including assessing penalties and interest?

Answer: FinCEN delegated the enforcement responsibility to the IRS. As such, the IRS has the authority and oversight to enforce FBAR compliance. Assess penalties and interest will be managed by the IRS.

Question: How long do I need to keep my records for FBAR compliance?

Answer: The record retention is 5 years. Therefore, you should consider keeping your financial records for a minimum of 5 years.

Question: My family member has granted me access to their bank account to sign checks on their behalf, does this mean I need to comply with FBAR?

Answer: Per FBAR, signature authority implies having a financial interest. As such, this scenario may require complying with FBAR filing requirements.

Question: For FBAR purposes, what is a financial account?

Answer: A financial account for purposes of FBAR include the following:

  • Bank accounts with signature authority

  • Securities accounts like stocks, bonds, or mutual funds

  • Security derivative accounts

  • Savings account including money markets

  • Demand accounts and time deposits accounts

Question: When do I need to report and file the FBAR?

Answer: The deadline to report and file the FBAR is June 30th for the prior year. In reporting, be sure to report all the accounts in which you have signature authority. You can access the electronic filing system by clicking on http://bsaefiling.fincen.treas.gov/main.html.

Question: Can I request an extension to file the FinCEN Form 114?

Answer: As of 2014, there is no extension for filing the FinCEN Form 114. As such, the deadline is June 30th.

Question: What is the FBAR penalties?

Answer: The penalties for FBAR depends on whether the penalty is willful or non-willful? If willful, the penalty is equal to or the greater of $100K OR 50% of the amount of the transaction. In other words, this extends for failure to report the existence of an account. For example, if you willfully did not report an account in which you had signature authority then you may be subject to this penalty. For non-willful violations, the IRS may impose a maximum penalty of $10K per year.

Question: What is the Streamlined Offshore Domestic Program?

Answer: The streamlined offshore domestic program is available to taxpayers who reside in the US to avoid criminal charges and report all their foreign assets. Generally, this involves amending three years of your tax returns and reporting the taxable interest in Schedule B and reporting the FinCEN Form 114.

 

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