Offshore Tax Enforcement Update: Foreign Bank Account Disclosure Deadline Is June 2014

by Blank Rome LLP
Contact

Tax

Annual Filing Deadline Approaching

The annual deadline for filing FinCEN Form 114, Report of Foreign Bank and Financial Accounts (commonly known as the “FBAR” form), is fast-approaching. Any U.S. taxpayer with a financial interest in, or signature or other authority over, a foreign bank account (which includes bank, security, and other types of financial accounts, including certain foreign life insurance policies) is required to file the FBAR form if the aggregate value of the account (or accounts) exceeded $10,000 at any time during the 2013 calendar year, subject to certain exceptions. The FBAR filing requirements apply to all types of taxpayers with offshore bank accounts, including individuals, corporations, partnerships, LLCs, trusts, and estates (with some exceptions). Corporate officers with signature authority over corporate bank accounts located in a foreign country must also file the FBAR form in their individual capacity.

The FBAR filing deadline is June 30, 2014. No extensions of time to file the FBAR are available. Significant criminal and civil penalties may be imposed for the failure to timely file the FBAR form.

As opposed to last year when the FBAR could be filed in paper form, all FBARs are now required to be filed electronically through the Treasury Department’s BSA E-Filing System. The Treasury Department’s BSA E-Filing System can be accessed at http://bsaefiling.fincen.treas.gov/main.html.

Murky Guidance on Whether Digital Currency Must Be Included on the FBAR

The Internal Revenue Service (“IRS”) has yet to release any formal guidance on whether a Bitcoin account is required to be reported on an FBAR. However, during a recent IRS webinar entitled “Reporting of Foreign Financial Accounts on the Electronic FBAR,” an IRS representative stated that taxpayers do not need to include Bitcoin accounts on their 2013 FBAR. The IRS representative cautioned that the IRS could change this policy in the future, and we further caution that any such informal guidance is not binding on the IRS.

Conversely, a federal district court in California, in a case captioned United States v. Hom, 2014 U.S. Dist. LEXIS 77489 N.D. CA 2014), recently upheld an FBAR penalty assessment against an individual who failed to report his interest in a FirePay, PokerStars and PartyPoker account. Such decision appears to conflict with the informal IRS guidance on Bitcoin accounts. Individuals with similar online poker accounts should file an FBAR if, at any time during 2013, they had $10,000 or more in
the online poker account.

The new guidance on Bitcoin and online poker accounts illustrate the need for taxpayers to consult with a tax advisor to determine the extent of their FBAR filing obligations. As the use of digital currency continues to increase, the IRS is likely to revisit its guidance and practices. As evident from the recent guidance on Bitcoin and online poker accounts, the rules relating to digital currency are often not intuitive.

FATCA Implementation Deadline Is Just around the Corner

Meanwhile, the start date for implementation of the Foreign Account Tax Compliance Act (“FATCA”) is July 1, 2014. FATCA is a new information reporting regime pursuant to which foreign bank and financial institutions will annually report information to the IRS about their U.S. account holders. Foreign financial institutions that refuse to report such information will face a stringent 30 percent withholding tax on U.S. source payments as a penalty for non-compliance. To date, over 77,000 foreign financial institutions have registered with the IRS and indicated their agreement to report information to the IRS pursuant to FATCA, and nearly 80 foreign countries have either formally signed treaties with the U.S., or are actively negotiating such agreements, in order to implement FATCA’s information sharing requirements. FATCA is expected to provide the IRS with information regarding thousands of accounts held by U.S. taxpayers at financial institutions located around the globe.

Major Changes to Offshore Voluntary Disclosure Program and Related Initiatives

Taxpayers who are not compliant with their prior year FBAR or income tax reporting obligations with respect to foreign bank accounts may wish to take advantage of the IRS Offshore Voluntary Disclosure Program (“OVDP”), an amnesty program designed to encourage U.S. taxpayers with undisclosed foreign bank accounts to come into compliance with U.S. tax laws and avoid criminal prosecution. This program permits eligible taxpayers with undisclosed foreign bank accounts, and unreported income associated with those accounts, to avoid criminal prosecution in return for the payment of back taxes, interest, and penalties. Currently, there is no deadline for participation in the OVDP, although the IRS has stated that it could end the program, or modify its terms, at any time. To date, more than 45,000 taxpayers have come into compliance voluntarily through the OVDP and predecessor programs, paying about $6.5 billion in taxes, interest, and penalties.

On June 18, 2014, the IRS announced significant changes to the OVDP and related programs, including modifications to the existing “Streamlined Filing Compliance Procedures.” According to IRS Commissioner John Koskinen, “[t]he new versions of our offshore programs reflect a carefully balanced approach to ensure that everyone pays their fair share of taxes owed. Through the changes we are announcing today, we provide additional flexibility in key respects while maintaining the central components of our voluntary programs.”

To briefly summarize the changes, taxpayers who can certify that their failure to file an FBAR and/or report income from an offshore bank account was non-willful may be eligible for a reduced penalty framework. On the other hand, taxpayers whose failure to file FBARs and reporting offshore income was willful can be subject to an increased penalty, up to 50 percent of the maximum aggregate balance of their offshore holdings. Previously, such taxpayers were subject to a penalty calculated at 27.5 percent of their foreign accounts.

Individuals with questions about FBAR reporting, or who are considering making a voluntary disclosure to the IRS regarding foreign bank accounts, should consult experienced tax counsel to understand the benefits and risks of the voluntary disclosure process. Blank Rome’s FBAR and FATCA compliance team has significant experience with offshore reporting obligations, the IRS voluntary disclosure programs, and the Foreign Account Tax Compliance Act, and can assist individuals in navigating these reporting regimes.

 

Written by:

Blank Rome LLP
Contact
more
less

Blank Rome LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!