Tax Lawyer Blog

A Blog written by the Tax Attorneys for Individuals and Businesses

Getting Into Compliance with Your Foreign Account Reporting, Part II

In Part I, we listed some of the penalties associated with the failure to report foreign accounts, and what is widely regarded as the best option for coming into compliance – the Offshore Voluntary Disclosure Program (OVDP). In this post, we are going to introduce two other options: Streamlined Filing Compliance and Quiet Disclosures.

Streamlined Filing Compliance

If you and your tax attorney think that you can demonstrate to the government’s satisfaction that your failure to report was not willful, Streamlined Filing Compliance procedures may be a possibility.

Meeting the requirements for Streamlined Filing Compliance is extremely difficult. For one thing, you must prove that your failure to report your foreign income, pay your taxes, and submit all of the required information returns (including FBARs) was not willful. In addition, if the IRS has already initiated a civil examination of your tax returns for any taxable year, or a criminal investigation, you are ineligible – even if the examination or investigation is entirely unconnected with your foreign assets.

If you manage to succeed with this compliance method, the tax penalty is only 5%. Streamlined Filing Compliance is available to individual U.S. taxpayers residing both inside and outside the United States, and to the estates of individual taxpayers.

The "Quiet Disclosure"

Tens of thousands of taxpayers each year file “Quiet Disclosures” – amended returns, delinquent FBARs and other foreign account disclosures – and hope that they won’t get caught.

The result can be disastrous. The IRS has been promoting the OVDP for many years and wants taxpayers in it – it is therefore increasing its scrutiny of Quiet Disclosures and as a result, they can now serve as a red flag for an audit. Quiet Disclosures are definitely not for taxpayers who never filed and/or whose taxable income would change as a result of an amended filing.

Quiet Disclosures may be prudent in limited circumstances, such as where the taxpayer has no financial interest in an account but is listed as a signatory (e.g., the child of a foreign account owner). Note that if a delinquent FBAR form is filed, the IRS recommends that an explanatory letter be included, although this still does not guarantee that the taxpayer will avoid FBAR penalties.

A Quiet Disclosure should never be done without professional tax assistance.

Other, Less Utilized Options

There also are other voluntary disclosures (laid out in IRS manual 9.5.11.9) that may be worth exploring with your tax advisor.

The tax preparation team at Moskowitz, LLP assists many U.S. taxpayers come into compliance with their foreign account reporting. Part III, our last post in this series, will focus on the information your tax team will need to help you.

March 2017: Client Alert

March 2017: Client Alert

 

It's tax season and we are hard at work preparing returns and answering tax questions.   If you have tax questions or concerns, please do not hesitate to contact us.     You also may enjoy Frequently Asked Questions with Chip Franklin on KGO radio.

Sincerely,

Steve Moskowitz, Esq.
Founding Partner

 

Tax Calendar

Tax return filing season has arrived, which means it's time to mark your calendar for these 2017 tax deadlines.

March 2

  • Large employers and others must furnish Form 1095-B or Form 1095-C to employees.

March 15

  • 2016 calendar-year S corporation Form 1120S income tax returns are due.
  • 2016 calendar-year partnerships Form 1065 income tax returns are due.

March 31

  • Forms 1095-B and 1095-C due to the IRS, if filing electronically. Employers who have 250 or more employees are required to file electronically.

What's Inside

Hot Topics

Can the IRS revoke your passport?
The IRS is revoking anbd denying passports in certian cases of tax delinquency

Common misconceptions of reporting foreign income
Taxability of foreign income & financial accounts, signature of liability and more..

 

Reminder: Partnership Tax Returns Due One Month Earlier

Remember, partnership tax returns are now due on March 15. This is a month earlier than last year. The change is important to note, as filing the tax return late could result in unexpected penalties. The new due date now aligns filing Form 1065 with other flow-through entities like S corporation Form 1120S. If you get caught by surprise with this earlier filing date, contact Moskowitz LLP immediately.


2016 Proof of Health Insurance: the Form 1095 Wrinkle

Under the current Affordable Care Act (ACA), all Americans must have health insurance. If you receive your health insurance through the ACA marketplace or from your employer, you will receive a Form 1095. This form is used as documentation that you have adequate insurance and is used for other ACA reporting and potential tax benefits.

What’s happening now

Prior to filing your tax return you should receive your Form 1095 and review it for accuracy. If you receive your health insurance through a state or federal marketplace you will receive Form 1095-A. Otherwise your version of the form will be either Form 1095-B or Form 1095-C. Unfortunately, some providers of the “B and C” versions of Form 1095 are still having trouble issuing the forms on time. Because of this, the IRS has issued a notice backing off on this “receive the form before you file” requirement. While you will still need to prove you have adaquate health insurance, the suppliers of the Form 1095-B and Form 1095-C were given until as late as March 2 to get the form out to you.

What to do

  •  If you have health insurance through a state or federal marketplace, you will receive a Form 1095-A. You should have already received this form, and you must have it prior to filing your tax return.
  •  If you receive health insurance through your employer, or another program that generates Form 1095-B or 1095-C, for 2016 only, you can still file a tax return without receiving the form. Just make sure you can prove health insurance coverage for you, your spouse, and your dependents for the year.
  •  Place Form 1095 in your tax files. Even though some Forms 1095-B and Forms 1095-C will be received later, you must still retain the form in your files.
  •  If you file your tax return and then discover an error in your reporting based on a Form 1095-B or Form 1095-C received after February 1, there is penalty relief from the IRS if you need to amend your tax return.

Remember, this applies to the 2016 tax year only. For the 2017 tax year, unless changed, you will be required to use a Form 1095 as proof of health insurance prior to filing your tax return.

 

Current Tax Law Requires Health Insurance

During his first week in office, President Trump signed an executive order asking federal agencies to reduce the economic burden the Patient Protection and Affordable Care Act (ACA) puts on American citizens.

Unfortunately, this executive order is causing confusion. Many people are left wondering if fines will no longer be imposed or rules no longer need to be followed. Until the agencies impacted by this executive order publish their intent, act as though current laws are still in play. This includes:

  •  The requirement to have health insurance.
  •  The requirement to pay a shared responsibility tax if you do not have continuous health insurance coverage.
  •  The ability to receive a health insurance premium credit, if you qualify.
  •  Possible health insurance credits for qualifying small businesses.

It’s important to realize that unless tax laws actually change, you are expected to follow the laws as they are currently written.

 

More Credits Require Questions

Common errors have helped to make the Earned Income Tax Credit (EIC) a major source of what the IRS calls “improper payments.” The agency estimates that of the $66 billion in EIC funds paid in 2015, nearly a quarter were collected by filers who didn’t qualify to receive them. To help combat this problem, the IRS now requires additional confirmation of information regarding the EIC and three new credits beginning in 2016.

Now, if you claim the EIC, the Child Tax Credit (CTC), the Additional Child Tax Credit (ACTC), or the American Opportunity Tax Credit (AOTC), additional information may be requested of you.

For the CTC and ACTC, you may be asked how long your children lived with you over the past year, or whether they lived with an ex-spouse, relatives, or other guardian.

If you are eligible for the AOTC, which is a credit to defray as much as $2,500 in higher education costs for you or your children, you will need to provide Form 1098-T from the college or university. You will also need receipts for related expenses.

You may also be asked to double-check your social security numbers and dates of birth for the dependents on your return, as these are two common sources of errors.

If you get more questions than usual or are asked for additional documents, be aware that this is just a new IRS reporting requirement.