The Wolf Group, PC 4401 Fair Lakes Court, Suite 310, Fairfax, VA Tel: (703) Society Form 8938 and Other Important Reporting Issues Bob Len, CPA, CFP Wolf Group Capital Advisors Dale Mason, CPA The Wolf Group Grant Miller, The Wolf Group

 Background  Designed to force U.S. citizens and residents to report all foreign income  FATCA provisions add an entirely new Chapter to the Internal Revenue Code  400 pages of regulations FATCA Overview

 IRS Agreement: Required of all worldwide foreign financial institutions (“FFI”) and certain non-financial institutions who receive any U.S. source payments 5 European Countries Joint Statement  OTHERWISE: 30% withholding tax applied to any “Withholdable Payment” FATCA Overview

FATCA - Practical Implications  Many foreign financial institutions have and will decide to terminate U.S. clients’ accounts  Strict enforcement of PFIC rules and cost of information reporting will also cause U.S. persons to move financial assets to the U.S.  Self-reporting will be cross checked with institutional (foreign government) reporting. Discrepancies will be easy to identify.

The Wolf Group, PC 4401 Fair Lakes Court, Suite 310, Fairfax, VA Tel: (703) Form TD F and Form 8938

Foreign Bank Account Reporting: Form TD F  Who should file: U.S. citizens and residents  Persons with financial interest in or signature authority over foreign financial account(s)  Aggregate value exceeding $10,000 at any time during the year  Deadline is June 30 of the following year (No extensions)  Not filed with tax return Schedule B question

Foreign “Financial Account”  Bank, savings and checking accounts  Securities accounts such as mutual funds and brokerage accounts  Even foreign annuity or insurance policy with a cash surrender value  Not individual bonds, notes or stock certificates

Maximum Value  Must file if the sum of all foreign financial accounts’ maximum values during the year exceeds $10,000 Look first at the maximum value of each account Then add all maximum values and compare to $10,000 Odd result: $5,000 transferred between accounts is reportable  Convert foreign currencies at the 12/31 exchange rate  Must use Treasury’s FMS rate if available

Joint Accounts  Each U.S. person who owns part of a joint account that exceeds $10,000 must report the account on an FBAR  Each joint owner reports the full value of the account  No joint FBARs except for MFJ husband and wife Not allowed if each spouse has separate accounts

Form TD F Penalties  Non-willful failure penalty $10,000 May be waived due to “reasonable cause”  Willful failure penalty Greater of $100,000 or 50% of account balance  Criminal penalties  6 year statute of limitations

IRS’ Offshore Voluntary Disclosure Program  Partial amnesty program  FBAR and certain international tax reporting  Pay all taxes and interest for past 8 years  Accuracy or delinquency penalty  Waiver of penalties for informational forms  Penalty: 27.5% of the highest account balance  Penalty: 12.5% if unreported foreign account < $75K  Currently no deadline; subject to change

New Specified Foreign Financial Assets Report – Form 8938  Effective for individuals for 2011  Interest in “Specified Foreign Financial Assets” with an aggregate value exceeding $50,000  Information statement attached to the individual's U.S. income tax return  This reporting requirement is in addition to FBAR!

New Specified Foreign Financial Assets Report – Form 8938  “Specified foreign financial asset” Any financial account maintained by a foreign financial institution Any stock or security issued by a foreign person Any financial instrument/contract – foreign issuer Any interest in a foreign entity  Information statement - Maximum value of assets, account numbers, names and addresses of foreign financial institutions, etc.

Form 8938 Filing Thresholds Year-End Aggregate Value of All Specified Foreign Financial Assets Exceeds: Highest Annual Balance Exceeds: Single, living in the U.S.$50,000$75,000 Single, living outside the U.S. $200,000$300,000 MFS, living in the U.S.$50,000$75,000 MFS, living outside the U.S.$200,000$300,000 MFJ, living in the U.S.$100,000$150,000 MFJ, living outside the U.S.$400,000$600,000

Jointly Owned Assets  Joint Ownership – each specified person must report Spouse, MFJ – file a joint 8938; include asset value once Specified Individual Spouse, MFS – include ½ asset value to determine threshold, but report full amount on 8938 Non-Specified Individual Spouse, or Non-Spouse – each joint owner includes entire value of asset Examples on page 3 of Form 8938 Instructions

Form 8938 Valuation  Accounts: may generally rely on periodic statements  Other assets: may rely on year-end value, don’t need appraisal  Unless individual has reason to know the above does not provide reasonable maximum value  Foreign pension plan – year-end value If not known, value of distributions received during the year If no distributions received, value is zero  Convert to USD at December 31 spot rate  Must use Treasury’s FMS rate if available

Form 8938 Penalties  $10,000 penalty for failing to file Form 8938  Additional penalties following notification  40% underpayment penalty  Criminal penalties  Reasonable cause exception  Extended statute of limitations

FBAR vs FBAR (TD F )Form 8938 Who Must FileU.S. Persons“Specified Persons” What is Reported?Foreign financial accountsSFFAs Signature Authority?YesNo Filing Threshold$10,000$50,000 - $600,000 Minimum PenaltiesNo minimum$10,000 Due Date6/30, no extensions4/15, plus extensions Statute of Limitations6 years from filing date3 years from filing date

Form 8938: World Bank Pension  Subject to special valuation rules  Value of participant’s share of defined benefit plans generally not ascertainable  Value equal to distributions received during the year Gross distribution reported on Form 1099-R

Example: Facts  Single individual living in the U.S.  Retired from the World Bank  Receives an annual gross distribution of $75,000

Example: Sample 8938

Other Important International Filing Requirements  Form 8621 – Passive Foreign Investment Companies  Form 3520 – U.S. owner of a foreign trust  Form 5471 – U.S. owner of a foreign corporation

Questions?