Bellevue Tax Lawyer Blog

United States and Switzerland Sign IGA & US and Poland Sign New Tax Treaty | Bellevue Tax Lawyer

2013-02-28T17:52:00.003-08:00

On February 14, 2013, the US and Switzerland signed an intergovernmental agreement (IGA) implementing FATCA. FATCA is a US law that was enacted to improve tax compliance and combat international tax evasion. The agreement permits Swiss banks to share information with the IRS about US account holders. The agreement can be found here, and the Swiss announcement can be found here.

On February 14, 2013 the Treasury Department announced that the US and Poland signed a new tax treaty that, once it is ratified, replaces the current tax treaty signed in 1974. The Treasury release states that the new treaty includes a comprehensive limitation of benefits provision, and also includes provisions for exchange of information between competent authorities of each country. The new US, Poland tax treaty can be found, here, and the Treasury release can be found, here.

If you are unsure about how these agreements my affect you, please contact a tax professional.

IRS First Time Penalty Abatement Program | Bellevue Tax Lawyer

2013-02-04T14:49:00.001-08:00

With the advent of the 2013 tax season, it is expected that most taxpayers will exercise ordinary care and prudence in filing their returns and thereafter paying all taxes due. Assessed penalties for failure to file (FTF) or failure to pay (FTP) can be steep, with fines in both cases able to reach 25 percent of the unpaid taxes if these issues are not resolved in a timely manner. As explained in a recent report from the Treasury Inspector General for Tax Administration, however, these penalties are not intended to increase overall revenue collection but rather to encourage voluntary compliance with IRS filing and payment deadlines.

As such, there are many avenues available for relief to otherwise well-meaning taxpayers who have, for one reason or another, failed to meet these deadlines. For example, taxpayers who have "reasonable cause" for missing such deadlines owing to a sudden and disabling illness or a natural disaster may have their penalties abated. Penalty assessments, furthermore, are prohibited on taxpayers residing in combat zones, while taxpayers who are newly retired, disabled, or had a tax penalty of less than $1,000 in the prior year are eligible for an exception to estimated tax penalties. Penalties may also be waived in advance of litigation or because of a policy statement explicitly affording such relief, such as the "Expanded Fresh Start" initiative of 2012.

Finally, and most notably, the IRS waives FTF and FTP penalties for taxpayers demonstrating full compliance over the prior three years. This "First-Time Abate" (FTA) is intended to "reward tax compliance while promoting tax compliance," yet the Treasury Inspector General's report found that "approximately 250,000 taxpayers with FTF penalties and 1.2 million taxpayers with FTP penalties did not receive penalty relief "despite qualifying for such, with "more than $181 million" in penalties going unabated. Furthermore, some taxpayers who qualified for relief under "reasonable cause" standards instead received FTA waivers, a decision which can negatively impact their future tax status.

Dealing with penalties of this sort can be a complicated matter, and, as the Treasury Inspector General noted, an improper understanding of one's situation as regards the appropriate method of relief could have significant long-term repercussions. For a free consultation on these and other tax-related matters, please contact The Law Offices of Aaron P. Richter, a Bellevue-based firm with expertise in Tax Controversy, Business Formation, Estate Planning, and Tax Preparation.

The Tax Implications of the American Taxpayer Relief Act of 2012 | Bellevue Tax Lawyer

2013-01-03T10:25:00.000-08:00

In a compromise deal passed a day after the nation began sliding down the so-called “fiscal cliff,” Congress approved tax increases that would affect 77 percent of American households. The increase that will be most obvious to average Americans will come in the form of the expiration of a 2 percent payroll tax cut that had been enacted during the peak of the recession, thereby restoring the payroll tax to 6.2 percent. This is expected to limit the short-term spending power of consumers, possibly leading to a slight decline in GDP, while bolstering the long-term health of the national retirement program.

However, the most long-lasting implications of the ATRA concern significant changes to income and capital gains tax rates. Individuals with incomes over $400,000 and couples with incomes over $450,000 will see their rates rise from 35 percent to 39.6 percent, thereby fulfilling one of President Obama’s 2012 campaign promises. However, the bill will keep Bush-era tax rates for incomes below these levels precisely where they were in 2012, providing a significant victory for Republican legislators seeking to preserve the reforms of the preceding administration. Tax deductions and credits will be phased out for incomes over $250,000 for individuals and $300,000 for couples. Expansions of the child tax credit, the earned income tax credit, and a $2,500 credit for college tuition—all of which had been sought by the Obama administration—are included in the ATRA.

Capital gains and dividend income over $400,000 for individuals and $450,000 for couples will now be taxed at 20 percent, up from 15 percent. This is in line with Obama’s 2012 campaign demands, but nevertheless ensures that Bush’s policy of taxing dividends and capital gains equally and gently will be continued.

The estate tax rate increases from 35 percent to 40 percent on estates valued above the exemption of $5,120,000, with indexing for inflation. The alternative minimum tax has also been permanently indexed for inflation, thus avoiding the imposition of a tax intended to target only the extremely wealthy on some middle-income earners. The long-term unemployed will receive relief under the ATRA, which extends unemployment benefits without offsetting cuts in spending to other portions of the federal budget. Finally—and perhaps quite helpfully for many employees—the congressional deal allows money in pre-tax 401(k) accounts to be converted into Roth 401(k) accounts, an extension of Roth conversions heretofore only available for 401(k) money that was “distributable” (i.e., your vested balance upon retirement age) but that now allows the conversion of everything in traditional 401(k) accounts.

The ATRA is hardly a panacea for the country’s continuing economic woes, and it will have to be reevaluated in two months when $110 billion in delayed spending cuts take effect. It also contains an “active financing” exemption for manufacturers and financial service providers who avoid double taxation when competing with foreign firms by using foreign subsidiaries to finance the sale of machines and products to overseas customers, a $9 billion tax break that will benefit multinational companies such as J.P. Morgan Chase and General Electric but has raised the ire of labor unions and various corporate watchdog groups. However, the ATRA will require many Americans to reevaluate their tax positions. Although most taxpayers will wind up paying more taxes in the coming year than in previous ones, it is possible that there are also many additional opportunities now available to them. For a free consultation on these and other tax-related matters, please contact The Law Offices of Aaron P. Richter, a Bellevue-based firm with expertise in Tax Controversy, Business Formation, Estate Planning, and Tax Preparation.

U.S. Non-Resident, Non-Filer, Streamlined Compliance Initiative | Bellevue Tax Lawyer

2012-10-22T16:44:00.001-07:00

As I mentioned in my FBAR Updates post from 6/27, on September 1, the IRS announced the instructions for the new non-resident, non-filing US taxpayer compliance initiative. The instructions can be found, here.

The initiative is available to non-resident U.S. taxpayers that have lived abroad since 2009, owe less than $1500 in taxes and have not filed taxes since 2009; and taxpayers that failed to properly request deferral using Treaty Form 8891. Form 8891 is used for Canadian RRSPs and RRIFs. The treaty relief is also permitted in the OVDP, and OVDI if your case is still open.

Eligibility for this initiative is based on four questions listed in the questionnaire:

(1) Have you lived in the U.S. for any period since January 1, 2009?

(2) Have you filed a U.S. tax return for 2009 or later?

(3) Do you owe more than $1500 in U.S. taxes for each year individually?

(4) If you are submitting returns solely for the purpose of requesting retroactive

deferral of income on Form 8891, are there any adjustments reported on the amended return to income, deductions, credits, or taxes?

Unless you are requesting Form 8891 relief, you must answer no to all four of the questions. If you are requesting 8891 relief, you can answer yes to question (2) if you are only filing amended returns to make the 8891 election. If you do not meet these requirements you are not eligible for the initiative. The questionnaire can be found, here.

Unlike the OVDP, the initiative does not provide protection against criminal prosecution. Also, once a taxpayer makes a submission under this initiative, the taxpayer is not longer eligible to participate in the OVDP.

The program does not protect the taxpayer against the risk of audit. The IRS does not go into detail about how it will decide if a return is high risk and possibly subject to an audit. Based on the information provided, it appears that the more complicated the tax return and the closer the taxpayer is to the $1500 a year threshold, the higher the risk, and more likely to be examined. Otherwise, it does not provide much detail about how to determine compliance risk.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web. Please do not rely on this article without consulting your tax professional. If you are unsure about whether you should enter this program contact a tax professional.

Presidential Candidate Tax Proposals | Bellevue Tax Lawyer

2012-09-17T14:13:00.000-07:00

Ever since the election of Ronald Reagan in 1980, it has become commonplace for presidential candidates to promise to implement various “tax cuts” if elected. Although neither incumbent Barack Obama nor former Massachusetts governor Mitt Romney have bucked this trend, there are important differences in the tax proposals that they have made during the current election cycle.

Romney has presented the outlines of a tax program that would appear to offer considerable benefit to high-income earners. As part of a pledge to slash all tax rates by 20 percent, Romney would see the current top tax rate of 35 percent (assessed on income over $388,351 for individuals and married couples filing jointly, and $194,176 for married individuals filing separately) reduced to 28 percent. He intends to completely eliminate the tax on capital gains and dividends for individuals earning less than $200,000, while also repealing the Alternative Minimum Tax (AMT) and the estate tax and lowering the corporate tax rate from 35 percent to 25 percent. Romney's most radical position is his stated desire to see the 3.8 percent investment income surtax—which provides a partial means of funding Obamacare—repealed, along with Obamacare itself.

Romney’s position on other tax issues is not entirely clear, however. While he has stated that he favors reducing “tax breaks” for high-income earners, he has not yet specified which tax breaks will be cut. Moreover, the selection of influential Congressman Paul Ryan as his running mate is an indication that his tax positions may become yet more favorable to high-income earners. In Ryan’s proposed federal budget for FY 2013, the top tax rate is slashed to 25 percent, three percentage points lower than in Romney’s proposal. Ryan’s budget would also significantly limit the ability of the IRS to tax US corporate profits that are earned abroad.

President Barack Obama’s suggested changes to tax policy are less advantageous for high-income earners. He intends to raise the top two tax rates from 33 and 35 percent to 36 and 39.6--a move that would cost taxpayers in these brackets thousands of dollars--while keeping all other rates at current levels. He also hopes to raise the alternative minimum tax, assessing a rate of at least 30 percent on all households earning over $1 million dollars, and raising the estate tax to 45 percent for each dollar above a $3.5 million exemption (up from a 35-percent rate applied to each dollar above a $5 million exemption). Obama favors an increase in taxes on capital gains from 15 to 20 percent, as well as the taxation of “carried interest” by private financiers (currently taxed at 15 percent) taxed as ordinary income. He does, however, favor lowering the corporate income tax rate to 28 percent, while also offering a tax credit for companies relocating their operations to the U.S. Many of Obama’s programs that would benefit low-income earners are already in place, including a Special Direct Consolidation Program established for Federal Student Loans, a series of tax cuts for middle-income earners, the continuation of the Bush-era and the extremely complicated Public Service Loan Forgiveness Program (an initiative that, barring Congressional repeal, will vest no earlier than 2017), and the expansive, tax code-linked Obamacare medical reforms.

Regardless of the outcome of the election or your current earnings level, it appears that the tax picture for 2013 and beyond will be quite different than it is today. For a free consultation regarding the tax opportunities that may be available to you, please contact The Law Offices of Aaron P. Richter, a Seattle-based firm with expertise in Tax Controversy, Business Formation, Estate Planning, and Tax Preparation.

The New Truth about an Offer in Compromise | Bellevue Tax Lawyer

2012-08-27T11:23:00.001-07:00

In my previous post about submitting an offer-in-compromise, I stated that it was difficult, at best, for a taxpayer to satisfy the terms required to make an offer-in-compromise. However, the recently updated IRS offer-in-compromise guidelines substantially improves the likelihood that a middle class tax payer will qualify for an offer and that the offer will be accepted. As discussed in detail below, the biggest changes are related to the reduction in the number of years used to determine available future income, and the ability to include student loan payments.

Perhaps in recognition of the slow-to-recover economy, the IRS has announced more flexible offer-in-compromise terms for taxpayers who are struggling with other expenses, such as student loan payments and state and local tax delinquencies. These changes constitute another component of Fresh Start, an IRS initiative that also includes an expansion of the payment window for installment arrangements and penalty relief for unemployed earners and self-employed earners who saw a substantial reduction in earnings. According to IRS Commissioner Doug Shulman, the changes to this program were intended to “help the middle class more than ever before.”

For taxpayers who have remained current with all tax filings and payments and have yet to initiate bankruptcy proceedings, the revised OIC terms constitute a useful option for achieving long-term financial stability. The previous program, gave false hope to many taxpayers but offered little relief. Now, however, settlements for substantially less than what is owed, and settlement acceptance rates—previously in the range of 30% of all submitted offers--are likely to reach 40% or higher.

The prior OIC requirements were unduly difficult for many taxpayers to meet. Under the old OIC terms, the IRS looked at five years of future income when assessing offers to pay over the course of six to 24 months, and four years of future income for offers to pay in five or fewer months; the revised OIC terms limit this to two and one, respectively. Other payments to government entities, such as student loan payments and payments to state and local tax collectors, will be considered when weighing the merits of OIC acceptance. Equity in income-producing assets will generally not be included in the calculation of collection potential for ongoing businesses.

With OIC revisions in place for the upcoming tax season, individuals who are seeking to settle their outstanding liabilities to the IRS may wish to consult with tax professionals about this program. The Law Office of Aaron P. Richter, a Washington law firm that specializes in tax controversy and preparation, offers a free phone consultation (425-298-3207) to taxpayers who are interested in learning about how the changes to the OIC program will affect their ability to restructure or discharge their debts.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web. Please do not rely on this article without consulting your tax professional.

Bellevue Tax Lawyer | 2012 OVDP FBAR Updates

2012-06-27T16:55:00.002-07:00

The IRS published a new webpage today detailing the requirements for the 2012 OVDP, including a new FAQ.

The rules are basically the same as the 2011 OVDI. One item to note is that the FAQs continue to state that if you have properly reported all of your foreign income, have not been audited in a previous year, but failed to file the FBAR (Form TD F 90-22.1) do not enter the program. Instead, the FAQs (FAQ #17) state that the taxpayer should prepare the missing FBARs and submit them with a statement explaining why they were late.

A big change for the Canadians is that the new FAQ includes an option to make a late election using Form 8891 for Canadian RRSP, RRIF, and similar accounts. If the late filing is accepted, the amounts in these Canadian accounts is excluded from the penalty calculation. For taxpayers in the 2009 OVDP and 2011 OVDI that haven't closed their cases, the FAQ permits them to make this election and, if the election is approved, exclude the funds in the Canadian accounts from the penalty calculation. See the FAQs, here, and the new OVDP page, here.

Yesterday, the IRS announced a new program for US residents living abroad with minor tax issues that have also failed to file the FBAR. The new program allows US residents living abroad with less than $1500, per year, of underreported tax liabilities to file 3 years of amended tax returns and 6 years of corrected FBARs, without FBAR penalties. The new procedure also allows for the late filing of IRS Form 8891for Canadian RRSP, and RRIF accounts for some people. Unfortunately, the details of the new program will not be released until September 1. The text of the release is below:

The Internal Revenue Service today announced a plan to help U.S. citizens residing overseas, including dual citizens, catch up with tax filing obligations and provide assistance for people with foreign retirement plan issues.
"Today we are announcing a series of common-sense steps to help U.S. citizens abroad get current with their tax obligations and resolve pension issues," said IRS Commissioner Doug Shulman.

Shulman announced the IRS will provide a new option to help some U.S. citizens and others residing abroad who haven’t been filing tax returns and provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes. The new procedure will go into effect on Sept. 1, 2012.

The IRS is aware that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs). Some of these taxpayers have recently become aware of their filing requirements and want to comply with the law.

To help these taxpayers, the IRS offered the new procedures that will allow taxpayers who are low compliance risks to get current with their tax requirements without facing penalties or additional enforcement action. These people generally will have simple tax returns and owe $1,500 or less in tax for any of the covered years.

The IRS also announced that the new procedures will allow resolution of certain issues related to certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans). In some circumstances, tax treaties allow for income deferral under U.S. tax law, but only if an election is made on a timely basis. The streamlined procedures will be made available to resolve low compliance risk situations even though this election was not made on a timely basis.

Taxpayers using the new procedures announced today will be required to file delinquent tax returns along with appropriate related information returns for the past three years, and to file delinquent FBARs for the past six years. Submissions from taxpayers that present higher compliance risk will be subject to a more thorough review and potentially subject to an audit, which could cover more than three tax years.

The IRS also announced its offshore voluntary disclosure programs have exceeded the $5 billion mark, released new details regarding the voluntary disclosure program announced in January and closed a loophole used by some U.S. citizens. See IR-2012-64 for more.

Update September 5: The IRS has posted the new details for the new program. You can find the link for the program, here. The questionnaire for the program is, here. There seem to be some potential issues involved with entering this program and I will make a post about it in the next couple of days.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web. Please do not rely on this article without consulting your tax professional. If you are unsure about whether you have a requirement to file this form contact a tax professional.

Bellevue Tax Law | FBAR Deadline is June 30th

2012-05-28T18:38:00.000-07:00

The deadline to file your 2011, TDF 90-22.1 (FBAR) is June 30^th, 2012. The FBAR is filed separately from your regular tax return and mailed to the Department of Treasury in Detroit.

The FBAR is required to be filed even if you don’t have to file a regular tax return. Unlike your tax return, June 30^th, is the date the FBAR must be received by the Department of Treasury, NOT the date the envelope is postmarked. So, make sure you give it at least a few days, if not a week or more, to get to Detroit on time.

Any US person with $10,000 or more, at anytime during the year, in foreign financial accounts must file the FBAR. The $10,000 requirement is based on the combined value of all your accounts and not each individual account. A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution). If the accounts are in a foreign currency you must convert the balances to US dollars based on the December 31, 2011 exchange rates found on the treasury website. So, if you have two accounts each containing $6,000 dollars you need to file the FBAR. The $10,000 value is based on the maximum balances at any time during the year. Thus, if the aggregate balance of the account(s) reached $10,000 for five minutes on one day of the year, you are required to file.

A US person is any US citizen, no matter where you live, residents, and US entities. A US citizen or resident living abroad is required to file the FBAR. US based businesses (partnership, corporations, sole proprietorships, s-corps, etc.) and trusts are also required to file the FBAR. If you own more than a certain percentage (usually 50%) of one of these types of business or trusts you will have to file two FBARs; one the entity and one personally.

If you have signature authority, but are not the owner, of a foreign financial account that that meets the filing requirements you are required to file an FBAR. The signature authority rules apply to business accounts even if you do not own 50% of the business linked to the account. A debit card on a foreign account could be considered as having signature authority.

The penalties for not filing the FBAR are steep. If you have any type of foreign account and do not think you are required to file; at least contact someone to verify that you are correct.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web. Please do not rely on this article without consulting your tax professional. If you are unsure about whether you have a requirement to file this form contact a tax professional.

Form 8938, Statement of Specified Foreign Assets | Bellevue Tax Lawyer

2012-04-10T17:23:00.001-07:00

As the 2011 tax return filing deadline is quickly approaching, and the majority of my readers seem to have foreign assets, I wanted to make a quick post about the new IRS form 8938. If you are a US person for tax purposes, form 8938 is required to be filed with your tax return when your specified foreign financial assets are in excess of the threshold. This form is filed in addition to the FBAR and is duplicative of a lot of the information reported on the FBAR. I won't get into the specifics of the form but will give a quick rundown of some of the details.

Specified foreign financial assets include:

(1) any interest in a financial account maintained by a foreign financial institution. This includes bank accounts, brokerage accounts, life insurance, annuities, and financial instruments, among other things.

(2) Any interest in a foreign entity that is not held in a foreign financial account. This includes stocks and securities not held in a foreign financial account, and any interest in a foreign entity not held in a foreign financial account. A foreign entity is a foreign business such as a partnership, LLC, corporation, trust, etc... Foreign real property does not have to be included if it is not held by a foreign entity. This list is provided to give you an idea of what is a specified foreign asset and is not all inclusive.

The thresholds for filing are listed in the instructions for the form. The reporting requirements begin at $50,000 for a single person living in the US. If the value of your specified foreign financial assets exceed this please take a look at the instructions and see if you have a filing requirement or contact a tax professional to help you determine if you are required to file this form.

In addition to reporting the assets, form 8938 also requires a taxpayer to list any tax items related to the foreign assets by form, schedule, and line number.

The instructions for Form 8938 can be found here, and Form 8938 can be found here.

If you have any questions please contact me directly or leave a comment.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes and tax law on the web. Please do not rely on this article without consulting a tax professional.

Foreign Trust and Corporate Tax Returns Due on March 15th | Bellevue Tax Lawyer

2012-03-12T17:13:00.002-07:00

March 15, 2012 is the filing deadline file for 2011 corporate tax returns (1120, 1120A, 1120S), to file an amended 2008 corporate return to claim a refund a refund, or to request an extension for 2011 using Form 7004.

March 15, 2012 is also the deadline to file foreign trust returns (Form 3520-A), or to request an extension using Form 7004.

Form 3520-A is required if a "US Person" is an "owner" of a foreign trust.

A couple of examples of foreign accounts that could be treated as a trust are a Mexican FIDEICOMISO, and foreign retirement accounts that are similar in management or structure to a US IRA.

A Mexican FIDEICOMISO:

If you own land in a restricted zone of Mexico and are not a Mexican Citizen the Mexican Constitution prohibits foreigners from owning this type of property. To get around this restriction the land is purchased through a Mexican trust called a Fideicomiso. This purchase structure is treated as a trust by the IRS, creates a 3520 and 3520-A reporting requirement, and possibly other reporting requirements.

Update (Jan. 7, 2013): The IRS has stated that under some conditions this structure will not be considered a foreign trust. The conditions to determine if the Fideicomiso is or is not a foreign trust depend on the individual facts and circumstances of each arrangement. Please consult a tax professional to determine if you have a filing requirement.

Foreign IRA Accounts:

Many foreign retirement plans are considered foreign trusts by the IRS. If you have an interest in a foreign retirement plan there is a chance you need to file a 3520 and 3520-A. If you aren't sure about an account contact a tax professional as the penalties for failing to file the required forms are harsh.

In addition to these requirements, a taxpayer may have to report these accounts on the FBAR, and Form 8938.

If you have any questions please contact me directly or leave a comment.

5 European Countries Agree to Disclose Bank Information with IRS | Bellevue Tax Lawyer

2012-03-05T16:31:00.000-08:00

The IRS recently announced that an agreement has been reached between the US, Germany, Britain, France, Italy, and Spain to collect and exchange information about accounts held in those countries with the IRS. In return, the IRS has agreed to report information about US accounts held by residents of those countries with their respective authorities. Furthermore, the IRS stated that more agreements similar to this one are currently being negotiated.

The agreement relates to the 2010 passage of the Jobs bill which includs the FATCA provision. FATCA requires foreign financial institutions to enter into disclosure agreements with the IRS or face harsh penalties if the institution does not report this information. The goal of FATCA is to insure that there is no gap in the ability of the US government to determine the ownership of US assets in foreign accounts. As more foreign financial institutions and countries enter into these disclosure agreements with the IRS the likelihood that US owners of foreign financial accounts evading detection diminishes substantially.

As stated in my previous posts on the OVDI, the IRS is encouraging US persons with foreign financial accounts to come forward and report the foreign accounts and income. You should consider immediate action if you have accounts in one these countries, or any foreign country (for that matter), and haven't filed FBARs and/or reported income from foreign sources. This action should start with reporting the income for this year and filing the FBAR and other required forms. You should also speak with a tax professional to determine your exposure to other penalties and determine the best course of action to bring your status with the IRS into compliance.

If you have any questions please contact me directly or leave a comment.

Bellevue Tax Lawyer | The 2012 OVDI, FBAR Amnesty

2012-01-19T16:50:00.000-08:00

The IRS has announced the reopening of the OVDI program. The terms of the program are basically the same as the 2011 program with few key exceptions. First, the penalty rate for the 2012 program is 27.5% instead of 25%. The 12.5% and 5% rates are still available if the taxpayer meets the requirements for theses rates. Second, the program does not have an end date and the IRS can close the initiative at any time. Third, the IRS can change the penalty rate at any time.

The remaining terms of the new program are the same as the 2011 OVDI as discussed in the link post and summarized below:

The penalty is based on the highest aggregate balance for any year in the previous eight year period;
The penalty includes the value of any land purchased with non-compliant funds, or that has produced unreported income;
The taxpayer has to file new or amended FBARs for all years in question;
The taxpayer must file or amend tax returns for all years in question pay interest on the liability and pay a 20% penalty on the tax liability for the previous eight years;
Foreign trusts and other entities are included in the initiative.

Taxpayers with reportable foreign accounts that have not entered a program should consider what to do now. As the IRS continues to increase their efforts to obtain the names of foreign account holders, through agreements or settlements with the banks, the risk of discovery increases. This program is an opportunity for people the avoid some of the harsh penalties that can result from a regular audit and for the taxpayer to get into and remain in compliance.

If you have any questions please contact me directly or leave a comment.

IRS Collections Aternatives| Bellevue Tax Lawyer

2011-11-01T13:09:00.000-07:00

Whether IRS collection action is just beginning, or the IRS has already filed a levy or lien against your wages or property, one way to stop IRS collection activity is through collection alternatives. Collections alternatives include an offers in compromise; installment agreements; online payment agreements; partial-pay installment agreements; and currently not collectible status. In this post I will discuss collection alternatives except for the offer in compromise, which I discussed in my previous post.

The first step in deciding which collection alternative is available to a taxpayer is determining his ability to pay based on the IRS standards. Ability to pay is determined using IRS Form 433 and the financial standards published on the IRS website. Form 433 asks the taxpayer to list his assets, liabilities, income, and expenses. The collection alternative chosen determines the interpretation of this form and the information disclosed on it by the IRS and will be discussed below.

Currently Not Collectible: If you do not have a large amount of assets and your monthly expenses exceed your income, there is a chance the IRS will place your account into currently not collectible status. When an account is in currently not collectible the IRS suspends all collection activity and collection activity is suspended until a time when the IRS determines that a taxpayer has an ability to make payments.

Partial-Pay Installment Agreement: On the same idea as currently not collectible, if a taxpayer has some money in excess of his expenses but not enough to pay the liability in full before the statute of limitation on collections expires, the IRS will, occasionally grant a partial pay installment agreement. A partial pay installment agreement stops IRS collection activity, but monthly payments are required until the expiration of the collections statute of limitations. The collections statute of limitations is 10 years from the date the return was filed or the tax was assessed.

Installment Agreement: An installment agreement is fairly self-explanatory. A taxpayer agrees to pay the outstanding tax liability within a given number of years. In most situations the IRS wants full payment within 3-5 years. The part that causes some problems with an installment agreement is the IRS must accept the terms of the agreement and if you have equity in your assets to pay the amount in full the IRS will occasionally reject an otherwise reasonable request.

Online Payment Agreement: The Online Payment Agreement is a newer and great addition to the IRS collection alternatives. If a taxpayer owes less than $25,000 and is able to pay the debt within 5 years the IRS will generally accept the payment agreement. If the taxpayer owes less than $10,000 and can pay in full within 3 years the IRS is required to accept your offer. Another nice benefit of the online payment agreement is that you will know what you have to pay each month as soon as soon as you complete the process.

If you have any questions please contact me directly or leave a comment.

The Truth about an Offer in Compromise | Bellevue Tax Lawyer

2011-10-18T13:07:00.000-07:00

If you are reading this post, you have probably heard the advertisements stating that you can settle your tax debt for pennies on the dollar. These advertisements are, at best, misleading and are based on the IRS process called an offer in compromise. If you have a large tax debt and have a decent income and/or own assets, it is unlikely that you will qualify for an offer in compromise and if you do, the reduction in your debt will not be significant.

The people that generally resolve their debts for pennies on the dollar either have a very large debt and a modest income, or have a small fixed income and a limited amount of assets. An offer in compromise is based on a taxpayer's ability to pay. This means the IRS takes a person's income, assets, retirement accounts, past earnings, and future earning potential.

To give you an idea, here is a very simplfied description of the OIC determination. The amount of the offer is based on a formula in the IRS OIC booklet, Form 656. The formula asks about income, equity in assets, retirement and bank accounts and then provides an amount that is considered your ability to pay. This is the amount the IRS considers the minimum they will accept for an offer. If the amount is in excess of the amount you owe an offer will not be accepted. If it is less than the amount you owe, this is the amount by which you may be able to reduce your tax debt.

The truth is the IRS accepts about 25% of all OICs submitted. However, I think this number is artificially inflated by people making an OIC that doesn't meet the requirements to submit an OIC. If you meet the requirements to make an Offer in most cases the OIC will be accepted. In my experience, most OICs are initially rejected, even if they otherwise appear to meet all of the requirements. To have one approved, there is usually some back and forth with the reviewing agent, and if that is not succesful, IRS appeals is the next step. For a correctly submitted OIC, these first two steps are all that is necessary and the majority are accepted by this point. They last resort is Tax Court and the outcome there really does depend on what has occured prior to the court date.

If you have any questions please contact me directly or leave a comment.

Post OVDI, How to handle delinquent FBARs. | Bellevue Tax Lawyer

2011-09-22T13:28:00.000-07:00

Now that the 2011 OVDI is over, people have been asking: "What do I do now?, "How do I file delinquent FBARs?", etc... This is a bit of a tricky question. Currently, there the most common ways to report undisclosed foreign income and bank accounts are a quiet disclosure, or a voluntary disclosure. There are problems with each method and the decision should not be taken lightly.

I recently spoke with an IRS agent about the post OVDI voluntary disclosure and the process is as follows. The voluntary disclosure process is similar to the OVDI, but the penalty range is different (5-50%) and process is slightly more involved. The process starts with a phone call to your local IRS criminal investigations office and, after that, pretty much follows the 2011 OVDI. The IRS is requesting amended returns, including any previously excluded foreign income and corrected FBARs (Form TD F 90-22.1) for the previous six years, a conference (interview) with the taxpayer, and the 2011 OVDI letter.

The other option is a quiet disclosure. To make a quiet disclosure, the taxpayer files amended tax returns, if he has excluded foreign income, and files FBARs for the previous 6 years. Unlike the voluntary disclosure process, the taxpayer does not alert the IRS that he will be filing the returns and FBARs. Penalties likely will be applied for late filing, and in my professional opinion, the chances of an audit are pretty high.

The problem with the voluntary disclosure process is that a taxpayer is guaranteed penalties but, for for going through the voluntary process, he is less likely to face criminal charges. The IRS claims that if you go through the voluntary disclosure process, they will not recommend criminal penalties if the money came from legal sources. The IRS is actively encouraging people to come forward through this method.

Currently, the IRS is aggressively pursuing anything related to unreported foreign income and bank accounts and this makes the voluntary disclosure look like a better option. In my conversation with the IRS agent implied that people will come under increased scrutiny if they make a quiet disclosure and they are selected for an examination. This means the possibility of criminal charges, and a certain attempt by the examining agent to impose willfulness penalties for failing to file the FBAR. However, there might be a few limited situations where this is the better option.

If you have any questions please contact me directly or leave a comment.

The IRS Appeals Process | Bellevue Tax Lawyer

2011-09-13T00:16:00.000-07:00

Today I'm writing to follow up on my previous post about audits, to discuss the appeals process. The appeals process normally starts after the completion of the audit. Following the audit, the IRS agent will issue a determination letter (also called a 30-day letter) and you make a response to the letter in disagreement. This is usually the beginning of the appeals process.

The other way to start the appeals process is by filing a petition with the US Tax Court. If you do not respond to the determination letter a statutory notice of deficiency is issued. When you receive a notice of deficiency, you have 90 days to file a petition with the tax court, or you lose your right to appeal. (There are other avenues to pursue if you miss this deadline, but it make the process more difficult.) After you file the petition, your case will be sent to appeals.

IRS appeals is a separate and independent branch of the IRS that is separate from the examinations (audit) division. The best description of them is they act as a mediator for the IRS. While, it is there goal to find in favor of the government, more often than not, if you make a reasonable argument, they will make a sound decision. This is contrary to the examination division, which in my experience, has the main goal of maximizing revenue for the government.

Appeals is where most cases are resolved and the best results are achieved. To start the appeal, read the determination letter and write a letter based on the issues you want to argue. When you file the appeal, the appeal's officer will then send you a letter requesting additional information related to your argument and for you to make any additional arguments. A conference with the appeals officer will be scheduled and a new determination letter will be issued based on the result of the conference and information provided. If the result is unfavorable, you can request a conference with a manager or file/proceed with a federal or tax court case.

If you have any questions please contact me directly or leave a comment.

Bellevue Tax Lawyer | The 2011 OVDI Update, FBAR Amnesty

2011-08-30T13:08:00.000-07:00

In my previous post, I stated that the deadline for the 2011 OVDI is August 31, 2011. The IRS has extended the deadline for the 2011 OVDI to September 9th. It also appears that the IRS has relaxed it requirements to file for an extension for the OVDI. If you are scrambling during the last few days to get your package complete, you now have some breathing room.

The FAQ now states that if you have not filed an OVDI letter but are interested in entering the program, a tax payer should submit his OVDI letter, by September 9th, including: identifying information and as much account/asset related information as can be obtained. The taxpayer should then request an extension and amend the OVDI letter for any missing accounts or assets.

If you have any questions please contact me directly or leave a comment.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web. Please do not rely on this article without consulting your tax professional.

The IRS Examinations (Audits) Process | Bellevue Tax Lawyer

2011-08-17T14:47:00.000-07:00

If you read my previous post on IRS examinations, you know that an audit or examination begins with a letter from the IRS. This letter tells you that your return has been selected for audit and gives a brief description of what they are requesting. The examination process is similar whether it is a correspondence, office or field audit. The IRS will request information related to your return and make judgments on whether the information provided satisfies the requirements of the Internal Revenue Code and IRS publications. The agent will then either deny or allow the expenses and credits based upon that information.

Unfortunately, the audit process is similar to what most people imagine that is like, especially if it is a field or office audit. The correspondence audit is an audit but is completed through the mail and phone calls. The experience most people associate with an audit comes from the field and office audits. In a field or office audit, the IRS revenue agent sits in the room across from you and requests information and based on the information provided will request more information after the initial meeting. The Internal Revenue Manual (IRM) limits what an agent can request and ask but these limits are fairly broad. If you are trying to handle an audit yourself, it is in your best interest to take a look at the IRM.

After the audit is complete, there is some back and forth, with the agent, regarding the determination and the amount owed. However, if you do not have additional information related the audit, the agent will generally close the examination and issue a determination letter. The determination letter is also know as the 30-day letter. If you do not reply within 30 days, the Statutory Notice of Deficiency is issued and you have 90 days to file a tax court petition. After the determination letter is issued, the appeals process begins. Appeals is usually where the arguments are made and better results occur. I will discuss the appeals process in my next post.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web. Please do not rely on this article without consulting your tax professional.

If you have received an examinations (audit) letter from the IRS or have questions about an audit, contact a tax professional.

IRS Examinations and Audit Types | Bellevue Tax Lawyer

2011-08-08T00:14:00.000-07:00

To follow up on my previous post about the common types of IRS letters, I am going to write today about the different types of audits.

I want to preface this post with a word of warning. If you ignore an examinations (audit) letter, the IRS will assess taxes, interest, and penalties based on the return without those credits or deductions related to the examination. For example, if the letter relates to your schedule C, the IRS will base the taxable income on the gross income without any expenses. Another example, if the audit relates to your dependent deductions, the IRS will remove the dependents, possibly the head of household exemption, and any credit related to the dependent/s. The IRS will then determine the taxes without those deductions and credits--Significantly increasing your tax liability.

There are three types or IRS audits: a correspondence audit, an office audit, and a field audit. The correspondence audit is the least serious and the field audit is the most serious.

Correspondence Audit

The correspondence audit is similar to receiving a matching letter. Correspondence audits occur when the IRS receives documents that do not match what you have reported on your tax return. When these occur you will get a letter from the IRS requesting more information or that a proposed additional amount of tax has been added to your return. These audits are usually resolved by returning the information request.

Office Audit

The office audit is the second level of audit. The IRS will send a letter requesting you bring certain information to the local office for review.

Field Audit

The field audit is the more serious type of audit. The IRS will come to you home or place of business and will then request to see receipts and documentation related to your return. Field audits usually result in the assessment of additional taxes. However, this does not mean the additional assessment of taxes is correct and you can fight the determination.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web. Please do not rely on this article without consulting your tax professional.

If you have received an examinations (audit) letter from the IRS or have questions about an audit, contact a tax professional.

Bellevue Tax Lawyer | The 2011 OVDI, FBAR Amnesty, Part 2

2011-07-27T14:29:00.000-07:00

After my last post on the 2011 OVDI, I have received a number of questions about it and wanted to follow up with answers to a few of the common questions.

The OVDI and the process surrounding it are surprisingly complex. As the OVDI deadline is quickly approaching, if you are interested in entering the 2011 OVDI, please immediately contact a Tax Professional.

What is the OVDI Process?

A quick, and very brief, explanation of OVDI process is: file the initial OVDI letter, then complete the OVDI packet which includes: amended returns, corrected FBARs, statute of limitation waivers, account information, and a payment for the taxes, and penalties (20% on the back taxes, and the OVDI penalty). The final part is to wait for a confirmation letter stating that your OVDI has been accepted. The OVDI letter starts the process and includes information about the foreign accounts and assets.

Extensions

Originally, the IRS had a hard deadline for the 2011 OVDI of August 31, 2011. However, in June the IRS amended the rules and will permit up to a 90 day extension to file the complete OVDI packet if the taxpayer has made a good faith effort to comply with the filing requirements. The request must be filed on or before August 31 and the taxpayer should already be accepted into the OVDI.

Land, Artwork, other valuable assets

The IRS has two stances on foreign owned assets (land, artwork, etc...):

1) If the land produced income and the income was not reported, the value of the land will be included in the penalty. Thus, if you lease or rent foreign asset/s and did not include the income produced by the asset/s, you will have to amend your tax returns to include the income, pay the taxes, and pay the penalty on the value of the asset/s.

2) If the land was purchased with non-compliant funds it will be included in the penalty. Non-compliant funds means that if the money used to purchase the land should have been subject to US tax the value of the property will be included in determining the OVDI penalty.

If the assets are not included in one of the two statements above it will probably be excluded when determining the penalty.

Retirement Accounts

These are tricky and there are a few types of foreign retirement accounts that might not be included in the penalty, but the majority of foreign retirement accounts are required to be listed on the FBAR and the income associated with the account is not tax exempt (reportable income). These accounts will, generally, be included in determining the penalty.

Foreign Entities: Trusts, Partnerships, Corporations, Etc...

In addition to failing to report foreign financial accounts, the 2011 OVDI permits taxpayers to report foreign entities for which the taxpayer had a reporting requirement.

The reporting requirements for foreign entities are complex and contain too much information to list here but I will give a brief rundown of them.

If you own an interest in a foreign business that you purchased through a US financial institution, the reporting requirements are probably satisfied.

If you directly, indirectly, or constructively own 10% of the value or vote of a foreign business, or if you transferred $100,000 of cash or property to a foreign partnership, you have a reporting requirement.

If you have any interest or transferred money to a foreign trust, you, almost certainly, have a reporting requirement.

The penalties for failing to report a foreign entity are significant, if you think you have a reporting requirement related to one contact a tax professional.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web. Please do not rely on this article without consulting your tax professional.

Common IRS Letters and Notices | Bellevue Tax Lawyer

2011-07-19T17:33:00.000-07:00

If you received a letter from the IRS, don't panic, and please refer to my previous post on what to do when you receive a letter from the IRS.

The most common notices (letters) mailed by the IRS are simply requesting information that is missing from your return. These notices are mailed because you didn't include a schedule, forgot to sign the return, or did not include forms showing withholding such as a 1099 or W2. If you receive one of these letters, return the missing information and the issue should be resolved.

Other common notices include matching and notification notices. Notifications are mailed when a change is made to your return and no action is required if you agree with the changes.

Matching notices occur when the information you provide does not match the information reported to the IRS by employers and financial institutions. If the numbers in your return do not match, the computer will correct the discrepancy and mail a letter to inform you that a change has been made to your return. Double check the changes to see if you (or the IRS) has made a mistake. If the letter is correct, follow the instructions in the letter and respond accordingly. If you do not agree with the changes, a phone call to the IRS is a good place to start, and if that does not correct the issue you may want to contact a tax professional.

Other letters include audit notices, reminder notices, final reminder notices, and notice of intent to levy. I will discuss audit notices in one my next posts. If you receive an audit notice you should contact a tax professional immediately. The reminder notice occurs when the IRS sends you a notice of a balance due and you did not make a payment. This is follow by final reminder notice letter and then a notice of intent to levy.

The notice of intent to levy is the most serious notice. If you ignore this letter, the IRS usually will attempt to garnish wages, social security, levy bank accounts, and place a lien on your assets. Respond to the letter immediately, either by mailing a response to the address listed on the notice or calling the IRS at the number listed on the first page of the letter. There are ways to stop a levy, lien, or garnishment and I will discuss these in more detail in another post.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web. Please do not rely on this article without consulting your tax professional. If you have received a letter from the IRS or have questions about a letter received, contact a tax professional.

What to do when you receive an IRS Collections or Examinations (Audit) Letter | Bellevue Tax Lawyer

2011-07-11T14:21:00.000-07:00

Over the next couple of posts I am going to talk about the IRS examinations (audits) and collections process. These are IRS initiated compliance efforts, unlike my previous post when I discussed the OVDI, a self-reported initiative the IRS is currently offering.

A good place to start this series is to talk about what to do when you receive a letter from the IRS. The audit and collections process usually starts with a letter and these rules will help to insure the best possible result in your IRS dispute.

In my next post, I will talk about the more common IRS letters sent and what to expect after you receive the letter. If you receive a Statutory Notice of Deficiency, do not ignore this letter! This is your last chance to contest the IRS tax assessment. You have 90 days to respond to this letter and the only response is a petition to the US Tax Court.

I know a couple of these rules sound obvious but ignoring them cause of many of the problems that tax attorneys regularly have to resolve. The rules are: Don't Panic, Read the Letter; Check the Deadlines; Confirm the Statements are Correct; and Don't Sign unless you are sure.

1a) Don't Panic

Don't panic, letters from the IRS are common and are often quickly and easily resolved. Before you start to hyperventilate, read the letter and see what it actually says.

1b) Read the Letter

I know this sounds obvious but this rule and rule number 2 are easily the most important rules on this list.

The letters you receive will tell you what the IRS is claiming; make sure you read it carefully. The letter will say what type of letter it is (this matters and will be discussed in more detail in a later post), how much the IRS claims you owe, it will include dates to respond by, and usually a place to sign if you agree to the changes made. If you do not carefully read the letter you can easily miss an important detail.

2) Check Deadlines

Missed deadlines are the easiest way to sabotage a positive outcome of your IRS dispute. Every letter includes respond by dates. Do not ignore theses dates; especially if the letter is a Statutory Notice of Deficiency!

If you do not respond by the dates listed the IRS will assume that you agree to the changes and proceed to the next step of the process. The next step can include the wrongful denial of deductions and credits, and the assessment of taxes and penalties.

3) Confirm the Statements are Correct

If the letter you received is from Automated Collections Systems (ACS), the letter will have a list of items changed. The easiest way to explain ACS is that it is a computerized audit. ACS will compare the items reported on your tax returns versus what was reported to the IRS via W-2s, 1099s, if multiple people claimed a dependent, etc... If there is a discrepancy, a letter is automatically generated and sent to the tax payer. Check these statements against what you reported. If you are sure that the IRS is correct, or if you made a simple computational error, just pay the tax and the issue is over. If not, get your records in order and call the IRS or contact a tax professional.

An initial examinations (audit) letter will request more information for the tax year and list the forms/schedules in question, but generally will not include numbers. If you receive an audit letter, you should contact a tax professional immediately.

4) Don't Sign Unless you are Sure

This one is pretty self-explanatory: make sure you know what you are signing. Most of the signature lines in IRS letters provide that you consent to the changes made to your taxes and agree to pay the liability. Do not sign the letter unless you are sure it is correct.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web. Please do not rely on this article without consulting your tax professional. If you have received a letter from the IRS or have questions about a letter received, contact a tax professional.

Bellevue Tax Lawyer | The 2011 OVDI, FBAR Amnesty

2011-07-05T10:37:00.000-07:00

If you read my previous post on FBARs, you know that if you have a foreign financial account with a value of $10,000 or more it is likely that you have a filing requirement for this account. And, if you failed to file the FBARs there are significant penalties associated with this mistake. The penalties range from $0 to $100,000+ (per year) and the possibility of criminal prosecution.

These penalties are significant and in some circumstances can exceed the value of the accounts. For example: John had three accounts valued at $250,000 (to make my life easier, we will assume this was not an interest bearing account) and failed to report them on the FBAR for six years. The statute of limitations for FBAR civil penalties is six years and five years for criminal charges. If John could prove that the failure to the FBAR was non-willful the penalties would range from 0 to $60,000. If the failure to file was willful the penalties would be $750,000 and possible criminal prosecution.

Earlier this year the IRS announced the 2011 Offshore Voluntary Disclosure Initiative (FBAR Amnesty, OVDI). The OVDI gives people a chance to come clean about these accounts to the IRS for a penalty, of course. The penalty is 25% of the highest aggregate value of your foreign accounts during any of the years covered, 2003-2010. If you have less than $75,000 during all of the years the penalty is 12.5%. A 5% penalty is available, but you probably won’t meet the requirements, so I won’t go into details. If you are accepted and complete the OVDI the IRS will not recommend criminal prosecution of your case to the Department of Justice and the willful non-disclosure penalties will not apply.

If you have properly reported all of the income associated with the foreign accounts but failed to file the FBAR the IRS states that it will not assess penalties. But, if there was any income associated with the accounts (even a few dollars) and you didn’t report it, you will not qualify for this exception. There are also a few exceptions listed that exclude certain types of accounts.

The 2011 OVDI borders on unjust. The requirements are inflexible and the majority of the people that will use this initiative are honest people that didn’t know they had to file until hearing about the program. The only people it truly benefits are the ones that have been hiding foreign income and assets. However, it is better than the alternative of getting caught for not reporting.

The final deadline for the OVDI is August 30th, 2011. Please note, this is the final deadline and it will take more than a few days to properly prepare all of the documents required for the OVDI.

If you are interested in participating in the OVDI, please contact a tax professional.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web. Please do not rely on this article without consulting your tax professional.

Bellevue Tax Law | FBAR Filing Deadline is June 30th

2011-06-22T14:52:00.000-07:00

June 30, 2011 is the filing deadline for your 2010 tax year Form TD F 90-22.1: Report of Foreign Bank and Financial Accounts (FBAR). Unlike your regular taxes, the deadline is a received by date, not when the letter is postmarked. That means that it must be received by the IRS on or before, June 30th, 2011.

This is a very simplified explanation of the filing requirements for the FBAR. Before you take the information in this article and go file I'd suggest you consult a tax professional. We can make sure it's done right.

Who needs to file this?
If you are a US person and have a foreign financial account, a financial interest or signature authority over foreign financial accounts that have an aggregate balance that exceeds $10,000 at any time during the year, you are required to file this form. A foreign account is any account that is not located within the US. This includes accounts in branches of US banks that are located on foreign soil. Basically, an account is any type of bank account, securities account, brokerage account, some insurance policies with a cash value, and some credit card accounts. The remaining part of this requirement can be broken down in to three parts: US person; financial interest; and signature authority or other power of disposition.

A US person is a US citizen located anywhere in the world, a US resident for tax purposes (a foreign person living in the US for work may have a requirement depending on tax treaties and days in the country), a business entity (Corporation, LLC, partnership, etc...) or trust formed under the laws of any state in the United States. Yes, that means if you are an US ex-pat living in some European country and opened a bank account that exceeds $10,000 you have a filing requirement. This also means that if you own an interest in a US business that has a foreign bank account it will have to file the FBAR and possibly each of the owners of the business are required to file it, as well.

A person has a financial interest in a foreign financial account if she is an owner of the foreign account, an agent (through a power of attorney or something similar) over a person with a foreign financial account, or the owner of the account is a foreign entity (business, trust, or other foreign entity) and you directly own more than 50% of the entity. For a foreign trust, if you are a grantor and an owner of any part of the trust, you have a financial interest and a filing requirement.

Signatory authority or other power of disposition means that you do not have a financial interest in the foreign account, as described above, but you have a power to control the account in some way. The most common example of this is: you are a partner in a foreign business and have a signature authority over the business' bank account (something as simple as an ATM card), but you do not own a 50% interest in the business.

Another example to look out for is: if you own a foreign retirement account and control the assets but cannot make withdrawals from the account. Under this scenario, the IRS might decide you have a filing requirement through the power of disposition if you can make deposits to the account, control how the account is invested, but cannot make a withdraw because of the laws of the country where the account is located.

The penalties for not filing the FBAR are steep. If you have any type of foreign account and do not think you are required to file; at least contact someone to verify that you are correct.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web. Please do not rely on this article without consulting your tax professional. If you are unsure about whether you have a requirement to file this form contact a tax professional.