1. An FBAR must be filed whether or not the foreign account generates any income;
 
2. An FBAR is required for account maintained with financial institutions located in a foreign country if the account holds gold (or other non-cash assets).

If the person filing Form 1040 NR has foreign accounts, he is not required to attach Schedule B to his tax return (to report the foreign accounts).
 
Artists, athletes, and entertainers who are not citizens or residents of the U.S. do not have to file FBAR’s (if they occasionally come to the U.S. to participate in exhibits, sporting events or performances).

Generally, a foreign person has to file FBAR’s if they are considered to be doing business in the U.S. (i.e., conducting business in the U.S. on a regular and continuous basis).

The Practitioner must:
1. Make reasonable inquiries in response to Taxpayer’s information of overseas accounts/transactions.
2. A Practitioner may rely on information provided by a client in good faith.
3. The Practitioner must make reasonable inquiries if information appears incorrect, inconsistent or incomplete.

1. If a hedge fund is located in the U.S., with foreign operations, a financial interest in the U.S. hedge fund is not an interest in a foreign financial account for FBAR reporting purposes.

2. If a domestic partnership has a financial interest in a foreign financial account, then it may have to file a FBAR.

3. If a U.S. Person who is an officer, employee or partner of the partnership has a financial interest in, or signature or other authority over a foreign financial account then that person may have to file a FBAR.

4. If a person owns an interest in more than 50% of the profits of the partnership or more than 50% of the capital of the partnership, then that person has a financial interest (for FBAR reporting purposes) in the foreign financial accounts of the partnership and may have to file a FBAR.

A wealthy New Jersey international trader pleaded guilty yesterday to federal tax fraud charges in the wake of a growing criminal investigation tied to UBS AG, the world’s largest private bank.

Juergen Homann, 66, of Saddle River, admitted he failed to file tax forms for six years showing more than $6 million held in secret accounts overseas.

Homann, a naturalized U.S. citizen who also holds a German passport, said he received advice from an unidentified UBS Swiss banker and others on setting up a Liechtenstein foundation used to keep his accounts hidden from the Internal Revenue Service.

He later created a Hong Kong corporation used to orchestrate a sham $5 million loan from his own accounts to a subsidiary of a company he controlled.

Among those who helped him, Homann said, was Swiss lawyer Matthias Rickenbach, who was indicted in August on charges of helping others evade U.S. taxes.

In the proceeding before Judge Stanley Chesler in federal court in Newark, Homann, hands clasped behind his back as he answered questions without hesitation, pleaded guilty to a one-count information charging him with failure to file mandatory reports detailing foreign bank and financial accounts.

Assistant U.S. Attorney Marc-Philp Ferzan told the court Homann is already cooperating with federal prosecutors in its ongoing inquiry of UBS. Homann’s attorney, Cynthia Eddy, declined comment.

Homann was caught up in the federal probe that has targeted hundreds of Americans after admissions by UBS that it helped clients hide nearly $20 billion in assets. Federal authorities say Swiss bankers routinely traveled to the United States to market Swiss bank secrecy to clients interested in evading U.S. taxes.

Click link above  for complete article.

US Internal Revenue Service (IRS) Commissioner Doug Shulman has said that he is pleased with the response to the agency’s voluntary offshore bank account disclosure scheme, the deadline for which passed on October 15.

According to Shulman, the IRS received some 7,500 applications for the scheme, with disclosures ranging from USD10,000 to as much as USD100m associated with foreign bank accounts in all corners of the globe.

The latest offshore disclosure initiative seems to have been much more successful than a similar scheme administered by the IRS in 2004 known as the Offshore Voluntary Compliance Initiative. Under the 2004 amnesty, only 1,300 individuals came forward and the IRS collected about USD170m in unpaid tax. Shulman, however, has not disclosed how much the 2009 scheme will bring in for the Treasury, but it is certain to be a much higher figure.

The latest amnesty scheme was launched by the agency in March this year, and is just one of the many initiatives being used by the Obama administration to ensure that offshore income, both personal and corporate, is taxed in the US. Under the terms of the 2009 scheme, those making a voluntary disclosure about money held overseas face a penalty of 20% of the highest aggregate value of the account on one day in the last six years. The IRS also removed the threat of criminal prosecution. Ordinarily, if a taxpayer is discovered to have undeclared offshore income or assets, they face penalties up to 100% and possible jail time. The original deadline was set for September 23, but the IRS extended the amnesty until October 15 after it received an influx of requests from tax practitioners who themselves have been inundated with enquires about the scheme from their clients. Shulman warned that no further extensions will be granted, and that the agency will be unlikely to run another amnesty program any time soon.

Buoyed by the success of the 2009 amnesty, Shulman has revealed that the IRS is opening more representative offices abroad in places like Panama, China and Australia, and will also increase staffing levels in existing overseas offices, which include Barbados and Hong Kong.

The agency is also to create a dedicated team of enforcement and investigation officers to chase up wealthy individuals with complex, often international-based, financial arrangements, and President Obama’s 2010 budget includes extra resources for the IRS to hire almost 800 additional enforcement personnel.

A retired Boeing sales manager is the latest UBS client to plead guilty to filing a false tax return after the Swiss bank agreed to disclose the identities of some of its U.S. clients.

Robert Cittadini of Bellevue, Wash., accepted responsibility for hiding up to $1.86 million in accounts at the Swiss bank and failing to report the income he earned from the accounts on his 2001 to 2003 tax returns. Cittadini also did not file a Report of Foreign Bank and Financial Accounts, or F-BAR form, for each of those years.

Cittadini initially opened an account with UBS in the early 1990s in his own name, but around 2001, Swiss banker Hansruedi Schumaker, who was indicted in August 2009 on conspiracy charges, helped him transfer assets from his UBS account to an account named for Mataropa Finance Limited, a nominee Hong Kong corporation that helped him hide the assets. Swiss lawyer Matthias Rickenbach, also indicted in August, was a director of the Hong Kong entity.

Sentencing in Cittadini’s case is scheduled for Jan. 8, 2010. He faces up to three years in prison and a $250,000 fine. He also has agreed to pay a civil F-BAR penalty based on 50 percent of the highest account balance from 2001 to 2007.

“This is a time of reckoning for those who thought they had found a safe haven for cheating,” said U.S. Attorney Jenny A. Durkan in a statement. “People who avoid paying their fair share hurt all of us who follow the law and conscientiously pay our taxes.”

In February 2009, UBS entered into a deferred prosecution agreement in which the bank admitted to helping U.S. taxpayers hide accounts from the IRS. As part of the agreement, UBS provided the U.S. government with the identities and account information of some U.S. customers of the bank’s cross-border business. Cittadini’s case is the sixth guilty plea arising from that information.

In June 2009, Steven Michael Rubinstein, a Boca Raton, Fla., accountant, pleaded guilty to filing a false tax return. In April 2009, another UBS client, Robert Moran, a Ft. Lauderdale, Fla., yacht broker, pleaded guilty to filing a false tax return. In July 2009, Jeffrey Chernick, of Stanfordville, N.Y., pleaded guilty to filing a false tax return. In August 2009, John McCarthy, a resident of Malibu, Calif., pleaded guilty to failing to report his ownership of and interest in a foreign financial account. In September 2009, Juergenn Homann of Saddle River, N.J., pleaded guilty to failure to file an F-BAR form.

Over the summer, UBS agreed to hand over information on an additional 4,450 U.S. clients under an agreement brokered by the Swiss and U.S. governments.

The FBAR rules require that every U.S. Person report (i) any financial interest or authority over a (ii) financial account in a foreign country with (iii) an aggregate value over $ 10,000 at any time during the taxable year. The report must be filed on a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (hence the acronym “FBAR”). U.S. Persons must also disclose the existence of the account on their Form 1040, Schedule B, Part III. This is commonly referred to as “checking the ‘B’ box.”
Taxpayers who fail to disclose the account on their Form 1040 could be subject to criminal sanctions for filing a false tax return.

The FBAR report is due on June 30th. This due date is not subject to extensions.  The FBAR report must be filed separately from the U.S. Person’s tax return.

Financial Interest Or Authority
A U.S. Person has a financial interest in a foreign account if he or she is the legal or beneficial owner. Attribution rules apply in making this determination. A person serving as a shareholder, partner, and trustee may also be deemed to hold a financial interest if the owner of the account is (i) a person acting as an agent on behalf of the U.S. Person, (ii) a corporation where the U.S. Person owns, directly or indirectly, more than 50 percent of the outstanding stock, (iii) a partnership in which the U.S. Person owns more than 50 percent of the profits, or (iv) a trust in which a U.S. Person has either a present interest in more than 50 percent of the assets or from which the U.S. Person receives more than 50 percent of the income. If these thresholds arc met, the U.S. Person has an FBAR reporting obligation, regardless of whether he or she has any authority over the account.

Non-owners with authority over a foreign account are also subject to the FBAR reporting rules. Authority means the U.S. Person has the ability to order a distribution or disbursement of funds or other property held in the account. This is not limited to signature authority, but includes the ability to order distributions by verbal commands or other communication. Authority does not include persons who have the right to invest, but not distribute, the foreign account funds.

There is no limitation for taxpayers who have authority over a foreign account, but only in an official capacity. (For example, the president of a corporation, the general partner of a partnership, or the manager of an LLC may be subject to these rules.) 
Both the entity, as beneficial owner, and the representative, who has control over the account, may be required to file an FBAR report. Similarly, when more than one U.S. Person has authority over an account, i.e., president and vice president, both persons may have an FBAR reporting obligation.

Even when the account is subject to joint control, and the signature of someone other than the taxpayer is required to cause a distribution, the taxpayer is still considered to have authority over the account for FBAR reporting purposes.

Financial Account In A Foreign Country
The term financial account is broadly defined as any asset account and encompasses simple bank accounts (checking or savings), as well as securities or custodial accounts. It also includes a life insurance policy or other type of policy with an investment value (i.e., surrender value).

Foreign country naturally refers to any country other than the United States. Puerto Rico, U.S. possessions and territories are included as part of the United States (as they should) for these purposes. Accounts held by U.S. Persons in these areas are not foreign accounts subject to FBAR reporting.

The IRS has indicated that a traditional credit card with a foreign bank is not a foreign account. However; use of a credit card as a debit or check card could trigger foreign account status and thus an FBAR reporting obligation.

$10,000 Threshold
To be reportable, the account must have assets the value of which during the year, exceeds $10,000.

The Instructions to the FBAR report state that if the aggregate value of all financial accounts exceeds $10,000 at any time during the year, the U.S. Person must file an FBAR report. A U.S. Person who possesses multiple foreign accounts, all of which have less than $10,000, but which collectively exceed $10,000, may have an FBAR reporting obligation.

Taxpayers may transfer an appreciating asset to a foreign account, such as stock or securities. As these assets increase in value, they may trigger an FBAR reporting requirement.

Whether the account generates any income is not relevant.

Penalties
In an attempt to improve compliance, Congress enhanced the FBAR penalties in 2004. Under pre-2004 law, civil penalties applied only to willful violations. In 2009, civil penalties up to $10,000 may be imposed on non-willful violations. This penalty may be avoided if there was reasonable cause and the U.S. Person reported the income earned on the account. 31 U.S. C. §5321(a)(5).

Although reasonable cause is not defined, the IRS will likely apply the reasonable-cause standard for late-payment/late-filing penalties.

The penalty for willful violations is far more severe. It is equal to the greater of $100,000 or 50 percent of the balance of the account at the time of the FBAR violation. No reasonable cause exception exists for a willful violation. 31 U. S. C. §5321(a)(5)(c) .

The IRS has six years to assess a civil penalty against a taxpayer that violates the FBAR reporting rules.

The NYTimes.com is reporting that the IRS is extending its amnesty program to October 14, 2009.

…The so-called voluntary disclosure program, which began in March as a way of luring American clients of the Swiss bank UBS out of the woodwork, has attracted 3,000 taxpayers so far, compared with just 80 last year…

Click link above for complete article.