Category Archives: Offshore Assets and Accounts Disclosure

Podcast – The Long-Arm of the United States Tax Code | LEGAL THOUGHTS

Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published November 24, 2020.

The Long-Arm of the United States Tax Code

Legal Thoughts is a podcast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses, and agencies from around the world in taxation, litigation, and immigration legal matters.

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Reyna Munoz, Tax Legal Assistant of Coleman Jackson, P.C.   The topic of discussion is “What does the Long-Arm of the United States Tax Code Mean?” You can listen to this podcast by clicking here:

You can also listen to this episode and subscribe to Coleman Jackson, P.C.’s Legal Thoughts podcast on Apple Podcast, Google Podcast, Spotify, Cashbox or wherever you may listen to your podcast.

TRANSCRIPT:
ATTORNEY:  Coleman Jackson
Legal Thoughts
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY:  Coleman Jackson

Welcome to Tax Thoughts

  • My name is Coleman Jackson, and I am an attorney at Coleman Jackson, P.C., a taxation, litigation, and immigration law firm based in Dallas, Texas.
  • Our topic for today is: “What does the Long-Arm of the United States Tax Code Mean?”
  • Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Reyna Munoz, Immigration Legal Assistant, Leiliane Godeiro, Litigation Legal Assistant and Mayra Torres, Public Relations Associate.
  • On this “Legal Thoughts” podcast our law firm’s Immigration Legal Assistant, Reyna Munoz will be asking the questions and I will be giving the answers as she and I will be discussing: “What does the Long-Arm of the United States Tax Code Mean?”

Reyna Munoz Introduces Herself to the Audience:

  • Hi everyone, I am Reyna. I am the Immigration Legal Assistant at the tax, litigation and immigration law firm of Coleman Jackson, P.C.  Right here in Dallas, Texas.
  • Hi Attorney; today we will be discussing the topic: What does the Long-Arm of the United States Tax Code Mean?

Question 1:

  • Well, attorney what does the long-arm of the U.S. Tax Code mean anyway?

Attorney Answers Question 1:

  • Good morning Reyna. I think this is a fascinating topic; so let’s get started!
  • United States citizens and Lawful Permanent Residents (or commonly known as Green Card Holders) are required to pay taxes on their gross income, regardless of where it is earned or how it is earned in the world.  That basic rule is established in United States Code, Section 61(a); and explained in 26 Code of Federal Regulations, Section 1.1-1(b).
  • So, to answer your question, that is why it is often said by tax professionals that the U.S. tax code has long arms.  It can reach U.S. citizens and Green Card holders and their gross income from anywhere in the world.  These are very long-arms indeed!

Interviewer: Reyna Munoz, Tax Legal Assistant

Question 2:

  • That is interesting! How would the United States Government find out about this gross income and these foreign interest of U.S. citizens and Green Card Holders?

Attorney: Coleman Jackson

ANSWER 2:

  • S. citizens and Green Card Holders have a legal duty to voluntarily file appropriate tax returns and other informational materials with the U.S. government reporting their gross income and interests in financial accounts held overseas. Federal tax returns must be filed annually to report gross income (such as, Form 1040 (individuals), Form 1065 (Partnerships), Form 1120 (Corporations), Form 1041 (Estates).  All of these tax forms are filed with the Internal Revenue Service when applicable.  Further U.S. citizens and Green Card Holders with ownership interest or signatory authority of foreign accounts must complete Schedule B, Part III, Line 7 of Form 1040 their individual tax return discussing their interest or signatory authority over any foreign account during the tax period; and moreover, in the event the balance in any single account or combination of foreign accounts is greater than $10,000 during the tax period, the taxpayer must also file an FBAR with the Financial Crimes Network.
  • It will not be hard for the U.S. Department of Treasury to find out about taxpayers reporting obligations today with the technology that is in existence. In fact, it is easier today than ever for information to be shared by business entities, governmental entities and individuals in seconds around the world.
  • The U.S. Treasury has negotiated operating and reporting agreements with governments around the world to share directly or indirectly financial banking information of U.S. citizens and Green Card holders.
  • LET ME JUST SAY, IT IS EXTREMELY UNLIKELY THAT THE U.S. GOVERNMENT WILL NOT LEARN OF THESE EARNINGS AND FOREIGN ASSETS TODAY.

Interviewer: Reyna Munoz, Tax Legal Assistant

Question 3:

  • What can happen if a U.S. Citizen fails to report all of their gross income and fail to report their ownership interest in a foreign bank account?
  • First what is a foreign bank account anyway?

Attorney Answers Question 3:

  • A foreign bank account is an account in a foreign institution, or an institution physically located outside of the borders of the U.S. and its territories. Branches of U.S. domiciled banks located overseas are not classified as a foreign bank for FBAR reporting purposes or IRS purposes.
  • Individuals who fail to comply with U.S. laws can expect there to be a gradation of criminal and civil exposure. What I mean by that is in the United States criminal penalties and civil penalties for violation of the law are graded based on level of culpability.  This is also true with regards to failure to voluntarily comply with the U.S tax laws.  The U.S. tax code imposes varies kinds of penalties for violations, such as tax evasion, failure to file penalties, negligent filing penalties.
  • As for failure to report interest in foreign accounts, the IRS is permitted to assess and collect civil penalties against any individual who fails to report their interest in a foreign account on a timely filed FBAR.
  • I have written numerous blogs with regards to the penalty structure designed to hold tax cheats accountable.

 Interviewer: Reyna Munoz, Tax Legal Assistant

QUESTION 4:

  • Attorney what could you at least explain what you mean by gradation of penalties?

Attorney Answers Question 4:

  • Okay, very well! Let me briefly describe what gradation of penalties means as it relates to failure to file a required FBAR.
  • If an individual’s failure to file an FBAR is deemed willful by the IRS, then the IRS has the discretion to assess a maximum penalty of $100,000 or 50 percent of the balance in the foreign account at the time of the violation. Whichever is higher is the collectable penalty.
  • Willfulness does not require actual knowledge of the duty to report interest in a foreign account. Reckless or careless disregard of their statutory duty to report their ownership or beneficiary interest in the foreign account is enough for the IRS assess and collect the penalty.
  • The IRS has been challenged in Courts around the country, and they have a pretty good betting record on winning the willfulness FBAR cases. Come on, just look; these cases are what lawyers routine call document cases. For example, (1) it’s easy to prove whether someone is a U.S. citizen or Green Card Holder because there is a U.S. birth Certificate or Naturalization  Certificate or Lawful Permanent Resident Card; (2) it’s easy to prove that the account is located outside of the U.S. and its territories because there are bank account statements; and (3) it’s easy to prove that the taxpayer filed a tax return failing to list the foreign bank account because there is Schedule B, Part III, Line 7 of IRS Form 1040.  Hey, three strikes and you are out.  Willfulness to violate the FBAR rules is not a very high burden for the IRS to carry in these FBAR violation cases.

Interviewer: Reyna Munoz, Tax Legal Assistant

Question 5:

  • Okay Attorney that sounds like three strikes. It might be hard to hit the ball.  But what about—
  • If the taxpayer hired a professional tax return preparer to prepare and file, the return? Could the taxpayer now say it was none willful?

Attorney: Coleman Jackson

ANSWER 5:

  • Well it depends on all the facts and circumstances as to whether a skillful negotiated and advocate could make out a defense.
  • But the main thing everyone should take away is this:
  • Taxpayers are deemed to have constructive knowledge of and responsibility for the contents of their tax returns which are signed under penalty of perjury.
  • Where immigrants are involved who lacks the knowledge of the English language, cultural norms in terms of voluntary tax reporting, educational challenges and other capacity factors, in these circumstances skillful advocacy might manage to turn what appears to be a willful violation into a none willful violation of U.S. law. People with foreign gross income and foreign account interest need to do their due diligence in picking tax professionals in preparation of U.S. tax returns and compliance with FBAR requires because the penalties for failing to comply are rough regardless of the gradation of the penalties.

Interviewer: Reyna Munoz, Tax Legal Assistant

Question 6:

  • Okay, I think I understand.
  • Attorney, you mentioned voluntary disclosure. Is there a way a person can get this right even after they failed to property report their gross income or foreign account?

Attorney: Coleman Jackson

ANSWER 6:

  • Yes, the IRS has voluntary disclosure programs. But the Offshore Voluntary Disclosure Program or OVDP has ended and the IRS is no longer accepting taxpayers’ disclosures for failing to report foreign accounts under that program.
  • The various Streamlined Procedures Programs are still viable; but only if the violation is non willful. I have written blogs on this in the past and will not go into any more details here; other than, the taxpayer must make sure their actions were none willful because the IRS audits these submissions and if the IRS deems the actions of the taxpayer were willful violations rather than none willful violations, they could make a referral to IRS Criminal Investigations for possible referral to the U.S.  Justice Department.
  • The IRS also still have a FBAR only disclosure program that might be used by some taxpayers under appropriate circumstances.
  • Mayra, thanks for your questions on this topic. We have numerous blogs on foreign accounts on our law firm’s blog site.   We must go for now.

Attorney’s Concluding Remarks:

THIS IS END OF “LEGAL THOUGHTS” FOR NOW

  • Thank you for giving us the opportunity to inform you about What does the Long-Arm of the United States Tax Code Mean?”
  • We might discuss other aspects of this topic on gross income and foreign accounts matters in follow up podcasts or blogs in the near future.  If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C., subscribe to our podcast and stay tune!  We are here in Dallas, Texas and want to inform, educate, and encourage our communities on topics dealing with taxation, litigation, and immigration.  Until next time, take care.

Podcast – Foreign Investments and U.S. Income Tax? | LEGAL THOUGHTS

Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published September 02, 2020.

Foreign Investments and U.S. Income Tax

Legal Thoughts is a podcast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses, and agencies from around the world in taxation, litigation, and immigration legal matters.

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Mayra Torres, the Public Relations Associate of Coleman Jackson, P.C.   The topic of discussion is “Foreign Investments and U.S. Income Tax?” You can listen to this podcast by clicking here:

You can also listen to this episode and subscribe to Coleman Jackson, P.C.’s Legal Thoughts podcast on Apple Podcast, Google Podcast, Spotify, Cashbox or wherever you may listen to your podcast.

TRANSCRIPT:
ATTORNEY:  Coleman Jackson
LEGAL THOUGHTS
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY:  Coleman Jackson

Welcome to Tax Thoughts

  • My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation, and immigration law firm based in Dallas, Texas
  • Our topic for today is: “Foreign Investments and U.S. Income Tax?”
  • Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Reyna Munoz,Immigration Legal Assistant and Mayra Torres, Public Relations Associate.
  • On this “Legal Thoughts” podcast our public relations associate, Mayra Torres will be asking the questions and I will be responding to her questions on this important tax topic: “Foreign Investments and U.S. Income Tax”

Interviewer:  Mayra Torres, Public Relations Associate

  • Good morning everyone. My name is Mayra Torres and I am the public relations associate at Coleman Jackson, P.C. Coleman Jackson, P.C. is a taxation, litigation and immigration law firm based right here in Dallas, Texas. We help businesses, individuals and everyone with sales taxes,income taxes, gift and estate taxes and contracts drafting and negotiations and disputes and immigrants on a variety of business and family immigration matters from around the world.
  • Today Attorney we are discussing foreign investments and U.S. Income Tax Law. My first question is basic:

Question 1:

Are foreign corporations ever subject to U.S. income tax laws?

Attorney Answers Question 1:

Mayra, the simple answer is YES, SOMETIMES FOREIGN CORPORATIONS ARE SUBJECT TO U.S.INCOME TAX LAWS!

Interviewer:  Mayra Torres, Public Relations Associate

QUESTION 2:

  • Okay then, let me just change my question a little.
  • When are foreign corporations subject to U.S. income tax?

Attorney Answers Question 2:

A foreign corporation is taxed on its taxable income which is effectively connected with the conduct of a trade or business within the United States under Internal Revenue Code Section 882.

Interviewer:  Mayra Torres, Public Relations Associate

Question 3:

  • Attorney what do you mean by the term “effectively connected with the conduct of a trade or business within the U.S.”?

Attorney Answers Question 3:

  • That is a very astute question! Think in terms of source of the increment or decrement of wealth of the foreign entity. What I mean is the term effectively connected with a trade or business in the United States means income, gain or loss incurred during a tax year from sources within the United States. The key to understanding the meaning of this term is the source of the income, gain or loss incurred by the foreign corporation. If the source of the income, gain or loss for the year is in the U.S., then the foreign corporation is engaged in a trade or business effectively connected with the conduct of a trade or business within the U.S. and are subject to federal income taxation under Internal Revenue Code Section 882.
  • The application of this Code Section does not mean that the income, gain or loss have to come from a trade or business being conducted in the U.S. If the source of the income, gain or loss is in the U.S., Code Section 882 applies and the income, gain or loss is taxable.

Interviewer:  Mayra Torres, Public Relations Associate

Question 4:

  • Does the foreign corporation have to operate a business within the United States during the tax year in order for these rules to apply to income, gains or losses under Code Section 882?

Attorney Answers Question 4:

  • Yes, that is exactly right. In order for Code Section 882 to apply, the foreign corporation must be engaged in a trade or business within the United States during the particular tax year where the determination is being made whether income, gain or loss is effectively connected with the conduct of a trade or business within the United States under Internal Revenue Code Section 882.
  • The Code Section 882 determination is made at the close of each tax year. If a foreign corporation has income, gain or loss at any time during a tax year from a source within the U.S. and its engaged in a trade or business within the U.S. whether it be in a joint venture or partnership or limited liability company or similar affiliation with a U.S. entity, it is taxable income effectively connected with the conduct of a trade or business within the U.S. under IRC 882.

Interviewer:  Mayra Torres, Public Relations Associate

Question 5:

  • Wow! Attorney that is a lot to digest; can we continue this conversation in another podcast because I have a lot more questions? For example, are there any categories of income, gain or loss considered effectively connected to the United States even if its earned overseas by a foreigner?

Attorney Answers Question 5:

Yes, there are categories of foreign source income that are subject to U.S. income taxation as effectively connected with the conduct of a trade or business within the U.S. But you are right Mayra that is enough to ponder for now. We can continue this topic in a later podcast in about two weeks. Please subscribe to our podcast.

Mayra’s Concluding Remarks

  • I am looking forward to continuing this topic in about two weeks!
  • Anyone interested in hearing more about foreign investments and U.S. Taxation should subscribe to our podcast on Apple Podcast, Google Podcast, Spotify or wherever they listen to their podcast.We also have a lot of blogs going deep into the details of U.S. tax law, litigation and immigration law topics on Coleman Jackson, P.C.’s website at cjacksonlaw.com.

 Coleman Jackson, Attorney’s concluding remarks:

THIS IS THE END OF “LEGAL THOUGHTS” FOR NOW

  • Thanks for giving us the opportunity to inform you about foreign investments and U.S. taxation. If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Stay tune! Watch for a new Legal Thoughts podcast in about two weeks.We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration. Until next time, take care.

Thinking About Taxes

By:  Coleman Jackson, Attorney & Certified Public Accountant
March 07, 2020

Thinking About Taxes

Thinking about spending that money withheld from employees’ wages to take a tour of the world, pay other business expenses or house payments?  Don’t do it before reading Internal Revenue Code Section 7702!   Hear those alarm bells ringing!  Anyone required to collect, account for, and turn over to the United States Treasury and willfully fails to carry out this duty are subject to severe civil penalties and upon being found guilty of the felony of failing to collect, account for, and turn over can be fined up to $10,000 and spend up to five years in federal prison.  Payroll tax fraud is a serious crime that is commonly investigated by the IRS Criminal Investigation (CI) Division.  This unit of the IRS investigates all kinds of violations of the Internal Revenue Code.  CI along with the Financial Crimes Network investigates FBAR violations (these are U.S. persons with foreign bank accounts and other foreign assets who fail to timely and accurately disclose these holding on Form 114), money laundering (these are individuals or entities engaged in some kind of unlawful activity and endeavoring to get dirty money into the normal banking system) and other financial crimes.

 

Thinking about not filing that required income tax, gift tax or other federal tax return or providing fraudulent information the IRS?  Don’t do it before reading Internal Revenue Code Sections 7207 and 7203Hear those whistles blowing!  Anyone who intentionally gives false documents, which includes returns and any other written representation to the Internal Revenue Service and any of its employees knowing that its materially false or fraudulent is subject to civil fines and upon being found guilty of the felony of giving the Service false returns or other documents can be fined up to $10,000 (if individual) and up to $50,000 (if corporation), and spend up to one year in federal prison.  Multiples applies in that cumulative false statements, returns and documents can generate multiplication of the civil fines and additional years to the duration of the prison term.

 

Thinking about paying fewer taxes than is lawfully owed by engaging in creative accounting, leaving that or this item off the return while adding and dreaming about things that never happened? Don’t do it before reading Internal Revenue Code Section 7201Hear those gongs clanging! Anyone who intentionally attempts to evade or defeat any tax imposed under the Internal Revenue Code is subject to civil penalties up to $100,000 (if individual) and up to $500,000 (if corporation), and spend up to five years in federal prison upon conviction.

 

Thinking about taxes?  Stay away from the tumbling … lie.


This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432     

FBAR

By:  Coleman Jackson, Attorney, Certified Public Accountant
July 16, 2019

FBAR - foreign bank accounts

 

The 1970 Currency and Foreign Transactions Reporting Act, which is otherwise known as the Bank Secrecy Act requires U.S. residents, citizens and businesses with foreign bank accounts and certain other overseas assets to report those interest to the Financial Crimes Network annually on Form 114 by April 15th of the following year. Form 114 is the Report of Foreign Bank and Financial Accounts or (FBAR). The Bank Secrecy Act has a number of reporting requirements that are placed on financial institutions as well as those placed persons with foreign asset interests.  The record keeping and reporting requirements placed on  foreign account holders  are set out in detail in 31 U.S.C. Sec. 5414Form 114, the FBAR must be filed electronically through the Bank Secrecy Act E-Filing Network website.  The Financial Crimes Network is an agency of the United States Treasury but it is not the Internal Revenue Service.  These are two separate agencies under the U.S. Department of Treasury.

 

The Bank Secrecy Act at 31 U.S.C. Sec. 5414 also requires taxpayers with foreign bank accounts to disclose those accounts on their annual federal tax returns.

 

The Bank Secrecy Act at 31 U.S.C. Sec. 5414 also requires taxpayers with foreign bank accounts to disclose those accounts on their annual federal tax returns.  IRS Form 1040 at line 7a of Schedule B specifically asks whether the taxpayer has an interest or signatory authority over a foreign bank account.  A ‘yes ‘answer to this question on Schedule B requires the taxpayer to identify the country of the account and certain other details.  A taxpayer’s failure to check the box ‘yes’ when they have foreign bank interest or signatory authority over a foreign asset seriously increases their legal jeopardy because courts have said that failure to ‘check the box’  constitutes a willful violation of the  Bank Secrecy Act.  Failure to read the return has been held to be insufficient to avoid liability under the Act.  Avoiding knowledge of the Acts requirements has not been a successful plan.   Federal courts all over the country have addressed these various defenses and found them lacking weight.

 

IRS Form 1040 at line 7a of Schedule B specifically asks whether the taxpayer has an interest or signatory authority over a foreign bank account.

 

When a violation of the Bank Secrecy Act is not willful, the FBAR penalty for failure to disclose financial interest in foreign bank accounts, securities or other financial assets is capped at $10,000.  This cap only applies to non-willful violations of the FBAR statute.  Failure to check the box correctly and failure to disclose to a tax return preparer the existence of foreign bank accounts or other assets overseas is extremely likely to be found to be a willful violation of the Act.  The penalty permitted under the Bank Secrecy Act for a willful violation is equal to the greater of $100,000 or 50% of the highest balance in the account at the time of the violation.  There are also criminal penalties for violation of the Bank Secrecy Act if a taxpayer is tried and convicted under the Act.  Under the law, the Internal Revenue Service has 6 years from the date of the violation to assess the FBAR penalty and they can sue the taxpayer or the taxpayer’s estate to the collect the penalties.  Note that assessed FBAR penalties do not go away with the death of the taxpayer.

 

If the IRS assess FBAR penalties and the taxpayer refuses to pay them, the U.S. government can seek to collect the penalties in federal court pursuant to 31 U.S.C. Sec. 5321(b)(1).

 

Again, If the IRS assess FBAR penalties and the taxpayer refuses to pay them, the U.S. government can seek to collect the penalties in federal court pursuant to 31 U.S.C. Sec. 5321(b)(1).   The government must demonstrate in court by a preponderance of the evidence that (a) the taxpayer is a U.S. resident, citizen or business entity subject to the Bank Secrecy Act, (b) the taxpayer had a reporting obligation under the Bank Secrecy Act and failed to satisfy that reporting obligation, and (c) the nature of the taxpayer’s violation in terms of non-willful or willful violation of the statute, and (d) the taxpayer has failed to timely pay the assessed penalty.  The taxpayer must plead and prove any statute of limitations defects in the government’s case.  FBAR cases, as a general matter, are fact based cases.  Taxpayers win some and loose some.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

Giving is good! Giving is Subject to Federal Taxation

By Coleman Jackson, Attorney and Certified Public Accountant
June 10, 2019

Giving is good!  Giving is Subject to Federal Taxation

The Holy Bible at 1 Timothy 6:17 says that God gives to us richly all things….  It is a blessing to be able to give.  Giving is an expression of gratitude and love.  It is good to give.  Every relationship should be based on the desire to give.  It is more blessed to give than to receive.

Giving in the United States creates tax obligations on the giver.  Internal Revenue Code Section 2503 defines “taxable gifts” as the “total amount of gifts made during the calendar year, less deductions provided in subchapter C (section 2522 and following).”  The federal gift tax rules applies to gifts of present interest to a donee as oppose to transfers of future interest by the donor to the donee.  Under United States federal tax laws, the donor (giver) is taxed on the fair market value of the gift.  The recipient of the gift or donee is not taxed on the gift.  But!   Special tax reporting rules imposes on the donee a duty to disclose to the IRS certain large gifts from foreign nationals.

 

Giving in the United States creates tax obligations on the giver

 

The total annual valuation of gifts given by a donor is a tally of all gifts given by the donor for the calendar year.  Such gifts are reported annually on Form 709, United States Gift (and Generation-Skipping Transfer) Tax ReturnForm 709, United States Gift (and Generation-Skipping Transfer) Tax Return is due on April 15th of the year following the year of the gift.  For example if Jose Giver gives the following gifts in 2019:

  • Stocks and bonds to Jeremiah Recipient worth $40,000 fair market value;
  • Wires $250,000 to the foreign bank account of Jennifer Recipient ; and
  • Gives $4,000 to his niece, Carolyn Recipient under 21 years of age at the date of the gift.

 

Form 709 United States Gift

Jose Giver must tally the three gifts to all recipients made in 2019 and report the gifts on April 15th 2020 on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.  The total amount of gifts for 2019 is $294,000. Internal Revenue Code Section 2503 provides an annual exclusion for gifts of present interests made to any person by a donor.  In 2018 the annual exclusion amount is $15,000 and pursuant to IRC Sec. 2523 the annual exclusion is $155,000 on gifts to spouses who are not U.S. Citizens.  For gifts given in 2019 the annual exclusion amount remains $15,000, but the annual exclusion for gifts to spouses who are not U.S. Citizens decreases to $152,000 for gift made in 2019.  Note that the annual exclusion amount is indexed to the inflation rate; therefore, it could change from year to year.

 

Form 114, Report of Foreign Bank and Financial Accounts

Other federal laws, including other tax reporting and disclosure rules could be implicated by the facts described in the above hypothetical.  For example, Jeremiah Recipient may have to report gains & losses realized on the stocks and bonds.  The $250,000 wired to Jennifer Recipient’s foreign bank account could possibly create reporting requirements under the Bank Secrecy Act which requires that U.S. persons; which includes U.S. citizens, resident aliens, trusts, estates, and domestic entities to file Form 114, Report of Foreign Bank and Financial Accounts with the Financial Crimes Network on April 15th 2020 if the foreign account balance is $10,000 or more at any time during the calendar year.  Further the $4,000 to his under aged niece implicates the Generation- Skipping Transfer tax rules. That applies when gifts skip a generation.   Giving is good!  Giving is subject to federal taxation.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432.

 

 

 

Statement of Specified Foreign Financial Assets

By:  Coleman Jackson, Attorney, Certified Public Accountant
May 06, 2019

Statement of Specified Foreign Financial Assets

 

Statement of Specified Foreign Financial Assets is Department of Treasury (internal Revenue Service’s Form 8938. Form 8938 is filed with the taxpayers’ annual tax return.   Internal Revenue Code Sec. 6038D mandates that specified individuals, who include U.S. citizens, resident aliens, and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold must annually report those specified foreign assets using Form 8938.  The federal tax law that mandates these reporting requirements was enacted by the U.S. Congress and signed into law by President Obama in 2010.  The law is entitled the Foreign Account Tax Compliance Act (FATCA).  The law’s stated purpose is to combat tax evasion by U.S. taxpayers using foreign bank accounts and assets.  This law is separate and distinct from the better known Bank Secrecy act enforced by the Financial Crimes Network (FinCen) mandating foreign accounts disclosures under the FBAR requirements.  We have discussed the FBAR requirements in prior blogs on a number of occasions.  We will not repeat those discussions here.   Interested readers should look up our prior blogs for discussions regarding the FBAR and the penalties associated with violation of the FBAR reporting requirements.  You can read all of our blogs at http://www.cjacksonlaw.com/blog/.

 

Form 8938

 

For now, let’s return to our discussion of FATCA and Form 8938.  Specified individuals with foreign assets meeting a certain reporting threshold must report their foreign financial assets to the Internal Revenue Service annually using Form 8938.   The term, “Foreign Financial Assets” under FATCA is defined broader than mere foreign deposit and custodian accounts; FATCA applies also to “Other Foreign Assets”, which could be any property, including virtual property interest of   Specified Individuals.  For example, the term other foreign asset could apply to foreign land, foreign buildings & equipment, foreign business interest, such as ownership interest in a foreign partnership, corporation, trust, or estate if the reporting threshold is met for the tax period.  Further, other foreign assets also could apply to Specified Individuals’ interest in foreign stocks, bonds, debentures, virtual currency and, practically speaking, wealth or value formulated in any other form and composition if the reporting threshold is met for the tax period.  The point is this; the definition of the term ‘asset’ is interpreted broadly under FATCA.

annually reporting of FATCA and Form 8938

 

To summarize, specified individuals must annually report their interest in specified foreign financial assets using Form 8938 if the values of the assets are $50,000 on the last day of the tax year or $75,000 at anytime during the tax year (higher reporting threshold amounts apply to married individuals filing jointly and individuals living abroad).  Fair market value in U.S. dollars is used to compute the asset value pursuant to the IRS instructions for Form 8938.  Normal civil and criminal penalties under the Internal Revenue Code could apply when Specified Individuals who meet the FATCA reporting threshold fail to comply with FATCA requirements.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432.

Federal Courts Clarify Standard for Proving Taxpayer’s Willful Violation of Report of Foreign Bank and Financial Accounts (FBAR)

By:  Coleman Jackson, Attorney and Certified Public Accountant
February 13, 2019

Federal Courts Clarify Standard for Proving Taxpayer’s Willful Violation of Report of Foreign Bank and Financial Accounts (FBAR)

 

United States citizens, lawful permanent residence and certain other persons that are classified under 31 U.S.C. Sec. 5311 and promulgated Regulations must file with the Financial Crimes Network annually a Report of Foreign Bank Account, Form 114.  The U.S. persons covered under the disclosure law must file the report each year for foreign bank accounts exceeding $10,000 in the prior calendar year whether it is a single account or an aggregate of accounts.  If the $10,000 threshold is met, FBAR reporting requirements are triggered.

 

Form 114 FBAR reporting

 

The amount of the FBAR penalty depends upon whether the taxpayer’s violation was willful or non-willful. What is willfulness in the FBAR context?  The general consensus developed in the courts is that the term, ‘willful’ “denotes that which is intentional, or knowing, or voluntary, as distinguished from accidental, and that it is employed to characterize conduct marked by careless disregard whether or not one has the right so to act.”            Wehr v. Burroughs Corp., 619 F.2d 276, 281 (3d Cir. 1980).  A taxpayer has willfully violated 31 U.S.C. Sec. 5314 when they knowingly or recklessly fails to file a FBAR.  A person commits a reckless violation of the FBAR statute by engaging in conduct that violates an objective standard:  action entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known.  The Third Circuit Court of Appeals in Bedrosian v. U.S., 2018 (3rd Cir. 2018) that

 

This holding is in line with other courts that have addressed civil FBAR penalties, see, e.g. United States v. Williams, 489 F. App’x 655, 658 (4th Cir. 2012) as well as our prior cases addressing civil penalties assessed by the IRS under the tax laws, see e.g., United States v. Carrigan, 31 F. #d 130, 134 (3d Cir. 1994). 

 

In Kimble v. U.S., 2018 (Fed, Cl. 2018), the court ruled that the taxpayer recklessly disregarded her duty to report foreign accounts because she failed to review her tax returns for accuracy and falsely represented in her tax return that she did not have any foreign bank accounts.  Note that Schedule B of Form 1040 at line 7(a) specifically asks taxpayer’s whether or not they have any foreign bank accounts. The question format is ‘yes or no’, and if it is answered ‘yes’, it leads to a series of additional inquiries with respect to the foreign bank accounts.

 

The civil penalties for a FBAR violation

 

The civil penalties for a FBAR violation are codified in 31 U.S.C. Sec. 5321(a)(5).  The maximum penalty for a non-willful violation is $10,000 per occurrence.  The maximum penalty for a willful violation of the FBAR statute is the greater of $100,000 or 50% of the balance in the unreported foreign account at the time of the violation.

 

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

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