Cross Border Ownership Structures Under Heightened IRS Scrutiny presents Mastering the Compliance Challenges of Forms 1120-F, 5471, 5472 and 926 A Live 10 0-Minute Audio Conference with Interactive Q&A Today's panel features: William P. Elliott, Partner, Cherry Bekaert & Holland , Vienna, Va. Kirk Sinclair, Senior Tax Accountant, Holtz Rubenstein Reminick , Melville, N.Y. Russell Mansky, Partner, Spott Lucey & Wall , San Francisco Wednesday, April 29, 2009 The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific The audio portion of this conference will be accessible by telephone only. Please refer to the dial in instructions emailed to registrants to access the audio portion of the conference. CLICK ON EACH FILE IN THE LEFT HAND COLUMN TO SEE INDIVIDUAL PRESENTATIONS. If no column is present: click Bookmarks or Pages on the left side of the window. If no icons are present: Click View , select Navigational Panels , and chose either Bookmarks or Pages . If you need assistance or to register for the audio portion, please call Strafford customer service at 800-926-7926 ext. 10
Cross-Border Ownership Structures Under Heightened IRS Scrutiny Teleconference April 29, 2009 William P. Elliott Kirk Sinclair Cherry Bekaert & Holland Holtz Rubenstein Reminick belliott@cbh.com ksinclair@hrrllp.com Russell Mansky Spott Lucey & Wall CPAs russell.mansky@SpottLuceyWall-CPAs.com 1
Today’s Agenda Form TD F 90-22.1 Slides 3-24 . . . . . . . . . . . . . . . . . . William B. Elliott Form 1120-F Slides 25-59 . . . . . . . . . . . . . . . . . . . . . . . William B. Elliott Form 5471 And Related Forms Slides 60-74 . . . . . . . . Russell Mansky Form 926 Slides 75-85 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kirk Sinclair 2
Form TD F 90-22.1 Report Of Foreign Bank And Financial Accounts 3
Form TD F 90-22.1 Report Of Foreign Bank And Financial Accounts FBAR Origin → Congress created the BSA because of concern that financial institutions in tax haven jurisdictions were being used by U.S. persons to hide the proceeds of their illegal activities, evade tax, and for other criminal purposes. The FBAR is a by-product of the Bank Secrecy Act (BSA), which was first enacted in 1970 FBAR Scope → The FBAR requirements apply to any "U.S. person," which includes all U.S. citizens and resident aliens The JCT Report proposals would put the responsibility for determining whether a taxpayer has an FBAR filing requirement on tax preparers, by extending to the FBAR 4 the Section 6695(g) due diligence requirement
Form TD F 90-22.1 (Cont.) Report Of Foreign Bank And Financial Accounts Typology of accounts subject to FBAR → Generally, any type of account that holds liquid assets or marketable securities will be a "financial account" for purposes of the FBAR requirements. Thus, everything from a cash account to a foreign mutual fund, such as an exchange traded fund, is classified as a financial account → Only financial accounts actually located in a foreign jurisdiction are subject to FBAR reporting. For example, an investment account with a U.S. branch of a foreign financial institution or brokerage house would not require an FBAR but an account with such a financial entity’s foreign offices would 5
Form TD F 90-22.1 (Cont.) Report Of Foreign Bank And Financial Accounts Power of signature or other authority → If an individual can order the distribution or disbursement of funds or other property from the institution where the funds or property are maintained, by signing a document providing such direction (or in conjunction with one other person signing the document), that individual has signature authority over the financial account 6
Form TD F 90-22.1 (Cont.) Report Of Foreign Bank And Financial Accounts Power of signature or other authority → Similarly, if an individual can exercise the same control verbally or via other means of communication, the individual has other authority over a financial account → These powers should not be confused with the power of investment 7
Form TD F 90-22.1 (Cont.) Report Of Foreign Bank And Financial Accounts Financial interest → The definition of what constitutes a financial interest for purposes of the FBAR is based on who owns the interest. Essentially, an individual has a financial interest in every account for which the individual is the owner of record or has legal title, whether the account is for the owner's benefit or for the benefit of another 8
Form TD F 90-22.1 (Cont.) Report Of Foreign Bank And Financial Accounts Financial interest → Individuals serving as shareholders, partners, and trustees also may be deemed to hold a financial interest in an account if the account is owned by or the individual with legal title is any of the following: (1) A person acting as an agent, nominee, attorney, or in some other capacity on behalf of the U.S. person (2) A corporation in which the U.S. person owns more than 50% of the total stock either directly or indirectly (3) A partnership in which the U.S. person owns an interest in more than 50% of the profits 9
Form TD F 90-22.1 (Cont.) Report Of Foreign Bank And Financial Accounts Due date for FBAR filings → If a U.S. person has a foreign account that satisfies the FBAR requirements, the FBAR is due on June 30 of the following year (with no extensions.) The form is filed with the Detroit Service Center → The duty to file the FBAR is independent of the obligation to file an income tax return even though the FBAR is cross referenced on Form 1040, Schedule B, Part III 10
Form TD F 90-22.1 (Cont.) Report Of Foreign Bank And Financial Accounts Due date for FBAR filings → A foreign account that satisfies the FBAR requirements must be reported even if the account does not generate taxable income. Thus, a taxpayer who fails to file an FBAR because the account generates no taxable income will be subject to penalty → The IRS has six years within which to assess a civil penalty related to an FBAR violation. It is unclear, however, whether the statute will toll if the FBAR is not filed 11
Form TD F 90-22.1 (Cont.) Report Of Foreign Bank And Financial Accounts Penalties for FBAR non-compliance I. Civil penalties → AJCA expanded civil penalties for FBAR violations in that after the AJCA, there is now a penalty of up to $10,000 for a non-willful failure to file the FBAR → To satisfy the reporting necessitated for the reasonable cause exception, the taxpayer must be certain to include on the Form 1040 any income generated by the foreign account and to the extent possible a detailed explanation of the transaction 12
Form TD F 90-22.1 Report Of Foreign Bank And Financial Accounts Penalties for FBAR non-compliance I. Civil penalties → For a willful violation of the FBAR reporting requirement, the penalty is now a fine equal to the greater of $100,000 or 50% of the amount of the transaction or of the balance of the account at the time of the offense. Violations that are deemed to be willful are not subject to the reasonable cause exception 13
Form TD F 90-22.1 (Cont.) Report Of Foreign Bank And Financial Accounts Penalties for FBAR non-compliance II. Criminal penalties → While the AJCA did not change any aspect of the criminal penalties, such penalties are premised on the violation's being willful. Thus, if the failure to file the FBAR is deemed to be a criminal violation, the penalty can include a fine of up to $250,000, imprisonment for up to five years, or both 14
Form TD F 90-22.1 (Cont.) Report Of Foreign Bank And Financial Accounts Penalties for FBAR non-compliance II. Criminal penalties → If the failure to file is deemed to be part of a criminal activity (i.e., it occurs during the violation of another law or is part of an illegal activity involving more than $100,000 in a 12-month period), the maximum fine increases to $500,000 and the possibility of imprisonment increases to up to 10 years 15
Form TD F 90-22.1 (Cont.) Report Of Foreign Bank And Financial Accounts Penalties for FBAR non-compliance II. Criminal penalties → There is, of course, a possibility that both the $500,000 penalty and ten-year jail term will be applicable AJCA expanded civil penalties for FBAR violations in that after the AJCA, there is now a penalty of up to $10,000 for a non-willful failure to file the FBAR 16
FAQs Regarding Report Of Foreign Bank And Financial Accounts (FBAR) What is an FBAR? An FBAR is a Report of Foreign Bank and Financial Account. The form number is TD F 90-22.1 (PDF) Who must file an FBAR? Any U.S. person who has a financial interest in or signature authority, or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year What is a U.S. person? A U.S. person is: A citizen or resident of the U.S.; a domestic partnership; a domestic corporation; a domestic estate or trust What is a foreign country? A “foreign country” includes all geographical areas outside the U.S., the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, and the territories and possessions of the U.S. (including Guam, American Samoa, and the U.S. Virgin Islands) 17
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