Thursday, April 13, 2017

FBAR filing now due in April + more on foreign accounts & issues facing taxpayers abroad

As if you and your tax adviser weren't already crunched enough in April, this filing season there's a new deadline for folks who have money or other assets in foreign accounts.

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FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), is now due on the regular federal individual tax return's April deadline — that's the 18th this year because the 15th is on Saturday and Emancipation Day falls on Monday, April 17 — instead of June 30 as it has been in previous years.

The good news is that your FBAR filing can be extended until October.

And yes, the regular Oct. 15 due date this year also is later, although just a day, because of that usual extension date falling on Sunday in 2017.

Many deadline changes: The deadline change was part of transportation legislation passed a couple of years ago, officially he Surface Transportation and Veterans Health Care Choice Improvement Act of 2015.

The ostensible aim was to make it easier for taxpayers by reconciling the various filing deadlines for several common types of returns and reporting documents.

That may well happen, but it's always a pain the first year that a deadline changes. So some folks may be scrambling about now to get their foreign earnings info in order.

To help, the Internal Revenue Service has issued some tax tips to remind folks about the new FBAR deadline. In addition, the federal tax agency included information for U.S. citizens and resident aliens, including those with dual citizenship, who might have need to file a U.S. tax return.

Here is a rundown of key points in these areas, starting with the new deadline to report foreign accounts.

FBAR now due in April: Just for good measure, I'll repeat that the new deadline for filing the annual FBAR is April 15 (18 this year). That means the document must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by next Tuesday.

But FinCEN will grant filers missing the April 18 deadline an automatic extension until Oct. 16 to submit their FBARs. You don't have to make a specific extension requests are not required. There were no extensions for the prior end-of-June FBAR deadline.

You need to file a FBAR if you had an interest in, or signature or other authority, over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2016.

Note the "at any time" phrase. It's not an end-of-year account value; if your account in a Lichtenstein bank was 10 in June but you drew it down in December, you still have to file a FBAR.

Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them.

The form is only available through the BSA E-Filing System website.

Attention U.S. taxpayers living overseas: The IRS reminds most U.S. citizens and resident aliens who live and work abroad that they probably need to file a tax return.

The good news is that you globetrotters have more time. If your tax home and residence are outside the United States and Puerto Rico, your deadline for filing your individual income tax return is June 15.

The IRS also points out that an income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income exclusion or the Foreign Tax credit, which could substantially reduce or eliminate a foreign-based filer's U.S. tax liability. Such tax benefits are only available if an eligible taxpayer files a U.S. income tax return, notes the IRS.

The June 15 due date same applies for forms from those serving in the military outside the U.S. and Puerto Rico.

However, the IRS points out that if you owe any tax for 2016, those payments are still due on April 18. If you don't make them, then interest will apply to any payment received after that date. You can find more information at the special IRS.gov Web page U.S. Citizens and Resident Aliens Abroad.

Nonresident aliens who received income from U.S. sources in 2016 also might have a U.S. tax obligation. In these cases, the filing deadline for nonresident aliens is April 18. Taxation of Nonresident Aliens at IRS.gov has details.

Special foreign tax reporting: Federal law also requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.

In most cases, affected taxpayers simply need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Other taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets.

Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. Form 8938's instructions has details.

Reporting Canadian Retirement Accounts: The IRS eliminated a special annual reporting requirement that applied to taxpayers who hold interests in either of two popular Canadian retirement plans. This was part of an IRS change announced in October 2014 making it easier for taxpayers with these plans to get favorable U.S. tax treatment.

As a result, many Americans and Canadians with registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) don’t need to file Form 8891 to report details on these plans.

Specified domestic entity reporting: For tax year 2016, certain domestic corporations, partnerships and trusts that are considered formed for the purpose of holding (directly or indirectly) specified foreign financial assets must file Form 8938, Statement of Specified Foreign Financial Assets, if the total value of those assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year.

This Foreign Account Tax Compliance Act (FATCA) filing is a key component of U.S. efforts to combat tax evasion by Americans who have bank accounts and other financial assets offshore.

For more information on domestic corporations, partnerships and trusts that are specified domestic entities and must file Form 8938, as well as the types of specified foreign financial assets that must be reported, see the instructions for the form. The "What's New" section has links in the online document for more on Who Must File, Specified Domestic Entity, Specified Foreign Financial Assets, Interests in Specified Foreign Financial Assets, and Assets Not Required To Be Reported.

Report in U.S. dollars: Have a currency converter ready. Any income received or deductible expenses paid in foreign currency must be reported on a U.S. tax return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.

Both FinCEN's Form 114 and Form 8938 that goes to the IRS require the use of a Dec. 31 exchange rate for all transactions, regardless of the actual exchange rate on the date of the transaction. Generally, the IRS accepts any posted exchange rate that is used consistently. For more information on exchange rates, see Foreign Currency and Currency Exchange Rates.

Expatriates, too: The IRS hasn't forgotten about taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent U.S. residents last year. These individuals must file a dual-status alien return along with Form 8854, Initial and Annual Expatriation Statement.

A copy of the Form 8854 must also be filed with Internal Revenue Service Philadelphia, PA 19255-0049, by the due date of the tax return (including extensions). Form 8854 instructions and Notice 2009-85, Guidance for Expatriates Under Section 877A, have additional details.

Getting more help: If you find you need more help than is available in the assorted forms' instructions, the IRS suggests you head to its online International Taxpayers landing page. You also can get more info at the links in the IRS International Tax Topic Index.

More information on the tax rules that apply to U.S. citizens and resident aliens living abroad can be found in, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. IRS.gov also has a special refund-focused Web page with tips for effectively receiving a tax refund for taxpayers living abroad.

If you'd prefer a tax preparer in the country where you're living, check out the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

And the IRS reminds U.S. citizens and resident aliens living abroad that they can use IRS Free File to prepare and electronically file their returns for free as long as they meet the income requirements For 2016 returns that's adjusted gross income (AGI) of $64,000 or less.

Check the participating Free File software partners for those whose tax preparation programs accommodate foreign-based U.S. filers.

If you're comfortable preparing your own tax return, taxpayers abroad also can use Free File Fillable Forms, the electronic version of IRS paper forms. There's no income limit to use this option.

Both the e-file and Free File electronic filing options are available until Oct. 16 for anyone — whether within USA borders or living internationally — to file their 2016 returns.

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