IRS Streamlined Procedures for Foreign Accounts
Any US taxpayer with assets in foreign accounts should be aware that, in many circumstances, those accounts need to be reported to the Internal Revenue Service through specific procedures. The two principal types of reporting for foreign accounts are through the Foreign Account Tax Compliance Act, or FATCA, and the Report of Foreign Bank and Financial Accounts, or FBAR. Each has a different form and a different threshold for reporting, so knowing the difference can be key. For those who may have made a mistake when filing of these documents, however, there exists a unique procedure to address the problem: streamlined filing compliance.
If the IRS has recently notified you of issues with your foreign account reporting, or if you think you may have made a mistake in your disclosure to the government, contact Ted Kleinman, CPA.
Do I Have to Report My Foreign Accounts?
The threshold for reporting foreign accounts is fairly straightforward. According to the IRS, an American taxpayer is required to electronically file an FBAR through the Financial Crimes Enforcement Network’s website if:
- the person had a financial interest in, or signature authority over, at least one financial account outside of the United States; and
- the total value of all foreign accounts was more than $10,000 at any point during the calendar year
The due date to file an FBAR is April 15; however, anyone who misses that deadline will be automatically granted a 6-month extension, moving the deadline to October 15. Fill out FinCEN Form 114 to report these accounts.
The standards requiring a FATCA are slightly higher than those for the FBAR, and they vary depending on whether the taxpayer lives in the United States or abroad. If the person filing is unmarried or married and filing separately, the threshold is $50,000 for US residents at the end of the year, or a total value of more than $75,000 at any point during the year. Those living in another country have a threshold of $200,000, or a value of more than $300,000 at any point.
If the person filing is married and filing jointly with their spouse, the end-of-the-year threshold for foreign assets is $100,000 for US residents, or a value that exceeds $150,000 at any point. For those overseas, the threshold is $400,000 at the end of the year, or a value that reaches $600,000 at any point during the year.
These requirements apply for all assets outside the US, including real estate and bank accounts. Anyone looking to report these earnings must fill out Form 8938, Statement of Specified Foreign Financial Assets.
Streamlined Filing Compliance Procedures
The streamlined filing compliance procedures are a tool offered by the IRS to anyone who may have failed to report foreign financial assets in recent years. The procedures allow those with delinquent returns or fines to resolve those issues more easily and with fewer penalties, as long as certain criteria are met. To benefit from the streamlined procedures, a taxpayer:
- must certify that their mistake was accidental
- cannot be under civil examination or investigation by the IRS
- must pay any existing penalties, including from delinquent returns filed in previous years
- must have a valid Taxpayer Identification Number, which can be a valid Social Security Number
Returns submitted through the streamlined procedures will be treated the same way by the IRS as any other tax return, meaning that anyone looking to use this method should not expect to be contacted by the IRS after the return is submitted. Additionally, the IRS will expect the taxpayer to comply with all tax laws going forward.
How Do I File Using the Streamlined Procedure?
Filing through the streamlined procedures generally requires completing a series of seven steps (eight steps if one or more FBAR forms must be submitted as well). Each step is fairly simple in and of itself, but failure to complete any one correctly may result in significant penalties from the IRS. To file one or more return through the streamlined process:
- For each of the previous three years for which a tax deadline has passed, complete the proper tax return form, either Form 1040 or Form 1040X, along with the appropriate information returns.
- At the top of the first page of each return, write “Streamlined Foreign Offshore” in red.
- Complete and sign a statement on Form 14653, the Certification by U.S. Person Residing Outside of the U.S., confirming eligibility for these procedures.
- Submit payment of all taxes due, making sure to include the appropriate Taxpayer Identification Number on the check.
- If the person filing is ineligible for a Social Security Number and does not have TIN, an application for an identification number must be submitted as well.
- If the taxpayer failed to defer certain income tax as allowed under a specific treaty, statements must be provided requesting an extension and describing why the deferral was not made on time.
- All required documentation must be mailed to the IRS office in Austin, Texas.
- If any FBAR forms are delinquent, they must be filed electronically through FinCEN.
Make the streamlined procedures for foreign accounts easier on yourself
If the conditions and requirements for these streamlined procedures seem complicated or confusing, you should know that Ted Kleinman, CPA, can help you through the process. With more than 30 years’ experience as an account specializing in international tax preparation, Ted is more than qualified. Contact him today through the US Tax Help website, www.ustaxhelp.com, or by calling (541) 923-0903.