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Foreign Income and Information Reporting Filing Requirement

FOREIGN FINANCIAL ACCOUNTS AND 2012 OFFSHORE VOLUNTARY DISCLOSURE PROGRAM:

TD F 90-22.1—Report of Foreign Bank and Financial Accounts (FBAR)

Any United States 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, must file an FBAR. A person has signature authority over an account if such person can control the disposition of money or other property in it by delivery of a document containing his or her signature (or his or her signature and that of one or more other persons) to the bank or other person with whom the account is maintained. The FBAR is due by June 30 of the year following the year that the account holder meets the $10,000 threshold. The granting, by IRS, of an extension to file Federal income tax returns does not extend the due date for filing an FBAR. Filers cannot request an extension of the FBAR due date.

A person who is required to file an FBAR and fails to properly file may be subject to a civil penalty not to exceed $10,000 per violation. If there is reasonable cause for the failure and the balance in the account is properly reported, no penalty will be imposed. A person who willfully fails to report an account or account identifying information may be subject to a civil monetary penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation.

Form 8938—Statement of Specified Foreign Financial Assets

Specified individuals, including 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 file a Form 8938. The reporting threshold is $50,000 on the last day of the tax year or $75,000 at any time during the tax year. However, higher threshold amounts apply to married individuals filing jointly and individuals living abroad. The form should be filed with the taxpayer’s federal income tax return.

Failure to file a required Form 8938 may result in a $10,000 penalty being assessed. Continued failure to submit a complete and accurate Form 8938 90-days after notice from the IRS will result in an additional $10,000 for each 30-day period not to exceed $50,000.

Form 8854—Initial and Annual Expatriation Statement

Expatriation tax provisions apply to U.S. citizens who have relinquished their citizenship and long-term residents who have ended their residency (expatriated). Individuals who have expatriated on or after June 4, 2004 use Form 8854. A Form 8854 should be filed as soon as possible after the date citizenship is relinquished or terminated for long-term residents.

If a expatriate is subject to section 877 or section 877A and required to file Form 8854 for any tax year, and fails to do so or does not include all the information required by the form or the form includes incorrect information, the expatriate will owe a penalty of $10,000 for that year, unless it is shown that such failure is due to reasonable cause and not willful neglect.

Form 433A/433B—Collection Information Statement for Wage Earners and Self-Employed Individuals and Collection Information Statement for Businesses

The OVDP Program requires eligible taxpayers to pay the tax, interest, and accuracy-related penalty, and if applicable the failure to file and failure to pay penalties with their submission. However, it is possible for a taxpayer that is unable to pay the full amount to request the IRS to consider alternative payment arrangements. To do so, the taxpayer has the burden of establishing his or her inability to pay to the satisfaction of the IRS. Such information is submitted using Form 433A and 433B. The IRS reviews all assets and income sources, both foreign and domestic under the taxpayer’s control to assess the situation.

Form 872—Consent to Extend the Time to Assess Tax; Consent to Extend the Time to Assess Civil Penalties Provided by 31 U.S.C. § 5321 for FBAR Violations

A Consent to Extend the Time to Assess Tax (Form 872) and a Consent to Extend the Time to Assess Civil Penalties Provided by 31 U.S.C. 5321 (the FBAR consent form) must be submitted with a voluntary disclosure. An individual having a valid power of attorney from a taxpayer, which allows that individual (the authorized representative) to extend the statute of limitations, may execute a Form 872 or FBAR Consent form. The taxpayer may make no modifications to any of the terms of the consents. The I.R.S. will not grant any request to restrict the consents to specific issues.

Form 2848—Power of Attorney and Declaration of Representative

Form 2848 is used to authorize an individual to represent the taxpayer before the IRS. The representative named must sign and date the form and enter a designation (i.e. attorney, CPA, enrolled agent, family member, etc.).

Form 211—Application for Award for Original Information

To be eligible for an award claim submitted to the IRS Whistleblower Office under section 7623, the tax, penalties, interest, additions to tax, and additional amounts in dispute must exceed in the aggregate $2,000,000 and, if the allegedly noncompliant person is an individual, the individual’s gross income must exceed $200,000 for any taxable year at issue in a claim. If the thresholds in section 7623(b) are not met, section 7623(a) authorizes, but does not require, the Service to pay for information relating to violations of the internal revenue laws that result in the government’s recovery of tax.

Individuals submitting information under section 7623(a) or (b) must complete IRS Form 211 and send the completed form to:

Internal Revenue Service Whistleblower Office SE:WO 1111 Constitution Ave., NW Washington, D.C. 20224

All claims are submitted under penalty of perjury. Courts have deemed hat the payment of rewards is within the government’s discretion and cannot be compelled by persons providing information to the IRS.

ACQUISITION OF STOCK IN A FOREIGN CORPORATION OR INTEREST IN A FOREIGN PARTNERSHIP:

Form 5471—Information return of U.S. persons with respect to certain foreign corporations

An information return regarding the acquisition of stock of a foreign corporation must be filed by each U.S. citizen or resident who: 1) is at any time an officer or director of a 10% or more U.S. controlled foreign corporation, 2) that acquires 10% or more (by vote or value) of the total stock of the corporation, 3) is treated as a U.S. shareholder of a foreign corporation, or 4) becomes a U.S. person while owning 10% or more of a foreign corporation’s stock

A $10,000 penalty is imposed for each failure to furnish the required information within the time prescribed. If the information is not filed within 90 days after the IRS has mailed a notice of the failure to the U.S. person, an additional $10,000 penalty (per foreign corporation) is charged for each 30-day period, or fraction thereof. The additional penalty is limited to a maximum of $50,000 for each failure.

Form 8865—Return of U.S. persons with respect to certain foreign partnerships

The Form 8865 must be filed with the income tax return of the U.S. person for the tax year in which the reportable event occurs. Except as otherwise required in the regs., Form 8865 must be filed by any U.S. person who: 1) who acquires any interest in a foreign partnership, 2) disposes of any portion of his interest in a foreign partnership, or (3) whose proportional interest in a foreign partnership changes substantially.

A $10,000 penalty is imposed for each failure to furnish the required information within the time prescribed. If the information is not filed within 90 days after the IRS has mailed a notice of the failure to the U.S. person, an additional $10,000 penalty (per foreign corporation) is charged for each 30-day period, or fraction thereof. The additional penalty is limited to a maximum of $50,000 for each failure.

FOREIGN CORPORATIONS AND PARTNERSHIPS CONTROLLED BY U.S. PERSONS

Form 5472—Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business

Form 5472 must be filed by any U.S. corporation that is 25% foreign-owned at any time during the tax year, or a foreign corporation that engages in a U.S. trade or business during the tax year. It must be filed with the reporting corporation’s income tax return by the due date (including extensions) for that return.

A penalty of $10,000 will be assessed on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed. If the failure continues for more than 90 days after notification by the IRS, an additional penalty of $10,000 for each 30-day period will apply.

Form 8858—Information Return of U.S. Persons with Respect to Foreign Disregarded Entities

Form 8858 is used by certain U.S. persons that own a foreign disregarded entity (FDE) directly or, in certain circumstances, indirectly or constructively. The following U.S. persons that are tax owners of FDEs or that own certain interests in foreign tax owners of FDEs, must file Form 8858, 1) U.S. persons that are tax owners of FDEs at any time during the U.S. person’s taxable year or annual accounting period, 2) Certain U.S. persons that are required to file Form 5471 with respect to a Controlled Foreign Corporation (CFC), and 3) Certain U.S. persons that are required to file Form 8865 with respect to a Controlled Foreign Partnership (CFP).

A $10,000 penalty is imposed for each annual accounting period of each CFC or CFP for failure to furnish the required information within the time prescribed. If the information is not filed within 90 days after the IRS has mailed a notice of the failure to the U.S. person, an additional $10,000 penalty (per CFC or CFP) is charged for each 30-day period, or fraction thereof, during which the failure continues after the 90-day period has expired. The additional penalty is limited to a maximum of $50,000 for each failure.

OUTBOUND TRANSFERS:

Form 926—Return by a U.S. Transferor of Property to a Foreign Corporation

Each U.S. person who transfers property to a foreign person in connection with certain exchanges or distributions must furnish to IRS, at the time and in the manner prescribed by regs., any information about the exchange or distribution that IRS requires. Reporting is thus required if the U.S. person: 1) transfers property to a foreign corporation in a tax-free exchange, 2) transfers property to a foreign partnership in a contribution if: (a) immediately after the transfer, the U.S. person holds, directly, indirectly or by attribution, a 10% or greater interest in the partnership, or (b) the value of the transferred property plus the value of the property the U.S. person (or a related person) transferred to the foreign partnership (or a related partnership) during the 12-month period ending on the date of the transfer, exceeds $100,000, 3) distributes property in complete liquidation to a person who isn’t a U.S. person, or 4) transfers cash to a foreign corporation if: (a) immediately after the transfer, the U.S. person holds directly, indirectly, or by attribution at least 10% (by total vote or total value) of the foreign corporation, or (b) the amount of cash transferred by the person or any related person to the foreign corporation during the 12-month period ending on the date of the transfer exceeds $100,000.

The taxpayers could be subject to a penalty for failure to file equaling 10% of the fair market value of the property at the time of the exchange/transfer if the taxpayer fails to comply with the filing requirement. The penalty will not apply if the failure to comply is due to reasonable cause and not willful neglect. The penalty is limited to $100,000 unless the failure to comply was due to intentional disregard.

RECEIPT OF LARGE GIFTS FROM NON-U.S. CITIZENS AND REPORTING REQUIREMENT OF FOREIGN TRUSTS

Form 3520—Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts

A reportable event includes: 1) the creation of any foreign trust by a U.S. person, 2) the death of a citizen or resident of the U.S. if (a) the decedent was treated as the owner of any portion of a foreign trust under the grantor trust rules or (b) any portion of a foreign trust was included in the decedent’s gross estate, 3) certain transfers of money or property (directly or indirectly) to a foreign trust by a U.S. person (whether or not another person is treated as owning a portion of the trust under the grantor trust rules), including a transfer due to death. Transfers to foreign trusts are reportable if the transfer is gratuitous, i.e., any transfer other than a transfer for fair market value (FMV) (including certain trust obligations), or a corporate or partnership distribution. It’s immaterial whether the transfer is a gift for gift tax purposes. A gratuitous transfer also includes any direct or indirect transfer that is structured with a principal purpose of avoiding the I.R.C. § 679 rules for foreign trusts with U.S. beneficiaries or the I.R.C. § 6048 foreign trust information reporting rules.

Generally, the initial penalty is equal to the greater of $10,000 or 35% of the gross value of any property transferred to a foreign trust for failure by a U.S. transferor to report the creation of or transfer to a foreign trust / 35% of the gross value of the distributions received from a foreign trust for failure by a U.S. person to report receipt of the distribution or 5% of the gross value of the portion of the trust’s assets treated as owned by a U.S. person for failure by the U.S. person to report the U.S. owner information.

Form 3520A—Annual Information Return of Foreign Trust with U.S. Owner

A U.S. person who at any time during his tax year is treated as the owner of any portion of a foreign trust under the grantor trust rules must submit information as IRS requires with respect to the foreign trust for the year, and is responsible to ensure that the trust makes a return for the year. The annual information return must be made on Form 3520A. Form 3520A must be filed and the required statements furnished to the U.S. grantors and U.S. beneficiaries by the fifteenth day of the third month after the end of the trust’s tax year (or later, if pursuant to an extension of time to file).

The U.S. owner is subject to an initial penalty equal to the greater of $10,000 or 5% of the gross value of the portion of the trust’s assets treated as owned by the U.S. person at the close of that tax year, if the foreign trust: (a) fails to file a timely Form 3520A or (b) does not furnish all of the information required by section 6048(b) or includes incorrect information.