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Nicholas Hartney, EA Blog and news

IRS Reminds Those with Foreign Assets of U.S. Tax Obligations; New Filing Deadline Now Applies to Foreign Account Reports

IRS Reminds Those with Foreign Assets of U.S. Tax Obligations; New Filing Deadline Now Applies to Foreign Account Reports

WASHINGTON — The Internal Revenue Service today reminded U.S. citizens and resident aliens, including those with dual citizenship, to check if they have a U.S. tax liability and a filing requirement. At the same time, the agency advised anyone with a foreign bank or financial account that a new deadline now applies to reports for these accounts, often referred to as FBARs.

Here is a rundown of key points to keep in mind.

New Deadline for Reporting Foreign Accounts

Starting this year, the deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is now the same as for a federal income tax return. This means that the 2016 FBAR, Form 114, must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 18, 2017. FinCEN will now grant filers missing the April 18 deadline an automatic extension until Oct. 16, 2017 to file the FBAR. Specific extension requests are not required. In the past, the FBAR deadline was June 30 and no extensions were available.

In general, the filing requirement applies to anyone who had an interest in, or signature or other authority, over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2016. 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.

Most People Abroad Need to File

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 substantially reduce or eliminate U.S. tax liability. These tax benefits are only available if an eligible taxpayer files a U.S. income tax return.

A special extended filing deadline applies to U.S. citizens and resident aliens who live and work abroad. For U.S. citizens and resident aliens whose tax home and abode are outside the United States and Puerto Rico, the income tax filing deadline is June15, 2017. The same applies for those serving in the military outside the U.S. and Puerto Rico. Tax payments are still due on April 18, and interest will apply to any payment received after that date.  See U.S. Citizens and Resident Aliens Abroad for details.

Nonresident aliens who received income from U.S. sources in 2016 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens is April 18. See Taxation of Nonresident Aliens on IRS.gov.

Special Income Tax Return Reporting for Foreign Accounts and Assets

Federal law 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 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.

In addition, certain 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. See the instructions for this form for details.

IRS Reporting for 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. This does not affect any other reporting requirements that may apply, such as FinCEN Form 114 and Form 8938.

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 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.

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 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

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 Forms 114 and 8938 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.

Expatriate Reporting

Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the United States during 2016 must file a dual-status alien return, attaching 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). See the instructions for this form and Notice 2009-85, Guidance for Expatriates Under Section 877A, for further details.

Choose Free File or E-File

U.S. citizens and resident aliens living abroad can use IRS Free File to prepare and electronically file their returns for free. This means both U.S. citizens and resident aliens living abroad with adjusted gross incomes (AGI) of $64,000 or less can use brand-name software to prepare their returns and then e-file them for free. A limited number of companies provide software that can accommodate foreign addresses.

A second option, Free File Fillable Forms, the electronic version of IRS paper forms, has no income limit and is best suited to people who are comfortable preparing their own tax return.

Both the e-file and Free File electronic filing options are available until Oct. 16, 2017, for anyone filing a 2016 return. Check out the e-file link on IRS.gov for details on the various electronic filing options. Free File is not available to nonresident aliens required to file a Form 1040NR.

More Information Available

Any U.S. taxpayer here or abroad with tax questions can refer to the International Taxpayers landing page and use the online IRS Tax Map and the International Tax Topic Index to get answers. These online tools group IRS forms, publications and web pages by subject and provide users with a single entry point to find tax information.

Taxpayers who are looking for return preparers abroad should visit the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

To help avoid delays with tax refunds, taxpayers living abroad should visit the Helpful Tips for Effectively Receiving a Tax Refund for Taxpayers Living Abroad page.

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, available on IRS.gov.

Nicholas Hartney, EA
Update on ITIN Process for Taxpayers Living Overseas

Recently I had written into the IRS to inquire about the overseas Acceptance Agents program and specifically how this is affecting taxpayers here in Germany.  The IRS has requested a correction to the law, but Congress has not taken any action to help foreign residents comply with obtaining an ITIN.  Here is what I was told: 

Thank you for contacting the ITIN Program Office.  We apologize for the delay in our response.

Section 203 of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) eliminated the option of using Certified Acceptance Agents (CAA) for ITIN applicants who reside outside of the United States.  IRS implemented this provision January 1, 2017, and, as a result, terminated all existing foreign CAAs as of that date. IRS is not currently approving practitioners or organizations that conduct business outside of the United States.

The PATH Act requires foreign applicants to mail Form W-7 to the IRS Campus in Austin, TX with original identification documentation, or certified copies from the issuing agency, along with their tax returns (or exception documentation). The applicants may request certified copies of their identification documents from the issuing agency, or at a U.S. Embassy or Consulate location, for submission with their W-7 applications.  Applicants should contact the Consular Section, American Citizens Services of the U.S. Embassy or Consulate in advance to determine the hours of operation for these services. Embassy or Consulate locations will not prepare or assist in the preparation of the W-7. If the applicants cannot obtain certified copies of their identification documentation, they must mail the original documents to the IRS with the W-7 application.

Applicants who are physically present in the United States on a temporary basis may make an appointment at an IRS Taxpayer Assistance Center in lieu of mailing original identification documents to the IRS.

Terminated foreign CAAs may continue to assist applicants with determining their eligibility for an ITIN, completing Form W-7, and explaining the supporting identification requirements (submitting original documents or certified copies from the issuing agency).  The organizations may not sign the W-7 as the preparer and should not prepare Form W-7(COA), Certificate of Accuracy for IRS Individual Taxpayer Identification Number.  The IRS would directly notify the applicant of the status of their W-7 application within 9 to 11 weeks.  In this manner, the organizations can continue to ensure that applicants are provided professional guidance to successfully complete the application process.

IRS has requested a technical correction to the law, but to no avail.  We understand the implementation of the law has caused difficulties for foreign residents to comply; however, we have to implement the law as written unless it is changed. 

 

 

 

 

IRS Announces $1 Billion Unclaimed Refunds From 2013

IRS Announces $1 billion in refunds available for taxpayers who have not filed 2013 federal returns

The IRS recently announced there are more than $1 billion in tax refunds waiting for an estimated one million taxpayers who have not filed a 2013 federal income tax return.

Eligible taxpayers must file the 2013 return with IRS no later than April 18, 2017.

We can order your transcripts from the IRS and prepare your returns, please contact Nick ASAP nick@genesistaxconsultants.com in order to beat the fastly approaching deadline!

Nicholas Hartney, EA
IRS Cancels Acceptance Agents Program Outside of the United States

On December 18, 2015, the IRS enacted the 'Path Act' The Protecting Americans from Tax Hikes (PATH) Act was created in order to protect taxpayers and their families against fraud and permanently extend many expiring tax laws. 

Big changes with the IRS ITIN Application for those living abroad

Section 203 of the Path Act Pub. L. 114-113, div. Q, 5, modified Section 6109 of the Internal Revenue Code and resulted in significant changes to the Individual Taxpayer Identification Number (ITIN) program.

The IRS implemented the new provision on January 1, 2017, which eliminated the Certifying Acceptance Agents outside of the United States. 

Under the PATH Act, an applicant who resides outside of the United States may submit their Form W-7 application by mail or to an employee of the Internal Revenue Service or a designee of the Secretary at a United States diplomatic mission or consular post who could certify the necessary documents. As of the date of this posting, the consulates in Germany no longer staff any IRS personnel.  It is recommended that you contact the appropriate consulate or embassy for specific information as the staffing may have changed by the date you are reading this. 

This obviously complicates matters for people in need of an ITIN as they are now required to obtain certified copies of supporting documentation from the issuing agency.  A certified document is simply one that the original issuing agency provides and certifies as an exact copy of the original document and contains an officially stamped seal from the agency. 

We can still assist people preparing the W-7 and advising on what supporting documentation they need based on their particular circumstance.  Please email me if you have any questions. 

nick@genesistaxconsultants.com