California Streamlined Offshore Disclosure Specialist in FBAR & FATCA

California Streamlined Offshore Disclosure Specialist in FBAR & FATCA

California Streamlined Offshore Disclosure Specialist

Overview of Offshore Assets and FBAR Filing 

For many U.S. taxpayers around the world who are either new to being a U.S. person for tax purposes — or only recently began investing in assets and accounts overseas — the IRS offshore asset and income reporting requirements can come as an unwelcome surprise. This is especially true when considering how complex these foreign tax forms can be, along with what is required for the forms to be considered ‘substantially compliant,’ sufficient to avoid penalties. It is important to note, that when the Internal Revenue Service refers to assets and income being ‘offshore,’ it simply means that the money is outside of the United States. It does not mean that the money is necessarily in a country that is considered an offshore tax haven or that the money is overseas illegally (there is nothing inherently illegal about moving money overseas.

First, Becoming a California (Board-Certified) Tax Specialist

Becoming a Board-Certified Tax Specialist is a tough feat — California for example has only certified ~350 attorneys as ‘Board-Certified in Tax’ and most states have significantly fewer specialists (since fewer attorneys are practicing their states).

The specialist exam for Tax specifically, is known for being extremely difficult. For example, in California, there are more than 200,000 attorneys in California, and tens of thousands of them practice in some area of tax. Whether they are full-time tax attorneys or they practice tax law as part of a bigger practice such as estate planning, real estate, divorce, corporate and business law, or acting as outside counsel — tax law is everywhere. 

Is a CPA ‘Board’ the Same as a Board-Certified Tax Lawyer Specialist?

While both CPAs and attorneys may handle tax matters, a Certified Public Accountant (CPA) or Enrolled Agent (EA) is not the same as a tax attorney. The roles of non-legal tax professionals (CPA and EA) are different than the role of an Attorney. Beyond these designations, some tax lawyers are also licensed as Board-Certified Tax Law Specialists, which means they are licensed by at least one State Bar’s Board of Legal Specialization.

Recently, we have had taxpayers let us know that they had engaged in an initial consultation with a law firm that claims to have Board-Certified Tax Lawyer Specialists on staff — only to learn that there are no attorneys at the firm who are licensed as Board-Certified Tax Attorney Specialists by any State Bar in the United States. 

The firms claim they are “Board-Certified Tax Law Specialists” because they may have a CPA on staff. Preposterous. The only way to become a “Board-Certified Tax Law Specialist” is for an attorney to complete additional years of specialized tax education, pass a rigorous examination, and officially receive the designation from the State Bar. Many CPAs have no background at all in tax and just because a lawyer obtains a CPA designation does not mean they can call themselves “Board-Certified.”

American Bar Association Article About Attorney Experts

Back in 2013, the American Bar Association published a great article “Think Twice Before Calling Yourself an Expert about how the curent theme is that attorneys with about 10-15 years of experience, and a focus on one specific area of law, will suddenly start referring to themselves as experts – and how it is very dangerous territory for the client and attorney.

Here are some of the key highlights:

      • You have been in practice for 15 years. After starting out as a general practitioner, you found your caseload to be largely made up of employment law matters and after five years decided to limit your practice to that area. You have family who are union members, and word-of-mouth advertising has been positive.

        • Results from your work have been satisfying to clients, and your familiarity with the various laws relevant to employment matters is now solid. You teach a course at a local law school on employment law and frequently give workshops and guest lectures at seminars on the same topic. Can you now say you are an “expert” in employment law on your website?

      • You should think twice before doing so.”

        • “Put another way, use of the term expert is a subjective claim that leaves much to the reader’s imagination. In doing so, it can easily cross the line into false and misleading communication. State bar ethics opinions are unanimous on this point….”

      • Risk of Discipline?

        • “Lawyers have been disciplined for making misleading claims of expertise. See In re PRB Dockett No.2002.093, 177 Vt. 629, 868 A2d. 709 (2005) (affirming discipline imposed upon lawyer who advertised in the local Yellow Pages as The Injury Experts and used a list captioned by the words “We are experts in” and listed several areas of law; court noted statements carried an “ implicit statement of superiority with a serious potential to mislead the consumer”); In re Wells, 392 S.C. 371, 709 S.E.2d 644 (2011) (lawyer publicly reprimanded and fined for, among other things, making claims of expertise in advertisements without having been certified as an expert); and In re Richmond’s case 152 N.H. 155, 872 A.2d 1023 N.H. (2005) (lawyer suspended for misrepresenting that he had expertise in securities law).”

 

Who Must File FBAR?

The FBAR is required to be filed by U.S. persons. When it comes to individuals, U.S. persons typically include U.S. citizens, lawful permanent residents, and foreign nationals who meet the substantial presence test. But, from a legal perspective, the term U.S. person is not limited to individuals and can also include trusts, businesses, and other entities. U.S. Person Taxpayers are required to file the FBAR even if they are not required to file a tax return in the current year, as long as they qualify as U.S. persons. If they are a U.S. person for part of the year, then the values they report may be limited based on the portion of the year they are considered a U.S. person, they are still required to follow the form unless an exception, exclusion, or other limitation applies.

Common Examples:

      • Either a U.S. born citizen or a foreign national who relocated to the United states or otherwise naturalized under United States immigration law.

      • The taxpayer who relocated to the United States for work or leisure and then became a lawful permanent resident, whether they currently reside in the U.S. or abroad.

      • A taxpayer who is temporarily in the United States on a visa such as a H-1B, L-1, B1/B2, or EB-5 visa but meets this substantial presence test.

What Types of Foreign Accounts are Reported?

All different types of foreign financial accounts are reportable. It is not limited to just bank accounts although often taxpayers may be under the impression that it only involves bank accounts, but that is not correct.

For each example below, presume that the filer is a U.S. Person.

Foreign Bank Accounts Example

Bob has nine bank accounts in three different countries with a total of $600,000. Two of the accounts are dormant, and three of the accounts have a zero balance and have not been used for many years. Even though only four of none of the accounts are technically active, Bob would still report all nine accounts on the FBAR (and Form 8938).

Foreign Investment Account Example

Linda previously lived in a foreign country and has a securities account with $300,000 in it. Within the account there are several different types of stocks, but no mutual funds or other foreign pooled funds. Linda is required to report this investment account on her FBAR (and Form 8938).

Foreign Stock Certificate

Louise has three foreign stocks worth $400,000. She does not have these stocks in an account but rather owns the certificates directly from each company. Since Louise does not have a foreign account, the ownership of the stock certificates is not reportable on the FBAR — although it is reportable on Form 8938 (FATCA).

Foreign Mutual Fund Accounts

Gene has several mutual funds in a foreign mutual fund account worth $800,000. Even though there are many different mutual funds in the foreign account, generally when it comes to FBAR reporting, Gene can usually report the main account with the total value of all the funds combined. Noting, that for tax return purposes, Gene would have to parse out each fund for Form 8621 reporting purposes.

Foreign Pension/Retirement Example

Tina has two foreign pension plans in different countries for a total value of $700,000. One of the pensions is an employment pension and the other pension is a personal pension. Generally, both of the pensions would be reportable on the FBAR (and Form 8938). Since the pension plans are considered to be trusts, Tina may have to report the pensions on Form 3520 and 3520-Aunless the retirement/pension qualifies as a tax-favored retirement or non-retirement trust under Revenue Procedure 2020-17, along with the 2024 Proposed Foreign Trust Regulations.

Foreign Life Insurance Example

Millie has a foreign life insurance policy with a surrender value of $900,000. Millie is required to report the insurance policy on the FBAR (and Form 8938). Saint Millie is currently also paying premiums on the life insurance policy, she may have an excise tax issue and have to file Form 720 and pay 1% tax on the premiums.

When are the IRS International Reporting Due Dates?

Let’s look at the more common IRS international reporting forms and corresponding due dates for filing.

FBAR Due Date and Extension

The FBAR is used to report foreign bank and financial accounts to the US Government. The Form is due on April 15, but is currently on automatic extension. Therefore, if you did not file the FBAR (FinCEN Form 114) by April 15, you still have until October to file it. And, you do not have to file an extension form such as Form 4868 or 7004 to obtain the FBAR extension — because the extension is automatically granted.

Form 8938 Due Date and Extension

Form 8938 is used to report foreign assets to the IRS in accordance with FATCA (Foreign Account Tax Compliance Act). It is similar (but not identical) to the FBAR. Form 8938 is filed with your tax return and is due when your tax return is due. If you are an individual filing a Form 1040, then the form 8938 would be due in April along with your 1040 tax return — but if you extend the time to file your tax return, then your Form 8938 will go on extension as well.

Form 3520 Due Date and Extension

Form 3520 is used to report foreign gifts and foreign trust information. The due date for Form 3520 is generally April 15, but taxpayers can obtain an extension to file Form 3520 by filing an extension to file their tax return for that year. Similar to Form 8938, there is no specific Form 3520 extension form required beyond requesting an extension of the underlying tax return.

Form 3520-A Due Date and Extension

Form 3520-A is used to report US ownership of a Foreign Trust. Unlike Form 3520, Form 3520–A is usually due in March and not April. In addition, the rules for filing an extension for Form 3520-A are different as well (subject to the substitute filing rules). To extend the due date to file Form 3520-A, the taxpayer must file a separate Form 7004 extension form.

Form 5471 Due Date and Extension

Form 5471 is used to report the ownership of certain foreign corporations. The filing date is the same as when a person’s tax return is due — and if the taxpayer files an extension for the underlying tax return, Form 5471 will go on extension as well. In recent years, Form 5471 has become infinitely more complex — so taxpayers should be cognizant of the different filing requirements and plan accordingly.

Current Year vs Prior Year Non-Compliance

Getting into compliance requires the coordination of several moving parts working simultaneously. Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

Contact our firm today for assistance.