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 (EMAILWIRE.COM, February 15, 2012 ) Atlanta, GA -- Jeff Eischeid, an Atlanta CPA, is interviewed by fellow partner Gary Weld in the offices of Bennett Thrasher on February 13, 2012. The topics of the interview were the new FACTA regulations and the governmentÂ’s attempt to stem the tide of tax avoidance associated with the use of offshore accounts. This is not just an interview for the financially sophisticated but a useful source of information for the unwary average taxpayer. Failure to comply with these new regulations can carry very hefty penalties.
Interviewer: We are hearing a lot these days about US taxpayers hiding assets in foreign jurisdictions. How is the Government attempting to increase compliance with tax rules and minimize tax avoidance?
Jeff Eischeid: New rules requiring reporting of “specified foreign financial assets” were enacted in March 2010 and became effective for calendar year 2011; individuals preparing their 2011 tax returns in 2012 will run into these new rules.
Interviewer: What does this mean to the average taxpayer?
Jeff Eischeid: The Foreign Account Tax Compliance Act, commonly referred to as FACTA, is a reporting regime that is designed to uncover U.S. taxpayers using foreign financial accounts to avoid U.S. tax. A new Form 8938 will be a part of a taxpayers return.
Interviewer: Does this form take the place of the old form TD F 90-22.1 FBAR?
Jeff Eischeid: No it does not. In many cases there is a great deal of overlap between the two. Given the similarity of the goals of the two regimes, but different definitions of similar terms, we can expect a great deal of confusion in compliance.
Interviewer: Can you help us understand the differences between the two reporting regimes?
Jeff Eischeid: Let me start by a review of the more established FBAR requirements. FBAR reporting covers any U.S. person, including individuals, companies, partnerships, trusts, estates, etc. Resident aliens are also covered. A U.S. person must have a “financial interest in” (ownership) or “signature power over” foreign financial accounts. A financial interest in a foreign financial account includes securities, brokerage, savings, demand checking, deposit or other accounts maintained with a foreign financial institution. If at any time during the year the taxpayer has foreign financial accounts with an aggregate value of more than $10,000 the taxpayer must answer yes at the bottom of Schedule B of Form 1040. This would trigger a reporting requirement for form TD F 90-22.1 due June 30th each year. Note that this is not attached to the Federal income tax return.
Interviewer: The FBAR requirements are not new and the FACTA reporting is new this year. Is that correct?
Jeff Eischeid: You are right, FBAR requirements are unchanged. FACTA while, in many cases duplicative, is much broader in reach than FBAR. As mentioned, FACTA reporting is done through Form 8938 and is attached to and filed with your Federal income tax return. FACTA reporting covers individuals who are U.S. citizens and resident aliens. An individual is treated as having an interest in a specified foreign financial asset if any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the asset are or would be required to be reported, included, or otherwise reflected on the taxpayer’s income tax return. This is true even if there was any actual income, etc. for the current year. FACTA rules require taxpayers with investments in foreign entities, such as foreign mutual funds, foreign hedge funds and foreign private equity funds to report the existence of these investments. The description of specified foreign financial asset is so broad that it covers virtually any asset held for “investment”. Held for investment means not used in a trade or business.
Interviewer: Are the dollar thresholds the same for FACTA as for FBAR?
Jeff Eischeid: No, they are different and vary depending upon filing status and whether the taxpayers live in the United States or abroad. In general a taxpayer not filing a joint return and living in the U.S must file Form 8938 if the aggregate value of all specified foreign assets exceeds $50,000 at the end of the year or $75,000 at any time during the year. For joint return filers living in the U.S. the threshold is $100,000 on the last day of the tax year and more than $150,000 at any time during the year. For those taxpayers living abroad and not filing a joint return the thresholds are $200,000 and $400,000 respectively. For those taxpayers living abroad and filing a joint return the thresholds are $300,000 and $600,000 respectively.
Interviewer: What else will taxpayers encounter in complying with FACTA?
Jeff Eischeid: One item that may be more problematic in complying with FACTA than with FBAR is valuation. It is pretty easy to value checking accounts, brokerage accounts, etc. to report for FBAR. Just by the nature of assets covered by FACTA they can be difficult to value. In most cases you can make a reasonable estimate of the assetsÂ’ fair market value without a qualified appraisal to support the valuation. Be prepared to support your estimates with facts and figures.
Interviewer: Sounds like a lot of work - what if a taxpayer decides not to comply?
Jeff Eischeid: As you would expect there are penalties for non-compliance. For FBAR, if a failure to comply is determined to be non-willful and the IRS determines there was not reasonable cause for the failure then the penalty is $10,000 per violation. The penalty can be as high as $100,000 or 50% of the account value if the violation is determined to be willful. The FACTA penalty starts at $10,000. Additional penalty applies if you are notified and the failure to disclose continues. After 90 days from notification, the penalty increases by $10,000 for each 30 day period up to a maximum of $50,000. As with FBAR there are waivers of the penalty available if the taxpayer can demonstrate reasonable cause.
Jeff Eischeid is a shareholder at Bennett Thrasher PC where he specializes in personal financial planning for high net worth individuals. Prior to joining Bennett Thrasher Jeff was the national leader of KPMGÂ’s personal financial planning practice. Jeff has been an Atlanta accountant for over 30 years. Atlanta- based Bennett Thrasher is one of the nationÂ’s largest accounting firms and was recently voted by the Atlanta legal community as one of the best accounting firms to work with and in 2011 it was voted one of the best firms to work for by Accounting Today.
Press Release Courtesy of Online PR Media: http://bit.ly/AmZr0C
Bennett Thrasher
Jeff Eischeid
info@btcpa.net
getthinnews@yahoo.com 
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