US Treasury extends Foreign Bank and Financial Accounts (FBAR) deadline

The US Treasury has extended the deadline for the Report of Foreign Bank and Financial Accounts (FBAR) to October 2018

The Internal Revenue Service has also reminded taxpayers that the 15 June 2018 filing deadline for US citizens and resident aliens abroad, including those with dual citizenship, has now passed, although it is possible to arrange an extension for those who cannot meet it, although this should be requested in advance.

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 US tax liability. These tax benefits are only available if an eligible taxpayer files a US income tax return.

A taxpayer qualifies for the 15 June filing deadline if both their tax home and abode are outside the US and Puerto Rico, as do serving military outside the US.

Interest, currently at the rate of 5% per year, compounded daily, still applies to any tax payment received after the original 18 April deadline.

The IRS is offering penalty and filing relief to many of those subject to the new transition tax on foreign earnings.

On 4 June, the IRS confirmed it would waive certain late-payment penalties relating to the section 965 transition tax, and provided additional information for individuals subject to the section 965 transition tax regarding the due date for relevant elections.

Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5% rate, and the remaining earnings are taxed at an 8%. The transition tax generally may be paid in instalments over an eight-year period when a taxpayer files a timely election under section 965(h).

In some instances, the IRS will waive the estimated tax penalty for taxpayers subject to the transition tax who improperly attempted to apply a 2017 calculated overpayment to their 2018 estimated tax, as long as they make all required estimated tax payments by 15 June 2018.

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 US 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, US citizens, resident aliens and certain non-resident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds.

Deadline for reporting foreign accounts

As well as reporting foreign financial accounts on their tax return, taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 (£7,500) at any time during 2017, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

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. https://bsaefiling.fincen.treas.gov/main.html

Extension to FBAR

The deadline for filing the annual FBAR is now the same as for a federal income tax return. This means that the 2017 FBAR, Form 114, was normally required to be filed electronically with the FinCEN by 18 April 2018.

FinCEN has extended the the original final deadline to 15 October 2018, to file the FBAR. Specific extension requests are not required.

Automatic extensions available

It is possible to extend the deadline for tax filing but taxpayers must contact the IRS to arrange this. All extension request must be filed by 15 June deadline.

Automatic extensions give people until 15 October 2018 to file; however, this does not extend the time to pay tax.

An easy way to get the extra time to file is through the Free File link on IRS.gov. Anyone, regardless of income, can use this free service to electronically request an extension on Form 4868. To get the extension, taxpayers must estimate their tax liability on this form and pay any amount due.

Another option for taxpayers is to pay electronically and get an extension of time to file. IRS will automatically process an extension when taxpayers select Form 4868 and they are making a full or partial federal tax payment using Direct Pay, the Electronic Federal Tax Payment System (EFTPS) or a debit or credit card.

There is no need to file a separate Form 4868 when making an electronic payment and indicating it is for an extension. Electronic payment options are available at IRS.gov/payments.  International taxpayers who do not have a U.S. bank account should refer to the Foreign Electronic Payments section on IRS.gov for more payment options and information.

In a separate move, the IRS has also delayed the introduction of foreign currency tax rules, under a revision to the section 978 rules, which could see deferral of the introduction of the rules, which would have affected US companies with offshore subsidiaries that reported in foreign currencies and not US dollars.

Any income received or deductible expenses paid in foreign currency must be reported on a US tax return in US dollars. Likewise, any tax payments must be made in US dollars.

Report by Sara White

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