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Reporting of Foreign Income, Assets and Transactions by US Residents

Presented by

Raj Maruvada Certified Public Accountant

1202 Laurel Oak Road, Suite 206Voorhees NJ 08043

5/23/2014

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IntroductionMy name is Raj Maruvada

I am a senior citizen and proud of it!

I am a Certified Public Accountant and my office is located in Voorhees.

I have been providing Accounting, Tax, Audit and consultation services including information returns and income tax returns relating to foreign financial assets and

transactions.

Raj Maruvada & Associates, P.C

1202 Laurel Oak Road, Suite 206

Voorhees NJ 08043

Website: www.cparaj.com

Phone: 856 346 7141

Fax: 856 309 3500

Email: raj@cparaj.com

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Scope of Discussion

• Foreign Source Income• Foreign Assets• Ownership in Foreign Entities• Money and Property transfers to and from Foreign countries• Gifts received from foreign entities• Inherited property

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Scope of DiscussionCont….

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Scope of DiscussionCont….

If any of the above discussed situations apply to you, an experienced tax professional would be the right person to contact. For a consultation fee, they would help you file the necessary forms and meet the filing requirements and deadlines.

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Scope of DiscussionCont….

Reporting requirements vary based on various factors

Reporting is done using different forms

There are deadlines for filing the required forms

There are penalties for not reporting

Tonight, we will focus on obtaining a general understanding of the above

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Who should file?

US CitizensGreen-card holdersAny others who meet substantial

presence test lived in US for more than six months

(with some exceptions)

US Citizens and GC holders living outside US

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Who should file? Cont….

Corporations PartnershipsTrustsEstates

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Why do we have to report?Because Government says we have to report

Why does Government want us to report?

◦To identify/prevent Tax avoidance

◦ Identify income generating assets and monitor reporting of income from those assets

◦Ensure full compliance with Gift tax and Estate tax laws

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What needs to be reported?

Foreign source Income

o Everyone required to file income tax return in US must report income from all sources within and outside of the US.

o This is true whether or not you receive a form W2, form 1099 or the foreign equivalent (Form 1042-S)

o General categories of income – interest income, dividends, capital gains on property sold, rental income etc

o Any income earned for providing services in foreign country has to be reported as income

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What needs to be reported?Cont…

oShare of income from corporations, partnerships and other business entities needs to be reported

o Foreign source income is taxed in US according to US tax laws, not foreign tax laws.

o Foreign source income is taxed at US tax rates.

o If tax is paid in foreign country on any income earned in that country, credit can be taken on US tax return at US tax rates.

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What needs to be reported?Cont….

While taxes have to be paid on foreign source income as described above, no taxes will be due on

• reported assets• transactions•gifts received • Inheritances

The requirement is only to report

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What needs to be reported?Cont… Foreign Financial Assets

There are two levels of reporting

FBAR – US residents who own or have signature authority over financial assets in foreign countries must report balances in those accounts.

Form 8938 – Report all financial assets to be reported on FBAR, except accounts with signature authority only plus, foreign pensions and deferred compensation, foreign stocks held personally and interests in foreign partnerships, Trusts and Estates.

Need not be filed if Income tax return is not required to be filed

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What needs to be reported?Cont…

For Form 8938 – ◦ Total of all highest balances on any day of the year in checking, savings and deposit accounts

Plus◦ Market value at the end of the year of mutual funds, stocks

and bondsPlus

◦ Year-end balances in Pensions, interests in Foreign partnerships, Estates and Trusts

Equal to or exceed $75,000 (single)/ $150,000 (MFJ) on any day during the year

OrEqual to or exceed $50,000 (single)/ $100,000 (MFJ) at the end of the year

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What needs to be reported?Cont…

For FBAR – • Checking Accounts • Savings Accounts• All types of Deposit Accounts• Mutual Funds• Stocks held with financial institutions• Any other type of account which has cash available for use

Total of highest balances on any day of the year in each of the financial accounts (except mutual funds)

plusMarket value as of December 31st for Mutual funds and stocks held in financial institutions

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What needs to be reported?Cont…

Good News!

If the total of all of the above balances doesn’t exceed $10,000 during the year, no reporting is required

- Income from those assets must still be reported

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What needs to be reported?Cont…

Ownership of foreign business interests – reported on Form 5471 & Form 8865

oUS Residents who have at least 10% interest in foreign businesses such as corporations, partnerships and other business entities that may have been organized differently, must report such interest in appropriate forms

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What needs to be reported?Cont…

Gifts and Inheritances – Form 3520

oGifts received from foreign entities

must be reported

oInheritances must be reported.

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Discuss some of the forms in more detailComparison of Form 8938 and FBAR

Form 5471 – Ownership in Foreign Corps

Form 8865 – Ownership in Foreign Partnerships

Form 3520 – Receipt of Foreign Gifts and Inheritances

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Consequences of not reporting

You all want to report. So, why worry about consequences of not reporting?

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Consequences of not reporting

In general, those who knowingly commit crime will be punished as criminals;

Those who commit crime without knowing what they did is a crime

OR

Did not know that they are required to do something and that not doing that is a crime;

They will be treated in a different way if they become compliant with the law as soon as they become aware of requirements

So, consequences of not reporting are the same either way.

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Conclusion

We discussed who has to report foreign financial interests and it really is – Every person or entity who resides in US and has financial interests in foreign countries.

We discussed what needs to be reported – which is pretty much everything you own, acquire and operate in foreign countries, all financial transactions you have with foreign entities

We discussed how and where to report all the above

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Conclusion

We have also touched up on consequences of not reporting by emphasizing that we don’t care about the consequences because we are going to comply and file all required forms and reports.

What I wanted to accomplish tonight is, to make you all aware that there may be reporting requirements for any foreign financial interest you may have and you have reporting requirements if you have such financial interests.

If you believe you MAY HAVE REPORTING REQUIREMENTS, you may want to consult a tax professional.

Cost of consultation and cost of complying are minimal compared to non compliance.

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