24 February 2017 Important information filing deadlines for individuals with foreign trusts, assets or bank accounts, or who receive property from certain foreign sources Certain US taxpayers may have additional foreign informational filing requirements beyond the usual year-end tax filings, and the filing deadlines for these forms may differ from, and in some cases be earlier than, the usual April 15 due date. Affected taxpayers include US income tax residents who: — Have created foreign trusts, either in the current year or in the past, even if the taxpayers were not US residents at the time they created the trusts A list of these additional filing requirements and their respective due dates for the 2016 tax year follows. Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner, must be filed or extended by March 15. The form may be extended for six months to September 15 by filing Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. An extension cannot be made by simply extending the due date for Form 1040. The penalty for failure to timely file Form 3520-A is the greater of $10,000 or 5% of the value of the portion of the trust treated as owned by the US person. Form 3520-A must be filed by a foreign grantor trust with a US owner, as determined under Sections 671 through 679. The return must be filed by the trustee of the foreign trust. It is ultimately the US owner's responsibility, however, to ensure that the foreign trust files Form 3520-A and furnishes the required annual statements to all US owners and US beneficiaries. Therefore, if the trustee of the foreign trust does not file Form 3520-A, the US owner may file the return. Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, is an annual return that must be filed no later than April 18. This return can only be extended by extending a taxpayer's income tax return (Form 1040). Form 3520 cannot be extended independently of Form 1040. Thus, if Form 3520 cannot be filed by April 18, the taxpayer must request an extension to file Form 1040 to also extend the due date for filing Form 3520. Although the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 directed the Secretary of the Treasury to modify regulations to enable Form 3520 to be extended separately from Form 1040, the Secretary has not yet done so and the IRS has not updated its forms to reflect a separate extension. As a result, the rule that Form 3520 can only be extended by extending the taxpayer's Form 1040 still applies. Generally, failure to timely file Form 3520 will result in a 35% penalty on the unreported amount (5% of the value of the portion of the trust treated as owned by the US person if filing solely to report ownership of a foreign grantor trust), with a minimum penalty of $10,000. Form 3520 must be filed by US persons to report certain transactions with foreign trusts and the receipt of certain large gifts and bequests from foreign persons. The following persons must file Form 3520: — A US person who (directly or indirectly) receives a distribution from a foreign trust, regardless of the amount of the distribution — A US person who, during the current tax year, is treated as the owner (under Sections 671 through 679) of any part of the assets of a foreign trust — A US person who (directly or indirectly) received gifts from a foreign person exceeding, in aggregate, $100,000 during the current tax year — A US person who (directly or indirectly) received gifts from a foreign corporation or foreign partnership (including foreign persons related to these foreign corporations or foreign partnerships) exceeding $15,671 that the US person treated as gifts — A US person who is the issuer of an obligation held by a foreign trust that the US person treats as a "qualified obligation" The grantor, transferor or executor (the responsible party) must file Form 3520 to report a "reportable event." Reportable events generally include: — The direct or indirect transfer of any money or property to a foreign trust by a US person (including a transfer by reason of death) — The individual who directly or indirectly transferred property to a foreign trust as a nonresident alien becomes a US income tax resident within five years after such transfer — The death of a US citizen or US resident if the decedent was treated as the owner of any portion of a foreign trust or any portion of a foreign trust is included in the gross estate of the decedent For the 2016 tax year and going forward, "specified individuals" and "specified domestic entities" (collectively, specified persons) must file Form 8938, Statement of Specified Foreign Financial Assets, if the aggregate value of all of the specified person's specified foreign financial assets (SFFAs) exceeds an applicable threshold amount. The form is attached to the specified person's income tax return for the tax year and has the same due date as the income tax return. For individuals, Form 8938 must be attached to Form 1040 and is due by the Form 1040 filing deadline (generally April 15, or later if the Form 1040 is extended). For domestic corporations, partnerships and trusts, Form 8938 is attached to Form 1120, 1120-S, 1065 or 1041 and is due on the due date, including extensions, for the respective return. The initial penalty for noncompliance is $10,000. If a specified person fails to file for more than 90 days after the IRS notifies the person of the failure to comply, a penalty of $10,000 for each 30-day period (or fraction thereof) applies, with a maximum penalty of $50,000. In addition, if a specified person fails to file Form 8938 or to report an SFFA, the statute of limitations for the tax year may remain open for all or part of the taxpayer's income tax return (not just the Form 8938) until three year after the date the taxpayer files Form 8938. SFFAs generally include: (1) any financial account maintained by a foreign financial institution; and (2) any of the following foreign assets if they are not held in an account maintained by a financial institution: (a) stocks or securities issued by someone who is not a US person (see Section 7701(a)(30) for the definition of a US person); (b) any interest in a foreign entity; and (c) any financial instrument or contract with an issuer or counterparty that is not a US person. — If single and living in the US, either: (1) $50,000 on the last day of the tax year; or (2) $75,000 at any time during the tax year — If married, filing a joint return and living in the US, either: (1) $100,000 on the last day of the tax year; or (2) $150,000 at any time during the tax year — If married, filing separate returns and living in the US, either: (1) $50,000 on the last day of the tax year; or (2) $75,000 at any time during the tax year — If single and living abroad, either: (1) $200,000 on the last day of the tax year; or (2) $300,000 at any time during the tax year — If married, filing a joint return and living abroad, either: (1) $400,000 on the last day of the tax year; or (2) $600,000 at any time during the tax year — If married, filing separate returns and living abroad, either (1) $200,000 on the last day of the tax year; or (2) $300,000 at any time during the tax year — For specified domestic entities, either: (1) $50,000 on the last day of the tax year; or (2) $75,000 at any time during the tax year Specified domestic entities must file Form 8938 if the total value of the entity's SFFAs is more than: (1) $50,000 on the last day of the tax year; or (2) $75,000 at any time during the tax year. When determining if the threshold amount is exceeded, specified domestic entities should exclude the value of any SFFA reported on Forms 3520, 3520-A, 5471, 8621 or 8865. (Note: This rule differs from the rule applicable to specified individuals.) For purposes of determining whether the reporting threshold is met, a corporation or partnership that is a specified domestic entity that has an interest in any SFFA is treated as owning all SFFAs held by all corporations or partnerships (whether or not specified domestic entities) that are closely held by the same specified individual. For purposes of reporting SFFAs on Form 8938, however, each specified domestic entity that satisfies the reporting threshold reports only its own SFFAs. — Entity is "closely held" such that on the last day of the tax year a specified individual directly, indirectly or constructively owned at least 80% of the voting power of all classes of stock entitled to vote, or 80% of the total value of the stock — 50% or more of the entity's gross income is passive income, or 50% or more of its assets produce or are held for the production of passive income — Entity is "closely held" such that on the last day of the tax year a specified individual directly, indirectly or constructively owned at least 80% of the capital or profits interest in the partnership — 50% or more of the entity's gross income is passive income, or 50% or more of its assets produce or are held for the production of passive income — One or more current beneficiaries is either a specified individual or specified domestic entity. (Note: A domestic grantor trust is not a specified domestic entity, and the trust owner is responsible for reporting SFFAs.) See Tax Alert 2016-406 for more information on specified domestic entities required to file Form 8938. Dual resident taxpayers taking a position under an income tax treaty to be treated as residents of another country are no longer required to file Form 8621. See the Tax Alert 2017-40 for more information. FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), must be filed by a US person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities or other types of financial accounts, in a foreign country if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year. For purposes of FinCEN Form 114, financial accounts include shares in a mutual fund or similar pooled fund, insurance policies with a cash value, annuity policies with a cash value, and commodity futures or options accounts. The relationship must be reported each calendar year by filing the FBAR with the Department of the Treasury. For tax years 2015 and earlier, the due date for the FBAR was June 30 (no extensions). Beginning with tax year 2016, however, the new annual due date for the FBAR coincides with the due date for Form 1040. This due date change was mandated by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Public Law 114-41, which also established a maximum six-month extension of the filing deadline. To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the April 15 due date an automatic maximum extension to October 15 each year. Accordingly, specific requests for this extension are not required. For the 2016 tax year, the FBAR is due April 18, but with the automatic maximum six-month extension, the FBAR is due October 16 as October 15, 2017, falls on a weekend and the Form 114 will be due the next business day. The failure to timely file the FBAR can be subject to civil penalties and possibly criminal sanctions (i.e., imprisonment). The statutory civil penalties might be $10,000 per year for a non-willful failure but a willful failure to file could, by statute, be subject to civil penalties equivalent to the greater of $100,000 or 50% of the balance in an unreported foreign account, per year, for up to six tax years. Non-willful penalties might be avoided if there is "reasonable cause" for the failure to timely file the FBAR. Filing a Form 8938 for the tax year does not obviate the requirement to file the FBAR. All timely, amended and late FBARs must be filed electronically through the FinCEN BSA (Bank Secrecy Act) system.
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