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Month: April 2017

Remember the New FBAR Filing Deadline

Posted on by Debra Barcuch

Do you have an interest in — or authority over — a foreign financial account? If so, the IRS wants you to provide information about the account by filing a form called the “Report of Foreign Bank and Financial Accounts” (FBAR).

The annual deadline for filing FBARs has been changed. It now coincides with the tax filing deadlines for individuals, under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015. So, for accounts held in 2016, you must generally file FBARs by April 18, 2017. (Formerly, the deadline was June 30, excluding weekends and holidays.)

Important note: If you fail to meet the annual FBAR due date, the Financial Crimes Enforcement Network (FinCEN) will grant an automatic extension to October 15. Accordingly, specific requests for this extension aren’t required.

Reporting Requirements

FBARs are not filed with federal tax returns. Each year, citizens and resident aliens of the United States, as well as domestic partnerships, corporations, estates and trusts, must generally file an FBAR form electronically with the FinCEN if:

  1. They have a direct or indirect financial interest in — or signature authority over — one or more accounts in a foreign country. This includes bank accounts, brokerage accounts, mutual funds, trusts or other types of foreign financial accounts, and
  2. The total value of the foreign accounts exceeds $10,000 at any time during the calendar year.

An individual who jointly owns an account with a spouse may file a single FBAR report as an individual. FBARs may be required even if the foreign account doesn’t produce any taxable income.

Taxpayers also may be subject to FBAR compliance if they file an information return related to certain foreign corporations, foreign partnerships, foreign disregarded entities, or transactions with foreign trusts and receipt of certain foreign gifts. Some individuals are exempt, however.

Exceptions to the Rules

FBAR filing exceptions are available for the following U.S. taxpayers or foreign financial accounts:

  • Certain foreign financial accounts jointly owned by spouses,
  • United States persons included in a consolidated FBAR,
  • Correspondent/nostro accounts,
  • Foreign financial accounts owned by a governmental entity,
  • Foreign financial accounts owned by an international financial institution,
  • IRA owners and beneficiaries,
  • Participants in and beneficiaries of tax-qualified retirement plans,
  • Certain individuals with signature authority over — but no financial interest in — a foreign financial account,
  • Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust), and
  • Foreign financial accounts maintained on a United States military banking facility.

Important note: Filers living abroad may coordinate FBAR filing with their tax return deadline (June 15, 2017).

Penalties for Noncompliance

Take the FBAR requirement seriously. Failing to file an FBAR can result in the following penalties if assessed after August 1, 2016, and associated violations occurred after November 2, 2015:

  • An inflation-adjusted civil penalty of as much as $12,459 per violation, if the failure wasn’t willful. This penalty may be waived if income from the account was properly reported on the income tax return and there was reasonable cause for not reporting it.
  • A civil penalty equal to the greater of: 1) 50% of the account, or 2) $124,588 per violation, if the failure to report was willful.
  • Criminal penalties and time in prison.

The IRS states that the FBAR “is a tool to help the U.S. government identify persons who may be using foreign financial accounts to circumvent U.S. law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.”

Beyond FBARs

Another initiative to combat tax fraud using offshore accounts is the Foreign Account Tax Compliance Act (FATCA). It led to the creation of Form 8938, “Statement of Specified Foreign Financial Assets.” This form must be attached to your federal income tax return each year if your specified foreign financial assets exceed these reporting thresholds:

  • For unmarried taxpayers living in the United States, the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
  • For married taxpayers filing a joint income tax return and living in the United States, the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
  • For married taxpayers filing separate income tax returns and living in the United States, the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

Different reporting rules and limits apply for taxpayers living abroad. Form 8938 covers an expanded list of foreign assets not covered by FBAR. And filing Form 8938 does not exempt you from having to file an FBAR.

The penalty for failing to file Form 8938 is $10,000, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40% penalty on any understatement of tax attributable to a transaction related to the nondisclosed assets can also be imposed.

For Assistance

Consult with a tax professional if you have an interest in — or authority over — a foreign account. Your tax advisor can ensure you meet the requirements for reporting foreign accounts and help avoid penalties for noncompliance.

IRS Updates and Expands Fringe Benefit Tax Guide

Posted on by Debra Barcuch

What’s better for employees than a fringe benefit? Try one that’s tax-free.

The IRS recently published the updated Publication 15-B (2017), Employer’s Tax Guide to Fringe Benefits. This guide provides valuable insights into the taxation of statutory benefits and offers some clarifications and additions, including:

  • New examples of benefits that can’t be excluded from taxable income as “de minimis” fringe benefits,
  • More details about the limits on employee discounts, and
  • A new elaboration on when product testing benefits can be excluded as a working condition fringe benefit.

De Minimis Fringe Benefits

Plain and simple, a de minimis fringe benefit is a benefit can be excluded from the employee’s taxable wages (W-2) because the value of the property or service received is so small that accounting for it is unreasonable or administratively impracticable. An essential element of de minimis benefits is that they are occasional or unusual in frequency. They also mustn’t be a form of disguised compensation.

The updated IRS Pub 15-B lists the following as examples of nontaxable de minimis benefits:

  • Personal use of an employer-provided cell phone intended primarily for noncompensatory business purposes,
  • Occasional cocktail parties, group meals or picnics for employees and their guests,
  • Holiday or birthday gifts, other than cash, with a low fair market value, and
  • Flowers, fruit or similar items provided to employees under special circumstances (for example, on account of illness, a family crisis or outstanding performance).

To clarify the tax treatment, the updated publication also adds examples of benefits that are not excluded from taxable income, including:

  • Season tickets to sporting or theatrical events,
  • The value of the use of an employer-provided car or other vehicle to commute for more than one day a month,
  • Membership dues at a private country club or athletic facility (regardless of how often the employee uses them), and
  • The value of the use for a weekend of an employer-owned or leased facility, such as an apartment, hunting lodge, boat, etc.

In other words, you can serve birthday cake to employees with no tax strings attached, but you can’t give them the keys to your seaside cottage for the Fourth of July holiday weekend without tax consequences.

Employee Discount Benefits

Employee discounts are excluded from an employee’s taxable income if they are for “qualified property or services” provided to an employee or the employee’s spouse or dependent children. Dependent children in this case refers to natural, step and foster children who are either dependents of the employee or whose parents have died and haven’t yet reached age 25. A child of divorced parents is treated as a dependent of both parents.

The discounts are the difference between prices offered to the public and those offered to employees for the same items. “Qualified” services or property are those that are sold to consumers during the ordinary course of business, such as retail merchandise or membership at a gym. Property in this context doesn’t include real estate or personal property held for investment.

There are limits to the tax generosity allowed under the law. Specifically, those limits are:

  • For a discount on services, 20% of the price you charge nonemployee customers for the service.
  • For a discount on merchandise or other property, your gross profit percentage times the price you charge nonemployee customers for the property.

Protect Testing Benefits

The value of consumer goods provided to employees for product testing outside the workplace is considered a tax-free working condition fringe benefit as long as the testing program meets certain requirements. For instance, if an automaker offers a new model to an employee for evaluation, use of the vehicle can be tax-free to the employee.

The fair market value qualifies as a working condition benefit if all of the following conditions are met — requirements weren’t included in the previous version of IRS Pub 15-B:

  • Consumer testing and evaluation of the product is an ordinary and necessary business expense for your business.
  • Business reasons necessitate that the testing and evaluation must be performed off your business premises.
  • You provide the product for purposes of testing and evaluation.
  • You provide the product to your employee for no longer than necessary to test and evaluate its performance.
  • The product is returned to you at completion of the testing and evaluation period.
  • You impose limitations on your employee’s use of the product that significantly reduce the value of any personal benefit (this includes limiting your employee’s ability to select among different models or varieties of the product and prohibiting its use by anyone other than the employee.)
  • The employee submits detailed reports on the testing and evaluation.
  • You use and examine the results within a reasonable time.

What Doesn’t Count

The updated publication also explains factors that tend to indicate that a testing program isn’t bona fide. For example:

  • It’s a leasing, not testing, program if an employee leases consumer goods for a fee.
  • The program can’t be limited to a certain class of employees unless there’s a business reason for doing so.
  • The testing exclusion isn’t available to independent contractors or company directors.

Simply put, as long as businesses adhere to the rules, fringe benefits remain tax-free to employees and deductible by employers.

And the Award Goes to . . .

Special rules apply to the tax exclusion for “achievement awards” given to employees for length of service or safety.

Under the IRS guidelines, these awards:

  • Can’t be disguised wages,
  • Must be awarded as part of a meaningful presentation, and
  • Can’t be cash, cash equivalent, vacation, meals, lodging, theater or sports tickets, or securities.

There are additional requirements and dollar limits for achievement award plans. The most recent details are available in IRS Publication 5137, Fringe Benefit Guide.

Predictive Analytics: The Future Is Now

Posted on by Debra Barcuch

The manufacturing supply chain is only as strong as its weakest link. But how does a firm know where its weakest link lies?

To that end, the philosophy of predictive analytics is taking root. As the name suggests, this branch of advanced analytics uses many techniques to predict where a system can break down, so it can be fixed beforehand.

The trend is clear. According to recent data from MHI, a North Carolina-based supply chain trade association, almost 25% of companies have adopted predictive analytics. That number is expected to skyrocket to 70% over the next three to five years.

Higher Standards

The public expects goods to be delivered when promised and at competitive prices. As a result, manufacturers are being held to higher standards. They need to know more than when to expect delivery from suppliers so they can adjust production and delivery schedules. This sets the stage for predictive analytics.

By applying advanced statistical analysis of big data to identify patterns and predict events, manufacturers are better able to anticipate the current and forecasted needs of customers. Thanks to advances in technology, the data that is now available to supply chain manufacturers is so huge and complex that some manufacturers are discarding historical planning methods.

In fact, innovations in supply chain management are taking place at a lightning-fast pace. Firms that don’t adapt — and adapt soon — may struggle to remain competitive and deliver orders accurately and on time.

The Question of Price

Of course, the shift to predictive analytics comes at a price in terms of software and related costs, and at a time when manufacturers are being forced to cope with ever-rising costs of materials and goods.

This isn’t the first time that promises about forecasting capabilities have been pitched to the manufacturing sector. Companies have been encouraged to spend on many technological innovations over the past few decades, with varying degrees of success, and may be gun-shy about further financial commitments in this area.

So what makes predictive analytics different?

Some industry experts point to the cloud. Storing vast amounts of data over the Internet makes it possible for companies to access information that helps them make better decisions and gain valuable insights into potential problems.

For example, say a company makes refrigerators and ovens. The components may be produced by outside contractors, which can make it difficult to pinpoint where a failure in production may occur. The company may determine when the process is most likely to break down using predictive analysis and such factors as:

  • Production line,
  • Quantities,
  • Time of production,
  • Number of engineering changes,
  • Consumer usage patterns, and
  • Demographics.

Most Common Benefits

Predictive analytics is most often associated with benefits in four main areas:

1. Quality improvement. This might be job number one. Improvement in databases and storage, supplemented by easy-to-use, analytical software, is a major factor in improving the quality of a company’s products. Manufacturers can store more data about their products and processes, which lets them analyze more factors to help improve quality. This, in turn, aids in forming a definitive plan of action.

2. Demand forecast. Forecasting is critical to success. Manufacturers must project the products desired, quantity needed and required delivery time. Traditional demand forecasts were based mainly on experience. A company could predict with reasonable certainty that some products would sell faster or in greater bulk during particular seasons (for example patio furniture for the summer or ski equipment for the winter). That hasn’t changed, but predictive analytics adds another layer by allowing companies to consider more factors.

Predictive analytics paints a comprehensive picture that identifies likely trends and other events based on historical data collection and analysis. It combines demand forecasting with risk management using fewer resources.

3. Equipment improvement. Manufacturing firms that provide quality goods generally use quality machines. However, even the best equipment breaks down or experiences wear and tear over its useful life. Replacing parts or updating the equipment can cost thousands of dollars.

Predictive analytics can anticipate equipment failures. By automating the analysis of data from sensors within equipment — as well as the actual operation of these machines — a firm may determine when machines should be replaced before any damage occurs. This saves both time and money.

4. Preventive maintenance. Similarly, firms can reduce operational issues by triggering alerts from machines, based on data they provide internally. For instance, automatic signals could be sent when a belt or gear is torn or broken, reducing the burden on a particular machine or identifying patterns for certain types of equipment.

This is a critical step for ensuring equipment continues to operate at maximum efficiency. At other times, predictive analytics could be used to identify manufacturer defects in machines.

Focal Point

Competition in manufacturing is fierce and advances in technology only up the ante. Use of predictive analytics in manufacturing is expected to increasingly become a focal point. If you want your company to be among the leaders of the manufacturing renaissance, consider hopping on the predictive analytics bandwagon sooner rather than later.

The Positive Side-Effects

Predictive analytics is proactive rather than reactive. This can enable:

  • Parts analysis. Software can show which parts will fail first and which will last the longest. Management can then adjust inventory, stockpiling certain parts that are likely to wear out and bulk-ordering replacements ahead of time.
  • Cost-benefit analyses. By conducting enhanced cost-benefit analyses, manufacturing teams can better understand the risks of not performing maintenance at any given time.
  • Warranty claims. Companies can assess warranty offerings based on the insights gleaned from the analysis.
  • Risk mitigation. Manufacturers may be able to avoid penalty fees by fixing issues before they escalate.
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