EA Part 1 Session 6 Flashcards
International Information Reporting
Collette is an unmarried U.S. citizen who lives and works in the U.S. She owns a vacation condo in Mexico and visits the condo frequently, and sometimes will stay for several months. She does not live or work in Mexico, but in order to facilitate her trips abroad, she opened several bank accounts in Mexico. At the end of the year, she had the following funds held in three separate Mexican bank accounts:
Santander Bank Mexico: $8,000
Citibanamex: $19,000
Scotiabank Mexico: $35,000
She must file both an FBAR and Form 8938
Note: The filing threshold for the FBAR is $10,000 in any foreign bank account(s). The filing threshold for Form 8938 is $50,000 for U.S. Citizens who do NOT have a foreign tax home. Since Collette lives in the U.S. and her tax home is also in the U.S. then she must file both forms based on the amounts she has deposited in the foreign banks. The filing threshold is higher for those who live and work abroad. You should be familiar with the distinctions between FBAR and Form 8938 requirements for the exam (it is on the EA exam test specifications).
Lenny and Kristy, both age 65, are U.S. citizens but lived abroad for the entire tax year in Greece. They have not returned to the US in five years. They will file a joint income tax return. The total value of their combined specified foreign financial assets is $150,000, which is all cash in their Greek bank account. The account balance has never exceeded $150,000. What foreign reporting requirements do they have?
The FBAR only.
They only have to file the FBAR. Lenny and Kristy do not have to file Form 8938. Since they live overseas all year, their reporting threshold for foreign financial assets is higher than taxpayers who reside in the United States. The reporting threshold for married taxpayers that live overseas is (1) more than $400,000 on the last day of the tax year or (2) more than $600,000 at any time during the tax year. Since their foreign account holds only $150,000, they do not need to file a Form 8938.They only have to file the FBAR. Lenny and Kristy do not have to file Form 8938. Since they live overseas all year, their reporting threshold for foreign financial assets is higher than taxpayers who reside in the United States. The reporting threshold for married taxpayers that live overseas is (1) more than $400,000 on the last day of the tax year or (2) more than $600,000 at any time during the tax year. Since their foreign account holds only $150,000, they do not need to file a Form 8938.
A United States person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, must file an FBAR to report a financial interest in or signature or other authority over at least one financial account located outside the United States if the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
You are required to file an FBAR for any year the account reaches $10,000 USD.
The income earned by a revocable living trust is typically reported on Form 1040, not on a separate trust tax return, because it is treated as a disregarded entity for tax purposes. These trusts are mainly used to avoid probate.
Draven is single and a U.S. citizen who had $60,000 deposited in an Italian bank account at the end of the year. He planned to purchase a vacation home in Italy, but the sale was never completed. No interest was earned on the foreign bank account. Draven earned $92,000 in wages during the year and is required to file a U.S. tax return. Draven currently lives and works in the U.S., although he travels overseas quite frequently. What are his reporting requirements for the Italian bank account?
He must file an FBAR as well as a Form 8938.
Draven has two reporting requirements. He must file an FBAR as well as a Form 8938. Draven has a U.S. tax home and holds foreign financial assets with an aggregate value that exceeds $50,000 ($100,000 MFJ) on the last day of the tax year, so he is required to file a Form 8938. There is also an FBAR reporting mandate for taxpayers with foreign accounts of more than $10,000. These are considered separate filings.
Estate Tax (Form 706)
Estate tax Return is filed using Form 706 9 months after the date of the deceased.
Basic Exclusion Amount $12.92 million in 2023.
The income earned by a revocable living trust is typically reported on Form 1040
The Groos Estate is based upon the fair market value of the decedent’s property.
An estate with a beneficiary who is a nonresident alien is always required to file a tax return (Form 1041), regardless of the amount of income the estate earned during the year.
The attorney must sign the trust’s tax return. The attorney is the named fiduciary (also called the “trustee”) and must sign Form 1041. Qualified disability trusts have a filing requirement.
The personal representative of an estate chooses the estate’s accounting period upon filing the first Form 1041. The estate’s income, like an individual’s income, must be reported annually on either a calendar-year or fiscal-year basis. Generally, once chosen, the tax year can’t be changed without IRS approval.
Funeral expenses are the expense of the state deducted on Form 706 or Form 1041.
“Income In Respect of a Decedent (IRD) Exam Part 1”
IRD is texted the same way to the beneficiary. It’s reported on Form 1041.
The maximum estate tax rate is 40% in 2023. In 2023, the federal estate tax ranges from rates of 18% to 40%, with 40% being the highest tax rate.
Estates or trusts must file Form 1041 by the fifteenth day of the fourth month after the close of the trust’s or estate’s tax year. For a calendar-year trust or estate, the due date is April 15. If the tax year for a trust ends on June 30, the filing deadline is October 15 (the 15th day of the 4th month after its fiscal year-end).
A bankruptcy estate with a filing requirement must file Form 1041 by the 15th day of the 4th month following the close of the tax year (usually, this date is April 15, for calendar-year bankruptcy estates)
A personal representative or executor should file Form 56, Notice Concerning Fiduciary Relationship to notify the IRS of the existence of a fiduciary relationship.
The unlimited estate tax marital deduction is only available if the surviving spouse is a U.S. citizen.
For tax year 2023, the requirement to file a return for a bankruptcy estate applies only if gross income is at least $13,850. This amount is equal to the standard deduction for married individuals filing a separate return and is generally adjusted annually.
The Smith Family Trust is an irrevocable trust that operates on a fiscal year-end of July 30. The trust has a filing requirement. When is the trust’s tax return due (Form 1041)?
November 15
The Smith Trust must file its tax return by November 15 (the 15th day of the fourth month following the close of its tax year). For trusts operating on a calendar year, returns are normally due April 15.
