Public Provident Fund (PPF) & FBAR Compliance
If you have invested in a Public Provident Fund in India, and are a U.S. taxpayer, you need to report these accounts to the IRS.
While these accounts are tax-free in India, they are not tax-exempt in the United States. If you would like to schedule a free, no-obligation call to discuss your personal tax situation, please contact us.
Public Provident Funds and the IRS
What are Public Provident Funds
Public Provident Funds are a popular tax saving plan in India. PPF's are long-term investments that are backed by the Government of India. The minimum deposit requirements are very low and affordable in these accounts . These are tax-free in India, easily accessible, simple to understand, thus making them a popular investment vehicle for a large majority of individuals in India.
PPF and the U.S. Government
The United States does not recognize Public Provident Funds as tax-free investments. The earnings from a PPF need to be reported each year on the United States tax return as they accrue.
Individuals with investments in PPF's are required to report all interest, dividends and capital gains, even if they are reinvested into the account, and regardless of whether the account has reached maturity or not.
WHO MUST FILE FBAR?
A U.S. taxpayer or resident is required to file an FBAR if:
The person had a financial interest in or signature authority over (or any other authority over) at least one financial account located outside of the United States and, the aggregate value of all foreign financial accounts exceeded $10,000 at any time during a calendar year.
For tax purposes, U.S. persons include U.S. citizens and residents. It also includes entities, such as corporations, partnerships, and limited liability companies created or organized in the United States.
A person with "signature authority" is a person who can control the disbursement of money or other property in the account using his or her signature. A person with "other authority over an account" is a person who can exercise power over an account by communicating directly, orally or otherwise, to the financial institution or other person maintaining the account.
PENALTIES FOR NOT FILING FBAR
People required by law to file an FBAR who do not do so, or who do not do so accurately, may be subject to civil penalties for negligence, nonwillful violations, and willful violations. Below are the penalties that may be executed for willful and nonwillful violations:
Nonwillful violations - A penalty, not to exceed $10,000, may be imposed on any person who violates or causes any violation of the FBAR filing and recordkeeping requirements that are not due to reasonable cause (Internal Revenue Manual (IRM) §18.104.22.168.4).
Willful violations - Persons who willfully fail to report an account may be subject to a penalty equal to the greater of $100,000 or 50% of the balance in the account at the time of the violation, for each violation, under 31 U.S.C. Section 5321(a)(5) (IRM §22.214.171.124.5). Willful violations may also be subject to criminal penalties under 31 U.S.C. Section 5322(b) or 18 U.S.C. Section 1001.
WHAT IS OVDP?
Over the years, the IRS has offered several formal offshore voluntary disclosure programs (OVDP). These programs have allowed qualifying taxpayers with previously undisclosed foreign accounts and assets to come forward and voluntarily disclose those accounts in exchange for potentially reduced penalty charges.
In June 2014, the IRS announced several major changes to the Offshore Voluntary Disclosure Program (OVDP), including increasing the offshore penalty from 27.5% to 50% for certain accounts. At the same time, the IRS expanded its streamlined filing compliance procedures, which offer an alternative (and generally less expensive) route to disclosure for those taxpayers willing and able to certify that their failure to report the foreign assets and pay any resulting tax was not willful.
If you have questions concerning your eligibility in regards to the various IRS OVDP programs, please contact us. We would be happy to discuss the various options that may be available to you.
PPF & IRS Help
Freeman Tax Law is a comprehensive international tax firm, comprised of a full-service team of Attorneys, CPA's and former IRS agents.
We have handled hundreds of offshore disclosure cases, and will help you understand your obligation in regards to the receipt of foreign gifts and bequests. We will clearly explain your options in making all necessary disclosures to the IRS.
CONTACT FREEMAN TAX LAW
Federal and state laws change frequently. For current tax or legal advice, an attorney or CPA should be consulted. The information contained in this article is not exhaustive, and is not a substitute for competent legal advice. If you have a question concerning a foreign account or offshore holdings, please contact us. The initial consultation is always free, and of course all communication will be confidential.
ATTORNEY - CLIENT PRIVILEGE
The attorney-client privilege is one of the oldest American privileges for confidential communications. All communications with Freeman Tax Law regarding a legal issue will be treated with the strictest confidence and protected under the attorney client privilege.