Do you have foreign assets? Each United States person—citizen, resident, corporation, partnership, limited liability company, trust and estate—must file a Report of Foreign Bank and Financial Accounts (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.

Generally, an account at a financial institution located outside the United States is a foreign financial account. Whether the account produced taxable income has no effect on whether the account is a “foreign financial account” for FBAR purposes. You need to use FinCEN Form 114.

For FBAR purposes, the following are all considered financial accounts:

• Bank accounts such as savings accounts, checking accounts and time deposits.
• Securities accounts such as brokerage accounts and securities derivatives or other financial instruments accounts.
• Commodity futures or options accounts.
• Insurance policies with a cash value (such as a whole life insurance policy).
• Mutual funds or similar pooled funds (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions).
• Any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution.

It’s easy to remember the due date: The FBAR is an annual report, due April 15 following the calendar year reported. And the IRS grants an automatic extension to Oct. 15 if you fail to meet the FBAR annual due date of April 15. You don’t need to request an extension to file the FBAR.

However, filing isn’t the only requirement. You must keep records for each account you must report on an FBAR that establish:

• Name on the account.
• Account number.
• Name and address of the foreign bank.
• Type of account.
• Maximum value during the year.

The law doesn’t specify the type of document to keep with this information; it can be bank statements or a copy of a filed FBAR, for example, if they have all the information. You must keep these records for five years from the due date of the FBAR.

Know the Exceptions

To make it easier, the IRS has granted exceptions in certain situations. You don’t need to report foreign financial accounts that are:

• Correspondent/nostro accounts.
• Owned by a governmental entity.
• Owned by an international financial institution.
• Maintained on a U.S. military banking facility.
• Held in an individual retirement account you own or are a beneficiary of.
• Held in a retirement plan of which you’re a participant or a beneficiary.
• Part of a trust of which you’re a beneficiary, if a U.S. person (trust, trustee of the trust or agent of the trust) files an FBAR reporting these accounts.

There are additional rules and exceptions. If you have foreign assets or have any questions on the information in this article, please call your CironeFriedberg professional.  You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford), or email us at info@cironefriedberg.com.

Changes are in store this tax season for companies that report information in Box 7 of Form 1099-MISC.  For 2020, these amounts will be entered on the new Form 1099-NEC.

Starting tax year 2020, any business, regardless of size, that pays at least $600 for services performed in the course of their trade or business by a person who is not their employee is required to file Form 1099-NEC.

Why the Change?

Prior to tax year 2020, nonemployee compensation was reported in Box 7 on Form 1099-MISC. However, since 2015, the due date for reporting amounts in Box 7 was accelerated to January 31, while the deadline for reporting most other information on Form 1099-MISC remained at February 28, if filing on paper, and March 31, if filing electronically.

To alleviate the problems caused by conflicting due dates, the IRS reinstated Form 1099-NEC (last used tax year 1982) to report nonemployee compensation separately from other types of income reported on Form 1099-MISC, and imposed an earlier due date of January 31 whether filing paper or electronically.

Who Must File?

Any business should file the new form for each person whom they have paid at least $600 for:

• Services performed by someone who is not their employee (including parts and materials) (Box 1);
• Cash payments for fish (or other aquatic life) purchased from anyone engaged in the trade or business of catching fish (Box 1); or
• Payments to an attorney (Box 1).

Businesses must also file Form 1099-NEC for each person from whom they have withheld any federal income tax (report in Box 4) under the backup withholding rules regardless of the amount of the payment.

It is important to file on time, with the correct information, to avoid penalties. The amount of the penalty, which can be as high as $280 per information return, is based on when the filer submits a correct information return. If the failure to file a correct information return is due to intentional disregard, the penalty is at least $560 per information return with no maximum penalty.

Elimination of 30-day Extension

In addition to accelerating the due date for filing Form 1099 that includes nonemployee compensation (NEC) from February 28 to January 31, the IRS also eliminated the automatic 30-day extension.

The IRS does allow for an extension to file if the filer meets one of the five criteria outlined on Form 8809, Application for Extension of Time to File Information Returns. Some of the criteria listed are:

• The filer suffered a catastrophic event in a federally declared disaster area that made the filer unable to resume operations or made necessary records unavailable;
• Fire, casualty, or natural disaster affected the operation of the filer; and
• Death, serious illness, or unavoidable absence of the individual responsible for filing the information returns affected the operation of the filer.

What is still reported on Form 1099-MISC?

All of the other income typically reported by a filer on Form 1099-MISC will stay on that form. Many of the boxes, however, have been rearranged.

According to the IRS, changes in the reporting of income and the form’s box numbers are as follows:

• Payer made direct sales of $5,000 or more (checkbox) in Box 7.
• Crop insurance proceeds are reported in Box 9.
• Gross proceeds to an attorney are reported in Box 10.
• Section 409A deferrals are reported in Box 12.
• Non-qualified deferred compensation income is reported in Box 14.

Boxes 15, 16, and 17 report state taxes withheld, state identification number, and amount of income earned in the state, respectively.

Form 1099-MISC must be filed by March 1, 2021, if filing on paper, or March 31, 2021, if filing electronically.

State Filing

It is important to note that e-filed Form 1099-NEC will not be forwarded to states. For those who made use of the IRS 1099 Combined Federal/State electronic filing program, the 1099-NEC information will not be shared with the states.

Under the CF/SF Program, the IRS forwards data from a number of key forms to the appropriate states, but it will not do so for Form 1099-NEC. Businesses need to be sure to file separately to the states based on their respective due dates and requirements.

Should you have any questions about the new 1099-NEC or require our assistance, please contact your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford), or email us at info@cironefriedberg.com.