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Expat Tax Info from Barron HarperFATCA Filing Requirements

By Barron Harper
www.taxbarron.com

FATCA Filing Requirements

For many years the FBAR (TD F 90-22.1) – Foreign Banking Account Report – has been required of Americans who maintain in a calendar year over $10,000 in one or more foreign financial accounts. The form is due annually at the US Department of Treasury in Detroit by 30 June for the previous calendar year. Dates stamped at a local post office whether at home or abroad are unacceptable. So any hapless filer whose FBAR arrives after the due date could find him/herself severely fined.

The FBAR is highly intrusive in that it requires that affected filers report the names, addresses, account numbers and maximum balances of their foreign financial accounts. It doesn’t matter whether one has an interest or just signing authority over the foreign account; it must be reported. And reported by US persons: US citizen, US (deemed) resident, US corporation, US partnership or US Trust.

This year the Internal Revenue Service has mandated another intrusive filing requirement the acronym of which sounds a bit like someone from the American Deep South might pronounce ‘fat cow’. ‘Why it’s called FATCA, darling.’ FATCA – Foreign Account Tax Compliance Act – requires specified individuals – US citizen or resident alien - with specified foreign financial assets to determine whether they are obliged to fatten this cow. In case anyone thinks he or she is off the hook as a nonresident alien Green Card holder, the IRS declares that such persons are still resident aliens for US filing purposes (even in cases where the Green Card expiration date has passed).

So what are specified foreign financial assets under FATCA? They are financial accounts maintained by a foreign financial institution. Or foreign financial assets held for investment such as 1) Stock or securities issued by someone other than a US person, 2) any interest in a foreign entity, 3) any financial instrument or contract that has an issuer or counterparty that is not a US person. In case you are wondering what is a foreign financial account, it is any depository or custodial account maintained by a foreign financial institution as well as any equity or debt interest in a foreign financial institution. Such an institution is any financial institution that is not a US entity.

Then there is a category of Other Specified Foreign Financial Assets: Stock issued by a foreign corporation. Capital or profits interest in a foreign partnership. A note, bond, debenture or other form of indebtedness issued by a foreign person. An interest in a foreign trust or foreign estate. An interest rate swap, currency swap, basis swap, interest rate cap or similar agreement with a foreign counterparty. Or an option or other derivative instrument with respect to any currency or commodity interested entered into with a foreign counterparty or issuer. In terms of Assets Held for Investment, these include any asset that is not used in the conduct of a trade or business.
Now before a sense of outrage overwhelms you, important is to understand the reporting thresholds (maybe a threshold lets you off the hook):

  • Unmarried and not living abroad - Specified foreign financial assets more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
  • Married, not living abroad and filing a joint tax return - Specified foreign financial assets more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
  • Married, not living abroad and filing separate income tax returns - Specified foreign financial assets more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
  • Married or single, living abroad and not filing a joint tax return - Specified foreign financial assets more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.
  • Married, living abroad and filing a joint tax return - Specified foreign financial assets more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.

FATCA appears to be a replication of FBAR reporting. And indeed it can be depending on one’s circumstances. The form must be filed with 2011 tax return (or sent in with an apology due to oversight). As the filing Form 8938 also asks for a Summary of Tax Items Attributable to the Specified Foreign Financial Assets being reported (i.e. Interest, Dividends, Royalties, Other Income Gains, etc, etc.), it is apparent that an intent of this report is to indirectly audit whether the filer dutifully reported foreign earnings from reported accounts.

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