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            New rules and regulations are appearing regularly changing the requirements for U.S. persons with foreign assets to report the ownership of those assets, their value and any income received from the assets.  Paul Wigg-Maxwell has thirty years of experience working with these changing rules and monitoring the changes.

            A more recent focus has been on the reporting of foreign bank accounts.  The press has been full of reports of new disclosures by Swiss banks and other foreign banks of their banking records to the IRS.  This has led to heightened scrutiny of such foreign accounts and the significant penalties that may be imposed for failure to file reports (FBARs) disclosing ownership of those accounts.  All of a sudden persons are finding themselves trapped in the uncomfortable position of knowing they need to disclose the existence of a foreign bank account, but fearing that the penalty for such disclosure may be more than they can bear.

            Paul Wigg-Maxwell has worked with individuals at all different levels of exposure on such FBAR disclosures.  He is familiar with the range or outcomes and likely results for many situations.  It is usually possible to resolve these situations with a much smaller penalty than most people anticipate.

            The next waive of disclosures has already begun.  The IRS has announced new requirements (FATCA) for disclosing ownership of specified foreign financial assets.  These requirements expand the need to report well beyond the existence of bank accounts.  Investment in business abroad through foreign stock, or securities now must generally be reported.

Paul Wigg-Maxwell has prepared the following guide to FATCA filing to help individuals understand the basic requirements.


            Under new rules, all U.S. taxpayers must report their foreign assets if those assets exceed the Applicable Threshold Amount in value. The foreign asset values are reported on Form 8938 with the tax return filed for the years.  The penalty for failure to file is $10,000.

It is not just Foreign Banks Anymore!

            The IRS has been chasing U.S. taxpayers with foreign bank accounts for years.  Foreign Bank Account Reports (FBARs) have been required to be filed by June 30, annually.  Now the reporting requirement has been expanded to include Specified Foreign Financial Assets.

What Must Be Reported Under FATCA?

1.    Accounts maintained at a foreign financial institution;

2.    Other foreign financial assets even though not maintained at a foreign financial institution (Foreign Direct Financial Asset), including:

a.  Stock or securities issues by a non U.S. corporation, entity or government;

b.  Any stock, partnership interest, membership interest or other ownership of a foreign entity;

c.  Any financial instrument or contract that has an issuer or counterparty that is not a U.S. person.

Important Rule:  The value of your foreign financial assets includes your foreign bank account values.  Just because you filed an FBAR and reported your foreign bank accounts does not excuse you from also filing the FATCA Form 8983.  Each is its own separate filing requirement and filing one doesnt prevent you from being penalized for failure to file the other.

What is a Foreign Financial Account?

            A foreign bank, a foreign brokerage account, a foreign trading account, a foreign mutual fund, a foreign hedge fund, and foreign private equity funds are all examples of foreign financial accounts.

What is a Foreign Direct Asset?

            Stock issues by a foreign corporation; a 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 or similar financial interest with a foreign counterparty; and an option or other derivative with respect to any of these Foreign Direct Assets.

What is the Applicable Threshold Amount?

There are different Applicable Threshold Amounts depending upon whether you file unmarried, married, filing jointly; or married filing separately.  The Applicable Threshold Amount is actually two thresholds, one based upon the Snap Shot value of your foreign assets at the end of the year and a second, higher Peak Value threshold based on the highest value of your foreign assets over the course of the year.

Table 1: Applicable Threshold Amounts for 2014
Filing Status U.S. Snap Shot    U.S. Peak Foreign Snap Shot Foreign Peak
Unmarried $50,000 $75,000 $200,000 $300,000
Married, Joint $100,000 $150,000 $400,000 $600,000
Married, Separate $50,000 $75,000 $200,000 $300,000

            Notice the two extra columns in the table on the right.  The higher thresholds apply to U.S. taxpayers that live outside the United States.  This makes sense, someone living outside the United States is likely to have more foreign assets and a higher threshold should apply for triggering the reporting requirement.  Note, however that the thresholds are unrealistically low. 

The IRS considers you to live outside the country if your tax home is outside the country, you meet one of two presence abroad tests, and no exception causes you to nonetheless be considered to live in the United States for these purposes.

                       What is Excluded from the FATCA Filing Requirement?

1.         Foreign Social Security.  An interest in a foreign government program for social security, social insurance, or other similar program is not a Specified Foreign Financial Asset.  A foreign private pension account is not exempt, nor is a foreign retirement account that is exempt from foreign tax, if it is privately held rather than a government program.

2.         U.S. Payer Accounts.  An investment in a foreign assets that is held in an investment account with a U.S. financial institution does not have to be reported.

3.         Duplicative Reporting.  You dont have to report any asset on Form 8983 that you report on another IRS tax form filed with your tax return for the year, such as Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts; From 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations; Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund; or Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships.  Nonetheless, the value of these items counts towards the Applicable Threshold Amount.  Note that you must report Foreign Bank Accounts twice, because the FBAR is not on the list of the exempt forms.

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