Fat Dad (FBAR) and Fat Coffee (FATCA)-How to declare overseas assets?

Specific overseas financial asset declaration

Because foreign account declarations are subject to the Bank Secrets Act. Although the U.S. Internal Revenue Service manages declarations, it cannot use foreign account information to check taxes in accordance with the law, so the IRS went to Congress to request legislation. In the 2010 "Foreign Account Tax Compliance Act (FATCA)", the Congress required the declaration of specified foreign financial assets on the income tax return for tax years ending after March 31, 2011 financial assets (IRC 6038D). Generally, taxpayers adopt the calendar year system, so they must declare the “specified foreign financial assets” of 2011 from this year (2012).

Do you need to declare foreign financial assets?

Article 6036D of the new FATCA law stipulates that the person who needs to declare foreign financial assets is a specific person whose ownership (interest) of a specific overseas financial asset exceeds the declaration threshold and needs to file an income tax return. The definitions of several proper nouns in this sentence are explained below.

Threshold

If the total maximum value of certain foreign financial assets exceeds US$50,000, taxpayers must file Form 8938. The IRS classifies the reporting threshold in the detailed rules. For those who live in the United States for a long time, 50,000 at the end of the year (75,000 in the middle of the year), and the couple’s joint filing will be doubled. If you live in a foreign country for a long time, you will get 200,000 at the end of the year (300,000 in the middle of the year).

Long-term residence in a foreign country adopts the conditions of "Foreign Labor Income Reduction" (Exemption from National Tax) in Article 911(d)(1) of the Tax Law. Taxpayers must choose to declare Form 2555. The IRS may also use Form 2555 to determine whether the taxpayer is long-term. Living in a foreign country. However, people living in countries with high tax rates may not choose to use Form 2555.

The three conditions for "going national tax" are:

It must be earned income (earned income) for the year,
The tax home (tax home, service location) must be in a foreign country,
You must be in a bona fide residence or physically present test.

The "long-term residence in a foreign country" condition that is suitable for raising the threshold is one of the two conditions of Article 3 above, and is explained as follows:

The first element of the bona fide residence rule is to establish a foreign nationality. If you file a tax declaration as a non-resident in your country of residence, you cannot use the bona fide residence rule. There are two conditions:

U.S. citizens set up a foreign nationality throughout the year, or
Permanent residents of the United States have a foreign nationality throughout the year and are citizens of the country of residence, and the country of residence has an income tax treaty with the United States. Among the four places in China, Taiwan, Hong Kong and Macao, only Chinese residents can enjoy this concession. There is no income tax treaty between Taiwan, Hong Kong, Macao and the United States, and this law does not apply.

The condition of the physically present rule is that a citizen or permanent resident has stayed outside the United States for more than 330 days in the past 12 months.

Specified Person

FATCA stipulates that only specified persons are required to declare specific foreign financial assets. Specific persons include individuals and legal persons. The IRS extended the declaration of legal persons by one year, and only certain individuals had to declare certain assets in 2011 in 2012. The new law defines a specific person as

citizen
Tax resident stipulated in Article 7701(b) of the Tax Law and its detailed rules. Tax residency regulations are complicated, and the law should be carefully studied. It generally includes green card holders and the personal residence rule, using a weighted method (the number of residence days in the current year divided by one, the number of residence days in the previous year divided by three, and the number of residence days in the previous year divided by Calculate the number of people who have lived in the United States for more than 183 days by adding up the six and three. But there are many exceptions, such as diplomats, students, visiting scholars, etc., although they are in the United States throughout the year, they are not counted as days of residence.
Non-resident foreigners who choose to file tax jointly with the resident spouse.
The tax law stipulates that green card holders can use the provisions of the income tax contract country to choose the status of a resident of the contract country and declare tax as a non-resident of the United States. However, FATCA stipulates that as long as you have a green card, even if you are a resident of the contract country, you are considered a specific person and must declare overseas assets.
Residents of Puerto Rico and American Sonoma

Specified overseas financial assets

Certain overseas financial assets are generally used for investment, not for business turnover. include

Accounts managed by foreign financial institutions (mostly duplicated with TDF90-22.1) and
Other foreign financial assets,
Stocks or securities issued by non-U.S. persons,
Any financial instrument or contract for investment in which the issuer or the contracting party is a non-U.S. person, such as option, futures, etc., and
Ownership of any foreign enterprise and institution (foreign entity) (e.g. partnership holdings).

Not all foreign assets must be declared, and real estate and tangible property are not in the scope of declaration. Moreover, some financial assets do not need to be declared. The IRS specifically lists the foreign financial assets that do not need to be declared in the detailed rules as follows:

Financial accounts managed by U.S. payers do not count as specific foreign financial assets. For example, the financial account of a US branch of a foreign financial institution or a foreign branch of a US financial institution does not need to be declared.
Assets that have been declared on the information reports of other companies or institutions. This includes: Form 3520, Form 3520 A, Form 5471, Form 8621, Form 8865 or Form 8891. The market value of specific financial assets on these statements is used to calculate the total value of specific foreign financial assets to determine the threshold for filing Form 8938, but there is no need to declare them one by one on Form 8938. The taxpayer indicated on the 8938 form that it had submitted several of these forms.
Certain trusts or estates, assets held by residents of U.S. territories, or marked to market assets under Section 475 of the Tax Code are not specific foreign financial assets.
Unless the beneficiary already knows or has reason to know the existence of a foreign trust or estate, the beneficiary right is not a specific foreign financial asset.
Social security, social insurance, or other similar pension plans provided by foreign governments are not specific foreign financial assets.
Beneficiaries of domestic bankruptcy trusts or domestic widely held fixed investment trusts (domestic widely held fixed investment trust) do not need to declare on Form 8938 that these trusts or other similar retirement plans are not specific foreign financial assets.

Asset market value

Because FATCA is used to prevent tax evasion, any tax return that must be reported will generate current and future income, gains and losses, deductions, credits, Distribution (distribution) and other overseas financial assets, even if there is no tax burden in the year, are considered equity and must be added to the threshold for calculation and declaration. For example, parents who choose to report their children's income on their tax returns should include the children's assets. Couples who file a joint tax return must file a Form 8938. Couples who file income tax returns are divided into half of the total assets. However, if the couple has only one tax return, all joint assets must be calculated. Assets shared with a non-spouse, even if both of them file tax returns, they must all be included. The method of calculating the market value is to use the currency to calculate the highest value, and then convert it into US dollars at the end of the year exchange rate.

Reporting information includes: the name, address and account number of the financial institution of the financial account, the issuer and type of stocks or securities, information sufficient to identify financial instruments, contracts, and ownership, as well as the name and address of the issuer or the counterparty, and the merger of financial assets in the current year (aggregated) The highest value.

Reporting methods and penalties

Form 8938 and Form 1040 are reported together, and the deadline is 4/15 (4/17 in 2012), and it can be postponed to 10/15. If a particular person does not need to file an income tax return, then there is no need to file 8893. If the report is not reported, the fine is $10,000. After being notified by the IRS, if it has not been reported for more than 90 days, it will increase by 10,000 U.S. dollars every 30 days, up to a maximum of 50,000 U.S. dollars. Taxpayers bear the burden of proof to prove that the maximum value of all their foreign specific assets does not exceed the threshold. If it is due to reasonable reasons and not intentional negligence, the penalty can be exempted, but the provision of information due to the civil law and criminal law of foreign governments cannot be used as a reasonable cause.

The new FATCA law also stipulates that if foreign assets are not reported, the tax penalty will also be increased from 20% to 40%. And under-reported income is more than five thousand US dollars (usually greater than 25% of the owed tax), and the owed tax assessment period has been increased from three years to six years. The verification period is the period within which the IRS can recover taxes.

Those who declare Form TDF90-22.1 are not exempt from reporting Form 8938, but if their assets have already been declared on the 3520, 5471 and other information reports, they can indicate it on Form 8938 without repeating the same information. The following table is a comparison between FBAR and FATCA regarding foreign investment.