Category: expats

Is there a monster living under your bed?

As published in The XPat Journal, Spring 2015. www.xpat.nl/xpat-journal

Is there a monster living under your bed?

What all U.S. expats need to know

By Charles Rubenacker

If you are an expatriated American, you might want to keep your lights on. Those dust bunnies could be more than meets the eye.

First and foremost, if you are an American expatriate living in the Netherlands – or many other countries – you absolutely need to report your income to the United States government, via a ‘tax return’ (Form 1040), regardless of how long you have lived abroad. Along with that obligation comes another surprise to many expats. If you reside outside the U.S. and have foreign accounts or investments that total more than $200,000 at the end of the tax year, or more than $300,000 at any time during the tax year, you are required to file a Form 8938 along with your Form 1040. (Filing status will affect these totals.) Let’s take a closer look at this latter obligation, referred to as ‘FATCA’.

The Foreign Account Tax Compliance Act (FATCA) has been dominating the financial news, both at home and abroad. Why?

FATCA was quietly signed into law in March 2010. The published reason for FATCA’s coming into existence was to target non-compliant U.S. taxpayers with foreign accounts, focusing on U.S. taxpayers that may not have been reporting certain foreign financial accounts and offshore assets. FATCA reaches beyond the individual, however, and has been steadily bringing foreign financial institutions into the scheme, requiring those institutions to report any U.S. taxpayers with a foreign account, and also to report any foreign entity that is substantially owned by a U.S. taxpayer. Although deemed a voluntary program, foreign financial institutions not participating face economic sanctions by the U.S. government for failure to comply. To date, 51 nations have signed disclosure agreements under the Intergovernmental Agreement (IGA) and obtained their Global Intermediary Identification Number (GIIN) from the U.S. Treasury Department. Those 51 nations include the Netherlands.

Under FATCA, to avoid being withheld upon, foreign financial institutions (FFIs) may register with the IRS and agree to report to the IRS certain information about their U.S. accounts, including accounts of certain foreign entities with substantial U.S. owners. (In the Netherlands alone, more than 3,100 institutions have already registered.) FFIs that enter into an agreement with the IRS to report on their account holders may be required to withhold 30% on certain payments to foreign payees, e.g. expats, if such payees do not comply with FATCA. Unless exempt, FFIs that do not both register and agree to report U.S. taxpayer accounts face a 30% withholding tax on certain U.S.-source payments made to those foreign financial institutions.

Also keep in mind that these FATCA requirements are in addition to the long-standing requirement to report your foreign financial accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) (formerly TD F 90-22.1).

There are serious penalties for not reporting these financial assets if you must file FATCA Form 8938 and do not do so; you may be subject to harsh penalties: a $10,000 failure-to-file penalty, plus an additional penalty of up to $50,000 for continued failure to file after IRS notification, and a 40-percent penalty on an understatement of tax attributable to non-disclosed assets.

According to the U.S. Treasury Department, “Those required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation.”

Remember, as the final FATCA agreements are signed and FFIs continue to register with the IRS, your foreign financial account information will no longer be a private matter; it will be surrendered to the U.S. Treasury Department.

So keep your lights on. Not complying will awaken the monster under your bed.

 

Recommended Bedtime Reading:

Foreign Account Tax Compliance Act (FATCA) – Resource Center — http://www.treasury.gov/resource-center/tax policy/treaties/Pages/FATCA.aspx

Summary of FATCA Reporting for U.S. Taxpayers — http://www.irs.gov/Businesses/Corporations/Summary-of-FATCA-Reporting-for-U.S.-Taxpayers

Report of Foreign Bank and Financial Accounts (FBAR) — http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR

Will expat “babies” need to be reported?

First it was reporting your worldwide income — but, don’t forget to report your worldwide “babies” too!!

Reprinted from U.S. Immigration and Naturalization—Service Law Books

INA: ACT 301 – NATIONALS AND CITIZENS OF THE UNITED STATES AT BIRTH

Sec. 301. [8 U.S.C. 1401] The following shall be nationals and citizens of the United States at birth:

(a) a person born in the United States, and subject to the jurisdiction thereof;

(b) a person born in the United States to a member of an Indian, Eskimo, Aleutian, or other aboriginal tribe: Provided, That the granting of citizenship under this subsection shall not in any manner impair or otherwise affect the right of such person to tribal or other property;

(c) a person born outside of the United States and its outlying possessions of parents both of whom are citizens of the United States and one of whom has had a residence in the United States or one of its outlying possessions, prior to the birth of such person;

(d) a person born outside of the United States and its outlying possessions of parents one of whom is a citizen of the United States who has been physically present in the United States or one of its outlying possessions for a continuous period of one year prior to the birth of such person, and the other of whom is a national, but not a citizen of the United States;

(e) a person born in an outlying possession of the United States of parents one of whom is a citizen of the United States who has been physically present in the United States or one of its outlying possessions for a continuous period of one year at any time prior to the birth of such person;

(f) a person of unknown parentage found in the United States while under the age of five years, until shown, prior to his attaining the age of twenty-one years, not to have been born in the United States;

(g) a person born outside the geographical limits of the United States and its outlying possessions of parents one of whom is an alien, and the other a citizen of the United States who, prior to the birth of such person, was physically present in the United States or its outlying possessions for a period or periods totaling not less than five years, at least two of which were after attaining the age of fourteen years: Provided, That any periods of honorable service in the Armed Forces of the United States, or periods of employment with the United States Government or with an international organization as that term is defined in section 1 of the International Organizations Immunities Act (59 Stat. 669; 22 U.S.C. 288) by such citizen parent, or any periods during which such citizen parent is physically present abroad as the dependent unmarried son or daughter and a member of the household of a person (A) honorably serving with the Armed Forces of the United States, or (B) employed by the United States Government or an international organization as defined in section 1 of the International Organizations Immunities Act, may be included in order to satisfy the physical-presence requirement of this paragraph. This proviso shall be applicable to persons born on or after December 24, 1952, to the same extent as if it had become effective in its present form on that date; and

(h) a person born before noon (Eastern Standard Time) May 24, 1934, outside the limits and jurisdiction of the United States of an alien father and a mother who is a citizen of the United States who, prior to the birth of such person, had resided in the United States.

Expat & can’t meet the April 15 deadline?

Expats may be allowed an automatic 2-month extension of time to file your return and pay any federal income tax that is due. You will be allowed the extension if you are a U.S. citizen or resident alien and on the regular due date of your return:
•    You are living outside of the United States and Puerto Rico and your main place of business or post of duty is outside the United  States and Puerto Rico, or
•    You are in military or naval service on duty outside the United States and Puerto Rico
If you use a calendar year, the regular due date of your return is April 15, and the automatic extended due date would be June 15. If the due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day.

Even if you are allowed an extension, you will have to pay interest on any tax not paid by the regular due date of your return.

Corporate Filing Deadline

March 16, 2015

Deadline for corporate tax returns (Forms 1120, 1120A, and 1120S) for the year 2014, or to request automatic 6-month extension of time to file (Form 7004) for corporations who use the calendar year as their tax year. (The normal deadline for corporate returns is March 15th, but this falls on a Sunday, so the deadline is pushed to the next business day, which is Monday, March 16th.)