FATCA stands for the Foreign Account Tax Compliance Act. It is a United States federal law that was enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act.

The primary purpose of FATCA is to combat tax evasion by U.S. citizens and residents who hold financial assets and accounts outside of the United States. Under the FATCA provisions, all US citizens must report foreign financial accounts and assets. While FATCA is not aimed directly at cracking down on US expats, it impacts many expats, as they may have an additional reporting requirement to ensure compliance with FATCA.

As a US citizen or green card holder living abroad with foreign bank accounts, you may be required to file Form 8938: Statement of Specified Foreign Financial Assets, together with your US tax return, if the aggregate value of your accounts and assets exceeds a certain threshold (see below), depending on your filing status. 

In addition to foreign bank accounts, foreign stock, mutual funds, precious metal holdings, partnerships and even foreign life insurance may be reportable on Form 8938. Please be aware that FATCA requires foreign financial institutions to provide information to the IRS about US citizens holding accounts. If you have substantial balances in foreign banks and own substantial foreign assets, you may be non-compliant if you have not filed Form 8938 to disclose your foreign holdings, even if you have continued to file US returns yearly.

The penalties for non-compliance with filing Form 8938 are very severe: $10,000 per violation, an additional penalty of up to $50,000 for continued failure to file after an IRS notification, and a 40% penalty on any understatement of tax attributable to non-disclosed assets.

Lakeline Tax Professionals can prepare your complete Streamlined Filing Compliance Procedures package to the IRS on your behalf. There are additional charges if you owned a foreign corporation, had rental income, need state returns, or need additional FATCA forms.

The package includes:

Preparation of Form 14653, Certification by US Person Residing Outside of the United States for Streamlined Foreign Offshore Procedures.

Form 146543 certifies that you are eligible as a delinquent filer to qualify for the Streamlined Filing Compliance Procedures because your tax delinquency was non-willful, in that you were genuinely unaware of your filing obligation.

Preparation of the last three years of delinquent federal tax returns.

Preparation of the last six years of FBARs, Reports of Foreign Bank and Financial Accounts (up to 8 accounts per FBAR).

A person who is not either a US citizen or national and does not meet either of the IRS tests to be considered a US resident alien is regarded as a non-resident alien.

The two tests to be considered a US resident alien for US tax purposes are as follows:

1. The Green Card Test – a non-US citizen or national who possesses a US Green Card, or
2. The Substantial Presence Test – a non-US citizen or national who meets the Substantial Presence Test. The Substantial Presence Test is met if someone is physically present in the US for either at least 31 days during a tax year or 183 days during a three consecutive year period, counting –

• • All the days they were present in the third year, and
  • 1/3 of the days that they were present in the second year, and
  • 1/6 of the days that they were present in the first year

There are a few exceptions to the non-resident classification—daily commuters from Mexico or Canada and some international students and teachers—to name a few.

Non-resident aliens file their US returns on Form 1040-NR, US Non-resident Alien Income Tax Return, and only report income earned or derived from US sources on the return. While wage income is usually taxed at the same graduated rates applicable to US citizens and resident aliens, portfolio income such as interest, dividends, and capital gains is generally taxed at a flat 30% rate. In some cases, a lower rate is applicable via an income tax treaty with the non-resident alien’s home country.

It is not uncommon for U.S. Taxpayers to have dual citizenship in a foreign country. In a common scenario, a foreign taxpayer who is a citizen of another country comes to the United States on a work visa, transfers to lawful permanent resident status, and then becomes a US citizen. Unfortunately, there are many IRS tax traps to consider when someone is a dual citizen. It is also important to note that there are two aspects of dual citizenship. There is the immigration issue of becoming a United States citizen and then there is the tax implication of being a dual citizen and there are also international reporting requirements as well (FBAR, FATCA, etc). Don’t allow dual citizenship tax-related burdens to dominate your life. Reach out to our Lakeline Tax experts today at 512-335-8037 or schedule a free consultation today. 

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