As tax season rolls around, many American expats are coming face to face with their FATCA obligations, and the infamous FATCA Form 8938. While it is not illegal to maintain a foreign account, it is required to disclose the account to the Internal Revenue Service (IRS) since the U.S. taxes all income and assets of its citizens on a global scale. It’s a reporting requirement for all US taxpayers as well as all financial institutions that have US person clients. 

Identity Crisis: Am I a U.S. Person?

The notion of “US person” can be a bit confusing as it contains certain unexpected people and entities. The category of US person includes American citizens, green card holders, some other visas in specific cases, as well as certain institutions such as US corporations, trusts and partnerships. It’s important to verify if you are considered a US person as it can sometimes happen accidentally.

Uncle Sam Wants to Know: the origins of FATCA

The Foreign Account Tax Compliance Act (FATCA) was put into place to fight tax evasion and ensure that US taxpayers weren’t hiding financial assets abroad. The regulation, which went into effect in 2014, requires all taxpayers who meet the minimum requirements to fill out Form 8938 and declare all their foreign accounts and assets. Due to the growing global nature of our modern lives, FATCA compliance is becoming a reality for more and more Americans. 

Form 8938: Are You on the FATCA Hook?

American taxpayers with foreign financial assets must fill out Form 8938 if they meet the thresholds listed below. Those assets may be a bank account, stocks, bonds, and other financial instruments, but does not include real estate property. 

• US residents:
  • Unmarried or married filing separately:
    • Total foreign financial assets is 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 couples filing separately must include one-half the value of any jointly-owned foreign financial assets to calculate total foreign financial assets, but must report the entire value on Form 8938.
  • Married filing jointly:
    • Total foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year. 

• Individual Taxpayers Living Abroad:
  • Unmarried or Married filing separately:
    • Total value of foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year.”
  • Married filing jointly: 
    • Total value of foreign financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year. These thresholds apply even if only one spouse resides abroad. 
• Foreign financial institutions: To the ire of many foreign institutions, all foreign banks and financial entities are required to comply with FATCA by disclosing the identities of U.S. taxpayers with accounts, and the value of the assets in those accounts. If not, they face penalties imposed by the IRS and the U.S. government.

FATCA and FBAR, the Dynamic Duo

The FBAR and FATCA reporting requirements are similar, but there are several significant differences. Some assets should be disclosed on one form but not the other, and some must be disclosed on both.

FATCA:

• Filed with the IRS
• Required for all American taxpayers and entities with foreign assets that meet the minimum threshold requirements
• The FATCA requires disclosure of foreign stocks and securities, partnership interests, hedge funds, and other private equity funds.

FBAR:

• Filed with FinCEN, which is part of the U.S. treasury department
• Must file if the total value of foreign financial accounts exceeds $10,000 at any time during the calendar year
• Must be filed by all US taxpayers living abroad and residents in US territories, as well as trusts, estates, and domestic entities with interests in foreign financial accounts.
• FBARs also must be filed on behalf of Filers must also declare accounts where they have signatory authority, and indirect ownership interests or beneficial interests.

Can I keep my assets invested in the US and avoid these requirements

At Harrison Brook, we have access to Investment Platforms which allow for American expats to keep their assets invested in the U.S. and avoid having to move funds overseas. That means we can manage your investments in U.S. custody while using your foreign address at account opening.

Stop the Money Woes, Hire a Cross-Border Financial Advisor That Knows!

If you are an American expat who is struggling to understand the maze of US and international financial requirements, the best solution is to work with the cross-border advisors at Harrison Brook. We have done the legwork to find the partners that comply with the complex web of regulations facing U.S. expats in order to build a top-notch team with the leading international estate, immigration and tax advisors. Harrison Brook is here to assist you in managing your financial assets, so don’t hesitate to book a meeting with us.