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Rubin Law

US and Cross-Border Tax Assistance

+1 (404) 247-5466
[email protected]

Rubin Law Assoc. P.C.
175 Ranchette Rd Milton, GA 30004

Richard Rubin

FATCA Tax Reporting for US Residents with Foreign Bank Accounts

Bank accounts in countries outside the US can cause headaches when owned by US taxpayers. The problem has been heightened by FATCA rules that have being implemented in a number of countries outside the US.

FATCA applies to US citizens, green card holders and other US tax resident individuals who have accounts with non-US banks or financial institutions.

An acronym for the Foreign Account Transactions Compliance Act, FATCA requires banks and financial institutions in countries outside the US to provide the IRS with details of accounts that are owned by US taxpayers. Although the mechanism varies by country, in most countries where FATCA has been implemented banks and financial institutions are required to report these details to the Revenue Authority of that country, and the Revenue Authority is required to pass this information along to the IRS.

Foreign banks are generally required to report accounts known to be owned by US citizens and green card holders, as well as accounts owned by anyone who is potentially US tax resident, as indicated by an associated US address, US telephone number, or US person with signing power or other authority over the account.

US taxpayers who have duly reported their non-US bank and financial accounts on their US tax returns and on their Foreign Bank Account Reports (“FBAR’s”), need not be concerned about FATCA. US taxpayers who have not reported their non-US accounts are exposed to an IRS audit, triggered by FATCA reporting.

The IRS takes non-compliance seriously, as is evident from the penalties that are imposed for failing to report foreign bank accounts.  Individuals who are required to report their non-US bank accounts, but have not done so, typically face heavy penalties and in some cases criminal prosecution when the IRS discovers their foreign accounts through FATCA reporting.

Green card holders are often unaware that if they spend even a short period in the US they become US taxpayers; and being unaware of their US taxpayer status, they generally don’t file US tax returns or FBAR’s – with the result they also fail to report their non-US accounts. FATCA reporting sometimes causes their bank to render their account details to the IRS before they get to make the necessary disclosures.

In most cases the problem of unreported foreign accounts can be relieved through Voluntary Disclosure to the IRS.  There are different categories of Voluntary Disclosure. In certain cases, the risk of criminal prosecution may favor a solution that focuses on reducing the chances of criminal indictment; while in others, the risk of criminal prosecution is sufficiently low allowing focus on a solution that reduces or eliminates civil penalties.

While the remedy always depends on the specific facts, doing nothing about foreign unreported accounts is never a good solution.

See FATCA Tax Reporting.

Moving to the US?

Most individuals who move to the US benefit by delaying the date they become US tax residents. With the correct advice, US tax residency can legitimately be delayed through a variety of processes, sometimes for a number of years.

Aside from delaying the date of US tax residency, it is essential for tax planning and tax return purposes that the individual knows in advance the date on which his tax status will change.

On the date an individual’s tax status changes to US tax resident, the tax status of his assets (for example, interests in foreign companies and trusts) is effectively reclassified – with the result the tax rules applicable both to the individual and his assets change substantially.

The transition from non-resident to normal US tax status requires careful planning from practitioners experienced in this area. Many foreign corporate and trust structures are undesirable from the US tax perspective, and typically need to be modified early in the transitionary period.

We have the experience to advise you on delaying the change to US tax residency, planning for the change, and preparing your US tax returns for the transitionary period.

Investing into the US

Structuring investment into the United States entails a number of considerations, and can be tricky.

Because of the high US taxes and withholding taxes that usually apply to returns on inbound investment, structures need to take advantage of US domestic opportunities that permit lower US tax.

It’s also important to take full advantage of reductions in withholding tax under applicable US Tax Treaties. This entails compliance with the Limitation On Benefits (LOB) requirements that apply under most Treaties.

Dealing with LOB requires skill and experience, especially where the investors reside in more than one country, or in a country with unfavorable Treaty provisions.

In addition to LOB, intermediate holding structures need to satisfy additional requirements, including intermediate country tax efficiency, the existence of suitable infrastructure and substance in intermediate countries, and in some cases, acceptable intermediate country perception.

We have significant experience with inbound investment structures. We work with select non-US firms to ensure satisfaction of the non-US components.

About Rubin Law

Richard and the team at Rubin Law have significant experience with corporate transactions as well as individual tax matters.

Exporting to the US?

When a non-US business exports product to the US, a number of tax and regulatory factors come into play, some impacting the product imported, and others impacting the exporter’s US structure and activities.

Where the exporter appoints a US distributor, and as a result does not get involved with US structures or activities, the US regulatory requirements are generally limited to matters such as Tariff classification, import security, labeling, and satisfying the requirements of any relevant US government agencies (such as the FDA, USDA, etc).

Where the exporter undertakes their own US distribution, US tax becomes a vital consideration. The difference between US tax rules and the tax rules of other countries make it essential to obtain US tax advice on the structure and related tax consequences prior to export.

IRS Audit?

Non-US entities require highly specific US tax treatment in many situations, including cases where they conduct business in the US; own US entities; are owned by US taxpayers; are funded by US taxpayers; make distributions to US taxpayers; or are managed by US taxpayers.

Care needs to be taken to avoid US taxpayers from being taxed on the income earned by some foreign entities, for example, certain Controlled Foreign Corporations (CFCs) or Foreign non-Grantor Trusts.

Care also needs to be taken to avoid US taxpayers from penalties or other harsh tax treatment often accorded to investments in Passive Foreign Investment Companies (PFICs) such as certain foreign hedge fund investments.

We can advise you on US tax planning and US tax reporting relating to non-US entities.