Johnson the poster boy for US expats with tax woes

The US Treasury estimated that it will cost foreign banks and financial institutions $8 billion to comply with Fatca. This amount does not take into account the amount of time and cost that US citizens will need to take to comply with the demands of foreign banks and financial where they have accounts.

Foreign Bank and Financial Accounts

One of the local banks has requested its US clients to furnish them with a copy of the Report of Foreign Bank and Financial Accounts (FBAR) that was filed for the years 2008 to 2013. They further requested an efile receipt or certified mail receipt for proof of filing and additional information with respect to clients who participated in the Offshore Voluntary Disclosure Programme.

Those who have not filed an FBAR in prior years and who choose to file on their own should familiarise themselves with the Internal Revenue Service Streamlined Filing Procedures that can be found at the IRS website, www.irs.gov.

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding $10,000, the Bank Secrecy Act requires you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).

Who Must File an FBAR?

United States persons are required to file an FBAR if:

1. The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and

2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

United States person includes US citizens; US residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organised in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States. Exceptions to the FBAR reporting requirements can be found in the FBAR instructions.

Signature Authority

Signature authority is the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the bank or other financial institution that maintains the financial account

Reporting and Filing Information

A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.

The FBAR is a calendar year report and must be filed on or before June 30 of the year following the calendar year being reported. Effective July 1, 2013, the FBAR must be filed electronically through FinCEN’s BSA E-Filing System. The FBAR is not filed with a federal tax return. When the IRS grants a filing extension for a taxpayer’s income tax return, it does not extend the time to file an FBAR. There is no provision for requesting an extension of time to file an FBAR.

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 nonwillful 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.

The FBAR must be filed online by going to: www.bsaefiling.fincen.treas.gov

Boris Johnson

The following is a summation of an article that recently appeared in the Wall Street Journal. Wall Street Journal senior reporter Laura Saunders writes this week that London Mayor Boris Johnson has become the poster boy for millions of US expats with tax woes.

London Mayor Boris Johnson is a dual US/UK citizen because he was born in the US while his parents lived in the States for a few years. In the NPR interview, Johnson had complained that the US is “trying to hit” him for capital-gains tax on the sale of his London house, although he hasn’t lived in the US since he was five years old.

Robyn Limmer, a US/UK tax specialist notes that in order to figure their US taxes, expats often have to do complex currency translations. If the dollar/pound exchange rate had differed greatly between the time of the home’s purchase and sale, Johnson could have owed tax on a foreign currency profit as well as on the sale of the house.

In a further complication, the tax rules look separately at the foreign currency effects of mortgages on a home such as Johnson’s. Thus if he paid off a mortgage as part of selling the house and realised a foreign currency “profit” on that transaction because of differing exchange rates, that gain could be taxable as well.

The complexity of the US tax rules and fear of outsized penalties drives many expats to use professionals to prepare their US returns, which can be hundreds of pages long, says Limmer, and “the nightmares multiply” if expats have foreign savings accounts, pensions, or unit trusts.

As a result, the tax-prep fees owed by expats are often “out of all proportion” to their income, she adds.

Tax Reform

With the Republican Party having a majority in the House of Representatives and Senate starting in January 2015 there is little chance of any new tax legislation being passed in the remainder of 2014. What will likely pass is an extension of tax breaks that have a “one-year life” that continue to be extended year after year, but with approval coming only at the end of the tax year retroactive to January 1, 2014. An attempt to resolve this problem for 2015 was rebuffed by President Obama.

Pursuant to the requirements relating to practice before the Internal Revenue Service, any tax advice in this communication is not intended to be used, and cannot be used, for the purpose of (I) avoiding penalties imposed under the United States Internal Revenue Code, or (ii) promoting, marketing or recommending to another person any tax related manner.

The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own US tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.