A tax accountant’s take on FATCA and the FBAR
by Eric Jackson
It’s approaching that time of the year again. US income tax filers living abroad get a two-month automatic extension on the filing date — that would make a June 15 deadline — although they can get a further extension just by asking. Thus another Democrats Abroad seminar on the controversial Foreign Account Tax Compliance Act (FATCA) and the much older and separate — but potentially more frightening — Foreign Bank Account Report. The resident expert who spoke about these subjects at a May 21 seminar at CELI on Via Expaña, tax accountant Joel Davids, is busy and travels quite a bit but is often to be found in Coronado these days.
FATCA was passed in 2009 and supposed to go into effect the following year, but it has become something of a political football and still hasn’t been entirely implemented. Its application to foreign banks, which sometimes reject American customers to avoid the overhead of reporting or the possibilities of sanctions that could lose them the ability to have corresponding bank relationships with banks in the United States, may be more consequence to US citizens abroad than are the provisions personally applicable to those citizens.
Democrats Abroad, with chapters around the world, has led the charge for a “safe harbor” provision for the need to file the Form 8938 FATCA disclosures. “Safe harbor” in its purest form would be that FATCA applies to the accounts of Americans who have assets in Panama but don’t live here, while the law would not apply to the accounts of Americans who actually live here. But the reporting thresholds approach that. People living in the USA with specifically covered assets don’t have to report unless, if filing as singles they had $50,000 in such assets on the last day of the year or $75,000 on any day of that year. (For married couples in the USA the figures are $100,000 and $150,000 respectively.) If you are an American living in Panama, however, filing singly you must have possessed $200,000 worth of specified assets on the last day of the year or $300,000 at any time in that year, with those figures double for those filing as married couples.
There are all sorts of distinctions to determine which foreign assets are covered by FATCA but an important one for residents of Panama to understand is that owning a home in one’s name does not make that asset reportable under FATCA but owning that same home in the name of a foundation or corporation does. Under Panamanian laws and customs there are good reasons why real estate is held in the name of a company or foundation — die with a house in one’s name and it’s likely that heirs will not receive it but rather it will have to be sold to pay the lawyer bills of a probate process. The important thing to know is that for an American living here on a certain economic level interactions between US and Panamanian laws can cause complications in his or her life. Proper professional advice is a good idea if you have that sort of wealth.
The FBAR, a Treasury form that’s basically a measure against money laundering and is separate from the tax system, applies to the foreign bank, brokerage and certain other accounts of US citizens if on any day in a given tax year the aggregate value of all those accounts was $10,000 or more. The penalties for failure to file can be severe.
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