California Resident Offshore Reporting for FBAR, FATCA & More

California Resident Offshore Reporting for FBAR & FATCA

California Resident Offshore Reporting for FBAR & FATCA

California Resident Offshore Reporting for FBAR, FATCA & More: When it comes to offshore reporting of overseas financial accounts, assets, investments & income — California residents will often have several moving parts to contend with at the time of tax filing. With cities such as San Francisco, San Jose, Irvine and Los Angeles being melting pots of international taxpayers  from across the globe — it is not uncommon for California residents to have assets/accounts from many different countries. As an aside, it is very important to remember that even though the Internal Revenue Service uses the term “offshore” — it does not necessarily involve tax havens or other unscrupulous tax arrangements. Rather, it usually simply means that the money is located abroad or outside of the United States. While some international reporting can be very complicated (such as foreign mutual funds) other types of offshore reporting for California residents, such as foreign bank accounts — is usually not that bad. Let’s go through some of the basics for California residents who may have offshore reporting requirements for FBAR, FATCA & More.

7 Important California Resident Offshore Reporting Requirements

There are several different reporting requirements that a California resident may have to contend with when they have money outside of the United States. Here are seven (7) important issues:

Worldwide Income & California Resident Offshore Reporting 

Unlike nearly every other country on the planet, the United States follows a Citizen-Based taxation model — or CBT. It is important to note that CBT is a misnomer — because Citizen-Based Taxation is not limited to U.S. Citizens, but is also includes permanent residents and foreign nationals who meet the Substantial Presence Test. By being a US Person, the United states taxes the individual on their worldwide income — even if the income is sourced from outside of the United States or the Taxpayer resides outside of the United States. It also requires international reporting of global assets, accounts, investments and Income — unless an exception, exclusion or limitation applies.

Foreign Account Reporting for Residents of California

Foreign Accounts are required to be reported on a myriad of different IRS international reporting forms — depending on the type of foreign account or asset. For example, overseas bank accounts generally have the most limited reported requirements, whereas foreign investment accounts typically have more significant reporting requirements — depending on the category and value of the asset.

California Residents with Foreign Income

Just because foreign income may be tax-exempt abroad — does not mean it enjoys tax-exempt status in the United States or California. For example, while interest income is generally exempt from tax in many Asian countries — the income is taxable in the United States and on a California Tax Return. Likewise, while certain types of foreign income such as RRSP is tax exempt at the federal level — California still requires that income to be included on the tax return.

Foreign Investments & California Resident Offshore Reporting 

Depending on the type of foreign investment that the taxpayer has, it may have to be included on the US tax return — and possibly on the California tax return as well. Some examples of complicated foreign investments include foreign mutual funds and Controlled Foreign Corporations.

PFIC for California Residents

As far as foreign passive investments are concerned, none are more complicated than PFIC. A PFIC is a Passive Foreign Investment Company — and it includes much more then what many people imagine a Passive Investment Company to encompass, such as a holding corporation in Hong Kong or BVI. Rather, PFIC also includes items such as foreign mutual funds and other equity funds — and the tax implications can be significant. This is especially true in California, where the Taxpayer may owe significant state taxes in addition to federal tax.

Offshore Penalties California Resident Offshore Reporting Noncompliance

Two of the most common acronyms you will come across in your research quest involving international and offshore reporting/tax are FBAR and FATCA. FBAR refers to Foreign Bank and Financial Accounts reporting and is reported on FinCEN Form 114. FATCA refers to The Foreign Account Tax Compliance Act and is typically reported by taxpayers on Form 8938. the failure to properly comply with these requirements made lead to fines and penalties. And, while the penalties are primarily at the federal level — the state level could issue penalties as well

International Tax & Reporting Amnesty for California Residents

When a California Taxpayer is out of compliance for not properly reporting their foreign accounts, assets come investments and income at the Federal Level they may be subject to fines and penalties (while California could also possibly penalize — it is much less common). The Internal Revenue Service has developed several amnesty programs to safely assist taxpayers with getting into compliance.

Board-Certified Tax Attorney Licensed in California

California residents seeking to get into compliance for offshore reporting should refer to a California Board-Certified Tax Law Specialist to assist them — due to the complexities and interplay of California and Federal tax law. Less than 350 attorneys out of +200,000 practicing attorneys in California are Board-Certified. In addition, Taxpayers should utilize a flat-fee, full-service model they handle both their tax and legal representation.

Golding & Golding: About our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

Contact our firm today for assistance.