FATCA Financial Assets (Examples of 8938 Foreign Financial Assets)
Our International Tax Lawyers have consulted with thousands of individuals across the globe in over 65 different countries on issues involving the reporting of foreign financial assets, income, accounts and investments.
For many United States Taxpayers (whether or not they reside in the U.S. or overseas) they may not even know if they have a Foreign Financial Asset to report pursuant to FATCA (usually on Form 8938) until they have missed the deadline.
Therefore, we are providing the following common examples of foreign financial assets.
Foreign Financial Asset Examples
The following are common real-life client foreign assets we deal with daily:
Foreign Business – Self-Owned Small Business
David is a U.S. citizen from the United States but relocated overseas to start his own business. What started out as a small business, begins to flourish. David has one main business (possibly a BVI) with several small businesses (possibly multiple Hong Kong Ltd. companies). Even though David is in full tax compliance abroad, and all of the money is foreign sourced — he has not filed U.S. taxes.
Nevertheless, as a U.S. citizen, David is required to report the assets and income to the U.S. (usually on a Form 5471)
Foreign Business – Increased Ownership Percentage
Michael is from Taiwan. He was granted a small portion of a family business when he was young. He does not have an active role in the company. Michael now lives in the United States as a Green Card Holder.
Reporting Part 1: Since the ownership is worth way more than $100K (close to $2M), Michael must file a Form 8938.
Michael’s father recently passed away, and his 6% ownership jumped up to 29%.
Reporting Part 2: As a result, Michael must now file the much more complicated Form 5471 since he owns/acquired more than 10% in the current year.
Foreign Real Estate Partnership
Jennifer is from Singapore. She is a U.S. Citizen who resides in the U.S. Her brother resides in China. They own a multi-million dollar real estate rental property business. Jennifer’s brother takes care of the entire business, including paying foreign tax on Jennifer’s behalf.
Even though the partnership is based overseas, with no U.S. sourced income — and all foreign taxes are paid and accounted for — Jennifer must report her partnership ownership to the IRS on either an 8938 or 8865 (depending on her ownership percentage) and pay U.S. Tax on the income (although she is presumably entitled to a Foreign Tax Credit)
Foreign Mutual Funds
Dean is originally from India. He came to the United States (initially on an F-1 Visa). Years later he is now an H1-B visa holder and meets the substantial presence test.
Dean’s parents back in India are wealthy, and have been moving money and assets to Dean over the last 7 years, without his knowledge. This also includes about $3,000,000 of Mutual Funds at Kotak, HDFC, Birla,, ICICI, L&T etc.
Even though the mutual funds have not been sold or redeemed, Dean must still report the mutual funds to the IRS on a form 8621.
*Moreover, since a few of the funds issue dividends, which are transferred to a linked ICICI account that his parents set up for him and then re-invested, Dean may have an Excess Distribution situation, which will depend on the total value of dividends, averaged over the 3 prior years.
Maya is originally from New Zealand. She transferred to the U.S. on a work-visa, and still maintains substantial assets in New Zealand, which are being held in a New Zealand trust (which is a common asset holding vehicle in New Zealand). Since technically it is a trust, Maya has a Form 3520-A requirement (and possibly 3520), in addition to FBAR and Form 8938 to report additional assets she holds outside of the trust.
Inherited Assets or Gifts From a Foreign Person
When a person receives an inheritance or gift from a foreign person (presuming it is foreign property), the U.S. does not tax the inheritance or gift upon receipt, but the U.S. does require an individual to disclose the gift on Form 3520 — once certain thresholds are met.
Moreover, if the gift generates income, then the income must be reported on a tax return, even if the inheritance itself was not taxed.
What Can You Do?
Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.
Golding & Golding, A PLC
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.