Form 8854 – Green Card Holder Expatriate Tax, FBAR & FATCA
While may people believe that the Expatriate Tax is something limited to U.S. citizens who decide they are going to renounce their citizenship, that is not the case.
Specifically, it is important that Green Card Holders (Legal Permanent Residents) who are considered long-term green card holders are aware that they too may be subject to the expatriate tax and may require the assistance of an experienced International Tax Lawyer.
As far-fetched and unfair as that seems, if a person is a Green Card Holder and intends on relinquishing their Green Card and returning back to their home country or third-party country to live — it is important that the individual is in tax compliance just as if they were US citizens.
A Green Card Holder or Legal Permanent Resident is someone who resides in the United States with the intent of remaining. As such, aGreen Card Holder is afforded many protections that a US citizen receives as well. The downside is that when it comes to Taxation, the United States treats a Green Card Holder nearly the same as a citizen.
Thus, a Green Card Holder is generally required to report all of their worldwide income on their tax return. They are also required to report their foreign accounts on an annual FBAR (Report of Foreign Bank and Financial Accounts aka FinCEN 114) for each year they have more than $10,000 in annual aggregate total of foreign money outside of the United States, on any day of the year.
We understand, if you are originally from Portugal and you have $2 million in a Portuguese Bank Account than to you that is not a “foreign account.” As you can imagine, the IRS differs; to the IRS, if you are a Green Card Holder — any account you have in a foreign country outside of the United States is considered a foreign account.
There are two main issues for Green Card Holders involving the FBAR:
– The failure to file the FBAR may be to extensively high fines and penalties; and
– The failure to file the FBAR may impact the person’s ability to certify proper tax status on form 8854, which is required for expatriation by long-term green card holders.
FATCA Form 8938
Under new FATCA (Foreign Account Tax Compliance Act) rules and regulations, individuals are also required to update the Internal Revenue Service as to their foreign accounts and specified foreign assets – when they meet certain threshold requirements. If a person resides in the United States and the two main threshold requirements are as follows:
– Single/Married Filing Separate: If a person has more than $50,000 on December 31, or if they have less than $50,000 on December 31 but had more than $75,000 on any day of the year, they may be required to file Form 8938 along with their tax return.
– Married Filing Jointly: if a person has more than $100,000 on December 31 or if they have less than $100,000 on December 31 but had more than $150,000 on any day of the year, they may be required to file Form 8938 along with their tax return.
Just as with the FBAR, the same two (2) rules apply to FATCA Form 8938:
– The failure to file FATCA Form 8938 may be to extensively high fines and penalties; and
– The failure to file theFATCA Form 8938 may impact the person’s ability to certify proper tax status on form 8854 which is required for expatriation by long-term green card holders.
Green Card Holders – Long-Term
Not all Green Card Holders may be subject to the expatriate tax. Rather, that ‘right’ is limited to Green Card Holders that are “long-term residents.” The United States defines a long-term resident as somebody who has lived in the United States for at least eight (8) of the last 15 years.
If you have lived in the United States for at least eight (8) of the last 15 years as a Green Card Holders than when it is time for you to relinquish your Green Card, you are required certify your tax status and financial status (to a degree) on form 8854.
Form 8854 – Certify Tax Compliance
One of the requirements in order to successfully expatriate and avoid future taxation is to complete Form 8854. The form is called an Initial and Annual Expatriation Statement and depending on wha year you commenced your expatriation, there are certain sections you will have to complete.
One of the most important sections is to confirm your tax compliance with United States tax.
Namely: “Do you certify under penalties of perjury that you have complied with all of your tax obligations for the 5 preceding tax years (see instructions)?
If you have not complied with your tax obligations (Tax Returns, FBAR, FATCA) then you are considered a covered expatriate and will have a continuing tax obligation until you properly certify (and possibly meet other qualifications depending on your annual salary and/or network at the time you intend to expatriate).
Get into Compliance with IRS Voluntary Disclosure
If you are seeking to get the IRS tax compliance, one of the best and most effective methods is through IRS Voluntary Offshore Disclosure.
Golding & Golding limits its representation to offshore disclosure. Please find a basic summary of how offshore disclosure works below:
IRS Voluntary Disclosure of Offshore Accounts
Offshore Voluntary Disclosure Tax law is very complex. There are many aspects that go into any particular tax calculation, including the legal status, marital status, business status and residence status of the taxpayer.
When Do I Need to Use Voluntary Disclosure?
Voluntary Disclosure is for individuals, estates, and businesses who are out of compliance with the IRS and the Department of Treasury. What does that mean? It means that if you are required to file a U.S. tax return and you don’t do so timely, then you are out of compliance.
If the IRS discovers that you are out of compliance, you may become subject to extensive fines and penalties – ranging from a warning letter all the way up to tax liens, tax levies, seizures, and criminal investigations. To combat this, you can take the proactive approach and submit to Voluntary Disclosure.
Golding & Golding – Offshore Disclosure
At Golding & Golding, we limit our entire practice to offshore disclosure (IRS Voluntary Disclosure of Foreign and U.S. Assets). The term offshore disclosure is a bit of a misnomer, because the term “offshore” generally connotes visions of hiding money in secret places such as the Cayman Islands, Bahamas, Malta, or any other well-known tax haven jurisdiction – but that is not the case.
In fact, any money that is outside of the United States is considered to be offshore; the term offshore is not a bad word. In other words, merely because a person has money offshore (a.k.a. overseas or in a foreign country) does not mean that money is the result of ill-gotten gains or that the money is being “hidden.” It just means it is not in the United States. Many of our clients have assets and bank accounts in their homeland countries and these are considered offshore assets and offshore bank accounts.
The Devil is in the Details…
If you do have money offshore, then it is very important to ensure that the money has been properly reported to the U.S. government. In addition, it is also very important to ensure that if you are earning any foreign income from that offshore money, that the earnings are being reported on your U.S. tax return.
It does not matter whether your money is in a country that does not tax a particular category of income (for example, many Asian countries do not tax passive income). It also does not matter if you are a dual citizen and/or if that money has already been taxed in the foreign country.
Rather, the default position is that if you are required to file a U.S. tax return and you meet the minimum threshold requirements for filing a U.S. tax return, then you have to include all of your foreign income. If you already paid foreign tax on the income, you may qualify for a Foreign Tax Credit. In addition, if the income is earned income – as opposed to passive income – and you meet either the Bona-Fide Resident Test or Physical-Presence Test, then you may qualify for an exclusion of that income; nevertheless, the money must be included on your tax return.
What if You Never Report the Money?
If you are in the unfortunate position of having foreign money or specified foreign assets that should have been reported to the U.S. government, but which you have not reported — then you are in a bit of a predicament, which you will need to resolve before it is too late.
As we have indicated numerous times on our website, there are very unscrupulous CPAs, Attorneys, Accountants, and Tax Representatives who would like nothing more than to get you to part with all of your money by scaring you into believing you are automatically going to be arrested, jailed, or deported because you have unreported money. While that is most likely not the case (depending on the facts and circumstances of your specific situation), you may be subject to extremely high fines and penalties.
Moreover, if you knowingly or willfully hid your foreign accounts, foreign money, and offshore assets overseas, then you may become subject to even higher fines and penalties…as well as a criminal investigation by the special agents of the IRS and/or DOJ (Department of Justice).
Getting into Compliance
There are five main methods people/businesses use to get into compliance. Four of these methods are perfectly legitimate as long as you meet the requirements for the particular mechanism of disclosure. The fifth alternative, which is called a Quiet Disclosure a.k.a. Silent Disclosure a.k.a. Soft Disclosure, is ill-advised as it is illegal and very well may result in criminal prosecution.
We are going to provide a brief summary of each program below. We have also included links to the specific programs. If you are interested, we have also prepared very popular “FAQs from the Trenches” for FBAR, OVDP and Streamlined Disclosure reporting. Unlikes the technical jargon of the IRS FAQs, our FAQs are based on the hundreds of different types of issues we have handled over the many years that we have been practicing international tax law and offshore disclosure in particular.
After reading this webpage, we hope you develop a basic understanding of each offshore disclosure alternative and how it may benefit you to get into compliance. We do not recommend attempting to disclose the information yourself as you may become subject to an IRS investigation insofar as you will have to answer questions directly to the IRS, which you can avoid with an attorney representative.
If you retain an attorney, then you will get the benefit of the attorney-client privilege which provides confidentiality between you and your representative. With a CPA, there is a relatively small privilege which does provide some comfort, but the privilege is nowhere near as strong as the confidentiality privilege you enjoy with an attorney.
Since you will be dealing with the Internal Revenue Service and they are not known to play nice or fair – it is in your best interest to obtain an experienced Offshore Disclosure Attorney.