Marriage, FBAR & FATCA Filing: Do Non-Resident Aliens Report?

Marriage, FBAR & FATCA Reporting: Do Non-Resident Aliens File?

Marriage, FBAR & FATCA Reporting: Do Non-Resident Aliens File?

When it comes to U.S. taxes, international tax can be a very complicated undertaking for tax filers preparing their Form 1040 and related foreign reporting forms. Making the reporting more complex is the increasingly common situation in which a U.S. person spouse is married to a non-resident alien (NRA). When one spouse is an NRA, many factors come into play, such as whether a 6013(g) election was made, whether the couple has joint accounts, and what types of foreign accounts, assets, and investments the taxpayers own, and whether they own them together. Let’s go through some basics about foreign account reporting and how that works in situations where one spouse is a non-resident.

*Also, these examples are for illustrative purposes only, and Taxpayers should consult with a Board-Certified Tax Law Specialist if they have specific questions about their reporting requirements and not rely on this article for legal advice.

FBAR – Non-Resident Spouse

The FBAR (FinCEN Form 114) is not an IRS tax form; it is a FinCEN form. As a result, the form is guided by Title 31 of the U.S.C. and not Title 26, the latter being the Internal Revenue Code – with the general rule being that non-U.S. persons are not required to file the FBAR.

• • • Example:  A non-resident alien spouse has $8 million in foreign accounts, assets, and investments. Since the NRA spouse is not a U.S. person for tax purposes, they are not required to file the FBAR.

Form 8938 (FATCA), Non-Resident Spouse, MFS with no 6013(g) Election

When a U.S. person marries a non-resident, but the U.S. spouse continues to file married filing separately, and no 6013 (g) election is made to file MFJ, the NRA spouse is not a U.S. person for tax purposes. As a result, the NRA is required to file Form 1040 or FATCA Form 8938 (noting that, if the U.S. person has U.S. income, then they may have to file a 1040NR).

• • • Example:  A non-resident alien spouse spouse has $8 million in foreign accounts, assets, and investments. Since the NRA spouse is not a U.S. person for tax purposes, they are not required to file Form 8938.

Form 8938 (FATCA), 6013(g) Election, Joint Return

Where it begins to get more complicated is when the U.S. person spouse files jointly with an NRA spouse, and they make a 6013(g) election – which means the NRA will be treated as a U.S. person for tax purposes. In this type of scenario, spouses are filing jointly and will report all their income on the U.S. tax return. In addition, because the NRA spouse made a 6013(g) election to be treated as a U.S. person for tax purposes, they will have to include their foreign accounts, assets, and investments for reporting purposes on the tax return.

FBAR, 6013(g) Election, Joint Return

It is important to note that making a 6013(g) election for tax purposes is not the same as being treated as a U.S. person for FBAR purposes. In other words, just because the taxpayer makes a treaty election to be treated as a U.S. person for tax purposes (and therefore must report all of the international information reporting forms covered under Title 26), does not mean that the person has to file the FBAR.

Why?

Because making a 6013(g) tax election is separate from being treated as a US person for FinCEN purposes.

• • • As provided in the IRM: FinCEN clarified in the preamble to the regulations that an election under IRC 6013(g), Election to Treat Nonresident Alien Individual as Resident of the United States, or IRC 6013(h), Joint Return, Etc., for Year in Which Nonresident Alien Becomes Resident of United States, is not considered when determining residency status for FBAR purposes.

Late Filing Penalties May Be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

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

Contact our firm today for assistance.