O-1 Visa, U.S. Taxes, FBAR & FATCA

O-1 Visa – U.S. Tax, FBAR & FATCA: The O-1 Visa visa is intended for individuals who have proven their dedication to a chosen skill or talent, which makes them an extraordinary talent. Unlike a Legal Permanent Resident or U.S. Citizen, an O-1 visa holder must meet the substantial presence test before they are considered a U.S. person for tax and offshore reporting purposes.

What is an O Visa?

As provided by USCIS

      • “The O-1 nonimmigrant visa is for the individual who possesses extraordinary ability in the sciences, arts, education, business, or athletics, or who has a demonstrated record of extraordinary achievement in the motion picture or television industry and has been recognized nationally or internationally for those achievements.The O nonimmigrant classification is commonly referred to as:

        •  O-1A: individuals with an extraordinary ability in the sciences, education, business, or athletics (not including the arts, motion pictures or television industry)

        • O-1B: individuals with an extraordinary ability in the arts or extraordinary achievement in motion picture or television industry

        • O-2: individuals who will accompany an O-1, artist or athlete, to assist in a specific event or performance.  For an O-1A, the O-2’s assistance must be an “integral part” of the O-1A’s activity. For an O-1B, the O-2’s assistance must be “essential” to the completion of the O-1B’s production. The O-2 worker has critical skills and experience with the O-1 that cannot be readily performed by a U.S. worker and which are essential to the successful performance of the O-1

        •  O-3: individuals who are the spouse or children of O-1’s and O-2’s

O-1 Visa and U.S. Taxes

One problem that individuals with the O-1 Visa get into once they have resided in the United States for over six months is determining what their U.S. Tax status should be; in other words, are they still a nonresident or have they become a US resident for tax purposes by default under the substantial presence test. If they have become a US resident for tax purposes, then under FATCA (Foreign Account Tax Compliance Act) there are also additional filing and reporting responsibilities with the main one being the reporting of foreign accounts on an annual FBAR statement. If a person is been in the United States on an O-1 Visa but is out of tax compliance there are programs they can enter to try to get compliant.

What is the Substantial Presence Test?  

As a non-US citizen and non-US green card holder, you are generally only required to pay tax on your “US Effectively Connected Income” (money you earn while working in the United States) and FDAP. However, if you qualify for the Substantial Presence Test, then the IRS will tax you on your WORLDWIDE income.

IRS Substantial Presence Test generally means that you were present in the United States for at least 30 days in the current year and a minimum total of 183 days over 3 years, using the following equation:

      • 1 day = 1 day in the current year

      • 1 day = 1/3 day in the prior year

      • 1 day = 1/6 day two years prior

Example A: If you were here 100 days in 2016, 30 days in 2015, and 120 days in 2014, the calculation is as follows:

      • 2016 = 100 days

      • 2015 = 30 days/3= 10 days

      • 2014 = 120 days/6 = 20 days

        • Total = 130 days, so you would not qualify under the substantial presence test and NOT be subject to U.S. Income tax on your worldwide income (and you will only pay tax on money earned while working in the US).

Example B: If you were here 180 days in 2016, 180 days in 2015, and 180 days in 2014, the calculation is as follows:

      • 2016 = 180 days

      • 2015 = 180 days/3= 60 days

      • 2014 = 180 days/6 = 30 days

        • Total = 270 days, so you would qualify under the substantial presence test and will be subject to U.S. Income tax on your worldwide income, unless another exception applies.

Additional Reporting Requirements

Each year, US taxpayers who have foreign investments, accounts, pension plans, and life insurance policies may be required to report the values of their overseas assets — along with any income generated from them — to the Internal Revenue Service. When a taxpayer misses an international information reporting return deadline, it may lead the IRS to issue fines and penalties. Oftentimes these international penalties can be avoided or abated through one of the offshore voluntary disclosure programs — or other IRS amnesty procedures. It is important to note that not all foreign account filing forms have the same deadlines and due dates — and the process for seeking an extension will vary depending on the type of form. Let’s look at six important facts about foreign account filing deadlines.

FBAR Due Date and Extension

The FBAR is used to report foreign bank and financial accounts to the US Government. The Form is due on April 15, but is currently on automatic extension. Therefore, if you did not file the FBAR (FinCEN Form 114) by April 15, you still have until October to file it. And, you do not have to file an extension form such as Form 4868 or 7004 to obtain the FBAR extension — because the extension is automatically granted.

Form 8938 Due Date and Extension

Form 8938 is used to report foreign assets to the IRS in accordance with FATCA (Foreign Account Tax Compliance Act). It is similar (but not identical) to the FBAR. Form 8938 is filed with your tax return and is due when your tax return is due. If you are an individual filing a Form 1040, then the form 8938 would be due in April along with your 1040 tax return — but if you extend the time to file your tax return, then your Form 8938 will go on extension as well.

Form 3520 Due Date and Extension

Form 3520 is used to report foreign gifts and foreign trust information. The due date for Form 3520 is generally April 15, but taxpayers can obtain an extension to file Form 3520 by filing an extension to file their tax return for that year. Similar to Form 8938, there is no specific Form 3520 extension form required beyond requesting an extension of the underlying tax return.

Form 3520-A Due Date and Extension

Form 3520-A is used to report US ownership of a Foreign Trust. Unlike Form 3520, Form 3520–A is usually due in March and not April. In addition, the rules for filing an extension for Form 3520-A are different as well (subject to the substitute filing rules). In order to extend the due date to file Form 3520-A, the taxpayer must file a separate Form 7004 extension form.

Form 5471 Due Date and Extension

Form 5471 is used to report the ownership of certain foreign corporations. The filing date is the same as when a person’s tax return is due — and if the taxpayer files an extension for the underlying tax return, Form 5471 will go on extension as well. In recent years, Form 5471 has become infinitely more complex — so taxpayers should be cognizant of the different filing requirements and plan accordingly.

Missed Prior Years Foreign Account Reporting Deadlines?

If a taxpayer has not properly reported their foreign accounts, assets, or investments in prior years, they may want to wait before filing these documents for the current year. That is because Taxpayers should try to avoid making a quiet disclosure (which may result in significant fines and penalties). To do that, Taxpayers should submit to one of the offshore disclosure programs. Taxpayers may also want to consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in international tax matters before submitting to the IRS to get an understanding of the different requirements.

Golding & Golding: International Tax Lawyers Worldwide

Our FBAR Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure

Contact our firm today for assistance.