In a series of Frequently Asked Questions releases December 31, 2014, The Congressional Research Service provides some guidance on when non-U.S. citizens may be subject to U.S. income taxes.
The report states as follows:
“Non-citizens who may be subject to U.S. income taxes include
legal permanent residents who are authorized to live and work in the United States permanently;
aliens who are authorized to stay in the United States temporarily, and may or may not be authorized to work;
aliens who are not authorized to be in the United States; and
foreigners who are outside the United States but have U.S. tax obligations.”
One a person is determined to be a U.S. resident for income tax purposes, then they are subject to the Bank Secrecy Act which requires
“U.S. persons who own a foreign bank account, brokerage account, mutual fund…or other financial account to file a Report of Foreign Bank and Financial Authority (FBAR), if:
The person has a financial interest in, signature authority, or other authority over accounts in a foreign country, and
The aggregate value of all foreign financial accounts exceeds $10,000 at anytime during the calendar year”
The failure to file a timely FBAR has significant civil and criminal penalties. Late reporting can be done through several methods, including the use of Streamline Procedures or the Offshore Voluntary Disclosure Program (OVDP).
Conviction for willfully failing to file an FBAR or income tax evasion has been determined to be a deportable offense by the U.S. Supreme Court.
Eligible U.S. residents who have not yet come forward and sought the benefits of either the Streamline Procedures or OVDP should be aware that the IRS and the Department of Justice have stated that these programs are not going to be open forever and that once they end the civil penalties of 50% of the highest account balance per year for the six (6) year Statute of Limitations will be pursued.
The fact that a U.S. resident with reportable foreign accounts has not yet been “caught” should not be comforting. Under the Foreign Account Tax Compliance Act, (FATCA) upwards of 80,000 foreign financial institutions are requiring U.S. residents to provide information so that they can report the residents account to the IRS.
We can help determine whether you are a U.S. resident for income tax purposes and whether you have an FBAR and/or other filing obligation and how best to come forward.