Avoid Form 8938 (FATCA) with a Treaty Election
Taxpayers who are considered US persons have two main requirements in accordance with Citizen-Based Taxation (noting, Citizen-Based Taxation also includes lawful permanent residence and foreign nationals who meet the Substantial Presence Test). They are required to report their worldwide income on their US tax return. Therefore, even if all of the income is sourced overseas—and even if the tax pair resides overseas—they are still required to report this on the US tax return. In addition, taxpayers are required to disclose their foreign accounts and assets on various different international information reporting forms, including FATCA Form 8938 (Foreign Account Tax Compliance Act). Some taxpayers may qualify to make an election to be treated as a foreign resident for US tax purposes. While this does not allow them to get out from under having to file the FBAR – can result in not having to file form 8938.
You May Avoid FATCA Form 8938
Unlike the FBAR which was developed in accordance with US code Title, 31 and not internal revenue code title 26 –the form 8938 is only required when the taxpayer meets the threshold requirements and has to file a tax return. The tax payer may not have to file a 1040 if they make a proper treaty election, which would mean they would not have to file form 8938. As provided by the form 8938 instructions:
Specified individual filing as a nonresident alien at the end of his or her tax year.
You are not required to report specified foreign financial assets on Form 8938 for the part of your tax year covered by Form 1040-NR, provided you comply with the filing requirements of Regulations section 301.7701(b)-7(b) and (c), including the requirement to timely file Form 1040-NR, as applicable, and attach Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).
Missed Prior Form 8938 Filing?
If a person failed to file FBARs in prior years, they are not out of luck. The US government has developed various international information tax amnesty programs, collectively referred to as offshore voluntary disclosure. Some of the more common programs include Streamline Domestic Offshore Procedures and Streamline Foreign Offshore Procedures – – but there are other options available as well.
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