Do Resident Aliens Report Overseas Accounts: Is it Necessary?

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Do Resident Aliens Report Overseas Accounts: Is it Necessary?

Do Resident Aliens Report Overseas Accounts: Is it Necessary?

Do Resident Aliens Report Overseas Accounts?

When a person is a resident alien of the United States, they are required to report their overseas accounts, assets, investments, and income if they are considered to be a US Person for tax purposes. Typically, resident aliens who are considered US persons for tax purposes include ‘Lawful Permanent Residents’ and Foreign Nationals who meet the Substantial Presence Test. When a Resident Alien falls into one of these two categories, they may be required to report their overseas accounts — and there are many different types of foreign assets and accounts they are required to report to both the IRS (Internal Revenue Service) and FinCEN (Financial Crimes Enforcement Network) each year. In order to properly disclose this information to the US Government, there are many different international information reporting forms that the taxpayer may have to file depending on the category and value of their foreign accounts and assets, including the FBAR (FinCEN Form 114), Form 3520, Form 5471 and Form 8938. Let’s review the basics of which types of foreign and overseas assets resident aliens must report and on which forms are they required to be disclosed.

Overseas Account Reporting

Here are some of the more common types of reportable foreign accounts:

Overseas Bank Accounts

Bob is a US person who has foreign bank accounts in several foreign countries, with the total value of the foreign bank accounts at around $300,000. Several of the accounts have less than $10,000 and are dormant and/or inactive. In this type of situation, since the total value of foreign accounts exceeds $10,000 for the year, all the accounts are reportable on the FBAR — even if they are below $10,000 and even if they are dormant.

Overseas Investment Accounts

Linda is a permanent resident who previously lived in a foreign country and still maintains many of her overseas accounts. The accounts are not bank accounts but rather investment accounts similar to a Vanguard or E*TRADE account in the United States. The assets are not taxable in the foreign country, and the accounts are comprised primarily of stock and mutual funds. In this type of situation, Linda must report the foreign investment accounts on her annual FBAR. Since the stock and mutual funds are in accounts, she does not typically have to parse out each stock/fund but instead, she can gross up the value of the accounts for FBAR purposes. She may have a separate requirement for reporting the individual foreign funds as well.

Overseas Stock Certificates

Louise has ownership of various foreign stock certificates. The stock certificates are not located in foreign accounts. Instead, she inherited them several years ago and in total, she has ownership of nine different stocks worth $2 million. Louise does not have to report the foreign stock certificates on the FBAR, because she owns the stock certificates individually and they are not located in a foreign account. Louise would still have to report the certificates for FATCA on Form 8938.

Overseas Pension Plans

Tina is a US citizen who worked in various countries in her lifetime. She has retirement plans in the United Kingdom (SIPP), Singapore (CPF), and Australia (Superannuation). Since the foreign pension plans are considered accounts, they are included in the annual FBAR. This is distinct from the rule that if a person has an IRA or 401(k) in the United States that holds foreign accounts in it, those foreign accounts are generally not parsed out and reported on the FBAR. But, foreign pension plans are generally included on the annual FBAR. The US Tax treatment of these accounts will vary.

Overseas Mutual Funds

Gene is an astute investor. When the market was down, he acquired various foreign ETFs and foreign mutual funds in different countries and those funds have increased in value significantly. Gene holds the funds in a single investment account. For FBAR purposes, Gene will report the account with the total different funds. But, since the total value of the funds exceeds $25,000 (Gene is still single), he will most likely have to parse out the different funds on individual form 8621s when filing his tax returns. Remember, the FBAR is a separate form from your tax return. And, since some of these funds issued large dividends for the first time this year (and he was not properly advised to make an MTM or QEF election in prior years), he may have a very complicated tax return in the coming year.

International Tax Forms 

There are many different types of tax forms that may be required to report your foreign bank accounts. 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.

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 that 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. 

Important Links:

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.