Comment: Does form-filling prevent Americans from cross-border investing?
When US filing deadlines are on the horizon, US tax persons have to be aware of their reporting and tax obligations and get it right, or face stiff fines. By Anne Liebgott.
Like any US citizen, American expats and "accidental Americans" also have two (or three) annual filing requirements in the US:
- File their US tax return reporting their worldwide income (and pay any related taxes)
- Report all of their non-US bank accounts and their highest values on an annual basis on their Foreign Bank Account Report (FBAR) on FinCEN Form 114.
- If qualified, file Form 8938 along with their US tax return.
Form 8938 is designed to be used by the IRS to combat international tax evasion. The form also requests information about various foreign assets, including foreign accounts that hold assets, while the FBAR requests information only about foreign accounts.
Every year at the same time, when the filing deadline approaches, American expats and 'accidental Americans' may worry about their US taxes and filing obligations while they also comply with the tax obligations of their country of residence."
Teresa Sy-Him from Zurich's Beyond Borders US Tax Services said: "Taxpayers who have a requirement to file Form 8938 usually have an obligation to report substantially the same information on the FBAR as well, which is filed separately with the Treasury Department, but you need to get it right."
Under the FATCA agreement, the financial institutions worldwide are required to provide the US tax authorities regularly with information regarding the ‘US accounts' which is any bank account or investment account held by a US taxpayer.
Therefore, the US tax authorities are receiving two reports that should match - one from the financial institution under the FATCA law and another one from the US individual on their FBAR.
Pavla Melkova from Taxpat, Zurich, specializing in American expat reporting and taxes, added: "I have already seen the first letters from the IRS addressed to US taxpayers residing in Switzerland where they were requesting further details and clarifications based on the FATCA reporting from the bank and tax reporting from the client. It is true that I sometimes see mismatches due to the exchange rates used when translating foreign currency amounts to USD."
Fortunately, the financial institutions in Switzerland with US account holders are aware of their annual filing obligations and the filing deadlines and most of them are providing their clients with a copy of their FATCA reporting for their files and as a reference. This information can be compared and the figures on the US tax return and FBAR adjusted, to avoid mismatches.
True to form
Every year at the same time, when the filing deadline approaches, American expats and 'accidental Americans' may worry about their US taxes and filing obligations while they also comply with the tax obligations of their country of residence. However, there is no need to be worried when getting it right, right from the beginning. It might be a complex task for US taxpayers on their own, but thankfully there are professionals able to provide support in simpler and complex cases.
That being said, the US reporting requirements and FATCA do not pose a hindrance in cross border investing… it's just a matter of getting the paperwork right, on time and playing by the rules.
Anne Liebgott runs AW★SWITZERLAND, a platform for American expats in Switzerland which includes a listing of Switzerland-based US tax advisers.
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