Tips for NRI’s to become compliant with FATCA and the IRS

by Mounica Kota | Mar 10, 2019 | Blog, Deduction & Credits, FATCA, IRS

Tips for NRI’s to become compliant with FATCA and the IRS

The first step towards becoming compliant to any norm is to be aware of what it is. FATCA or Foreign Account Tax Compliance Act came into existence some years ago to counter tax evasion by taxpayers.
As per the tax code, any individual who is a resident of the USA is a green card holder or a citizen of the USA, must pay taxes. To extend it further, taxpayers need to declare their global income and pay appropriate taxes on the same.
There are quite a few high-profile tax evasions in the past, which forced the IRS to take corrective measures.

Approaches of FATCA

There are two primary approaches that FATCA takes. Firstly, it expects US taxpayers to provide details of their foreign income. If they own any kind of assets outside the USA, they must report them to the IRS. By filing Form 8938, you can provide all the necessary details to the IRS.
The second approach involves foreign financial institutions providing information regarding assets of individuals. The institutions need to provide information regarding financial accounts, the assets or accounts that individuals hold in different countries.

How to get FATCA Compliance

You must do the following steps to be compliant with FATCA.
– A simple declaration that mentions your PAN details.
– The country of your birth.
– The country of your current residence.
– Your nationality.
– Your current occupation.
– Your annual income.
– And whether or not you are a politically exposed individual or not.
– For individuals who have paid taxes in any part of India, they need to provide a tax identification number.

What should be reported

The following are certain conditions in which an NRI needs to report their earnings as per FATCA to the IRS. Financial institutions also need to report the same to the IRS as well.
– If the total value of the income is less than $50,000 at the end of the fiscal year, there is no need to report the same. However, if the amount has exceeded $75,000 at any point in the year, the amount must be reported to the IRS.
– The above threshold is for individuals staying in the USA. For the ones who stay outside of the USA, the threshold values are even higher.
– The threshold levels differ for single tax filers and married tax filers as well.
– This declaration of income includes mutual funds and other financial accounts.
Outcomes of Non-compliance
The consequences of non-compliance of FATCA differs depending on the account types. You might have to face any of the following, depending on the kind of holdings.

– Bank Account

The IRS had offered a deadline of 30thApril 2017 to present a self-signed certificate. In the event of failure of presenting the same, the accounts would be frozen.
In simple words, the financial institution would forbid the account holder from making any financial transactions.

– Mutual Fund Investors

A similar deadline was introduced for mutual fund accounts as well. As is the case with the bank accounts, the mutual fund accounts would also be blocked if they are non-compliant with FATCA. Being blocked doesn’t allow individuals to do any sort of transactions on the accounts.

– NPS

NPS account holders also need to get the FATCA compliance done. The lack of which will deem their accounts blocked.
You need to download the form and self-sign it and send the same to NSDL-CRA to get the certification done.
The IRS is quite serious when it comes to tax evasion. If your financial accounts aren’t already FATCA compliant, it is high time you get them done.

3 things to do if you did not file your FBAR/FATCA

by Mounica Kota | Feb 23, 2019 | FATCA, FBAR, Tax Payers, Tax Planning, Tax Preparation

3 things to do if you did not file your FBAR/FATCA

The major requirement under The FBAR/FATCA is to find out the financial assets of the U.S. citizens outside the country. All financial institutions outside the U.S. need to find out the records of customers with the U.S as their place of the birth & report about their assets to the U.S. Department of the treasury.

FBAR stands for Foreign Bank Account Report which must be filed with the Financial Crimes Enforcement Network (FinCEN) by U.S. citizens who are authorized signatories or financial interest holders in any foreign financial account, where the account can be either a bank account or a mutual fund.

Filing for FBAR is different from general filing for tax returns with IRS and is generally done electronically by E-Filing system.

Unfortunately, there are cases of U.S. citizens being unaware of the filing for FBAR and being penalized by the Government. So, if you have missed out filing for FBAR by any chance you can follow the below-mentioned procedures.

Streamlined Filing Compliance Procedures–

This method is applicable:

If you have unknowingly missed foreign assets declaration
Made any mistakes while filing FBAR forms
If you are non-tax compliant for all foreign accounts which will be mentioned in your FBAR declaration.

In this method, the taxpayer is allowed to amend or make changes in the last 3 years of tax returns & the last 6 years of not reported FBAR declarations.

Offshore Voluntary Disclosure Program–

In this method, the IRS provides another opportunity to the non-tax compliant citizens to disclose their foreign financial assets voluntarily before the IRS finds out and implements criminal prosecution.

However, there are penalties associated with this method but can be reduced to a certain extent.

Delinquent International Information Return Submission Procedures-

The taxpayers who opt for this method need to file the International Information Return by providing a statement of all facts which justify the reason for the failure of non-compliance.
Usually, those citizens who have reasonable causes for non-compliance & have not been contacted by IRS yet for any penalties can use this method.

The FATCA also instructs citizens to self- report about their non-U.S. assets to the IRS (Internal Revenue Service). The entire motive behind this law is to prevent tax evasion. Several methods are used by the citizens to avoid paying taxes like making a tax-advantaged investment, plans or opening tax-advantaged accounts.

The Health Savings Account (HSA) is one of the best examples of tax-advantaged accounts in which the contributed funds are tax-exempted. Since these accounts are not liable to taxation citizens contribute more & more to these accounts.

As per current statistics reports, there are approximately 22 million HSA accounts holding over $45 billion in assets. The HSA accounts have grown by 8.3 billion dollars which results in a year over year increase of 22% in assets.

Another such tax-advantaged plan is the Child Tax Credit. This credit amount is given to the taxpayer at the end of the tax year for every dependent child below the age of 17 and satisfying other mandatory criteria like citizenship test, family income test, relationship test etc.

The new Child tax credit for tax years after 2017 is up to $ 2000 per qualifying child with a refundable amount up to $1400. As per recent reports, around 60 million children from 35 million families are saving taxes using the Child tax credit. In the U.S, the state and local tax deduction is one of the major tax expenditures.

However, all these procedures & methods enlisted are not simple and will need professional guidance as well. Hence, to have a hassle –free financial life it is always advisable to be compliant with the tax payments.

All you need to know about Bank FATCA reporting as a US taxpayer

by Mounica Kota | Nov 27, 2018 | Audits, FATCA, FATCA reporting, Investment & Income, US Government

All you need to know about Bank FATCA reporting as a US taxpayer

Bank FATCA reporting as US Taxpayer.It should not come as a surprise that the US Government looks into a wider array of things for expats and not just the taxation. FATCA is one such avenue. There are a lot of rumours and misinformation surrounding FATCA, so let’s break it down slowly.

What is It?

FATCA or Foreign Account Tax Compliance Act came into the law books in the year 2010. It made way for reporting of information related to payments towards foreign financial institutions or foreign entities in general. The whole intent of creating this Act was to make it easier for the IRS to keep a track of all the earnings that US citizens and business have from foreign investments or bank accounts.

One thing to keep in mind is that the IRS does not govern the FATCA. In fact, the Financial Crimes Enforcement Network under the US Treasury Department takes care of the same. Though, there is nothing holding them against sharing information at the time of need.

Whom does it Affect?

Knowing whether or not FATCA affects you is important. Simply because if it does, you would need to file everything very carefully and in a timely manner. The following individuals are impacted by FATCA.

US citizen or resident aliens (Green card holders) must be compliant with FATCA irrespective of where they stay.
US persons owning a business or have a majority stake in a business.
Any form of worldwide agreements.
US investment houses or banks that have interactions and dealings with foreign financial institutions.
Any foreign financial institution that deals with money.

Requirements to File FATCA

US residents who have foreign bank accounts or investments must file the FinCEN Form 114 if their investments meet the threshold amount. The FinCen Form 114 was previously known as the FBAR Form and some people still use the name. There aren’t any minimum age criteria for filing the Form 114.

The threshold amount for individuals stands at $10,000. If at any point in time during a financial year the investments breach the $10,000 mark, it must be reported with the help of FinCEN Form 114. Other forms of income such as interests or dividends must also be reported regularly to avoid any penalties or fines at a later stage.

What you Need to file FinCEN Form 114

In order to fill the FinCEN Form 114, you would need to have the following information handy.

Your name, social security details and address.
If there are any joint account holders, their name, social security number and address.
The type of bank account that you are holding (ex. Current, savings etc.). The type of Securities that you are holding (mutual funds or stocks) and any other type of investments that don’t come under the category of bank account or securities.
Details of your bank account.
The name and address of the bank with which you hold the account.
The bank account number.
The number of joint owners of the account.
The highest amount of money held in the account for the taxable year in question.

Are there any penalties?

The US Government levies some hefty penalties for withholding such information or failing to declare them during your tax filing. For non-willful violations, you might end up paying up to $10,000 for every year of not filing.

If you are found to be willfully violating the rules, you might face penalties up to $100,000 or 50% of the amount of money in your account at that point in time.