What’s this, Paul – another tax article so soon after April 15?
Well, yes and no. This article doesn’t directly address the topic of taxes. It delves into a little “preventive” action, however, regarding some required Department of the Treasury report filings.
While this article focuses on an issue facing a U.S. citizen/taxpayer, it may very well apply to those of you who have ties with other countries. My best advice, dear readers, is to check with the governmental agencies having jurisdiction over your current situation.
As many of you may have guessed (and others are finding out), the different agencies of the U.S. federal (and most other) government(s) love to share information that is stated in dollars and cents. Information sharing between the different offices and departments of each agency is more intense than inter-agency sharing.
There is no finer example than the Department of the Treasury and its Internal Revenue Service. They do talk to each other – continuously – and for some functions, they share the same networks and one or two databases. It’s no wonder. Better communications in that agency can provide increased tax revenues.
Geopolitical borders do not limit this information sharing. Various countries around the world now share their information with others in an effort to detect criminal activity, potential tax fraud and other activities that may be contrary to a country’s criminal and civil laws.
SO, WHAT’S THIS HAVE TO DO WITH ME?
This article is about a Department of the Treasury report that you may or may not have to submit. Participation depends on who you are, what you have, and whether you’ve exceeded a certain threshold during a specific time frame.
(* * * BOREDOM ALERT * * * the following may appear boring to some readers, however it covers information you’ll need to determine whether you must file a report. Please attempt to read it.)
AUTHORITY: Statutes & Rules & Regulations, Oh MY!
The U.S. Department of the Treasury Regulations, in 31CFR 103, provides the basis for “U.S. persons” to report a financial interest in, signature authority, or other authority over one or more financial accounts in foreign countries.
Interpreting these Regulations:
Each United States person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship each calendar year by filing this report with the Department of the Treasury on or before June 30, of the succeeding year.
The vehicle for reporting these relationships is Treasury Department Form TD F 90-22.1 (shown below). Before discussing the form, let’s talk about those highlighted words and phrases, and their meanings.
A United States person, while completely defined in 31CFR103.11z, means a citizen or resident of the United States, or a person in and doing business in the United States. For this article, we will narrow that to U.S. citizens, resident aliens (green card holders) and businesses chartered in one of the United States – the same folks who may be required to pay income taxes and file the appropriate tax returns to the United States regardless of where they live or, in the case of businesses, where they operate.
A financial interest means:
- An interest in each account for which the U.S. person is the owner of record or has legal title, whether the account is maintained for his/her own benefit or for the benefit of others including non-U,S. persons.
- An interest in each account for which the owner of record or holder of legal title is
- a person acting as an agent, nominee, attorney, or in some other capacity on behalf of a U.S. person;
- a corporation in which the U.S. person owns directly or indirectly more than 50% of the total value of shares of stock or more that 50% of the voting power for all shares of stock;
- a partnership in which the U.S. person owns an interest in more that 50% of the profits or more than 50% of the capital of the partnership; or
- a trust in which the U.S. person has a present beneficial interest, either directly or indirectly, in more that 50% of the assets or from which the U.S. person receives more than 50% of the current income.
- An interest in each account for which the owner of record or holder of legal title is a trust, or a person acting on behalf of a trust, that was established by the U.S. person and for which a trust protector has been appointed.
A signature or other authority means:
- A person has signature authority over an account if that person can control the disposition of money or other property in it via a document containing his/her signature (or his/her signature and that of one or more other persons) to the bank or other person with whom the account is maintained.
- Other authority exists in a person who can exercise comparable power over an account by communication with the bank or other person with whom the account is maintained, either directly or through an agent, nominee, attorney, or in some other capacity on behalf of a U.S. person, either orally or by some other means.
A financial account means:
- Any bank, securities, securities derivatives or other financial instrument account;
- Any account having its assets held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds);
- Any savings, demand, checking, deposit, time deposit, or any other account (including debit card and prepaid credit card accounts) maintained with a financial institution or other person engaged in the business of a financial institution. (Note: these would include foreign PayPal and similar accounts.)
(Note: individual bonds, notes, or stock certificates held by the filer are not a financial account nor is an unsecured loan to a foreign trade or business that is not a financial institution. Likewise, correspondent or “nostro” accounts [international interbank transfer accounts] maintained by banks that are used solely for the purpose of bank-to-bank settlement need not be reported with the above defined accounts, but are subject to other Bank Secrecy Act filing requirements.)
The aggregate value means the total value of all foreign financial accounts (as defined above) at a specific point in time. (Example: the dollar values of a foreign checking account, savings account and debit card account added together.)
At any time during the calendar year means at any time on one or more days during a single calendar year that begins on January 1 and ends on December 31.
THE REPORT TO BE FILED
Summarizing the above:
If you own or have authority over foreign financial accounts in foreign banks or other foreign financial institutions, and their aggregate value exceeds $10,000 during a calendar year, you’ll need to file Treasury Department Form TD F 90-22.1. An interactive form, complete with instructions for completing and filing, is available on the IRS website.
The form isn’t as difficult as it appears. Many expats file the form themselves as the instructions provide direction as well as answers to questions you may have. The form itself consists of five pages and it is a five-part form – one part per page.
Of major note – DO NOT FILE THIS FORM WITH YOUR TAX RETURN and DO NOT MAIL IT TO THE SAME ADDRESS AS YOUR TAX RETURN. File it separately with the Department of the Treasury, mailed to the address provided in the instructions. Unfortunately, you cannot file this form electronically. Mailing the form or hand carrying it to the address stipulated are the only options available.
Also of note – there is NO EXTENSION TO FILE this return available. It is due on June 30 of the year following the calendar year reported. (E.g., for the reporting calendar year of 2009, the filing due date is June 30, 2010.) Reports received with a postmark later than the due date will be delinquent. If you believe your filing will be delinquent, you will need to attach a statement to your report explaining the reasons for late filing.
A final note – if you are required to file and you do file this return, you are required to keep a copy of the form and supporting documentation for five (5) years. The Department of the Treasury can go back five years and check on your submission.
THAT’S IT, RIGHT? THERE’S NO MORE, IS THERE?
For now, yes that’s it. There is mischief afoot in the government, however. There will be increasing scrutiny over foreign financial accounts in the near future. Laws recently passed and laws “in the works” will make obtaining accounts, holding accounts, and using accounts in a foreign country a lot more difficult. It’s all in the name of “closing the tax gap” – the gap between what the IRS receives in tax revenue and what the IRS believes it should be receiving in tax revenue.
I’ll provide more on all of that in a later article when some of the dust settles. For now, check all of your foreign account balances, determine whether you need to file the report, and if so, do it!