July 12, 2022 – Is there hope for Americans Abroad?
July 14, 2022 – An update
H.R. 5799 has been exciting news indeed! The purpose of this post is to see how H.R. 5799 actually changes the existing legislation. Does it actually deliver “Overseas Financial Access” for Americans Abroad? On June 21, 2022 this issue was considered in an IRS Medic video. The purpose of this post is to understand how H.R. 5799 would change IRC sections 1471(d) and 6038D. In order to understand this, I will take the amendments proposed in H.R. 5799, modify the text of those IRC sections and then analyze their impact. The new sections mandated by H.R. 5799 will appear in italics.
The Bottom Line (For Those Who Don’t Want To Read The Post)
With respect to Foreign Financial Institutions – When must FFIs harass suspected Americans?
JR Commentary: It appears that a Foreign Financial Institution has been given the authorization to opt to NOT report the “depository accounts” of certain Americans abroad without regard to the balance in the account. The $50,000 limit has been removed. The Foreign Financial Institution would have to be satisfied that the individual meets the residency requirement for the 911 Foreign Earned Income Exclusion. Notably this could apply only to “depository accounts” and would not apply to “custodial accounts”. The benefits to Americans abroad are minor. The administrative work required from the bank would likely be considered to be burdensome. The FFIs are still required to report custodial accounts.
This does not provide any assistance to the “Accidental Americans” who cannot comply with the demands for a U.S. Social Security Number or are unwilling to submit a W9.
With Respect to individuals – Reporting Requirements, Form 8938
JR Commentary: This section would relax the FATCA reporting requirements and could significantly water down the requirement to file Form 8938. What it seems to say is:
1. If the individual meets the requirements to use the 911 Foreign Earned Income Exclusion then with respect to BOTH depository and custodial accounts held by Foreign Financial Institutions in that same country … the obligation to File Form 8938 is considered without regard to the depository and custodial accounts held in that country. The way that “account” is defined in this section is:
“Except as otherwise provided by the Secretary, the term “financial account” means, with respect to any financial institution-
(A) any depository account maintained by such financial institution,
(B) any custodial account maintained by such financial institution, and
(C) any equity or debt interest in such financial institution (other than interests which are regularly traded on an established securities market).”
This could completely eliminate the Form 8938 requirement for many Americans who meet either the “bona fide residence” or physical presence tests in 911(d).
It is possible that this could provide some relief for those Americans abroad who are already filing Form 8938.
Now on to the post …
FATCA was a collection of amendments to the Internal Revenue Code. Generally, FATCA imposes requirements on both (1) Foreign Financial Institutions and (2) Individuals. H.R. 5799 contains provisions which affect both. The post is for the purpose of seeing exactly what the relevant statutes look like after the changes.