Category Archives: Form 8938

H.R. 5799 – Is it a #FATCA Same Country Exemption For Americans Abroad? – Let’s See

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Introduction:

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 …

About FATCA

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.

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Part 2 – The Warren “Ultra-Millionaire Tax Act of 2021” and The Wealth Of Other Nations

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The fact that …

Leads to the obvious question of …

Hmm…

The fact is that Senator Warren is proposing to impose her wealth tax on property located outside the United States, purchased by individuals who live outside the United States, who have no connection to the United States other than (perhaps) the circumstance of having been born in the United States. Yup, it’s true.

On March 18, 2021, FATCA will turn on 11. The Senator’s proposed wealth tax explicitly states that FATCA is to be used to enforce this tax! Finally an (il)legitimate use for FATCA.

In the 18th Century Adam Smith wrote “The Wealth Of Nations”. In the 21st Century Senator Warren is proposing to impose a wealth tax on “The Wealth Of OTHER Nations”.

Discussion And Analysis

This is the second of what I expect to be a multi-part series on Senator Warren’s proposed wealth tax of 2021. As the above tweet makes clear, the practical utility of the tax depends on US citizenship-based taxation (to whom it applies) and FATCA (how are non-US assets located). In my first post, I referenced Senator Warren’s statement that:

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Changes to the filing threshold for "Married Filing Separately" filing category likely to pressure more Americans abroad to renounce US citizenship

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This post is a continuation of my post (referenced in the above tweet) which describes the reduction of the threshold for Married Filing Separately from $4050 to $5. In this post I describe why I believe that this change will result in further renunciations of U.S. citizenship. The primary incentive to renouncing citizenship is that: by requiring married low income Americans abroad to file U.S. tax returns, more financial information about their nonresident alien spouses will be reported to the IRS. On the most basic level, a Form 8938 is required only if a U.S. tax return is also required. The requirement to file a tax return increases the chances of a requirement to file Form 8938 (and others). Form 8938 does require the disclosure of some jointly owned assets. If you were a nonresident alien, would you want your financial information to be transferred to the IRS?
On December 19, 2018 Dr. Karen Alpert commenting on changes to the 2017 TCJA that would affect Americans abroad noted that:
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