FATCA: Implications for International Assignees 

Hello, I’m Martha Klasing with KPMG’s Washington National Tax practice and today I’d like to talk to you about some new reporting requirements with respect to your 2011 income tax returns.

You may have already heard of these new rules, referred to as FATCA which stands for Foreign Account Tax Compliance Act. In a nutshell, US taxpayers that have interests in foreign financial accounts and foreign financial assets must report information about those holdings with their 2011 tax returns. A new form - Form 8938, Statement of Foreign Financial Assets, is used to report the requisite information. Since this is a new requirement for the 2011 tax returns, your tax preparer will be asking you additional questions to gather the required information. You will also see additional questions in the Organizer with respect to this.

Your first question may be does this requirement apply to me - so let’s talk about that. As a starting point, US taxpayers who own “specified foreign financial assets”, the value of which exceeds the “applicable reporting threshold”, must file Form 8938. The term “US taxpayers” include US citizens and green card holders as well as non-U.S. citizens who are currently resident in the U.S. Also covered are foreign citizens who are not resident in the U.S., but make certain elections to file a joint US returns with their spouses. Therefore, any such elections should be carefully considered. Additionally, greencard holders that claim to be nonresident of the US pursuant to an income tax treaty are still required to file Form 8938 and report their foreign financial assets. The next question is just what is included in the definition of a “foreign financial asset”? It’s no surprise that things like foreign bank accounts, foreign brokerage accounts, and foreign mutual funds are included. But, the term is quite broad and includes stock or securities issued by someone other than a US person. It includes any interest in a foreign entity, and any financial instrument or contract where the issuer or counterparty is other than a US person. Examples of foreign financial assets that must be reported are stock issued by a foreign corporation, a capital or profits interest in a foreign partnership, an interest in a foreign trust or estate, and a note, bond, or other form of indebtedness issued by a foreign person or entity. Foreign pension plans and deferred compensation arrangements may also need to be reported. This is not an exhaustive list, but it does give you some idea of the scope of reporting.

The applicable reporting threshold is based on where you live and your filing status for your US income tax return. As you can see from the information provided here, the reporting thresholds for individuals living abroad is significantly higher than for individuals living in the U.S. In terms of valuing foreign assets denominated in a foreign currency, the instructions to Form 8938 require you to use the U.S. Treasury Department’s Financial Management Service foreign currency exchange rates. These rates can be found at the website listed here.

One other key point about Form 8938 is that it does not replace the Foreign Bank Account Form – commonly referred to as the “FBAR”. Rather, Form 8938 is IN ADDITION TO the FBAR. Even though some of the information may be duplicative, they are separate filing requirements. Remember, the FBAR form is not part of your tax return. However, the new Form 8938 is, and must be included with your return. There are significant penalties associated with the failure to file a correct Form 8938, so it is important to be aware of these new rules and provide the appropriate information to your tax return preparer.

The rules on foreign financial asset reporting are somewhat complex and since they are new, some questions may exist. The information provided here is general in nature so please consult with your tax advisor with respect to how these new rules apply to your personal situation.

This is Martha Klasing with KPMG’s Washington National Tax practice and thank you for listening.