In addition to their income tax returns, there are two filing requirements that U.S. taxpayers living in the Philippines need to be aware of: the Foreign Bank & Financial Account Report (FBAR), and the Foreign Account Tax Compliance Act (FATCA).
The FBAR requires any US person with a foreign bank or financial account aggregating more than $10,000 at any time during the year to report that account on an FBAR notice.
Beginning with tax year 2016, the filing date for the FBAR will be due on April 18. However, taxpayers will be allowed to request an additional six months to file.
The potential FBAR penalties should not be ignored. The non-willful penalty is up to $10,000 for each negligent violation, with no criminal penalties assessed.
The willful penalty gets much more interesting, it is the greater of $100,000 or 50 percent of the amount in the account at the time of violation. Plus, there are criminal penalties of up to $250,000 or five years in jail or both. (It should be noted, it is difficult for most U.S. persons to avoid the willful penalty). For the more serious violations, there are criminal penalties of up to $500,000 or 10 years in jail or both.
The second and most far-reaching element of the U.S. offshore-account crackdown is the FATCA. It requires foreign financial institutions to report information about their U.S. account holders to the Internal Revenue Service. Plus, U.S. account holders with foreign financial assets above certain levels are required to file a FATCA report.
The definition of ‘U.S. account holders’ includes U.S. citizens and green card holders living both in the U.S. and abroad, such as the Philippines.
That means that the FBAR and FATCA reporting rules could affect a U.S. person living in the Philippines, a Filipino born green-card holder working in the U.S. or even a Filipino born green-card holder studying in the Philippines — as long as they have financial assets in the Philippines.
Filing requirements for FATCA vary depending on where you live and if you are married. The base filing requirement for a single individual living in the U.S. is financial assets valued at more than $50,000 at the end of the year or more than $75,000 any time during the year. If the same individual lived in the Philippines, they are required to file if their financial assets are more than $200,000 at the end of the year or more than $300,000 during the year. A married couple living in the Philippines would only have to file if they have financial assets valued at more than $400,000 on the last day of the year or more than $600,000 at any time during the year. Real estate is excluded from the assets calculation to determine if you have to file.
It is hard to overstate FATCA’s reach. FATCA is a dragnet meant to force transparency and curtail tax evasion around the world by U.S. taxpayers, including those living in the Philippines.
To make life more interesting for U.S. persons, the FATCA and FBAR rules overlap. A U.S. person who is not subject to FBAR filing requirements may be subject to the FATCA filing requirements. For example, a single U.S. person living in the Philippines owns stock in a Philippine corporation held in the Philippines with a value in excess of $200,000 does not have an FBAR filing requirement, but they have an FATCA filing requirement. In some cases, there may be both a FBAR and FATCA filing requirement.
FATCA’s filing requirements are similar to those of FBAR requirements except that it is filed with the taxpayers tax return. FBAR is filed with the Treasury Department in Detroit, independently of tax returns and must be must e-filed on FinCEN Form 114.
U.S. taxpayers living in the Philippines should not ignore the FBAR and FATCA filing requirements, to do so could result in a nasty tax problem.
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Author’s email: wolff2000@earthlink.net
