Presentations by Jean Mammen, EA

In-Person 2017:

Venue:

October 21 and 22, 2017  NYSSEA Annual Conference, Saratoga Springs, NY, October 21 and 22, 2017

Topics:

FBAR and Form 3520: Foreign Account, Gift and Trust Reporting, 2 CE, October 21, 2017

Curing Delinquent International Information Reporting Returns, 2 CE, October 21, 2017

Form 1040NR, Related Forms, and Treaty Provisions, 3 CE, October 22, 2017

October 26, 2017, MD-DC SEA Holiday Inn, College Park, MD, 10 am.

Topics:

Get Income Taxes Right for Visa Holders: Forms, Treaties, Deductions, 4 CE

Presentation Descriptions:

FBAR and Form 3520: Foreign Account, Gift and Trust Reporting, 2 CE, October 21, 2017

U.S. Persons with interests in foreign accounts or trusts, or who receive distributions from foreign trusts or large gifts from foreign persons may be required to file an international information report. Filers need to understand definitions of terms, the requirements of each forms, its authority, who is a U.S. person, and what is timely filing. Line by line study of FBAR and Form 3520. Know if more than one form is required.

Curing Delinquent International Information Reporting Returns, 2 CE, October 21, 2017

Helping a U.S. person who fails to file timely a required FBAR or 3520 international information reorting return. The simplest remedies require a reasonable cause statement on the non-timely filed return. Tax compliant persons living inside or outside the U.S. may use streamlined procedures. Complex and costly OVDP provisions may benefit taxpayers with prolonged and willful delinquency. FATCA-mandated IDES (International Data Exchange System) supplied foreign account information to the IRS.

Form 1040NR, Related Forms, and Treaty Provisions, 3 CE, October 22, 2017

Determine which non-citizen individuals must file a U.S. income tax return, using which form and sections, and which deductions and Table 2 treaty provisions may be claimed. Use of required and optional forms such as Forms 8843 (eXempt individuals), 8840 (closer connection to a foreign country), and elections and statements (residency, real property as U.S. trade or business). Understand common treaty terms and conditions. Compare and contrast country-specific examples.

Getting Income Taxes Right for Visa Holders: Forms, Treaties, Deductions, 4 CE October 26, 2017

Determine which non-citizen individuals must file a U.S. income tax return, whether to file on Form 1040NR, or Form 1040, using which form sections, and which deductions and Table 2 treaty provisions may be claimed. Use of required and optional forms such as Forms 8843 (eXempt individuals), 8840 (closer connection to a foreign country), and elections and statements (residency, real property as U.S. trade or business). Understand common treaty terms and conditions. Compare and contrast country-specific treaty examples. Compare the returns of twin brothers , physician trainees on J1 visas, where the only difference difference in their situations is that one arrived in the U.S. a year earlier than the other.

 

 

 

 

 

 

 

 

FATCA Comes to 1042-S, then to 1099, by Jean Mammen, EA

FATCA – the Foreign Account Tax Compliance Act of 2012 is just reaching the tax forms provided to taxpayers. 2013 and 2014 were transitional years. Some 2014 reporting and forms are now FATCA-ready. The full effects for most taxpayers will come with 2015 reporting and forms. A few reporting requirements on financial institutions start in 2016 and 2017.

FATCA’s goal is to increase compliance with U.S. tax laws by U.S. citizens and resident aliens who have accounts outside the U.S., no matter where the account holder lives.  Its provisions also affect people who are not U.S. citizens or residents (called ‘foreign’) who have what may be U.S. source money in accounts anywhere in the world.

What might FATCA bring to forms you see?

– Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, was completely redesigned for 2014.  It now can include reporting required by FATCA or related provisions. See it on the IRS website, www.irs.gov

– More tax payers will be asked by financial institutions to document their non-U.S. status on a W-8BEN, or, U.S. status on a W-9.

WARNING: Many non-U.S. citizens have received FRAUDULENT requests for W-8BEN, often including requests for confidential personal information.

Verify with your financial institution that the request is coming from it and that it has a legitimate need for the information.

NEED: If the jurisdiction where the account is located has an Intergovernmental Agreement (IGA) with the U.S. or another country, the institution holding the account is likely required to obtain and keep, or sometimes share, certain account and account-holder information

– Bank deposit interest paid to a non-U.S. person may be reported to the IRS and the account holder on form 1042-S, even when it is not taxable on Form 1040-NR.

– A 1099 form may be elected by the institution where the account is located, in specific instances, to be the reporting form to the IRS, and also to the account holder, I.e. 1099-INT, 1099-DIV, 1099-MISC.

The 2015 1099’s have a box that may be checked: FATCA filing requirement. This box will be checked by a payer, a U.S. payer or an FFI – foreign financial institution, if it is reporting for chapter 4 (FATCA) purposes a distribution or payment to a U.S. account.

2014 Form 1042-S: It was completely redesigned to accommodate the reporting requirements of FATCA, chapter four of the U.S. Internal Revenue code, IRC 1471-1474. A new Box 4, for Chapter 4 information, was inserted next to a redesigned Box 3, which reports information required under chapter 3, IRC 1441 – 1465.

Foreign account and financial institution information is now shown on form 1042-S, as well as income and withholding of a foreign person’s U.S. source income.

Some familiar boxes have been renumbered, and are now located in new places, while new boxes were added to the form.

The code sheet is now three pages long, with codes to accommodate the many variables in institution or income type defined in FATCA. Find the codes in the Instructions for form 1042-S, on the IRS website..

A U.S. person who pays income, or must withhold on income paid, to a non-resident alien, or NRA, (and is thus a withholding agent) generally will report this information on IRS Form 1042-S. Form 1042 is the cover sheet for submitting it to the IRS.

The income may benefit from a tax treaty that excludes some of it from taxation, or a treaty or IRC provision or regulation may set tax withholding at a rate other than a graduated rate. Example: Fellowship income is withheld at 14%.

If codes for Internal Revenue Code (IRC) or tax treaty exemptions or special situations appear on a 1042-S, be sure to verify that they are accurate.

Bank deposit interest: New for 2014, bank deposit interest of more than $10 paid to an NRA (Non-resident alien) is reported to the IRS on form 1042-S, even though it is not taxable on form 1040NR.  IRC 871(i)(1), (2), and (3). Also see IRC 871(h). Traditionally, bank deposit interest was not entered on the 1040NR income tax return.

But beginning for 2014, because of IRS Revenue Procedure 2012-24; Treasury Reg. 1.6049-4(b)(5) and 1.6049-8, as revised by TD 9584 issued April 19, 2012,  non-resident aliens might receive a reporting document, likely on Form 1042-S, reporting this non-taxable bank deposit interest. The inspiration for this may have been to make the intergovernmental agreements associated with FATCA more helpful to other countries.

This tax-exempt bank deposit interest would go on Line 9b when filing form 1040NR.

The codes on a 1042-S for tax-exempt bank deposit interest would be:

Box 1   Income – 29, Deposit interest

Box 3a Exemption Code – 02, Exempt under IRC (other than portfolio interest)

Hypothetical: Bank deposit Interest on Form 1040 vs. Form 1040NR

Two Canadians, A and B, live and work in the U.S., and have savings accounts at a U.S. branch of TD Bank. Each is credited with $ 11 in interest.

Canadian A has a TN visa, and met the SPT- Substantial Presence Test. She files Form 1040. She receives a 1099-INT, declares the interest on line 8a and pays taxes on it.

Canadian B has a G visa and files on Form 1040NR, if required to file. He received form 1042-S.  If he needed to file Form 1040NR anyway, or if this alone triggers a requirement to file (probably not), he declares the interest on Line 9b and does not pay taxes on it.

 

FATCA:  The Foreign Account Tax Compliance Act of 2012. See the FATCA page on the IRS website: www.irs.gov/fatca for all things FATCA related.

FATCA targets tax non-compliance by U.S. taxpayers.

Note that ‘U.S. taxpayer’ includes anyone who would pay U.S. taxes on U.S. source income, whether they are a foreign person or a U.S. person. The definitions of U.S. source income and U.S. account are complex. Tax authorities and financial institutions have spent the past few years working on the implementing regulations

Foreign financial entities subject to an IGA – intergovernmental agreement – report on financial accounts held by U.S. taxpayers.

For U.S. citizens and residents, this reporting may help determine if a form 8938 should be attached to form 1040 and what should be shown. For non-citizens who are not U.S. tax residents, this affects filing form 1040NR.

FATCA provisions: The four short sections of the Internal Revenue Code that constitute FATCA, Chapter 4, IRC sections 1471-1474, became more than a hundred Federal Register pages of implementing regulations. . TD 9657 (March 6, 2014), is 55 pages long in the Federal Register. This concerns both individuals and financial institutions. TD 9658 (March 6, 2014) takes up 85 pages.  It concerns financial institutions.  And then there are the more than 100 Intergovernmental agreements, IGA, following either Model 1 or Model 2, with their specifications on how governments or institutions in their jurisdictions will carry out the agreements.

The financial institutions in the more than 100 jurisdictions with operative IGA’s with the U.S. examine each and every account they house for indicia  (signs) of U.S. links either for the account holder or the source of the money in the account itself. If U.S. links are found, the financial institution may be required to withhold 30% of payments unless it can clarify the account status. There are some exceptions, such as for some accounts of U.S. $50,000 or less. If the financial institution does not already have adequate information, it asks the account holder for a W-8BEN, or a W-9.  If the account holder does not comply, the account holder is considered a recalcitrant account holder. The financial institution would then do the mandatory withholding of 30% of the money potentially taxable to the U.S. This is the ‘stick’, or maybe the ‘carrot’. The only way to recoup some or all of the money is to show that U.S. tax liability was less than 30%.

FATCA Reporting Requirements for Financial Institutions: For an overview of what the financial institutions must do to satisfy the IGA and the IRS, look through the instructions for Form 8966 – FATCA Report. These instructions include definitions of key terms, and authority citations to the U.S. Internal Revenue Code (IRC) and/or to U.S. Treasury Regulations. More extensive definitions are available at Reg. 1.1471-1(b).  Here each definition has a hyperlink to an authority citation. Find this regulation by entering its number in your search engine browser.

The FATCA Report presents facts about the accounts and account holders, but not payments or withholding.

FATCA Withholding and Payment Reporting: If the account holder is foreign, Form 1042-S is the main form used to report income or withholding to the IRS and the account holder. If not, Form 1099 is the most commonly used form. In some cases, even if the account holder is foreign, a financial institution may elect to use a form 1099 for the report to the IRS and to the account holder.

Transmittal of FATCA withholding: Variable.  Sometimes amounts withheld must be transmitted timely to the IRS.  Sometimes withheld amounts may be kept in escrow by the payer/withholding agent until a specified event occurs.

Intergovernmental Agreement (IGA) Models: Almost all countries chose to follow Model 1.  The financial institution provides account information to the government of the jurisdiction where it is located or organized, which then passes on required information to the other country (here, the U.S.). In Model 2, adopted by only a few countries, the financial institution sends the specified account and account holder information directly to the other country, here, the U.S. Treasury.

Hope this helps.  I will update this post if more effects on information provided to taxpayers appears.

Jean