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Who Is a 'US Person' Required to Report Foreign on Financial Accounts?

Who Is a 'US Person' Required to Report Foreign on Financial Accounts?

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Monday, 13 February 2017 06:11 AM Current | Bio | Archive

 

A "U.S person" must file with the Internal Revenue Service a U.S. income tax return reporting his or her worldwide income, and a Report of Foreign Bank and Financial Accounts (“FBAR”) reporting his or her financial interest in, or signature authority over, foreign financial accounts.

The term “U.S. person” includes:

  • a U.S. citizen, by birth or naturalization, who has not renounced U.S. citizenship,
  • a lawful permanent resident of the U.S., or
  • an individual who meets the substantial presence test.

A lawful permanent resident (“LPR”) is also called a “greencard” holder. An alien initiates administrative determination of abandonment of LPR status by writing a letter to U.S. Citizenship and Immigration Services (“USCIS”) declaring the alien's intent to abandon LPR status, attaching his or her green card to the letter, and mailing the letter, by certified mail, return receipt requested, to USCIS or a consular officer. The alien should retain a copy of the letter as well as the returned receipt.

The Internal Revenue Service regards LPR status as continuing, even though USCIS would not recognize the alien's green card as valid because it is more than 10 years old or the alien has been absent from the United States for a period of time, until the alien has proof that his or her letter of abandonment with green card attached has been received.

Considering the importance of proof that the letter of abandonment with green card attached has been received, and the incidence of return receipts not coming back or coming back unsigned, an alien should also have a copy of the letter of abandonment with green card attached delivered to USCIS or a consular officer by a courier service such as UPS, FedEx, or DHL, and require a signed receipt. Such services provide a digital copy of a signed receipt.

The substantial presence test is the least-understood basis for U.S. personhood. An individual satisfies the substantial presence test for the current calendar year if:

  • such individual was present in the United States on at least 31 days during the calendar year, and
  • the sum of the number of days on which such individual was present in the United States during the current year and the two preceding calendar years (when multiplied by the applicable multiplier determined under the following table) equals or exceeds 183 days:

 

In the case of days in:               The multiplier is:

  • Current calendar year                              1
  • First preceding calendar year                  1/3
  • Second preceding calendar year              1/6

An individual is treated as present in theUnited States on a given day if he or she is physically present in the United States for any time during that day. There are exceptions to physical presence in the United States for certain teachers, trainees, and students.

Treasury Regulations include the following example. B, an alien individual, is present in the United States for 122 days in the current year. He was present in the United States for 122 days in the first preceding calendar year and for 122 days in the second preceding calendar year. In determining his status for the current year, B counts all 122 days in the United States in the current year plus ⅓ of the 122 days in the United States in the first preceding calendar year (40⅔ days) and 1/6 of the 122 days in the United States during the second preceding calendar year (20⅓ days). 122 days + 40⅔ days + 20⅓ = 183 days. B meets the substantial presence test and is a resident alien for the current year.

Closer connection exception. The substantial presence test does not apply to an individual for a current taxable year if:

  • such individual is present in the United States on fewer than 183 days during the current year, and
  • it is established that for the current year such individual has a tax home in a foreign country, and has a closer connection to such foreign country than to the United States.

Making out the closer connection exception is more difficult than it may seem. An individual's tax home is considered to be located at the individual's regular or principal (if more than one regular) place of business.

If the individual has no regular or principal place of business because of the nature of the business, or because the individual is not engaged in carrying on any trade or business, then the individual's tax home is the individual's regular place of abode in a real and substantial sense.

Factors relevant in ascertaining an individual’s tax home include the location of the individual's permanent home; the location of the individual's family; the location of personal belongings, such as automobiles, furniture, clothing and jewelry, owned by the individual and his or her family; the location of social, political, cultural or religious organizations with which the individual has a current relationship; the location where the individual conducts his or her routine personal banking activities; the location where the individual conducts business activities; the jurisdiction in which the individual holds a driver's license; the jurisdiction in which the individual votes; and the country of residence designated by the individual on forms and documents.

An individual thus satisfies the substantial presence test by being physically present in the United States for a sufficient amount of time, regardless of whether he or she is a citizen or greencard holder.

The cost of complying with U.S. laws concerning foreign financial accounts is modest for an individual who complies upon coming to the United States.

But the cost of compliance increases dramatically if the individual waits a period of years before complying.

The sooner an individual complies with U.S. laws concerning foreign financial accounts, the better.

Stephen J. Dunn is a leading authority on compliance with U.S. laws concerning foreign financial assets. He has handled hundreds of foreign accounts cases for taxpayers located throughout the United States and beyond.

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The cost of complying with U.S. laws concerning foreign financial accounts is modest for an individual who complies upon coming to the United States.
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2017-11-13
Monday, 13 February 2017 06:11 AM
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