IMPLEMENTATION OF THE NEW IRS TAX LAW

The new IRS tax law was officially implemented at the beginning of the year 2020. People were advised to conceal overseas financial accounts or they would face heavy fines. On December 31, 2019, the IRS ended its long-term grace period for the Overseas Account Tax Act (FATCA).

The IRS made it known that as long as the accounts of taxpayers meet the “American identity”, they must provide a US tax identification number (ITIN). If overseas accounts are found and they had not been declared, in addition to facing high fines, the accounts would be frozen by the IRS, and taxpayers may even be faced with criminal punishment.

This meant that U.S. taxpayers who did not want to have their accounts frozen had before the end of 2019 to get everything in order or they would have faced severe consequences.

 

MAIN CONTENT OF THE “OVERSEAS ACCOUNT TAX ACT” (FATCA)

The full meaning of FATCA is Foreign Account Tax Compliance Act. The Overseas Account Tax Act (FATCA) is a United States Federal law whose purpose is to ensure that the US government can levy taxes on Americans who hold financial assets outside the US. FATCA applies to U.S. residents, U.S. citizens and green card holders residing in their country.

For US taxpayers,the terms require all U.S. taxpayers to report all assets held outside the U.S. annually. If U.S. residents do not declare their overseas accounts that exceed a certain amount, they will be penalized:

If not declared, once detected, it may face a fine of 10,000 US dollars. If not notified after IRS notification, a fine of up to US $50,000 can be imposed. In case of under-reporting, a fine of up to an additional 40% of total undeclared assets may be imposed.

If American citizens fail to comply with the requirements of this new regulation, they must provide a reasonable explanation to the IRS, otherwise they will face the risk of getting their accounts frozen and may even be subject to criminal prosecution in some extreme situations.

TERMS OF PROMULGATION     

FATCA was promulgated on March 18, 2010, and has been effective ever since. It was enacted by the 11th United States Congress and was signed into law by former president Barack Obama. Currently, there are 113 countries complying with FATCA.

The IRS provides a three-year grace period. During the grace period (which is still in effect), foreign financial institutions are only required to provide information about US customers if they have a record. At the same time, foreign entities and non-entity financial institutions, such as banks and securities, must also disclose the personal data of US taxpayers and the value of assets held in banks to the IRS. The information disclosed includes the US taxpayer’s name, address, tax identification number (TIN), account balance, and deposits and withdrawals on the account of the institution’s holder in that year. Foreign financial institutions that do not cooperate will be excluded from the U.S. market, and the income from U.S. sources of the institution and customers or investment profits in the U.S. will be withheld at a 30% penalty rate. The official implementation time started in January 2020.

Affected people are U.S. citizens, permanent residents holding green cards, foreigners staying in the United States for more than 31 days in the calendar year of taxation, and the number of stays in the United States within 3 years is weighted up to 183 days (the number of stays in this year multiplied by 1, the number of days stayed in the previous year multiplied by 1/3, and the number of days stayed in the previous year multiplied by 1/6).

Of course, the biggest shocks are those who have illegal income outside the United States and try to hide these assets in the United States.

 

EXEMPTIONS

·  American individuals with A or G visas (but not A-3 or G-5),

·  American teachers or interns holding J or Q visas, holding F, J, M, or Q visas

·  Professional athletes participating in charity sports events in the United States are not subject to the 183-day rule.

ITEMS TO BE DECLARED

Foreign financial accounts held for investment; foreign non-account assets, such as foreign stocks and securities, foreign financial instruments, contracts with non-Americans, and interests in foreign entities; retirement accounts and life insurance plans. Financial Institutions belonging to the US overseas may be exempted.

There are ways to know if our account overseas is in line with American identity and is applicable to the “Overseas Account Tax Act“. Let’s take a look at some;

Whether the account holder is a US citizen or legal permanent resident (these are the green card holders)

Whether the account holder’s birthplace is in the United States

Whether there is a U.S. residence address or U.S. correspondence address (including U.S. post office box)

If there is a US phone number (regardless of whether this number is the only phone number)

If there are there any records of remittances to US accounts

 

Note that if you only have one of these marks, it does not mean that your account meets the “American identity”, but it will remind the IRS to give a more careful review. Once your account meets the “American identity” as determined by FATCA, it may not be able to escape the supervision of the United States Inland Revenue Service (IRS), whether in China, the United Kingdom, France or any other country under the FATCA law.

Let’s take a look at the specifics below. The new IRS law applies to the crowd’s declaration standards.

 

U.S. taxpayers living outside the country (residents outside the U.S. for at least 330 days for 12 consecutive months) must declare:

Married taxpayer: A joint income tax return has to be submitted; the total value of the designated foreign financial assets exceeds $400,000 on the last day of the tax year, or exceeds $600,000 at any time during the year; one spouse living overseas is also applicable.

Married persons who have not submitted a joint income tax return: The total value of the designated foreign financial assets exceeds $200,000 on the last day of the tax year, or exceeds $300,000 at any time during the year.

Taxpayers in the United States must declare

Unmarried taxpayers: On the last day of the tax year, the total value of financial assets outside the United States exceeds $50,000, or exceeds $ 75,000 at any time during the tax year.

Taxpayers who are married and file a joint income tax return: The total value of designated U.S. financial assets outside the United States exceeds $100,000 on the last day of the tax year, or exceeds $150,000 at any time during the tax year.

Taxpayers who are married and file income tax returns separately: The total value of the designated foreign financial assets exceeds $50,000 on the last day of the tax year, or exceeds $75,000 at any time during the tax year. Also you need a Tax Attorney to know more about the Tax Law