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FATCA Update for Individuals

Alex Jones November 2013

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FATCA, Form 8938 and Medicare Practical Issues

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Form 8938 - Foreign financial asset reportingThe thresholds

Filing status

Residing In Value on last day of year

Value on any day of year

Unmarried or married filing separately

US $50,000 $75,000

Married filing jointly

US $100,000 $150,000

Unmarried or married filing separately

Foreign country

$200,000 $300,000

Married filing jointly

Foreign country

$400,000 $600,000

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Form 8938 - Foreign financial asset reportingWhat practical issues are we coming across?

• Foreign Pension plans (apart from social security or “other similar” plans) ARE SFFAs, as are deferred compensation plans – this takes many individuals above the threshold

• Valuation – rules are very vague...do the best you can with information available to you . 3 step test – any information on value? Any distributions? If neither $0 can be OK...

• What if you are close to threshold? Disclosure considerations

• Trust and estates – do you “know or have reason to know...of the interest”

• “Held for investment” – stock will always be an SFFA (even if in a trading company) but what about capital contribution to a foreign partnership – does it depend on how capital has been used?

• Differences between FBAR and 8938 e.g. with FBAR report accounts of entity (in some cases, depending on ownership) with 8938, report entity

• If in doubt - report??

• Penalties – we have seen some recently for FBARs

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Form 8960 – Net investment Income tax

• Not actually part of FATCA rather Obamacare

• 3.8% additional charge on net Investment Income

• Applies to individuals whose modified Adjusted Gross Income exceeds $250k for Married Filing Joint, $125k Married Filing Separate and $200k Single

• 3.8% charge on the lower of Net Investment income or the difference between MAGI and the threshold amount.

• IRS have issued a draft form 8960 but not yet the instructions or Regulations

• An IRS office has suggested the charge will not be covered by foreign tax credits, and potentially no relief in the UK either

• Investment income includes; interest, dividends, annuities from non-qualified plans, rental royalties, net capital gains and passive activities of partnerships, s-corporations and trusts

• Investment expenses allocable to investment income will reduce the amount subject to charge.

• Question whether the charge applies to the growth in UK pension plans.

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Questions?

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