For starters, let's clarify that U.S. taxpayers are not only those individuals who are U.S. citizens. If you are a U.S. resident alien, a green card holder and/or someone who lived in the U.S. and for a prolonged period, you also have tax filing requirements no matter where you are currently resident in the world.
For US taxpayers, filing requirements have recently become more onerous, especially if you have unreported international investment accounts and/or bank accounts. As per the Foreign Account tax Compliance Act (FATCA) enacted in 2010, U.S. taxpayers holding non-US financial assets with an aggregate value higher than $50,000 must report those assets to the IRS. This requirement is effective for assets held in tax years beginning on or after 1 January, 2011and failure to report will result in significant fines. This requirement is in addition to the requirement to file the Report of Foreign Bank and Financial Accounts (FBAR) form, which is required when aggregate international accounts are valued above $10,000.
Many U.S. taxpayers have been sold offshore investments by advisors who did not know of, or chose to ignore, U.S. tax filing requirements. The investor was likely asked to sign a disclaimer protecting the investment provider from liability for adverse tax consequences. These investments, often found in the form of regular savings plans, portfolio bonds or whole of life plans, are precisely the type of foreign financial assets that often go unreported.
And aside from the new filing requirements, these investments will be taxed very egregiously as Passive Foreign Investment Companies (PFICs). Why, then, should a U.S tax person invest internationally if their gains will be taxed at higher rates? It may be because they desire access to internationally based investment options that are not available in the US. For instance, in the US, it would be difficult to find high quality managed futures funds that trade futures on commodities, currencies, etc. It is also difficult to find quality funds that focus on specific countries (especially emerging market countries such as Indonesia or Thailand). Thus, there is the possibility of improved returns using these international platforms, but these returns must be weighed against the tax ramifications and filing requirements.
U.S. persons may wonder how their assets would ever be found out by the IRS. These persons should know that the U.S. has active Tax Information Exchange Agreements with offshore jurisdictions such as the Isle of Man and Guernsey. "Times are a changin' " and as evidenced by the new filing requirements, the IRS is moving towards stepping up their efforts to find those who have unknowingly or intentionally not reported all their foreign assets. The Tax Information Exchange Agreements makes it possible for the IRS to find these persons. In light of all this, it is time to get things in order.
For US taxpayers, filing requirements have recently become more onerous, especially if you have unreported international investment accounts and/or bank accounts. As per the Foreign Account tax Compliance Act (FATCA) enacted in 2010, U.S. taxpayers holding non-US financial assets with an aggregate value higher than $50,000 must report those assets to the IRS. This requirement is effective for assets held in tax years beginning on or after 1 January, 2011and failure to report will result in significant fines. This requirement is in addition to the requirement to file the Report of Foreign Bank and Financial Accounts (FBAR) form, which is required when aggregate international accounts are valued above $10,000.
Many U.S. taxpayers have been sold offshore investments by advisors who did not know of, or chose to ignore, U.S. tax filing requirements. The investor was likely asked to sign a disclaimer protecting the investment provider from liability for adverse tax consequences. These investments, often found in the form of regular savings plans, portfolio bonds or whole of life plans, are precisely the type of foreign financial assets that often go unreported.
And aside from the new filing requirements, these investments will be taxed very egregiously as Passive Foreign Investment Companies (PFICs). Why, then, should a U.S tax person invest internationally if their gains will be taxed at higher rates? It may be because they desire access to internationally based investment options that are not available in the US. For instance, in the US, it would be difficult to find high quality managed futures funds that trade futures on commodities, currencies, etc. It is also difficult to find quality funds that focus on specific countries (especially emerging market countries such as Indonesia or Thailand). Thus, there is the possibility of improved returns using these international platforms, but these returns must be weighed against the tax ramifications and filing requirements.
U.S. persons may wonder how their assets would ever be found out by the IRS. These persons should know that the U.S. has active Tax Information Exchange Agreements with offshore jurisdictions such as the Isle of Man and Guernsey. "Times are a changin' " and as evidenced by the new filing requirements, the IRS is moving towards stepping up their efforts to find those who have unknowingly or intentionally not reported all their foreign assets. The Tax Information Exchange Agreements makes it possible for the IRS to find these persons. In light of all this, it is time to get things in order.