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www.privateairny.com Private Air New York | Fall 2018 35 WEALTH MANAGEMENT antiques, jewelry, cars and other collectibles held directly • Social Security-type program benefits provided by a foreign government ere's one more loophole, and it's a big one. No filing is required for international investments held directly in IRAs or other U.S. tax-deferred retirement accounts. If you hold those assets through a domestic LLC or other domestic entity, that entity may be subject to these filing requirements. But the IRA itself will not. e Big ree Reporting Obligations If you're a U.S. citizen, green card holder, or spend enough time in the U.S. to be considered a tax resident, then you are a "U.S. person." at means that you have three main reporting obligations for your international investments. Obligation 1: Interest and Ordinary Dividends or Equivalent. Do you have a bank account overseas? If the value of your account or accounts went over $10,000 at any time during the financial year, you'll need to report that fact. Do so on the Schedule B form of your federal tax return. Even if the account is not in your name and you have control over it, report it. If your accounts contain only precious metals or other non-cash assets, you still need to report those (whether they generate an income or not). And if you have signatory authority over an account (for example, if you have power of attorney over an aged relative's bank account), you need to report that. Do so even if you don't have personal access to the money it contains or generates. Obligation 2: Report of Foreign Bank and Financial Accounts. Form 114 is due the same date as your personal tax return. You file it separately through a Treasury Department online portal (Fincen.gov/report-foreign- bank-and-financial-accounts). is form is often referred to as the FBAR. Remember Schedule B above? File your FBAR each year to report the same information. Again, if you held more than $10,000 worth of assets in a bank account (or accounts) outside of the U.S., you need to fill out this online form. What else? Do you own more than 50% of a domestic business (corporation, LLC, or the like) that holds international investments? If so, report it. Are you the grantor of a domestic trust or entitled to more than 50% of the trust's income? Again, report it. Something to point out is that you may need to file out more than one FBAR to report the same investments, if you hold them in a domestic business. Unfortunately, heavy penalties apply if you forget to report something. You can be fined $12,921 for each year you negligently fail to file Form 114. e penalty for willfully failing to file Form 114 is much higher: it's $129,210 or 50% of the balance of your foreign accounts, whichever is greater. So don't forget to file your FBAR, and definitely don't try to hide any assets you should report. Simply signing a tax return that should have, but didn't, acknowledge reportable foreign investments can demonstrate willfulness. Avoid that scenario. Obligation 3: Statement of Specified Foreign Financial Assets. is reporting obligation covers a lot of the same ground as the FBAR, but in more detail. What's different is that it applies to higher bank balances than the FBAR does. DON'T FORGET THESE ADDITIONAL REPORTING FORMS Many Americans who live and invest overseas buy non-U.S. mutual funds or create non-U.S. entities to hold their business or investment interests. Naturally, Uncle Sam wants to know about them. Here's a summary of what you'll need to disclose: • Form 8621 if you have investments in offshore mutual funds • Form 5471 and possibly Form 926 If you own a 10% or greater interest in a non-U.S. business entity (including one created to hold non-U.S. real estate) • Form 8865 if you own 10% or more of a foreign partnership • Form 8858 if you own a foreign disregarded entity (i.e., a foreign company 100% owned by a single person or entity) • Forms 3520 and 3520-A if you're the grantor of a foreign trust. A WINDOW OF OPPORTUNITY FOR EXPATS The U.S.has the dubious distinction of being one of only two countries in the world that taxes citizens who live abroad. Fortunately, the Tax Code has a partial escape clause if you live and work outside the U.S. full-time or nearly full-time. It's called the foreign earned income exclusion, or FEIE. If you qualify, you can legally avoid paying federal income tax on foreign- earned wages below $104,100 annually (for 2018 – adjusted annually for inflation). More info at irs.gov/individuals/international- taxpayers/foreign-earned-income- exclusion.

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