1. Challenges facing US Expats
Presentation to MeyadoPrivate Wealth Management
09/10/2014

2. Who are we?
Derren Joseph
DerrenJoseph,isanEA(EnrolledAgent-license#00100858-EA)whohasbeenadmittedtopracticebeforetheIRSandisanassociatememberoftheAmericanInstituteofCPAs(#7920958).HehasaMastersinEconomicsfromtheUniversityofAberdeen(Scotland),aMastersinDevelopmentStudiesfromMiddlesexUniversity(London),afirstdegreeinBusinessandholdsaCertifiedDiplomafromACCA(AssociationofCharteredCertifiedAccountantsintheUK).
Derrenhasdoneworkforlarge,listedcompaniesaswellasSmallandMedium-sizedEnterprises(SMEs).Healsohasover15years’experienceinfinancialandeconometricmodellingwithBritish,American,&Caribbeancompanies.Derren’sexperienceincludesSeniororDirector-levelroles,atcompaniessuchasBritishAirways,Expedia,HTJosephCPAandCaribbeanAirlines.
Since2007,DerrenhasbeenworkingwithAmericansintheCaribbean,theU.K.,andMiami,FL.HisspecialtyisworkingwithexpatswithequitystakesinSMEs.DerrenmovedtoSingaporeinOctober2013totakeuptheroleofGeneralManageratAETSandhashadhisviewspublishedbytheSingaporeBusinessReview,theInternationalBusinessStructuringAssociation,ComplianceAlert,Caribbean360,theGuardian,andtheJamaicanObserveramongothers.
derren@expattaxUSA.com

3. This document or presentation is not intended or written to be used, and may not be used, for the purpose of avoiding penalties that may be imposed on the taxpayer.

4. Outline
•US persons -Citizenship vs residency based taxation
•Implications of FATCA IGA for US persons
•Banks / Financial Institutions
•Annual Returns / Form 8938
•US based brokerage firms
•3 points for compliance -
•Point #1 –Non qualified insurance policies
•Point #2 –PFICs
•Point #3 –FBARs
•Amnesty
•Q&A

5. What is a US Person? -Citizenship vs residency based taxation
•Passport holders
•Permanent residents
•Substantial presence
•Accidental Americans
•NRA spouses who make a Sec 6013g election

6. What is a US Person? -Citizenship vs residency based taxation

7. Outline
•US persons -Citizenship vs residency based taxation
•Implications of FATCA IGA for US persons
•Banks / Financial Institutions
•Annual Returns / Form 8938
•US based brokerage firms
•3 points for compliance -
•Point #1 –Non qualified insurance policies
•Point #2 –PFICs
•Point #3 –FBARs
•Amnesty
•Q&A

8. •TheForeignAccountTaxComplianceAct(FATCA)iscodifiedasChapter4oftheInternalRevenueCode.ItrepresentstheTreasuryDepartment'seffortstopreventU.S.taxpayerswhoholdfinancialassetsinnon-U.S.financialinstitutions(foreignfinancialinstitutionsorFFIs)andotheroffshorevehiclesfromavoidingtheirU.S.taxobligations.
•Theintentbehindthelawisforforeignfinancialinstitutions(FFIs)toidentifyandreporttotheIRSU.S.personsholdingassetsabroadandforcertainnon-financialforeignentities(NFFEs)toidentifytheirsubstantialU.S.owners.
•Inordertocomplywiththerules,FFIsarerequiredtoenterintoanFFIagreementwiththeU.S.Treasuryorcomplywithintergovernmentalagreements(IGAs)enteredintobytheirlocaljurisdictions.
•U.S.withholdingagents(USWAs)mustdocumentalloftheirrelationshipswithforeignentitiesinordertoassistwiththeenforcementoftherules.Failuretoenterintoanagreementorproviderequireddocumentationwillresultintheimpositionofa30%withholdingtaxoncertainpaymentsmadetosuchcustomersandcounter-parties.
•Failure to impose the requisite withholding under FATCA requirements could result in significant financial exposure.

9. •Implications of FATCA IGA for US persons
•Banks / Financial Institutions
•US based brokerage firms
•Annual Returns / Form 8938

10. Penalty-Upto$10,000forfailuretodiscloseandanadditional$10,000foreach30daysofnon-filingafterIRSnoticeofafailuretodisclose, forapotentialmaximumpenaltyof$60,000;criminalpenaltiesmayalsoapply

11. Outline
•US persons -Citizenship vs residency based taxation
•Implications of FATCA IGA for US persons
•Banks / Financial Institutions
•Annual Returns / Form 8938
•US based brokerage firms
•3 points for compliance -
•Point #1 –Non qualified insurance policies
•Point #2 –PFICs
•Point #3 –FBARs
•Amnesty
•Q&A

12. Point #1 –Non qualified insurance policies
•Insurance policies can be treated as US qualified, US non-qualified or a PFIC
•US qualified –if you have to ask…
•PFIC –to be discussed later
•US non qualified –
•If underlying fund (in which the policy invests) are only available to the fund and not the general public
•If policy holder doesn’t have the right to select from menu of funds
•Then there should be no look-thru rule (not a PFIC)

13. Point #1 –Non qualified insurance policies
•Section7702(g)saysthe“incomeonthecontract”mustbereportedasordinaryincome.
•“Incomeonthecontract”=increasein“netsurrendervalue”duringthetaxableyear+“costoflifeinsurance”fortheyear–premiumspaidduringtheyear.
•“Netsurrendervalue”=cashsurrendervalue.
•“Costoflifeinsurance”shouldroughlyequatetotheannualinsurancecostofthecontract–asopposedtotheinvestmentcomponent.
•Weaddthisannualincreasetothetaxbasisofthepolicy(inadditiontototalpremiums).
•Sicknesspaymentsshouldreducethisbasiswithanyexcessgeneratingincome.
•We track policy basis with increases for premiums and taxable increases in cash value. No loss for the years when cash value goes down.
•Everything fully disclosed in attachment to return

14. Point #1 –Non qualified insurance policies
•Foreignlifeassuranceorsicknessandaccidentpolicies.Mustpaycustoms&excisetaxatarateof1%ofthepremiumpaidperyear.
•ThismustbereportedonForm720onaquarterlybasis.
•TobeabletofileForm720youwillfirstrequireaEmployerIdentificationNumber.ThiscanbeobtainedbycompletingformSS4.
•OnceyouhaveyourEINyoucannowcompleteyour720forms

15. Outline
•US persons -Citizenship vs residency based taxation
•Implications of FATCA IGA for US persons
•Banks / Financial Institutions
•Annual Returns / Form 8938
•US based brokerage firms
•3 points for compliance -
•Point #1 –Non qualified insurance policies
•Point #2 –PFICs
•Point #3 –FBARs
•Amnesty
•Q&A

16. Point #2 -PFICs
•Enactedin1986tolimittaxdeferralbyUSinvestorsinoffshorefunds
•Previouslyoffshorefundshadanadvantageoverdomesticfunds.Notaxtilldistribution.
•Post1986,thereisalevelplayingfieldforbothdomesticandoffshoremutualfunds.TheU.S.putstheburdenontheshareholdertodeterminetheirshareoftheincomeoftheinvestmentcompany.ThetaxcodedoesnotencourageU.S.personstoinvestinmutualfundsoutsidetheU.S.

17. Point #2 -PFICs
•Toemploythispunitiveregime,theIRSrequiresshareholdersofPFICstoeffectivelyreportundistributedearningsviachoosingtobetaxedthroughoneofthreepossiblemethods-
1.Section 1291 fund,
2.Qualified Election Fund, and
3.Mark to Market election.

18. Point #2 -PFICs

19. Point #2 -PFICs

20. Point #2 -PFICs

21. Outline
•US persons -Citizenship vs residency based taxation
•Implications of FATCA IGA for US persons
•Banks / Financial Institutions
•Annual Returns / Form 8938
•US based brokerage firms
•3 points for compliance -
•Point #1 –Non qualified insurance policies
•Point #2 –PFICs
•Point #3 –FBARs
•Amnesty
•Q&A

22. Point #3 -FBARs

23. Point #3 -FBARs

24. Point #3 -FBARs

25. Outline
•US persons -Citizenship vs residency based taxation
•Implications of FATCA IGA for US persons
•Banks / Financial Institutions
•Annual Returns / Form 8938
•US based brokerage firms
•3 points for compliance -
•Point #1 –Non qualified insurance policies
•Point #2 –PFICs
•Point #3 –FBARs
•Amnesty
•Q&A

26. Amnesty
•US persons -Citizenship vs residency based taxation
•Implications of FATCA IGA for US persons
•Banks / Financial Institutions
•Annual Returns / Form 8938
•US based brokerage firms
•3 points for compliance -
•Point #1 –Non qualified insurance policies
•Point #2 –PFICs
•Point #3 –FBARs
•Amnesty
•Q&A

27. Q&A

28. Appendix –FATCA vs FBAR

29. Appendix –FATCA vs FBAR

30. Appendix –FATCA vs FBAR