Asia-U.S. Expat Foreign Asset Filing Requirements Explained

Asian Expat Foreign Asset Filing Requirements Explained

Asia-U.S. Expat Foreign Asset Filing Requirements

U.S. Person foreign account holders across the globe are required to report their foreign accounts, assets, and investments each year to the IRS and FinCEN on various international information reporting forms. Some of the more common foreign IRS tax forms of taxpayers have to file are the FBAR (FinCEN Form 114), Form 8938 (FATCA), and Form 8621 (PFIC). Depending on the number of assets the taxpayer has and whether these assets generate income can impact the complexity of the filing and which forms need to be reported each year. Golding & Golding represents clients in over 85 countries. Below, please find some of the more common examples of foreign account reporting for taxpayers with accounts in Asia.

First, the FBAR/Foreign Account Basics

Not all taxpayers are required to file every foreign tax form each year. Rather, it depends on the category of asset and the value of the accounts owned by the account holder. In some years, the taxpayer may have to file several forms to report their different assets, including reporting the same asset on different forms — and then in other years, the taxpayer may not meet the threshold requirements for reporting or may meet the threshold filing requirements for some forms but not for other forms. Noting that the filing due dates for the different forms will vary, for example, while the FBAR is on an automatic extension, other forms require the taxpayer to file either a Form 4868 (or equivalent extension procedure) or Form 7004 *For all examples, please note that the Taxpayers are U.S. persons for tax purposes who have not made any treaty elections to be treated as a Non-Resident Alien (NRA). Also, these examples are for illustrative purposes only, and Taxpayers should consult with a Board-Certified Tax Law Specialist if they have specific questions about their reporting requirements and not rely on this article for legal advice.

Asia FBAR/Foreign Account Examples

We have consulted with thousands of taxpayers from all the different Asian countries, and here are some of the more common FBAR, FATCA, and PFIC reporting scenarios we have encountered.

China

• • • Amanda is a U.S. person who currently resides in China, where she works for a large Chinese company. Amanda maintains several bank accounts, but these accounts do not generate any income. Amanda is still required to report the accounts on her U.S. taxes and FBAR.

Taiwan

• • • Adam is a Taiwanese citizen and a U.S. lawful permanent resident who recently relocated to the United States. He has several foreign accounts that were opened before he relocated to the United States, and has not opened any accounts since becoming a U.S. person. Adam is still required to report all his foreign accounts, even though they were opened before he relocated to the United States.

Singapore

• • • Andrew is a Singaporean citizen relocated to the United States a few years ago. Before living in the United States, he accumulated a large CPF and SRS (Supplement Retirement Scheme). He no longer works for a Singaporean employer and has not made any contributions nor received any distribution since becoming a U.S. person. Andrew is still required to report these accounts on his FBAR and tax return.

Malaysia

• • • Alan is a naturalized U.S. citizen who previously lived and worked in Malaysia and accumulated a significant EPF. Alan is required to report this account on his US tax return and FBAR, even though he has not made any contributions or received any distributions for many years.

Hong Kong

• • • Aileen relocated to Hong Kong about 10 years ago and began working for a Hong Kongese employer and funding her MPF. Eileen just learned for the first time that she should have been reporting this information on her U.S. tax return and international information returns. Since she lives most of the year overseas, she may qualify for the Streamlined Foreign Offshore Procedures (SFOP), with no penalty for the late reporting.

South Korea

• • • Abby is a South Korean citizen who transferred to the United States on an L-1 visa. She married a U.S. citizen and was unaware that there was any reporting requirement for a foreign account and since her spouse takes care of the tax filings he never inquired about foreign accounts because he does not have any. Recently, Abby realized she should have been reporting this information, and she may qualify for one of the offshore disclosure programs.

Japan

• • • Anthony is a dual Japanese and U.S. citizen who lived most of his life in the United States but decided to relocate back to Japan to be closer to his family. Anthony files all of his Japanese tax returns and pays any taxes that are due, and since all his income is foreign-sourced, he was unaware that he was required to report this information on a U.S. tax return, FBAR, etc.  Since Anthony lives the majority of the time overseas comma he may qualify for the Streamlined Foreign Offshore Procedures (SFOP) and avoid IRS offshore penalties.

Philippines

• • • Everett and Alexa are originally from the Philippines and moved to the United States several years ago. While they were in the United States they continued to invest in foreign accounts and assets in the Philippines but were unaware they were required to report this information on their U.S. tax return. Since many of the investments involved foreign mutual funds and ETFs, Everett and Alexa may have to go back to file several forms such as the FBAR, Form 8938 and Form 8621.

India

• • • Abby is an Indian citizen who first came to the United States on an F-1 visa, before transitioning to an H-1B and then U.S. permanent resident status. When she came from India, she had a significant number of foreign accounts and assets managed by her parents, but because she was on her first F-1 visa, she was not considered a U.S. person. She carried these filings forward, not realizing that once she became a U.S. person, she was required to report this information on her U.S. tax return and may consider one of the amnesty programs to get into compliance.

Israel

• • • Allie is a U.S. person who previously lived in Israel and Switzerland. He was not aware that he was required to report these accounts. As he got on in age, his son began helping him with his tax returns and learned for the first time that his father had these foreign accounts that dated all the way back to the 1950’s, but were never reported.

Vietnam

• • • Alfred is a Vietnamese citizen who recently retired and relocated to the United States to be closer to his son and grandchild. Alfred does not work in the United States but does receive a significant pension distribution each year from his Vietnamese retirement accounts. He also has several assets and investments abroad throughout Asia. Even though Alfred is not employed in the United States, he is still required to file a tax return to report his income, along with all his foreign accounts and assets.

Macau

• • • Alex’s family resides in Macau, and Alex recently completed his studies in the United States. His family gifted him $1M into his foreign account so he can access it to purchase a property as he begins his new career. Alex is required to report this foreign account even though the money is only in the account for a short amount of time before being transferred to escrow in the United States. Likewise, since Alex’s family members are non-US persons, he is required to file a Form 3520 to report the gift.

Thailand 

• • • Angela is a U.S. citizen who relocated to Thailand to work for a big employer. She earns a significant amount of income and pays taxes in Thailand period since the United States has a tax treaty with Thailand, Amanda misunderstood that she was still required to report this information on her U.S. tax return along with all her foreign accounts and assets.  Since Angela resides for more than 11 months out of the year in Thailand, she may qualify for the Streamlined Foreign Offshore Procedures (SFOP).

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.