February 13, 2020

Professionals

AVOID INCURRING HIGH PENALTIES FOR NOT REPORTING

US Persons are required to report certain financial information to the US Internal Revenue Service (IRS).

Are you a US person?

Like a lot of issues with US taxes, whether you are a US person with tax reporting obligations is not a simple question to answer. Basically, if you fit into the categories outlined below you should consider your tax reporting obligations:

  • Born in the US
  • Born in another country with two US citizens as parents
  • Born in another country with one US citizen as a parent and the parent lived in the US for 2 or 5 years after the parent’s 14th birthday
  • US resident green card holder
  • US resident due to living in the US for at least 183 days over the last 3 years

If you are not sure whether your connection with the US means you have tax reporting obligations you should seek advice.

You may not have tax to pay, but you must still report.

US persons are taxed on their worldwide income, regardless of where it is earned.

Generally income earned from sources outside of the US is taxed in the country where the income is earned and due to foreign tax credits and tax treaties the US tax is reduced or eliminated by the tax paid in the other country.

Even though you may not owe tax in the US, as a US person you may have obligations to report certain information to the IRS.

For example, under the US Foreign Account Tax Compliance Act it is the obligation of US persons to disclose all bank, securities and other financial accounts maintained in a foreign country in which the US person has a financial interest or over which he or she has authority, if the aggregate value of the assets in all of the financial accounts exceeds USD $10,000 at any time in the calendar year. The reports are prepared and filed electronically. If a US person fails to report or is late with reporting then typically there is a USD $10,000 minimum penalty.

A US person is also required to furnish information to the IRS with respect to each foreign corporation that person controls for an uninterrupted period of 30 days or more during the tax year. There are also penalties for failure to report.

Should I renounce my US citizenship?

It is not surprising that there are a large number of US citizens renouncing US citizenship. But, this should not be done without obtaining advice, as there can be consequences, such as, US exit tax and if it is found that US citizenship was renounced for the purpose of avoiding US tax, the person can be denied re-entry to the US.

How can McInnes Wilson Lawyers help?

We are not experts in US tax and cannot advise you on US tax. However, we can assist you where Australian tax relates to US tax and we can assist you with getting the right advice.

If you require further information, please contact: