FATCA - Streamlined Foreign Offshore Procedures

Question

I’m German and my wife is American with US passport + SSN; she has lived in Germany nearly 30 years and after the kids left the house started work again with a part-time job 5 years ago. Our joint earned and unearned income is taxed in Germany.

We found out about FATCA only by chance and, as the amounts are reportable, are now considering the Streamlined Foreign Offshore Procedures to become tax compliant.

Is it as simple as it sounds? Any pitfalls? We have a few questions:

FBAR: We have joint accounts, no problem. The securities/custodian account, however, is in my name, but my wife is a signatory (German bank preferred this arrangement) and has a financial interest in it. In which part of the FinCEN Form 114 should it be reported. As far as I can see, an account is owned separately (part II), jointly (part III) or has signature but no financial interest (part IV).

1040 - My wife is “married filing separately”; I’m an NRA on line 3. How are taxable interest (line 8a) and ordinary dividends (8b) treated. Does she have to show the full amounts or only 50%?

I assume the absence of a W-2 and 1099 (not issued in Germany) will not be a problem.

If FATCA is such a big issue, why didn’t the IRS inform overseas US passport holders ahead of time?

The electronically filed FBAR/FinCEN Form 114 appears to go to a different location than the 1040, Schedules A+B, Forms 8938 and 14653, which have to be sent to Austin, Texas.

Although there are some differences, in terms of their ultimate purpose Form 8938 and FinCEN Form 114 seem to be an unnecessary duplication of work for both the taxpayer and the IRS.

FATCA came into force in July 2014, so why are FBARs required for the last 6, 1040s etc for only the past 3 years?

Aren’t earned and unearned taxable incomes more important than account balances. You could have thousands parked on money market account, which since the financial crisis would have earned very little taxable interest. So why do forms 8938 and FinCEN 114 focus on just the accounts and their balances? It would make more sense, if the FFIs had to report the interest and dividends to the IRS - instead of the balances. I’m all for clamping down on tax evasion, but putting years-long non-resident mothers and housewives through such hell seems a vey cumbersome, uneconomical way to generate a few extra tax dollars - we’ve been researching and working on this on and off for weeks!

Thanks in advance for any help. Regards

Answer 1

I suggest you to work with a US-licensed CPA or tax attorney who are familiar with the FBAR/FATCA compliance issues.

FBAR: We have joint accounts, no problem. The securities/custodian account, however, is in my name, but my wife is a signatory (German bank preferred this arrangement) and has a financial interest in it. In which part of the FinCEN Form 114 should it be reported. As far as I can see, an account is owned separately (part II), jointly (part III) or has signature but no financial interest (part IV).

The custodian account is not joint, per what you're describing. So part IV. What's the confusion?

1040 - My wife is “married filing separately”; I’m an NRA on line 3. How are taxable interest (line 8a) and ordinary dividends (8b) treated. Does she have to show the full amounts or only 50%?

Tricky. Does Germany follow community property rules? I don't know. That affects the answer. Can you point out separate property that only one of you owns and can attribute income to? That also affects the answer. Talk to your tax adviser (CPA/EA licensed in the US and familiar with the German property laws).

If all the income is always joint and owned together, then each spouse writes 50% on the respective tax return (which only one of you is filing, if I understand correctly).

If FATCA is such a big issue, why didn’t the IRS inform overseas US passport holders ahead of time?

Thanks for putting this joke in the middle of this very long question, really got me laughing for like 5 minutes!:)

The electronically filed FBAR/FinCEN Form 114 appears to go to a different location than the 1040, Schedules A+B, Forms 8938 and 14653, which have to be sent to Austin, Texas.

Yes, but since you're filing them electronically it doesn't matter. FinCEN is a separate agency in the Treasury, it is not part of the IRS.

Although there are some differences, in terms of their ultimate purpose Form 8938 and FinCEN Form 114 seem to be an unnecessary duplication of work for both the taxpayer and the IRS.

Since FinCEN is a separate agency, they require a separate form. The IRS requiring form 8938 is new, since 2013 I believe, but FBAR has been around for many years. They're indeed somewhat duplicate, but many people who have to file FBAR - do not have to file 8938. There are much higher balance requirements for form 8938.

FATCA came into force in July 2014, so why are FBARs required for the last 6, 1040s etc for only the past 3 years?

FBAR requirement is not new, its been there for decades. It is not part of the FATCA additions. Form 8938 is.

The statute of limitations for FBAR is 6 years, for form 1040 it is 3 years (with some exceptions, omitting form 8938 which you otherwise were supposed to file is one of them).

Why are the US tax code and reporting laws so convoluted?

Well, call your Congressman. Or, rather, have your wife call her.

Answer 2

Steven,

I am in a very similar situation to your wife. I am American and living in France for over 20 years. I just finished filing a Streamlined Foreign submission. It took me around 100 hours of work, in addition to bill from a US-qualified tax attorney.

Form 8938 and FBAR are indeed partly redundant. But you must file both of them. BE CAREFUL with your Streamlined submission. If you file incorrectly, not following the instructions, you will not get the benefit of the Streamlined program. I fully agree with littleadv that you should hire a US-qualified CPA or tax lawyer. I did the tax returns myself, but used the lawyer for legal advice. This would only be feasible for someone who knows taxes fairly well and is good with figures.

The manner in which you hold your securities account seems quite sub-optimal. If you are the "beneficial owner" of the account, then its balance would not be reported to the US government under FATCA. AND, if your wife files Married Filing Separately, then if she is not beneficial owner, she would not be required to declare income from securities in that account. So it might be worthwhile to seek a formal, written, opinion from your bank about who is the owner of the account. I am not sure whether Germany being a community property legal system would mean your wife would have a "financial interest" in the account or not. I tend to think not. In that case she could file under Part IV of the FBAR and omit the account from the Forms 8938.

Good luck!

N