U.S. Tax Reporting for International Investors: Non-U.S. Citizens

In 2009, 36,221,554 international visitors came to the United States.  Non-U.S. citizens, who visit the United States, may be treated as U.S. taxpayers under either:

1) The “Green Card” Test (i.e., they have a green card);
2) The “Substantial Presence Test” (they are in the U.S. for 122 days per year over a consecutive 3-year period).

Under either test, international investors who visit the United States may be classified for tax purposes as U.S. income tax residents. If so, they would be required to file U.S. tax compliance reporting for their worldwide income (and assets).

1) Form 1040: Individual income tax return (report their worldwide income);

2) Form TDF 90-22.1: For accounts over $10,000, an “FBAR” filing, i.e., Report of Foreign Bank and Financial Account;

3) Form 8938:  Foreign Financial Assets valued in excess of $50,000.

The failure to file these tax returns has severe penalties:

1) Failure to Report Income (i.e. failure to file Form 1040): Three felonies and one misdemeanor, up to 14 years in jail, plus 75% Civil Tax Fraud penalty, 25% failure to pay penalty.

2) Failure to File FBAR (Form TDF 90-22.1): A maximum penalty of 50% of the account balance, computed annually, so in two years the account has a 100% penalty, in three years a 150% penalty (and so forth).  A willful failure to file an FBAR can lead to a felony of up to 10 years in jail and a $500,000 fine.

3) Failure to Report Specified Foreign Financial Assets (Form 8938).

A 40% accuracy-related penalty is imposed for underpayment of tax that is attributable to an undisclosed foreign financial asset understatement.

International investors who visit the United States should consult a U.S. tax advisor to seek clarification of their U.S. tax filing requirements for their worldwide income and assets.

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