EB-5 Visa US Tax, FBAR & FATCA

EB-5 Visa US Tax, FBAR & FATCA

EB-5 Visa & U.S. Tax: FATCA & FBAR 

EB-5 Visa U.S. Tax, FATCA & FBAR: When a foreign national is present in the United States on an investment visa known as the EB-5 visa, they are considered to be on temporary visa holder status. Nevertheless, the individual may still become subject to US tax on their worldwide income and required to report their foreign accounts and assets to the IRS — similar to a US citizen or Legal Permanent Resident (aka Green Card Holder). The IRS EB-5 visa U.S. tax rules are very complicated. Whether or not the EB-5 visa Holder is subject to US tax and worldwide reporting is determined by whether or not they meet the Substantial Presence Test (SPT).  The Substantial Presence Test is essentially a counting days test that is to determine how many days during the past three (3) years (using a specific 1:1, 3:1, and 6:1 ratio) the person has resided in the United States. When a foreign national EB-5 visa holder meets substantial presence, they are subject to U.S. tax on their worldwide income and are also required to disclose their global accounts, assets, and investment to the U.S government unless one of the exceptions or exclusions apply, or they take a treaty position (if applicable).

EB-5Visa and U.S. Taxes

One problem that individuals with the EB-5 Visa get into once they have resided in the United States for over six months is determining what their U.S. Tax status should be; in other words, are they still a nonresident or have they become a US resident for tax purposes by default under the substantial presence test. If they have become a US resident for tax purposes, then under FATCA (Foreign Account Tax Compliance Act) there are also additional filing and reporting responsibilities with the main one being the reporting of foreign accounts on an annual FBAR statement. If a person is been in the United States on an EB-5 Visa but is out of tax compliance there are programs they can enter to try to get compliant.

What is the Substantial Presence Test?

As a non-US citizen and non-US green card holder, you are generally only required to pay tax on your “US Effectively Connected Income” (money you earn while working in the United States). However, if you qualify for the Substantial Presence Test, then the IRS will tax you on your WORLDWIDE income.

IRS Substantial Presence Test generally means that you were present in the United States for at least 30 days in the current year and a minimum total of 183 days over 3 years, using the following equation:

      • 1 day = 1 day in the current year

      • 1 day = 1/3 day in the prior year

      • 1 day = 1/6 day two years prior

Example A: If you were here 100 days in 2016, 30 days in 2015, and 120 days in 2014, the calculation is as follows:

      • 2023 = 100 days

      • 2022 = 30 days/3= 10 days

      • 2021 = 120 days/6 = 20 days

        • Total = 130 days, so you would not qualify under the substantial presence test and NOT be subject to U.S. Income tax on your worldwide income (and you will only pay tax on money earned while working in the US).

Example B: If you were here 180 days in 2016, 180 days in 2015, and 180 days in 2014, the calculation is as follows:

      • 2023 = 180 days

      • 2022 = 180 days/3= 60 days

      • 2021 = 180 days/6 = 30 days

        • Total = 270 days, so you would qualify under the substantial presence test and will be subject to U.S. Income tax on your worldwide income, unless another exception applies.

FBAR Due Date and Extension

The FBAR is used to report foreign bank and financial accounts to the US Government. The Form is due on April 15, but is currently on automatic extension. Therefore, if you did not file the FBAR (FinCEN Form 114) by April 15, you still have until October to file it. And, you do not have to file an extension form such as Form 4868 or 7004 to obtain the FBAR extension — because the extension is automatically granted.

Form 8938 Due Date and Extension

Form 8938 is used to report foreign assets to the IRS in accordance with FATCA (Foreign Account Tax Compliance Act). It is similar (but not identical) to the FBAR. Form 8938 is filed with your tax return and is due when your tax return is due. If you are an individual filing a Form 1040, then the form 8938 would be due in April along with your 1040 tax return — but if you extend the time to file your tax return, then your Form 8938 will go on extension as well.

Form 3520 Due Date and Extension

Form 3520 is used to report foreign gifts and foreign trust information. The due date for Form 3520 is generally April 15, but taxpayers can obtain an extension to file Form 3520 by filing an extension to file their tax return for that year. Similar to Form 8938, there is no specific Form 3520 extension form required beyond requesting an extension of the underlying tax return.

Form 3520-A Due Date and Extension

Form 3520-A is used to report US ownership of a Foreign Trust. Unlike Form 3520, Form 3520–A is usually due in March and not April. In addition, the rules for filing an extension for Form 3520-A are different as well (subject to the substitute filing rules). In order to extend the due date to file Form 3520-A, the taxpayer must file a separate Form 7004 extension form.

Form 5471 Due Date and Extension

Form 5471 is used to report the ownership of certain foreign corporations. The filing date is the same as when a person’s tax return is due — and if the taxpayer files an extension for the underlying tax return, Form 5471 will go on extension as well. In recent years, Form 5471 has become infinitely more complex — so taxpayers should be cognizant of the different filing requirements and plan accordingly.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and 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.

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 that 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. 

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.