It is the end of another year — a time for reflection and a time for planning for the future. For tax regime countries such as the United States, it is also tax planning, possible filing and reporting time for individuals (and businesses) situated in the US and those living abroad, whether temporarily or permanently, who may be considered US persons.Given that the concept of voluntary tax reporting and filing is an alien concept for many Bermuda residents, particularly those who have no close connections with other countries, this subject matter often receives puzzled comments from readers.

We are, however, living in times of commonplace global mobility and where a substantial group of our local workforce claims somewhere else as a primary home. Individuals with more than one passport, i.e. a US passport and a Bermuda passport, dual citizenships, married to a US person, holding a green card (or forgotten that they still have one), may not be aware that they (or a member(s) of family) may inadvertently meet the classification of a US person.

United States Internal Revenue Service defines a United States person as a US citizen or resident (including a green card holder), a US domestic partnership, corporation, or estate or trust. For this article, we will confine discussion to US citizens (and green card holders) living abroad.

The elementary question: What is the definition of a US citizen?<$>

The US person (or green card holder) living abroad, in many instances, may need to have a better understanding of his/her citizenship/residency status. A question such as, if a person has a US passport (or is a dual-citizen), but has never lived in the United States, is he/she a US citizen?

If an individual still has a green card, but has not lived in the United States for many years, does he/she still have to file a US tax return or informational reports?

If an individual considers themselves Bermudian, but may have been born in the US, are they US citizens?

Sorting out cross-border identities in years past was more often than not, left unresolved and for many reasons, families did not understand the complexities, information was not readily available, and travel to and from the United States was relatively informal.

US persons’ (taxpayers) filing and reporting responsibilit.<$>

Tax planning can be simple or cumbersome and complex, depending upon the individual tax filer’s situation.

If a US taxpayer meets certain minimum filing thresholds or wishes to take certain elections (such as the Foreign Earned Income Exclusion), as defined by US Internal Revenue Service, they will have to consider seeking professional tax advice and filing a tax return.

US persons may also have certain mandatory informational reporting requirements, again depending upon their personal financial profile. While planning may feel more like homework, it is always as good idea to understand what your responsibilities are and plan accordingly. No surprises that way.

What is a financial interest reporting obligation?

It is clearly stated on a little known form callede Report of Foreign Bank and Financial Accounts <$>TD F 90-22.1 that is filed directly with United States Department of the Treasury.

Essentially, this filing requirement mandates that every US person who has a foreign interest in, or signatory authority, or other authority over one or more financial accounts in foreign countries must report these accounts (on an annual basis) to the United States Department of the Treasury.

If the US person is also filing a US tax return, Form 1040, Schedule B, Part III 7a should be checked to indicate interest in a foreign account.

No report is required if the aggregate value of the accounts does not exceed $10,000. The average US citizen living and working in the United States will generally never consider having an offshore financial account (or even contemplate opening one), but if a US person resides abroad, having a foreign account is almost a certainty.

What constitutes a foreign financial account and financial intst?<$>

Accounts for savings, demand, fixed deposits, certificate of deposits, time deposits, joint accounts held with other persons (who are not US persons — you report your partial interest), securities such as bonds, stocks, mutual funds, and so on. A financial interest means that the person is the owner of record or has legal title. Indirect financial interests are also reportable but the attribution can be complex, interpretive, and beyond the scope of this icle

Why is this form necessary?

The Form TD F 90-22.1 (commonly called the FBAR form) was developed by the US Treasury department based on the requirement of Public Law 93-579 (Privacy Act of 1974). The principal purpose for collecting the information is to assure maintenance of reports and records that may have a high degree of usefulness in criminal, tax, or regulatory investigations.

While possibly not of comfort to anyone, we note that the United States is not the only nation to impose on their citizens reporting of financial accounts held in other countries. In recent years, there have been similar reporting processes instituted by European nations as well.

The form requires information on the taxpayer, identification number, address, birth date, number of foreign accounts, description and type of account, range of value of the account, name and country of financial institution, and name of organisation that owns the account, i.e. corporation, partnership, trust or estate.

Penalties

Disclosure of this information is mandatory. There is a penalty of up to $10,000 for non-wilful failure to file or disclose the accounts. A far more onerous penalty of the greater of $100,000 or 50 percent of the amount of the transaction or the balance of the account at the time of the violation may be asses for wilful<$> failure to file. The filing deadline for the previous year is June 30 of each succeeding year.

l It is highly recommended that if a reader needs further information on these complex cross border tax planning issues, that he/she consult with a qualified independent professional international US tax accountant, attorney, or financial planner before making any financial or tax decision.

This article is not intended as a reliance or marketed opinion, nor is it intended or written by the author to be used by anyone for the purpose of avoiding US tax penalties or promoting, marketing or recommending to another party any transaction described or addressed above.

Martha Harris Myron CPA CFP|0xae| is a Senior Relationship Manager at Argus Financial Limited. She specialises in planning for lifestyle transitions and rewarding retirements for executives and senior career professionals. DirectLine: 294 5709 Confidential email can be dired to mmyron<$>[AT]argusfinancial.bm

The article expresses the opinion of the author alone. Under no circumstances is the content of this article to be taken as specific individual investment advice, nor as a recommendation to buy/ sell any investment product. The Editor of the Royal Gazette has final right of approval over headlines, content, and length/brevity of article.