Take Advantage of These 5 FATCA Loopholes

Genevieve from Atlanta married a prince from Monaco. She moved all her belongings to her new home to live there with him. As a U.S. citizen abroad, she files her annual tax return with a status of Married Filing Separate. All assets are in her husband’s name and nothing is titled jointly.

Because Genevieve married a foreigner and doesn’t own any assets with her name on them, she isn’t affected by the Foreign Account Tax Compliance Act (FATCA) regulations.

I’m asked all the time if there is any good news surrounding FATCA and its corresponding Form 8938 (Statement of Foreign Financial Assets). In an effort to protect my clients from the draconian penalties associated with a failure to file Form 8938, I cautiously advise, “When in doubt, file.”

But like in Georgia’s situation, there are legal loopholes to FATCA…situations where you are not required to file.

Don’t worry, you don’t need a foreign prince to avail of these loopholes (although this is my favorite one). Here are four additional FATCA loopholes for you.

Have your foreign real estate titled in your own name:

From a U.S. tax perspective, this is the simplest way to own foreign property. The purchase of land, a building, or a second home overseas, is handled the same as owning U.S. properties. Essentially, there is no tax distinction; the treatment is the same as for any mortgaged property. Mortgage interest is deductible, property taxes are deductible, and everything is the same as in the U.S. as long as you title that property in your own name.

However, any earnings on real estate owned in your own name should be reported with your annual Form 1040.

Directly hold foreign currency:

If you have foreign currency that isn’t held in a financial account, then it isn’t reportable under the terms of FATCA. This means that you are in personal possession of the foreign currency…so whatever you keep in your wallet, your safe, or under your mattress.

If you have a bank account with a foreign bank in a foreign currency, that is reportable. The loophole only applies if you are holding the currency in your personal possession.

Directly hold precious metals:

Much like foreign currency, technically precious metals, such as gold, held in a foreign storage facility are not foreign financial assets. But I do ask my clients, “Does your holding have an account number?” If the answer is yes, then I recommend disclosure reporting with respect to the gold.

The same is true of directly holding collectible personal property, such as art, antiques, jewelry, cars and other collectibles. These are not considered foreign financial assets once they are directly held by you, and are not in a foreign financial institution.

Your offshore account is in a foreign branch of a U.S. institution:

If you have an account, for example, a depository or retirement account, that is in a foreign branch or foreign affiliate of a U.S.-based financial institution, then that foreign account is not a specified foreign financial asset and is not required to be reported on Form 8938.

For example, Joe opened his bank account with Citibank in the U.S. some years ago. Now that he lives in Mexico, he does all his banking at the Mexican Citibank branch near his home. On his last visit to the branch, he purchased a CD. He is not required to report the base account or the CD account on Form 8938. His Citibank accounts are just like holding accounts in the U.S. because Citibank is a U.S.-based bank.

There are more safe and legal loopholes to FATCA that you can use to make your filing requirements easier, and you can read about them in my book, Expat Taxes Made Easy. You’ll discover all you need to know about FATCA, including more on the loopholes, filing requirements, and all the information you need to ensure you’re tax compliant.

In my more than 30 years as a CPA, I make sure my clients are well-educated in the best tax practices for their situation and lifestyle. It’s my goal with this tax book that you have the best information available, too.

To make sure you have all you need come April 15th, pick up your copy of Expat Taxes Made Easy now.