A certificate of loss of nationality addresses the immigration side of expatriation, but tax issues still remain. Certain 'covered' expatriates pay an exit tax on giving up their US citizenship. Although they themselves may have left the US tax net, there are lingering tax issues for any US family members. The Internal Revenue Service has now issued proposed regulations concerning the tax on certain gifts and bequests from covered expatriates.
The Foreign Account Tax Compliance Act requires non-US financial institutions, including investment entities, to report US account holders to the Internal Revenue Service. This reporting is causing US taxpayers living abroad to consider whether they have been adequately filing their annual income and information returns in the United States.
The Bureau of Economic Analysis has revised the form used to request an extension of time to file the BE-10 survey. The form no longer makes reference to the number of investments in foreign businesses to be reported by the US reporter. Thus, it is now more applicable to a small filer, such as a trust or limited liability company reporting only one foreign affiliate.
The Bureau of Economic Analysis, an agency of the US Department of Commerce, conducts a survey every five years of US investments abroad. Its stated purpose is to "secure current economic data on the operations of US parent companies and their foreign affiliates"; but the survey's reach is much broader than that. The response period for new filers closes on June 30 2015.
The Foreign Account Tax Compliance Act (FATCA) requires entity account holders to document their status for US withholding tax purposes and for FATCA due diligence purposes. In the case of a non-US entity account holder that has made a 'check-the-box election' to be disregarded for US income tax purposes, advisers should consider the instructions to the W-8 forms and provide documentation for the disregarded entity's beneficial owner.
The Foreign Account Tax Compliance Act (FATCA) was enacted to prevent abuse of the US voluntary tax compliance system and to address the use of offshore accounts to facilitate tax evasion. The Internal Revenue Service hopes that FATCA will strengthen the integrity of the US voluntary tax compliance system by requiring foreign financial institutions, beginning in 2015, to identify and report information regarding their US account holders.
In order for the Internal Revenue Service (IRS) to gather information on the foreign financial assets of US persons, more than 145,000 financial institutions have registered through the IRS Foreign Account Tax Compliance Act (FATCA) registration system. FATCA requires these financial institutions to report information on their US account holders beginning in 2015 for reporting year 2014.
For a foreign trust with a foreign professional trust company as trustee, compliance with the Foreign Account Tax Compliance Act (FATCA) is relatively straightforward. However, a private trust company that is not in the business of providing trustee services for compensation should assess its options with regard to how it complies with FATCA.
When the United States and the offshore jurisdictions negotiated intergovernmental agreements in order to implement the Foreign Account Tax Compliance Act (FATCA), they added a category of deemed-compliant foreign financial institution that is not in the final FATCA regulations: the trustee-documented trust. Financial institutions have now begun asking trustees of trustee-documented trusts to provide a FATCA certificate for the trust.
Including: Gift tax; Estate tax; Generation-skipping transfer tax; Income tax; Income tax residency and transfer tax domicile; Anti-avoidance rules; US citizens and green card holders living abroad; Expatriation; Taxation of trusts; Increased reporting obligations; Foreign Account Tax Compliance Act.
As advisers review succession planning structures to determine each foreign entity's Foreign Account Tax Compliance Act classification, they should consider whether each entity has been maintained in a manner consistent with income and estate tax results. Non-US individuals should also prepare for their US bank account information to be reported to their home country's tax authorities.
Withholding is soon scheduled to begin on certain payments of US source income to non-US entities that are not compliant with the Foreign Account Tax Compliance Act (FATCA). International families and their trustee companies are advised to familiarise themselves with the revised compliance deadlines and review succession planning structures to determine where FATCA withholding could take place and then take the necessary steps to prevent it.
The Internal Revenue Service (IRS) recently posted to its website updated model intergovernmental agreements which it is using to implement the 2010 Foreign Account Tax Compliance Act. Changes to the model agreements highlight the IRS's current thinking as implementation moves forward.
It is time for advisers to international families to assess the classifications of the family office, trust company, trusts and holding companies within the family's succession planning structures under the Foreign Account Tax Compliance Act and any relevant intergovernmental agreements, regardless of whether such entities currently have US owners, beneficiaries or investments.
The American Taxpayer Relief Act 2012, which was signed into law by the president on January 2, provides some certainty for international families as they address their succession planning and begin to move wealth to the next generation. In addition, clarification of the Foreign Account Tax Compliance Act has been provided by new final regulations, but the full impact on foreign trusts and their offshore trustees is still to be determined.
Advisers to international families know that the US tax laws will change in the new year and that the implementation of expanded reporting obligations will continue. In this uncertain environment, advisers do their best to help with investment and succession-planning decisions involving complex questions of law, tax and business planning.
The Tax Relief, Unemployment Insurance Reauthorisation and Job Creation Act of 2010 created advantageous tax and wealth-planning opportunities that are scheduled to expire on December 31 2012. Advisers to international families should be aware of these opportunities as it may be advantageous for US family members to take advantage of them while they still exist.
Significant planning opportunities now exist for both US and non-US trusts using state decanting laws. State initiatives are responding to the need to provide flexibility in trust administration, while the tax authorities are studying the tax implications of trustee distributions of all or a portion of the principal of an irrevocable trust to another irrevocable trust.
The Internal Revenue Service has released Form 8938 – Statement of Specified Foreign Financial Assets. Certain individual US taxpayers must use the form to report information about specified foreign financial assets for the 2011 tax year. Advisers to international families should bring this filing requirement to the attention of US beneficiaries of foreign trusts, as certain interests in foreign trusts are considered specified foreign financial assets.
The Dodd-Frank Act removed an exemption from registration previously available for investment advisers with fewer than 15 clients to enable the Securities and Exchange Commission to regulate private fund advisers. A family office falling within the definition of 'investment adviser' has until March 30 2012 either to register or to qualify for the new single family office exemption.