This document provides an overview and summary of key issues relating to US expats. It introduces Derren Joseph, the presenter, and his qualifications. It then outlines the key points to be covered: - Defining who is a US person for tax purposes, including citizens, permanent residents, and substantial presence tests. - Distinguishing between citizenship-based and residency-based taxation and how this impacts expats. - Highlighting issues with non-qualified insurance policies, PFICs, FBAR reporting requirements, and FATCA compliance for expats holding foreign financial accounts or assets. - Providing brief summaries of the tax treatment and reporting obligations for these key areas that most impact

1. Understanding US Expats
Presentation to IFS Wealth Managers
06/30/2014

2. Who are we?
Derren Joseph
Derren Joseph, is an EA (Enrolled Agent - license # 00100858-EA) who has been admitted to practice before the IRS and is an associate
member of the American Institute of CPAs (#7920958). He has a Masters in Economics from the University of Aberdeen (Scotland), a
Masters in Development Studies from Middlesex University (London), a first degree in Business and holds a Certified Diploma from ACCA
(Association of Chartered Certified Accountants in the UK).
Derren has done work for large, listed companies as well as Small and Medium-sized Enterprises (SMEs). He also has over 15 years’
experience in financial and econometric modelling with British, American, & Caribbean companies. Derren’s experience includes Senior or
Director-level roles, at companies such as British Airways, Expedia, H T Joseph CPA and Caribbean Airlines.
Since 2007, Derren has been working with Americans in the Caribbean, the U.K., and Miami, FL. His specialty is working with expats with
equity stakes in SMEs. Derren moved to Singapore in October 2013 to take up the role of General Manager at AETS and has had his views
published by the Singapore Business Review, the International Business Structuring Association, Compliance Alert, Caribbean 360, the
Guardian, and the Jamaican Observer among others.
derren@expattaxUSA.com

3. Circular 230
This document or presentation is not intended or written to be used,
and may not be used, for the purpose of avoiding penalties that may be
imposed on the taxpayer.
Treasury Department Cir. No. 230

4. Outline
• US person
• Citizenship vs residency based taxation
• Point #1 – Non qualified insurance policies
• Point #2 – PFICs
• Point #3 – FBARs
• Point #4 – FATCA
• Q&A

5. What is a US Person?
• Passport holders
• Permanent residents
• Substantial presence
• Accidental Americans
• NRA spouses who make a Sec 6013g election

6. What is a US Person?

7. Point #1 – Non qualified insurance
policies
• Insurance policies can be treated as US qualified, US non-qualified or
a PFIC
• US qualified – if you have to ask…
• PFIC – to be discussed later
• US non qualified –
• If underlying fund (in which the policy invests) are only available to the fund
and not the general public
• If policy holder doesn’t have the right to select from menu of funds
• Then there should be no look-thru rule (not a PFIC)

8. Point #1 – Non qualified
insurance policies
• Section 7702(g) says the “income on the contract” must be reported as ordinary
income.
• “Income on the contract” = increase in “net surrender value” during the taxable
year + “cost of life insurance” for the year – premiums paid during the year.
• “Net surrender value” = cash surrender value.
• “Cost of life insurance” should roughly equate to the annual insurance cost of the
contract – as opposed to the investment component.
• We add this annual increase to the tax basis of the policy (in addition to total
premiums).
• Sickness payments should reduce this basis with any excess generating income.
• We track policy basis with increases for premiums and taxable increases in cash
value. No loss for the years when cash value goes down.
• Everything fully disclosed in attachment to return

9. Point #1 – Non qualified
insurance policies
• Foreign life assurance or sickness and accident policies. Must pay
customs & excise tax at a rate of 1% of the premium paid per year.
• This must be reported on Form 720 on a quarterly basis.
• To be able to file Form 720 you will first require a Employer
Identification Number . This can be obtained by completing form SS4.
• Once you have your EIN you can now complete your 720 forms

10. Point #2 - PFICs
• Enacted in 1986 to limit tax deferral by US investors in off shore funds
• Previously off shore funds had an advantage over domestic funds. No
tax till distribution.
• Post 1986, there is a level playing field for both domestic and off
shore mutual funds. The U.S. puts the burden on the shareholder to
determine their share of the income of the investment company. The
tax code does not encourage U.S. persons to invest in mutual funds
outside the U.S.

11. Point #2 - PFICs
• To employ this punitive regime, the IRS requires shareholders of PFICs
to effectively report undistributed earnings via choosing to be taxed
through one of three possible methods-
1. Section 1291 fund,
2. Qualified Election Fund, and
3. Mark to Market election.

12. Point #2 - PFICs

13. Point #2 - PFICs

14. Point #2 - PFICs

15. Point #3 - FBARs

16. Point #3 - FBARs

17. Point #3 - FBARs

18. Point #4 - FATCA
• FATCA stands for ‘‘Foreign Account Tax Compliance Act”
• The goal is to stop US tax evasion by –
• Requiring Foreign Financial Institutions (FFIs) and non-financial foreign entities (NFFEs) to
provide information about financial accounts held by US taxpayers or foreign entities in which
US taxpayers hold a substantial ownership interest.
• Requiring US persons to report information about certain foreign financial accounts and
offshore assets on Form 8938 and attach it to their income tax return, if the total asset value
exceeds the appropriate reporting threshold.
• In the future, requiring domestic entities to file Form 8938 if the entity is formed or used to
hold specified foreign financial assets and the total asset value exceeds the appropriate
reporting threshold. Until the IRS issues such regulations, only individuals must file Form 8938.

19. Point #4 - FATCA
• The Foreign Account Tax Compliance Act (FATCA) is codified as Chapter 4 of the Internal Revenue Code. It represents the
Treasury Department's efforts to prevent U.S. taxpayers who hold financial assets in non-U.S. financial institutions (foreign
financial institutions or FFIs) and other offshore vehicles from avoiding their U.S. tax obligations.
• The intent behind the law is for foreign financial institutions (FFIs) to identify and report to the IRS U.S. persons holding assets
abroad and for certain non-financial foreign entities (NFFEs) to identify their substantial U.S. owners.
• In order to comply with the rules, FFIs are required to enter into an FFI agreement with the U.S. Treasury or comply with
intergovernmental agreements (IGAs) entered into by their local jurisdictions.
• U.S. withholding agents (USWAs) must document all of their relationships with foreign entities in order to assist with the
enforcement of the rules. Failure to enter into an agreement or provide required documentation will result in the imposition
of a 30% withholding tax on certain payments made to such customers and counter-parties.
• Failure to impose the requisite withholding under FATCA requirements could result in significant financial exposure.

20. Point #4 - FATCA
Penalty - Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose,
for a potential maximum penalty of $60,000; criminal penalties may also apply

21. Q&A

22. Appendix – FATCA vs FBAR

23. Appendix – FATCA vs FBAR

24. Appendix – FATCA vs FBAR