The main focus of the discussions on www.demostax.com is aimed at the U.S. tax concerns. However, it is also worthwhile to spend a few minutes on the various types of visas available to foreign nationals. Visas not only govern the type of activity that is permitted and the length of stay but also carry varying tax implications. Below is a brief description of the most common work visas available and the general tax issues associated with each.

B Visa

Foreign nationals visiting the U.S. on temporary stays are often issued B visas. The B-1 visa is intended for those who are on short term business assignments. The difference between a B-1 visa and an L visa relates to the length of stay and the purpose of the work. A B-1 visa is issued to employees who remain on a foreign payroll and who are in the U.S. for reasons such as business meetings, conferences, seminars, and training courses, whereas an L visa is issued to individuals who will be performing services similar to actual local employment in the U.S.

Stays in the U.S. under B-1 visas cover very specific periods of time which depend on the business purpose for the visit.

H1-B Visa

H1-B visas are issued to foreign nationals who are certain types of professions during the time they will be employed in the U.S.  A successful applicant for an H1-B visa must have a certain level of education or experience that is relevant to the position that the visa holder will be performing. An H1-B visa holder may remain on a foreign U.S. payroll during his or her employment in the U.S.

J Visa

Foreign nationals who will be visiting the U.S. as a student, teacher, or a trainee in certain programs is usually issued a J visa. Individuals who hold J visas are allowed to work for limited periods of time in the U.S. Their periods of work, which are generally referred to as academic training, are usually limited to a period of 18 months. In certain cases the period can be extended to as long as 36 months. J visa holders from certain countries or those in specific cases are required to return to their home country for a period of at least two years before they can apply for long-term work visas (L or H visas) or for permanent resident status. In some cases, J visas can be an attractive option because a J visa holder is exempt from U.S. social security tax on income received during the period of academic training.

L Visa

L visas are the preferred visas for employees who are entering the U.S. to work for an extended period of time. L visas are issued to intracompany transfers – those employees who are transferred from a company in a foreign country to a related U.S. entity. Depending on the which type of L visa is issued, individuals on an L visa can stay in the U.S. for a period of 5 to 7 years.

To qualify for an L visa, both the individual and the employer must meet the following requirements:

●          The individual must be an executive, or in a management position, or have specialized skills or knowledge.

●          The individual must have worked for the foreign company for at least 1 out of the 3 years previous to the transfer.

●          The foreign company and the U.S. company to which the employee is transferred must have a certain level of common ownership.

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There are two separate classifications in U.S. tax law for U.S. source income. In a previous discussion on Residency, we covered the most common types of income earned by nonresident individuals and the rules for determining whether the income is considered to be U.S. sourced or foreign sourced. Once you have made the appropriate sourcing in each category, it is necessary to further classify all items of U.S. source into one of the following types:

• Trade or business income (active income), or
• Investment income (passive income)

The distinction between these two types of income is important because each is taxed differently.

Trade or Business Income

Trade or business income is generated through an endeavor which demands a certain level of active participation. Wages earned as an employee or compensation derived as a self-employed individual are examples of trade or business income. Other activities also considered U.S. trade or business income include selling products in the U.S. through a U.S. based office, ownership of a U.S. business (corporation, partnership or otherwise).

Income which is classified as trade or business income is taxed on a net income basis using graduated tax rates. Net income is determined by accumulating the gross trade or business income and reducing it by allowable deductions which are attributable to this gross income.

If you own a business in the U.S., your business may deduct most expenses that are directly related to it. These business deductions include wages paid to employees, rents paid, depreciation of assets, marketing and advertising costs, taxes, insurance, utilities, etc.  Normally the income and related expenses will flow through to your U.S. tax return on either schedules C or E depending on the business’ choice of form (sole proprietor, corporation, partnership, etc).

While an employee may indeed incur similar expenses to that of a business owner, the employee is often reimbursed for these by his/her employer.  Only unreimbursed employee business expenses may be deducted on one’s individual tax return, and when done so only as an itemized deduction.  Any expenses that are personal in nature are usually not deductible unless they qualify as adjustments to gross income or as itemized deductions.

Adjustments to Gross Income

Similar to U.S. residents, nonresident aliens can claim certain adjustments, deductions, from gross income. They are:

• Retirement Related (IRA, SEP, SIMPLE & qualified plan contributions)
• Health Related (Medical savings account & Self-employed health insurance)
• Unreimbursed deductible moving expenses
• Penalty incurred on early withdrawal of savings
• Environmental (deduction for clean-fuel vehicles)
• Education Related (Student loan interest deduction, Scholarship and fellowship grants exclusion)

It is common for nonresidents to have these types of deductions. Also note that these expenses must relate to income being reported on the return to be deductible.

Itemized Deductions

Nonresident aliens can also claim the following itemized deductions:

• State and local income taxes
• Gifts to U.S. charities
• Casualty and theft losses
• Unreimbursed employee expenses and miscellaneous deductions (subject to limitations)

Personal Exemptions

Generally, nonresidents are only allowed their own individual exemption.  However, residents of Canada and Mexico are not subject to this general rule.  These nonresident aliens may claim additional exemptions for those individuals who qualify as dependents (see discussion of Dependents on www.demostax.com).

Short-Term Assignments

Your employer may wish to send you to the U.S. for a “temporary assignment”.  Typically, most foreign nationals will not establish a U.S. based tax home during such a short term stay. A temporary assignment is defined as one where the tax home (principal place of work or employment) does not change, it remains in your home country. If the intent of the assignment is to return to your original tax home within one year, the assignment is considered to be temporary in principle (all other assignments are considered indefinite or long-term).

The tax advantage of a temporary assignment is that certain employer-provided benefits and per diems are not considered taxable wages to the employee.  Some of these expenses are lodging, meals, travel, and certain other items related to the assignment.  During a long-term assignment, these are typically considered taxable compensation.

If these expenses, which are directly related to the short term assignment, are not paid or reimbursed by the employer, you are allowed to deduct the costs as an itemized deduction (subject to certain limitations).

Tax Rates

After reducing the trade or business income by any allowable itemized deductions and the personal exemption(s), the net trade or business income is subject to the graduated tax rates. The rates at which net trade or business income is taxed depends on your filing status. If you are a married nonresident alien, generally the married filing separately status and rate schedule applies to your net trade or business income.  However, if you find yourself in the situation that you are married to a U.S. citizen or resident and you do not meet the U.S. requirements to be a resident, you may elect to be treated as a resident and therefore file a joint return with your spouse.

If you are not married, you must use the “single taxpayer” tax rate schedule.

Investment Income

U.S. sourced investment income is taxed at a flat rate of 30% on a gross basis, meaning that no deductions or exemptions are allowed against this income. The most typical types of income which fall into the “Investment Income” category are interest, dividends, and royalty income.

The flat tax of 30% is usually collected through a tax withholding mechanism. The burden to withhold the tax is placed upon the payor of the income. For example, a U.S. corporation will withhold the tax from any dividends it pays to a nonresident taxpayer and remit it to the U.S. government on behalf of the individual.

The 30% tax rate can be reduced or eliminated if a tax treaty is in effect between the U.S. and the country of residence of the taxpayer.  A listing of current treaties is found in Publication 901.  We have included a link to this publication in Section IV.  If you are a nonresident taxpayer and your only U.S. source income consists of investment income, you are not required to file a U.S. tax return provided the withholding tax has been properly withheld.  In most cases, the withholding tax satisfies your U.S. tax liability.

Special Rules for Investment Income

Portfolio Interest Exemption – For many nonresidents, interest earned from certain debt instruments issued by a U.S. based entity will not be subject to the withholding tax. To qualify for this exemption, the following requirements must be met:

• The nonresident taxpayer cannot have a substantial ownership stake (10% ownership or more) in the U.S. entity paying the interest.
• The obligation generating the interest income must have been issued after July 18, 1984.
• Some countries do not have an adequate system of information exchange with the U.S. to prevent tax evasion by U.S. taxpayers.  Most “developed” countries do have adequate systems.  However, the IRS maintains a list of countries which it finds to be inadequate.  The recipient of the income can not be a resident of a “inadequate” country.

U.S. Bank Deposits – Interest earned from deposits in U.S. banking institutions is exempt from the U.S. withholding tax mentioned earlier. Note that this income can not be connected to a U.S. trade or business in order to qualify for this exemption.

Real Estate Rental Income – is typically considered investment income. As a result, the gross rental income is subject to the full 30% withholding tax (unless reduced by a treaty). Since this could discourage foreign investment in U.S. real property by presenting an undue tax burden on nonresidents, there is an election available to treat this as trade or business income. Thus allowing the nonresident landlord to be taxed on a net basis using graduated tax rates. Because the landlord is taxed on a net basis (gross rental income less related deductible costs), this will often result in a lower U.S. tax liability. If you own U.S. real property and lease it, you should seek the advice of a U.S. tax advisor regarding this election and whether it is beneficial in your specific situation.

Disposition of U.S. Real Property – Unlike other types of capital gains or losses, any gain or loss from the sale of real property located within the United States is automatically regarded as trade or business income. The gain or loss is therefore taxed on a net basis at the graduated tax rates.  However, it is common that 10% of the gross sales price will be withheld as remitted to the IRS.  This is required unless it creates an undue hardship on the part of the nonresident taxpayer.  In that case, it is in the interest of the nonresident taxpayer to contact a knowledgeable tax advisor to assist them in reducing or eliminating this withholding requirement for that transaction.  The appeal to reduce or eliminate the withholding on the transaction must be made before the transaction is completed and money is withheld.  Once the money has been withheld you must file a tax return to receive back any monies owed to you as a refund..

Filing Requirements and Procedures

The filing requirements for nonresidents are as follows:  if you earned wages which were subject to U.S. income tax withholding, you should file your U.S. tax return (Form 1040NR) by April 15th of the following year (201D). If you did not receive wages subject to withholding, you have until June 15th of the following year (201D) to file Form 1040NR. If you cannot file your return by the appropriate due date, you may file an extension as discussed in Section I.   Form 1040NR and any supporting schedules should be signed and sent to:

State Income Taxes

Each state, county and municipality in the United States has the right to impose its own Income Tax.  Most states do exercise this right, while few counties or municipalities do so.  Therefore,  you may have to contend with State and possibly local taxing authorities while working in the U.S.  While the rules vary from state to state, they usually follow the same principles as the Federal tax system and quite often either mimic it in format or use it as a starting point in their own calculations.  Each state has its own filing requirements.  However, if you work in a state, even for a short period of time, it is likely that you will have an obligation to file a tax return there.  This is the case even if you are not considered to be a resident of the state.

This concludes our general discussion of nonresident alien taxation in the United States.

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One of the few loopholes left in the tax code is the contribution of appreciated stock.  Generally speaking, you may deduct the full fair market value of the stock on the date donated while avoiding paying the capital gains tax on the appreciation of the stock provided you have held the stock for more than 1 year.

You will need to obtain a receipt from the charity to take deduct your appreciated stock charitable contributions.  Much like other non-cash contributions you need to have the following information in order to get the deduction on Form 8283:

1. Name and Address of the Organization to which the stock was donated.
2. Description of the donated property (number of shares and company name)
3. Date contributed
4. Date acquired
5. How you acquired it (purchased, received as a gift, inherited it)
6. Your cost or adjusted basis
7. Fair market value (average price on date donated)
8. How you determined the value (should be stock price for publicly traded stocks and a qualified appraisal for privately held stock)

For example, Jennifer owns 1000 shares of ABC Inc, a publicly traded company which she plans to donate to charity.  She bought the stock for $1 per share on January 1^st 2005.  She donated the 1000 shares to the Juvenile Diabetes Association on June 28^th, 2010.  On June 28^th, 2010 the stock was worth $4,000 ($4 per share).    She has held the stock for more than 1 year (long term) and thus gets to deduct the full $4,000 on her return while not reporting the capital gain of $3,000 on the appreciated stock contribution.  Everyone wins.  The charity gets $4,000 worth of stock.  Jennifer gets a $4,000 deduction and avoids paying capital gains taxes on the ABC Inc appreciated stock.

However, if Jennifer had instead bought the same shares on July 1^st 2009 but all other facts remain the same, the results would be drastically different.  The charity still wins, it get $4,000 worth of stock.  However, Jennifer only gets a partial win.  She did contribute to a charity she supports; nothing can reduce the quality of her intentions.  Economically, Jennifer still avoided the capital gains tax but she only gets a deduction of the $1,000 she paid for the stock as she only held it short term (less than a year).    Had she waited a few more days, she would have received an additional $3,000 of charitable contributions from her appreciated stock.

To show the difference in results from these appreciated stock contributions, let’s assume Jennifer’s effective tax rate is 25% including her state income tax rates.  In the first scenario, Jennifer’s economic benefit from donating the appreciated stock is $1,450 ($1000 from the donation and $450 of capital gains tax avoided).  In the second scenario, Jennifer’s economic benefit is only $700 ($250 in tax avoided from the contribution and we will assume the capital gains tax avoided is the same for this illustration only).  If Jennifer had better timed her donation of her appreciated stock, she would have reaped more than twice the benefit.   

Generally speaking, appreciated stock contributions are limited to 30% of your Adjusted Gross Income (AGI) if given to a 50% organization (most charities) and limited to 20% if given to a 30% organization (primarily non-operating foundations).

This discussion of appreciated stock contributions is for general information purposes only.  Please consult your tax advisor regarding your specific circumstances.  

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The general rule is that you can deduct the fair market value (usually a thrift shop value) of the items donated to charity.  You will need to obtain a receipt from the charity to take deduct your Non-cash charitable contributions.  Only items in good or better condition are deductible (there is an exception for items that are in poor condition but appraised at a value of over $5000).  You should keep an itemized list of what you donated for your own records, and if you have time take digital pictures of the items being donated.  If the total value of the items donated is less than $500, you may take the deduction on schedule A by listing the type of goods donated and the deduction amount.  If over $500, you will need to provide more information to your tax accountant and s/he will need to fill out form 8283 Non-cash charitable contributions.

Form 8283 requires that following information be provided for each non-cash charitable contribution:

1. Name and Address of the Organization to which the items were donated.
2. Description of the donated property (usually by category shown below, ex.  Clothing & household items)
3. Date contributed
4. Date acquired (usually various – however for vehicles, stock, etc you should find the actual date)
5. How you acquired it (purchased, received as a gift, inherited it)
6. Your cost or adjusted basis
7. Fair market value (for most items this is a thrift shop value)
8. How you determined the value

This seems like a lot of information but it is usually easily obtained and can be worth the effort when you get a larger refund.

Non-cash Charitable Contributions that fall into the following general categories

1.  Clothing & Household Items.  This is the most common type of Non-cash Charitable Contribution.  A household item as defined by the IRS includes Furniture, Electronics, Appliances, Linens & other similar items.  All donated items must be in good or better condition in order to be deducted.
2. Food
3. Art – Paintings, antiques and other objects of Art
4. Jewelry & Gems
5. Collections (this includes collectibles such as coins, stamps, etc)

In the categories above, an appraisal is required if the total amount donated equals or exceeds $5000.  There is an exception for deducting a household item in less than good condition IF the item receives a qualified appraisal of $500 or more. 

The following non-cash charitable contributions are each subject to separate rules and reporting requirements.  Each will be discussed on its own.

1. Stock (publicly traded or privately held)
2. Vehicles – cars, boats and airplanes – click here for separate discussion on this topic:

The following non-cash charitable contributions are each subject to separate rules and reporting requirements.  These are rarely taken and you should consult your tax accountant before making the donation to ensure proper documentation and methods of appraisal are followed before making the donation:

1. Taxidermy property
2. Property subject to a debt
3. A partial interest in a property
4. A fractional interest in tangible personal property
5. A future interest in tangible personal property
6. A qualified conservation contribution
7. Inventory from your business
8. Patents or other intellectual property

Generally speaking, most non-cash charitable contributions will be allowed up to a limit of 50% of your AGI (Adjusted Gross Income).  However, depending on the type of charitable organization and the type of property donated, the limit may be reduced to 30% or even 20%.

This discussion of Non-cash charitable contributions is for general information purposes only.  Please consult your tax advisor regarding your specific circumstances.  

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The foreign tax credit is limited to the lesser of the actual foreign tax paid or accrued or the U.S. tax liability associated with the double taxed income (foreign source taxable income). This limitation is calculated using the following formula:

If the total foreign taxes incurred in a year cannot be fully utilized as a credit due to this limitation, then the unused portion may be carried back and/or forward for FTC purposes.  You may try utilizing the unused foreign taxes by carrying them back two years and/or forward for five years.

To further complicate matters, the foreign tax credit limitation is applied separately to statutorily defined “baskets” of income. The most common classifications encountered by foreign nationals is the “general” basket which includes salaries, wages and business income and the “passive” basket which includes dividends, interest, and capital gains.

There is also an election to forgo the foreign tax credit which then allows you to deduct the foreign taxes you incurred as an itemized deduction.  If this election is made, the foreign taxes are no longer available for the credit. Normally, the dollar-for-dollar credit will give you a better tax benefit, but there are times when making this election is beneficial. You should always consult a tax advisor before deciding to claim the foreign tax credit or make the deduction election in order to make sure that you receive the maximum available benefit.

Sourcing Rules

How does one determine what constitutes U.S. source income versus that which is treated as foreign source income? We will now go over the sourcing rules for the more common types of income.

Personal Services Income

This income category includes wages, salaries, bonuses, and deferred compensation such as pensions that are paid by an employer. It also includes compensation earned by self-employed individuals.

The location in which the services are physically performed determines the source. Earnings for services physically performed in the United States is considered U.S. source income. Compensation for services physically performed outside the United States is considered as foreign source income. If the compensation is related to the work performed in both the U.S. and outside the U.S., the compensation is sourced based on the workdays in the various locations. For example, if you worked 40% of the time in the U.S., then 40% of your compensation would be U.S. source income.

As usual, there is an exception to the rule.  Certain amounts earned by foreign nationals may be exempt from U.S. sourcing rules. Compensation for services performed in the U.S. will not be considered as U.S. source income if the following conditions are met:

·       The services must be performed by a nonresident taxpayer, temporarily present in the U.S. for a period of time equal to or less than 90 days.

·       The total compensation for these services does not exceed a $3,000 threshold.

·       The services must be performed as an employee of or under contract (in the case of a self-employed person) with one of the following:                        

o   A nonresident individual, foreign partnership or foreign corporation which is not engaged in a trade or business in the U.S., or

o   A foreign office or foreign branch of a U.S. resident, U.S. partnership, or U.S. corporation.

Interest Income

Generally, interest income is sourced based on the residence of the payor. Interest which is paid by a U.S. resident, partnership, or corporation is deemed to be U.S. source in nature. Interest paid on obligations issued by the U.S. government or by any political subdivision in the United States such as a state or city government is also considered to be U.S. source income.

Interest paid by a foreign entity (corporation, partnership, individual, government, etc.) is typically considered foreign source income.

Dividend Income

Similar to interest, the general rule for dividends is based on the residence of the entity paying the dividend. If the dividend is paid by a U.S. based corporation it is deemed to be U.S. source income. Dividends paid by a foreign based corporation are deemed to be foreign source income.

Rental Income

The source of rental income depends on the physical location of the property which generates it. If the property is located in the United States, the rental income is deemed to be U.S. sourced. For property which is located outside the U.S., this income is treated as foreign sourced.

Income from the Sale of Personal Property

Income generated from the sale of personal property is sourced according to the residency of the seller. Personal property includes assets such as stocks, cars, computers, furniture and other personal effects. Residency for this purpose is based on the “tax home” concept which was discussed earlier. Generally speaking, if you are a U.S. nonresident, gain from the sale of personal property will not be considered U.S. source income.

Income from the Sale of Real Property (Realty)

Sourcing of Realty is determined by the location of the property. Real Property generally includes land, buildings and permanent fixtures. Gain on the sale of realty located in the United States is considered to be U.S. source income regardless of the residency of the seller. The sale of real property located outside the United States generates foreign source income.

Partnerships

If you own an interest in a partnership, the source of the income is determined at the partnership level.  Partnerships operating in multiple locations may generate tax liabilities in multiple jurisdictions.  The income retains its source when it flows into your individual tax return(s).

Your foreign tax credit may also be impacted by any tax treaties in force between the United States and the country from which the double taxed income is sourced.  As always, you may wish to utilize the services of a professional to assist you if you have complex Foreign Tax Credit issues.  This concludes this discussion of the Foreign Tax Credit.  

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Rental of Foreign Real Estate as Lessor

Foreign Nationals renting their home or other foreign real estate – It is common for foreign nationals to rent their foreign real estate while on assignment in the U.S. It is also possible that a foreign national may own a residence in the U.S. which is rented out while living overseas.

The rental of foreign real estate will only be taxed in the U.S. during the time that a foreign national is considered a U.S. tax resident. Referring back to the rules on sourcing, rental of a foreign property is foreign source income. As U.S. residents are taxed on their worldwide income, this activity is subject to U.S. tax while the owner/lessor is resident. Rental activity is taxed on a net basis in the U.S. You are allowed to deduct ordinary and necessary expenses incurred on the rental property. These expenses include mortgage interest, property taxes, repairs, and maintenance costs. A deduction for depreciation of the house and fixtures is also allowed. Rental activities are subject to the U.S. passive loss rules. These rules usually limit a taxpayer to recognizing passive losses to the extent of their passive income.

US Citizens and Residents that rent foreign real estate – As mentioned in the prior paragraph, the U.S. will consider this rental income to be Foreign sourced, taxed on a net basis and any double taxation may be relieved using the Foreign Tax Credit. 

If you materially and actively participate in a real estate rental activity as defined by the IRS (which most people will not meet if only renting one property), you are permitted to deduct related passive losses up to an annual maximum of $25,000. This $25,000 maximum is completely phased out as your modified AGI rises.

Sale of a Foreign Principal Residence

The U.S. taxation of the sale of a foreign principal residence depends on your U.S. residency status on the date of the sale.

If you are a U.S. nonresident when you sell your foreign principal residence, there are no U.S. tax consequences as a result of the transaction. Any gain is considered foreign source income and completely escapes U.S. taxation

If you are a U.S. resident at the time the foreign home is sold then any gain could be taxed in the U.S. The exclusion is available for principle residences wherever they may be located.  If you meet the two-out-of-five-year test you will be able to exclude up to $250,000 (or $500,000 depending on your filing data status) of the gain. Any taxable gain, as a result of not qualifying for the exclusion or exceeding the exclusion threshold, is reported on your resident tax return. Please note that even though the gain would be taxed, it would represent foreign source income and any foreign tax paid on the gain will be available for foreign tax credits in the U.S. If you rented your principle residence at any time, the gain related to depreciation during the rental period cannot be excluded and will be subject to a flat tax rate of 25%.

Please note that exchange gains and losses need to be considered on the sale of a foreign residence and the retirement of a mortgage denominated in a foreign currency.  A foreign currency loss on the sale of your home or retirement of the mortgage is considered personal in nature and not allowed on your return while a currency gain is taxable.

Sale of Foreign Real Estate other than your Principal Residence

The U.S. taxation of the sale of foreign real estate depends on your U.S. residency status on the date of the sale.

If you are a U.S. nonresident when you sell foreign real estate, there are no U.S. tax consequences as a result of the transaction. Any gain is considered foreign source income and completely escapes U.S. taxation.  If you are considering the sale of foreign real estate other than your principle residence, it is best (from a U.S. tax perspective) to sell at a time when you are still nonresident.  You should consider the tax implications of the country in which the property is located and figure out whether it is more beneficial to sell the property while still resident there or after you have established your U.S. residency.

If you are a U.S. citizen or resident at the time the foreign real estate (other than your principal residence) is sold then any gain will be taxed in the U.S. Please note that even though the gain would be taxed, it would represent foreign source income and any foreign tax paid on the gain will be available for foreign tax credits in the U.S. It is less likely for you to have depreciation recapture on real estate other than your principal residence but it is possible.

Finally, note that exchange gains and losses need to be considered on the sale of foreign real estate and the retirement of a mortgage denominated in a foreign currency.  A foreign currency loss on the sale of your foreign real estate (other than your principal residence) or retirement of the mortgage may be allowed in certain circumstances while a currency gain is always taxable.

If you have foreign rental property, seek the advice of a U.S. tax advisor to ensure that you comply with the laws concerning this activity and take the right course of action to minimize any resulting tax liabilities or maximize the use of any resulting losses. 

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To see what the housing expense limits are in your current city or country of residence, check the IRS website Form 2555 Instructions.  http://www.irs.gov/pub/irs-pdf/i2555.pdf  This concludes the discussion of the Foreign Housing Exclusion.  If you any questions, please do not hesitate to contact us through our website.

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This is a general discussion on the Foreign Bank Accounts Reporting (FBAR) requirements that US citizens, greencard holders and others deemed a US person (defined at http://www.irs.gov/pub/irs-drop/a-10-16.pdf ) must comply with every year.  It is quite common that an American Expatriate will have to file Form TDF 90-22.1 to comply with the FBAR requirements.  All it takes is that the aggregate of all your bank and financial accounts that are in foreign countries (non-US) exceed $10,000 at any point during the calendar year. 

There are a few places where people commonly run afoul of the rules regarding FBAR because they do not realize they have a FBAR requirement and thus may trigger the penalties for not filing form TDF 90-22.1.  One is when a US person has signature authority over an account, such as a trustee or someone with Power of Attorney over an account.  Whether the US person actually uses their authority over the account is irrelevant to the FBAR filing requirement.  Another time that people do not realize they have an FBAR filing requirement is when they own a Single-Member LLC  that is considered a disregarded entity for US Income Tax purposes.  They figure its accounts are reported on their FBAR and thus that they are covered.  While it is true that if they have signature authority over the accounts they need to include them on the FBAR that they personally filed, the LLC still needs to file its own form TDF90-22.1 to meet its FBAR requirements.

The FBAR Form TDF90-22.1 should not be filed with your income tax return and has its own filing deadline and filing address that are completely different than income tax returns.  FBAR forms should be reported no later than June 30^th of the following calendar year.  For the 2010 calendar year, your FBAR forms need to be filed by June 30, 2011.  Personally, I recommend that you file them in January or February right after receiving you final year end bank and financial statements.

The address for completed FBAR forms ONLY is:

U.S. Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621

If an express delivery service is used, send completed forms to:

IRS Enterprise Computing Center
ATTN: CTR Operations Mailroom, 4^th Floor
985 Michigan Avenue
Detroit, MI 48226

The contact phone number for the delivery messenger service is 313-234-1062 but it cannot be used to confirm that your FBAR was received.

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