K-1 Spouse and FBAR Compliance

[procrastinator124 4]

I have been a silent observer on VJ so far but felt that I should share my research in FBAR filing requirements.

What is FBAR: A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.

Background: I was debating whether my wife, a K-1 entrant, is required to file FBAR for 2016. In researching the issue, the requirement to file boils down to whether she is considered a United States person for 2016. This analysis is only applicable if you are a K-1 entrant who has not yet converted to a green card. If you are a green card holder, you are required to file FBAR.

Applicable Regulations: Because I know we all love form filling/instruction cross-checking with the K-1 and AOS process, lets get into the nitty-gritty.

Disclaimer: I only included snippets I believe are relevant. I am neither a tax or legal professional.

FBAR filing instructions for FinCEN Form 114

United States person means United States citizens (including minor children); United States residents; entities, including but not limited to, corporations, partnerships, or limited liability. A United States resident is an alien residing in the United States. To determine if the filer is a resident of the United States apply the residency tests in 26 U.S.C. section 7701(b).

26 U.S.C. section 7701(b)

An alien individual shall be treated as a resident of the United States with respect to any calendar year if (and only if) such individual meets the requirements of clause (i), (ii), or (iii):

(i) Lawfully admitted for permanent residence

Such individual is a lawful permanent resident of the United States at any time during such calendar year.

(ii) Substantial presence test

Such individual meets the substantial presence test of paragraph (3).

(iii) First year election

Such individual makes the election provided in paragraph (4).

26 U.S.C. section 7701(b) Substantial Presence Test

Such individual was present in the United States on at least 31 days during the calendar year, and

the sum of the number of days on which such individual was present in the United States during the current year and the 2 preceding calendar years (when multiplied by the applicable multiplier determined under the following table) equals or exceeds 183 days

Current Year………..….1

1^st Preceding Year….…1/3

2^nd Preceding Year…….1/6

26 U.S.C. section 7701(b) First Year Election

was not a resident of the United States under paragraph with respect to the calendar year immediately preceding the election year

is a resident of the United States under clause (ii) of paragraph (1)(A) with respect to the calendar year immediately following the election year, and

is both (I) present in the United States for a period of at least 31 consecutive days in the election year, and (II) present in the United States during the period beginning with the first day of such 31-day period and ending with the last day of the election year (hereinafter referred to as the “testing period”) for a number of days equal to or exceeding 75 percent of the number of days in the testing period (provided that an individual shall be treated for purposes of this subclause as present in the United States for a number of days during the testing period not exceeding 5 days in the aggregate, notwithstanding his absence from the United States on such days). An alien individual who meets the requirements of subparagraph shall, if he so elects, be treated as a resident of the United States with respect to the election year.

Analysis:

My K-1 spouse is not considered a United States person for the purposes of filing FBAR because she does not meet any of the requirements.

Lawfully admitted for permanent residence

She is currently in the AOS process and has not been admitted yet for permanent residence.

Substantial presence test

2016- 60 Days x 1 = 60 Days

2015- 9 Days x 1/3 = 3 Days

2014- 135 Days x 1/6 = 22.5 Days

Total Days = 85.5 Days (failed test)

First Year Election

She will qualify, however, she will not be electing to be treated as a resident under this section.

Conclusion:

Having failed the 3 tests, I believe she not considered a United States person for the purposes of filing FBAR.

I will still be filing a joint tax return to take advantage of lower taxes. The IRS allows for this “If, at the end of your tax year, you are married and one spouse is a U.S. citizen or a resident alien and the other spouse is a nonresident alien, you can choose to treat the nonresident spouse as a U.S. resident.” This election is not to be confused with the First Year Election from above. Since this election is not referenced as part of the FBAR definition of resident, I believe there is a loophole here to not file FBAR but still file a joint tax return.

If anyone has opposing arguments, please bring them up!

[MariaR323 199]

Good research skills! Based on the details you provided, you are correct. The "elections" to be treated as a resident are different between the FBAR and joint tax return filing and are made under different sections of the IRC

[Delirium 114]

My husband entered on October 28th and we were married on the 5th of December. His account did not exceed 10,000 USD the entire year. Would we still need to file an FBAR? I already sent in my tax return but can amend it I believe.

[MariaR323 199]

5 hours ago, Delirium said:

My husband entered on October 28th and we were married on the 5th of December. His account did not exceed 10,000 USD the entire year. Would we still need to file an FBAR? I already sent in my tax return but can amend it I believe.

If the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year then you have an FBAR filing requirement. If not, nothing to report

[Delirium 114]

Just now, MariaR323 said:

If the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year then you have an FBAR filing requirement. If not, nothing to report

Thank you so much! Do you happen to know if if I need to send the IRS a letter stating that we want my husband to be treated as a resident for tax purposes even though I already filed with the IRS through turbo tax? 

[MariaR323 199]

17 minutes ago, Delirium said:

Thank you so much! Do you happen to know if if I need to send the IRS a letter stating that we want my husband to be treated as a resident for tax purposes even though I already filed with the IRS through turbo tax? 

 

Oooh yes, you should have attached that statement to the tax return and actually mailed it in instead of e-Filing :/

 

At this point, maybe the best option is to simply wait for communication from IRS.

[Delirium 114]

23 minutes ago, MariaR323 said:

 

Oooh yes, you should have attached that statement to the tax return and actually mailed it in instead of e-Filing :/

 

At this point, maybe the best option is to simply wait for communication from IRS.

Thank you! I'll do that. I didn't realise that I needed to do that until looking into stuff haha. I do it through turbo tax every year and didn't know it would be any different :/

[Chris and ZhiJia 146]

On 1/26/2017 at 7:37 PM, MariaR323 said:

 

Oooh yes, you should have attached that statement to the tax return and actually mailed it in instead of e-Filing :/

 

At this point, maybe the best option is to simply wait for communication from IRS.

 

On 1/26/2017 at 8:01 PM, Delirium said:

Thank you! I'll do that. I didn't realise that I needed to do that until looking into stuff haha. I do it through turbo tax every year and didn't know it would be any different :/

 

There won't be much communication from the IRS. They are actually waiting for you to submit an Amended return.

 

https://www.irs.gov/individuals/international-taxpayers/nonresident-spouse-treated-as-a-resident

 

Quote

How to Make the Choice

Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the following information:

1. A declaration that one spouse was a nonresident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year, and that you choose to be treated as U.S. residents for the entire tax year
2. The name, address, and identification number of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)

Amended Return

You generally make this choice when you file your joint return. However, you can also make the choice by filing a joint amended return on Form 1040X, Amended U.S. Individual Income Tax Return within 3 years from the date you filed your original U.S. income tax return or 2 years from the date you paid your income tax for that year, whichever is later. If you make the choice with an amended return, you and your spouse must also amend any returns that you may have filed after the year for which you made the choice.