US Expat Taxes & FATCA: How do Expats Comply?

Guest Post by ZM Ishmurzina, MBA, CPA

Confused about some of the filing requirements for your US tax return as an expat? Here’s some clarification about the FATCA and FBAR forms.

On November 8, 2012 the U.S. Department of the Treasury announced that it has been pursuing extensive negotiations with over 50 countries to improve international tax compliance and to implement FATCA. If you want to know more about FATCA, please read What is FATCA.

Panama is not among these 50 countries as of today. However, American expats in Panama should not think that the FATCA would not affect them.

What does FATCA mean for American expats in Panama?

The primary goal of FATCA is to combat international tax evasion.

For a long time Panama was called the “Switzerland of the Americas” for its banking privacy laws. Panama was on the OECD’s grey list for a long time. Since then President Martinelli has taken many steps to improve the image of Panama in the global community.

Specifically, in 2011 he signed an agreement with the USA that requires the authorities of Panama to cooperate with U.S. investigators even on civil matters.

Although, there is no FATCA intergovernmental agreement between the USA and Panama as of today, the IRS will have access to the accounts of American expats in Panama if they have foreign accounts in other countries like the United Kingdom, for example.

What should American expats in Panama do to comply with FATCA?

The FATCA form has a lot of similarities with the FBARs (see What is FBAR), however, there are multiple differences.

Effective as of 2011 tax year, American expats living in Panama must file the FATCA form 8938 by the due date of an expatriate tax return if they meet the FATCA requirements.

Per the latest FATCA release, Americans living abroad have to file the FATCA if the aggregate value of specified foreign financial assets exceeds $200,000 (last day of the year) or $300,000 (anytime during the year). This filing threshold is much higher for couples filing a joint return.

American expats must keep in mind several things about the above threshold:

1. This threshold is applicable only to Americans living abroad who must qualify under the “physical presence test” or “bona fide residence test.” American expats living overseas are not required to file the form 2555 with the form 8938 to qualify for the above threshold.
2. American taxpayers who actually reside in the USA must file the FATCA if the aggregate value of specified foreign financial assets is over $50,000 (last day of the year) or $75,000 (anytime during the year) for taxpayers choosing a filing status “single” or “married filing separately.” This is a key point since many American expats are confused about a filing threshold.

Which penalties will American expats in Panama pay if they fail to file the FATCA form?

Civil penalties start with a $10,000 failure-to-file fee. However, this amount will be increased by an additional $10,000 penalty for each 30 days within 90 days after the IRS mails a notice regarding a failure to file Form 8938. The second round of penalties is $50,000 for each failure to file. Criminal penalties can be imposed too.

The Treasury publishes regular updates about the FATCA developments. So, it is important for American expatriates living in Panama to follow future releases.

Author ZM Ishmurzina is the principal at Artio Partners, a CPA firm for American expatriates living abroad and dual citizens. We specialize in past-due expat tax returns and complex international tax issues like FBAR, FATCA, foreign tax credit, foreign real estate, PFIC, foreign adoption and controlled foreign corporations. For more information please visit Artio Partners website.