Non-US Financial Accounts: TQ Questions Explained

Topics covered:

Do you have investments in a Non-U.S. mutual fund(s) held through a foreign brokerage firm? Do NOT report funds held in retirement funds, insurance policies or annuity products.

This may be a difficult question to answer if you are just not sure what is a mutual fund (or a pooled investment fund).

Pooled investment funds – also known as collective investment schemes – are a way of putting sums of money from many people into a large fund spread across many investments and managed by professionals.

The reason we ask it is so that we can determine if you are required to report income from passive foreign companies PFIC - see this article for more detail.

Mutual funds sold during the tax year must be reported.

If you are not sure what is a mutual fund, please see the Wikipedia article.

A PFIC is a non-U.S. corporation of which 75% or more of its gross income consists of passive income, or 50% or more of the average fair market value of its assets consists of assets that produce passive income.

Passive income includes, among other things, dividends, interest, rent, royalties and capital gains from the disposition of securities.

It is generally believed that virtually all foreign mutual funds and ETFs are PFICs.

This applies to any kind of mutual fund - listed or unlisted, private or public - any non-US mutual fund is PFIC.

In short - if you have money in a non-US financial account that is managed by someone else (ie they make investment decisions) - you have to answer YES to this question.

Lastly - please note -

Mutual funds held in a pension plan (meaning you can not have access to the funds until retirement) do not need to be reported on your tax return.

However, the balance in the foreign pension fund will be reported on FBAR without breakdown for investment type.

At any time during 20xx, did you own a financial account (such as a bank account, securities account, retirement or brokerage account) outside the United States?

If you are unsure what qualifies as a 'financial account' or have other questions about FBAR - please see this FAQ we prepared.

If you have already filed FBAR or plan to file FBAR on your own, please continue to accurately complete this section in its entirety, as we will utilize the information to determine your 8938 requirements.

Did you have over $X in non-US financial assets at any point during the year Or Over $X across all your foreign accounts as of December-31 of the filing year?

When figuring out the total value of accounts for this question, you have to use the full value of the account, regardless of the actual percent ownership you have.

So for example, if you and your (non-American) spouse co-own an account worth $100,000, you must use the full value ($100,000) when calculating the total value of non-US financial assets.

Please see  FBAR-FATCA Guide

Did you receive FOREIGN (ie non-U.S.) periodic or lump sum retirement distributions (such as government / private pension or disability payments)?

We will determine if this is taxable or exempt, but it needs to be reported to the IRS.

How many financial accounts outside the US did you own or have signatory authority during the filing year?

If you closed or open accounts during the year - we're asking for the HIGHEST number you had at any point during the year.

If you are filing alone, this should be pretty straightforward to answer - you list your accounts (or ones you co-own or have signatory authority over).

If you are  filing jointly with your spouse, please note - reporting their accounts will depend on whether your spouse is a US citizen/green card holder or a Non-resident alien with whom you elected to file as U.S tax resident.

  • If your spouse is a U.S. citizen/green card holder and you file jointly then you have to include their personal bank accounts.
  • If your spouse is not a U.S. citizen/green card holder then their personal accounts are not listed and you only include your own accounts and joint accounts. If there are accounts that you are listed as a signatory authority (i.e. you can write out checks from the account), then you must list those as well.
  • If your spouse is not a US citizen/GC holder and you choose to treat them as a US resident for tax purposes (by filing jointly), then you must also declare their personal accounts on FATCA (form 8938). You do not need to declare the accounts in question (owned by your NRA spouse, and you are not a signatory authority) on FBAR (bullet point 2 applies)

Foreign Interest Income

Please note - you can aggregate all your  bank account interests in one line. Report gross amount before withholding as gross interest and withheld portion as a foreign tax.

Please only include accounts in which you have a financial interest.

Please note that according to the IRS regulations,   there is no minimum amount that must be reported.

You have to report interest earned on a foreign Pension - even if it's tax-deferred in your resident country. Even though in most cases interest earned in pension accounts is not included in current income, we need it in case you are already receiving pension distributions.

If you are married but are filing an individual return without your spouse, for the joint accounts that you own together with your spouse, please report 50% of total interest earned. Unless you live in a country with the community property marital regime. In that case, you have to report 100%. For more details please see the Matrimonial regime, Wikipedia.

If you are a beneficiary of a Foreign Trust - you do not have to report interest earned by the trust until it's distributed to you. However, you have to file form 3520-A to report the foreign trust existence. Your role as a U.S. beneficiary of a foreign trust is treated by the IRS as a role of a partial U.S. owner of a foreign grantor trust. This is where (on foreign trust return) interest earned, yet not distributed must be reported.

Here is how to find out how much tax you paid on interest income:

  • If you have tax withheld by the bank - report it here.
  • If you have a separate entry on your resident country tax return indicating tax applied on bank interest - report it here.
  • If you have only aggregated amount of foreign tax without break down by income category - leave it as "not sure". We will determine that amount.

Did you earn any sort of income outside the US during the tax year?

Please note that this refers to earned income (meaning you worked for it).

For all items of other income (such as rental income or dividends) - please complete the top-level tab  Passive Income.

Do you own at least 10% of a foreign corporation?

A foreign corporation is one that is incorporated under the laws of a different (i.e. not the United States) nation.

The key feature is filing as a corporation with the authorities of the foreign country. That involves nominating directors and registering it (or 'incorporating') it. Once the company is registered you’ll get a ‘Certificate of Incorporation’. This confirms the company legally exists and shows the company number and date of formation.

Ownership percentage is defined by the number of shares or voting power owned by you as indicated on the company incorporating document. This is different from being a company director (which does not, on its own, grant ownership).

During the filing year, were you either an owner or beneficiary of a Foreign Trust?

If you don't know what is a trust (or are unsure if one is giving you money) -  most likely you are not an owner or beneficiary of one.

In case you do want to know what is a trust:

Trust - is a fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary. A family trust is an example of such a fiduciary relationship. The source of trust assets can come from the inheritance or be funded by live individuals.

Did you receive a foreign (ie non-U.S.) tax refund?

Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid, plus the refundable tax credits that they claim. (Tax refunds are money given back at the end of the financial year.)

Please note that you should allocate the refund to whatever tax year it relates to (and not the actual date when you received the monies). For example, if you received a tax refund for the 2016 tax year in 2017, it must be reported in the 2016 TQ.

If you claim a credit for foreign taxes paid, and you receive a refund of all or part of those taxes in a later year, you must file an amended return reducing the taxes credited by the amount refunded.

If you used the only foreign earned income exclusion and did not claim the foreign tax credit, then foreign tax refund for prior years does not need to be reported.

For more details please see Tax refund Wikipedia article

Please note - if:

  1. You are married and are filing your US tax returns separately from your spouse
  2. You filed your foreign tax return jointly
  3. You received a joint refund

You should calculate   your share of the refund by prorating your share of joint income. For example - if you earned $60k and your spouse earned $40k and you received a common refund for $1,000 - your share would be $600.

Lastly - if you received a U.S. tax refund - you   do not have to report it.

Foreign Dividends - Indicate Currency

You only have to answer this question if you received dividends from holdings you have in a non-US brokerage account.

If you did not receive them (or have no idea what this even means), you should leave this question blank.

Franked Credits apply only to the dividends in certain countries (Australia, Malta, New Zealand). Report tax paid on foreign interest in the  Withholding column.

If you received dividends from your insurance company - the policy dividends are considered a "return of premium" - hence, non-taxable and don't have to be reported. For more details please see ' The basics of insurance dividends'.

Do you own a share (interest) in S-Corp or Partnership (whether US or Foreign)?

Pass-through means that the company does not pay tax but income is distributed between partners and they report it on their personal returns.

The partnership is a type of pass-through business entities.

This type of income must be included as taxable income.

If you receive Share of Income from a pass-through partnership (of a property which is rented out) and you answer this question with Yes, you don't have to answer Question 5.12 with a Yes for the same property. Once you contributed property to partnership you do not own it any longer. Rental income and expenses are reported by the partnership.

Have you paid non-US taxes paid on unearned Non-US income?

Examples of this would be:

  • Tax on interest earned on bank savings account/CD deposit
  • Tax on dividends from stock investment
  • Tax on income from rental property

It DOES NOT include:

  • Taxes paid on foreign pension distributions
  • Tax on Rental Income - we ask for it in a different section solely dedicated to Rental Income
  • VAT
  • National Security taxes

This will be used as a credit against your US tax.

If you don't have the amount of tax you paid on unearned income (because you only know the gross amount of tax you paid), we can prorate the amount of income tax allocated to unearned income based on the ratio of unearned income to your total income.

If all tax on passive income is limited to the only tax on bank interest then please provide the same figure as you have provided for the Foreign Interest Income question on the Passive Income > Interest tab.

Please note - EVERY income type including bank account interest is reported based on the calendar year.

During the filing year, did you receive inheritance or gifts from a non-US person?

Please note:

  • Inheritance from a U.S. person (meaning US citizen or GC holder) does not need to be reported (instead it's reported by the executor of the estate of the person who left the inheritance).
  • Distribution from U.S. estates is considered U.S. inheritance - also not reported.
  • Distributions from U.S. trusts (for example dissolution of an estate of a deceased US person) are in reported in the question 7.4 Did you receive cash or property distribution from a Trust (whether US or Foreign)?
  • Transfers between spouses are considered GIFTS if spouses file US tax return separately (or if the second spouse does not file at all).
  • Foreign gifts need to be reported if the total amount gifted during the year is $100,000 or more. Foreign inheritance and trust distributions must be reported for any amount.
  • Gift reporting is necessary when the transfer of cash or property is non-reversible and unconditional. If the foreign person (husband or anyone else) has the ability to move the funds back then this is not considered a gift. 
  • Money that your spouse deposits regularly to your personal current account for the joint household expenses is not considered a "gift". However, a single deposit exceeding $100K may be treated by the IRS as a gift from a foreign person, hence must be reported on form 3520.
  • Deposits to the joint account are never treated as a gift regardless of the amount. 

Amount of foreign tax paid on earnings in the filing year

You may report tax actually paid during the 2016 calendar year on the 2018 and 2017 earnings or tax assessed but yet not paid on the 2018 calendar year earnings.

All income for U.S. tax purposes and your tax credits must be reported on a Calendar year basis 

In some countries tax year is a fiscal year such as 4/09 to 3/10. However, all income for U.S. tax purposes and your tax credits must be reported on a Calendar year basis (1/1/10 thru 12/31/10). Therefore it may be necessary to adjust your foreign fiscal year income/tax (as reported on your foreign tax return) to the correct calendar year amount which is acceptable by the IRS.

4) If you file a joint return in your resident country and your tax bill is for both spouses (while you file separately in the US), please prorate your tax bill contribution vs your share of income.

For example - the husband earned $80,000, the wife earned $20,000 and their total tax bill is $10,000. Therefore the wife should report tax paid of $2,000.

Property taxes paid on foreign residence

Please note - property tax on vacation home can be deducted.

In the UK - if you own and live in the same property, the Council Tax you paid for it should be included here.

If the Council Tax was paid by someone else (i.e. your tenant) - you should not include it.

Did you pay any foreign tax on earnings (wages, bonus) in the filing year?

Please note that regardless of whether taxes were automatically deducted from your salary or you made the payment yourself - you should answer this question with a YES.

Did you carry out sales of securities with a foreign (non-US) financial institution?

1. Example of such a transaction would be the sale of stocks or bonds. You do not have to list the purchases you made.

2. You should not describe the transactions you made with a pension plan (such as 401K or IRA) in this question.

3. If you are the beneficiary of a trust which performed sales of securities, you should not report them in this question. Transactions in the name of the trust will be reported based on the trust income statement that you would be asked to upload separately.

4. Please note - if you had a bond that matured during the year, you do not have to report the event (bond redemption) - provided that you had reported interest you've earned annually.

Foreign banks report this data to the IRS. 

Street Address in Foreign Country in the filing year

We are asking for the address you lived in the Foreign Country during the tax year for which we are preparing the return.

For example - if you are completing the Tax Questionnaire for 2016, you should answer this question with the address where you lived in 2016.

If you moved between countries during the year, please provide the latest foreign address where you lived.

Non-US taxes paid on US retirement distributions

For example - if you live in the UK and receive US Social Security distributions, the British taxes you pay on them would be reported in this question.

Foreign Agent of Corporation: Name, address and country of location

If no agent indicates SELF.

Did you perform funds rollover or recharacterization between Traditional IRA and Roth IRA (either complete or partial)?

These are U.S. pension plan types, not applicable if you do not have U.S. retirement plans.

If you don't know what they mean - that means you don't have one and can safely select   NO.

We will determine whether conversion is taxable or not.

Is this amount included in gross wages?

We want to make sure we do not double count this (if you include it in your income and list it here as well)

Please provide details - country, amount paid, currency

Please note - if you make contributions to various Social Security components separately (such as health insurance, unemployment benefits or disability/retirement benefits) - please provide the total of all payments in the answer as well as the breakdown of all individual components via the comment tool (pencil icon).

Custodian of corporate accounting records: Name, address, and country

Your foreign accountant information or SELF if does not apply.

Did you pay non-US tax on unearned income from US sources?

This would include dividends paid from the company where you serve as a company owner or director.

Amount of personal income tax paid DURING THE TAX YEAR on self-employment income (aside from Social Security) - country, amount paid, currency

Please note - if your resident country income tax is paid on total household income and you don't have apportioned tax amount for self-employment income, we will prorate it based on the income ratio to the total income.

As everywhere else in the TQ - we ask for the actual payments made during the Tax Year (regardless of which time period the payments were actually in reference to).

Were contributions made to a foreign employer pension plan (whether yourself or by your employer)?

Most pension plans in the world qualify as either Pillar 1/2/3. The goal of the three-pillar system is to separate the major objectives of pension (retirement) plans into the following pillars:

  • Pillar 1 – A standardized, state-run pension system, which offers basic coverage and is primarily focused on reducing poverty.
  • Pillar 2 – A funded system that recipients and employers pay into; this includes pension funds and defined-contribution accounts/plans.
  • Pillar 3 – Voluntary private funded accounts, including individual savings plans, insurance, etc.

This question asks for contributions made by your employer to Pillar 2 type pension account on your behalf (usually before taxes are collected). It would normally be reflected on your pay-stub. IT DOES NOT ASK ABOUT CONTRIBUTIONS MADE TO THE SOCIAL SECURITY SYSTEM (PILLAR 1) (we get to them in a further question).

The IRS considers it as a part of the annual compensation - unless there is a country-specific Treaty Exemption (for example UK, Belgium, and the Netherlands).

Please note - even if the employer contributions are mandatory - they must be reported in this question.

For example - employer contributions to the Australian Superannuation plan, albeit compulsory, need to be reported. This is treated as deferred compensation in Australia yet not allowed for deferral in the U.S.

Most Western pensions plans are compulsory for employers.

Therefore - the schemes such as Australian Superannuation - where a certain % of salary is deposited by the employer into the pension should be reported here.

Lastly - please note that employer contributions to the   Social Security system (Pillar 1) are not reported or counted in any way by the IRS.

Did your employer contribute to your pension plan?

Please note - any type of employer contributions to your pension plan must be reported - whether it is compulsory or voluntary.

Employer contributions to employee foreign pension plans are treated as earnings not allowed for deferral on U.S. tax returns.

Examples of various country-specific retirement plans or other forms of deferred compensation include:

  • Pillar 2 - Switzerland, Estonia, Sweden, Poland
  • Superannuation - Australia
  • KiwiSaver - New Zealand
  • Provident Fund - Singapore, Hong Kong, India
  • Prestaciones Sociales - Venezuela 

(these are just examples - the list is not comprehensive, it might be called something else in your country. If you are unsure - check with us)

The simplest way to deal with this question is to answer YES if your employer made ANY KIND contribution to your pension plan. Then provide us the details of the contribution via the Comment Function (click on the pencil icon). We will then figure out how it should be reported to the IRS.

If you care for the details, here are some details about employer contributions to pension schemes:

Contributions made by your employer to a publicly managed social safety plan similar to U.S. Social Security (for example NZ Government Superannuation or European Pillar 1 plans)    are    not to the IRS.
Contributions made by your employer to a mandatory privately managed contribution schemes similar to the U.S. 401K plan (for example NZ Kiwi Saver or European Pillar 2 plans) must be reported to the IRS.

Many countries have a matching employer contribution to the pension plan (for example Super Annuation in Australia). The two kinds of contributions are reported on the Super statement - salary sacrifice coming from the employee side, and the employer contributions. The employer contribution is what you have to report in this question.

What was the rent and utilities you paid on foreign residence for entire year?

1.   Please, only list utilities if you rent your property. The reason we don't ask this if you own your home is that the utility expenses information is redundant for the homeowners. Rent + utilities can be applied as a foreign housing exclusion. The base housing amount (amount after which exclusion starts) is $15K. If no rent was paid, then utilities alone will never reach that level.

2. If these expenses were paid by someone else (for example your spouse if you are filing separately or your employer) - you should omit them.

3. These expenses may increase the amount of housing exclusion (see if you really want to know how this works).

4. If you only moved abroad in the middle of the year, please only indicate the utilities you paid outside of the U.S.

Utilities include electricity, gas, heating, water, and residential parking and renters insurance of personal property. They do not include phone, cable tv or broadband.

If your foreign wages exceed the FEIE limit ($104,100 in 2018, annually adjusted for inflation) then foreign housing expenses can be excluded in addition to the $104,100 and thus reduce taxable income.

Housing expenses include:

  • Rent
  • The fair rental value of housing provided in kind by your employer
  • Repairs
  • Utilities
  • Real and personal property insurance
  • Occupancy taxes not deducted elsewhere (ie municipal taxes paid by the renters as opposed to taxes paid by the landlord)
  • Nonrefundable fees for securing a leasehold
  • Rental of furniture and accessories
  • Residential parking

Did you rent or own your primary foreign (i.e. non-US) residence during the filing year?

Primary refers to the place you actually live. I.e. if you rent an apartment and own a beach house, the answer would be  rent - as that's your primary residence.

Why we ask this:

  • If you rent, you are qualified for the exclusion of housing costs.
  • If you own, you are qualified to deduct mortgage interest.

We appreciate that many living arrangements don't neatly fit in either 'rent or own' category. Therefore we listed various other potential arrangements with instructions on how you should report them:

  • If you rented for part of the year (and did not also own) - please indicate the rental amount.
  • If you have multiple residencies (i.e. one rental and one owned) - indicate here that you pay rent (or contribute to rent payment of other dwellers). Report mortgage separately, whether you live in the second residence or rent it out - it can be deducted aside from rent payments.
  • If rented and owned in the same year - then answer is rent. You may be able to exclude your foreign rental expenses while the mortgage is not deductible as foreign housing.
  • If you live with your relatives/in-laws/civil partner and you do not own the house, please select Rent. You may stay there rent-free but it is still considered a rental living arrangement.
  • However - if you are married and file jointly with the spouse (who owns the house) please select  Own-  regardless of whether your name is on the deed.
  • If you are living in the house owned by your spouse and you file separately - please select  Rent.
  • The lease is similar to rent. If you lease, please answer as Rent and provide monthly lease payment amount in the following question.
  • If you own a co-op or condo, you have to put it down as rent. You cannot count the maintenance fees as rent.
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