FBAR and 8938

An American citizen, foreign resident, holds stock of an American company through a foreign brokerage house in his country of residence.

Does he have to include the value of this stock in his FBAR and 8938 when reporting the brokerage account? Are the dividends paid through the brokerage considered foreign or U.S. income for income tax purposes? The latter question arises because in one case the foreign income tax can be used as an offset to the US income tax on the holding; in the second case the US tax can be used as an offset to the foreign tax.

Reply to
Lawrence Israel
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As long as the total assets of all foreign accounts exceed $10,000 on at least one day in the year, the FBAR is required. So, yes the value of your US securities in the foreign account are counted.

The value of all the assets (foreign & US) in your foreign brokerage account would also be included on your 8938. As a resident of a foreign country, the 8938 filing threshold for a US citizen is much higher than the threshold for US citizens residing on US territory.

Dividends paid by US corporations are US sourced income.

Reply to
Alan

As you may know, the income of a US citizen living abroad is (usually) calculated as follows:

The US tax is calculated as if he were not a citizen on a 1040NR. (Dividends of a US company are considered US-sourced, and are subject to tax, unless prevented by a tax treaty.)

This (unpaid) tax can be used toward the other country's foreign tax credit.

The other country's (net) tax can then be used against the US tax using form 1116.

It seems clear (to me) from Publication 514 that you need do this, although others might not find it clear.

-- Arthur L. Rubin, Brea, CA AFSP, CRTP

Reply to
Arthur Rubin

I disagree. The correct general procedure for US purposes is to calculate the tax for a US citizen on his entire worldwide income as if he were resident in the US (Form 1040, not 1040NR). If there is foreign earned income, the taxpayer may be able to elect to exclude it from US taxation (up to a limit). If this exclusion is taken, you calculate the tax on the excluded income and subtract that tax from the US tax liability (Form 2553). If there is still foreign source income (whether earned or through investments), the taxpayer can calculate a credit or take a deduction based on the amount of foreign tax paid (on the not excluded income) and the relative tax rates in the two countries.

I can't think of any reason when a US citizen would complete a 1040NR for any purpose. I don't see anything in Pubs. 514 (foreign tax credit) or 54 (US citizens living abroad) that refers to Form 1040NR. What is it in Pub. 514 that leads you to your conclusion?

As to using the US tax on the dividend for a credit on the foreign country's tax return, there is no general procedure for determining what to do. Each country determines its own rules for what is taxable. The US is one of very few countries that taxes its citizens regardless of where they live. Most other countries only tax their residents, regardless of citizenship. Some tax residents' worldwide income, others only tax their domestically sourced income. Without specific knowledge of what other country is "at play" in the OP's situation, there isn't much useful information any of us can contribute.

Ira Smilovitz, EA

Reply to
ira smilovitz

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