Foreign Assests and Transaction Flashcards
Which of the following foreign assets must be reported on Form 8938, but not the FBAR?
Foreign partnership interests.
Tony’s foreign bank account has $325,000 USD in deposits. What are his filing requirements with regards to this account?
tony must file an FBAR and the Form 8938
He is only a signatory. At the end of the year, Diana’s account had $50,000 in it. What filing requirement might this trigger?
Angel will have to file an FBAR, but not a Form 8938. Angel has signature authority, but no financial interest in the account, therefore, a Form 8938 is not required.
Which of the following statements is NOT true regarding NRA withholding?
NRA withholding is required on a payment of U.S. source income.
Payment to any foreign government is not subject to NRA withholding.
The U.S. person who pays an amount subject to NRA withholding is generally the person responsible for withholding.
The withholding agent is personally liable for any tax required to be withheld.
Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. Generally, the U.S. person who pays an amount subject to NRA withholding is the person responsible for withholding, also known as the withholding agent. The withholding agent is personally liable for any tax required to be withheld. This liability is independent of the tax liability of the foreign person to whom the payment is made. If the withholding agent fails to withhold and the foreign payee fails to satisfy its U.S. tax liability, then both are liable for tax, as well as interest and any applicable penalties.
Tiki is a nonresident alien. Which of the following is NOT a requirement for Tiki to elect taxation as a U.S. resident for the entire tax year?
He must be married.
His spouse must be a U.S. citizen or resident alien on the last day of the tax year.
He must file a joint return for the year of the election using Form 1040.
He must not include worldwide income on his return.
This question asks for the answer that is NOT a requirement. In other words, the incorrect statement. He must not include worldwide income on his return is incorrect because the taxpayer must include worldwide income for the whole year on the return, subjecting the entire amount to taxation under U.S. tax laws.
Joe, a cash method taxpayer, died on August 22 and he received the following:
July rental income received August 1 $3,500
August rental income received September 1 $2,500
September rental income received August 15 $1,500
Dividend declared on August 10 and received on August 20 $4,000
Dividend declared on August 20 and received on August 30 $3,000
Dividend declared on August 30 and received on September 10 $2,000
What amount of income should Joe include on his final tax return?
$16,500
$14,500
$13,000
$9,000
The decedent’s income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death.
The method of accounting used by the decedent also determines the income and expenses includible on the final return.
Cash method – The final return includes items actually or constructively received before death.
The decedent constructively received interest from coupons on bonds if the coupons matured in the decedent’s final tax year but had not been cashed. Include the interest on the final return.
Generally, the decedent constructively received a dividend if it was available for use by the decedent without restriction. If the corporation customarily mailed its dividend checks, the dividend was includible when received. If the individual died between the time the corporation declared the dividend and the time it arrived in the mail, the decedent did not constructively receive it before death. Do not include the dividend in the final return.
Accrual method – Generally, under an accrual method of accounting, report income when earned. If the decedent used an accrual method, only the income items normally accrued before death are included in the final return.
Joe should include on his final tax return income of $9,000, calculated as follows:
$3,500 July rental income received August 1
$1,500 September rental income received August 15
$4,000 Dividend declared on August 10 and received on August 20
$9,000 Total income Joe received before he died on August 22
Medical expenses for a decedent paid after death:
are liabilities of the estate and must be claimed on decedent’s estate tax return
are liabilities of the estate and may be claimed on decedent’s estate tax return
are deductible on decedent’s final return if paid during the one-year period after death and the estate elects to treat them as paid by the decedent
are nondeductible
I
II
IV
II, III
Medical expenses that were not paid before death are liabilities of the estate and appear on the federal estate tax return (Form 706). If the estate pays medical expenses for the decedent during the one-year period beginning with the day after death, the executor may elect to treat all or part of the expenses as paid by the decedent at the time the decedent incurred them. An executor making this election may claim all or part of the expenses on the decedent’s income tax return as an itemized deduction, rather than on the federal estate tax return (Form 706).
I (Incorrect): Medical expenses are not liabilities of the estate tax return itself, although they do reduce the taxable estate.
II (Correct): Medical expenses are indeed liabilities of the estate, meaning they need to be paid out of the estate’s assets before other distributions.
III (Correct): The IRS allows the estate to deduct certain medical expenses on the decedent’s final income tax return, but only if they are paid within one year of death and the estate elects to treat them this way.
IV (Incorrect): Medical expenses paid by the estate can be deductible under specific circumstances, not automatically nondeductible.
- Question ID: 94850268 (Topic: International Information Reporting)
Angel is a U.S. citizen who lives and works in New York. His mother, Diana, is a Canadian citizen who lives in Ontario, Canada. Diana is elderly and Angel tries to help her manage her financial affairs. To facilitate this, Angel became a signatory on Diana’s Canadian bank account. Angel does not have a financial interest in the bank account (all of the money in the account is his mother’s). He is only a signatory. At the end of the year, Diana’s account had $50,000 in it. What filing requirement might this trigger?
A. No reporting is required if he does not have a financial interest in the account.
B. An FBAR for Angel.correct
C. An FBAR for Diana.
D. Angel will have to file an FBAR as well as Form 8938.
Correct Answer Explanation for B:
Angel will have to file an FBAR, but not a Form 8938. Angel has signature authority, but no financial interest in the account, therefore, a Form 8938 is not required. To see a table comparison of FBAR and Form 8938 requirements, reference the dedicated IRS detail page.
