SFOP and Pacific Trust Territories Presence

Technical topics regarding tax preparation.
#1
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Client is in Palau FSM and wishes to file streamlined foreign offshore.

Through research, I was able to conclude that the Federated States of Micronesia (part of the US Trust Territories) bank account does not require an FBAR.

It would still be nice to file under the SFOP to save on filing several years of tax returns.

I cant find a reference for the substantial presence test, as it relates to the SFOP, for the FSM and these territories.

Does anyone know?
Last edited by ItDepends on 11-Jun-2019 8:50pm, edited 1 time in total.
 

#2
Smktax  
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I think Palau “was” part of the US Trust Territories. I think it is now a foreign country and I think the SFOP would apply, and an FBAR would be required.
 

#3
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Thank you - but I have a correction, sorry. Client was in FSM for the period.
 

#4
Smktax  
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When I search on google for FSM, I get Flying Spaghetti Monster.
 

#5
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OMG, that's hysterical.

I just did a search and checked flying spaghetti monster images and I'm mentally scarred now.

Anyway, FSM in this case is the Federated States of Micronesia.

The problem I'm uncovering is that - she lived in the FSM and had authority over an account in Palau with $140,000.

If FSM is considered being in the US - this is very bad because of 2 things:

1) She would not qualify for the SFOP
2) She would have the lower 8938 thresholds for the Palau account and now need 8938 for several un-filed years.

Wkikipedia says that the FSM are no longer a possession of the US since 1979 - but the FBAR guide says that "the trust territories of the Pacific" (if that is what they mean) and are considered part of the US, and there is no place to select these countries in the drop down menu on the FBAR.

Elsewhere on the 'Net I've read that the FSM and Palau are still considered part of the trust - even though they are not part of the trust.

So are these places considered outside of the US for FBARs and 8938?

Do they qualify as outside of the US for the SFOP and/or the FEIE?

Very confusing.
 

#6
Nilodop  
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Embassy of Palau https://www.palauembassy.org

Embassy of FSM http://www.fsmembassydc.org/page/fsm-at-a-glance

Would they have an embassy if they were not a foreign country?
 

#7
Guya  
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The US Department of the Interior describes the FSM as an "independent country" https://www.doi.gov/oia/islands/fsm
PS – Greeting from London, England. Grey and rainy ...
 

#8
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Thanks all.

But...for the FBAR...

1) Palau is not on the pull down menu as a location for the bank account (it is on the pull-down menu for part 1 - taxpayer address)

2) The IRS FBAR guidance on their website says that the United States includes:

the District of Columbia;  United States territories and possessions, such as: o Commonwealth Northern Mariana Islands o District of Columbia o American Samoa o Guam o Commonwealth of Puerto Rico o United States Virgin Islands o Trust Territories of the Pacific Islands  Indian lands as defined in the Indian Gaming Regulatory Act

I guess 8938 is not needed because of offshore presence then, and I guess I'm OK with SFOP and FEIE, but how can we file an FBAR for the client if it is not on the pulldown menu for the bank location? It seems like no one told the Department of the Treasury (FINCEN) that these new countries are not part of the the US anymore.
 


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