There is a plethora of forms and reports that need to be filed with the IRS if you do business or have personal assets abroad. Examples of situations include when:
- You have an interest in or signatory authority in financial accounts
- You have specified foreign assets
- You own all or part of a foreign corproation
- You own all or part of a foreign partnership
- You are the beneficiary of a foriegn trust
- You are the beneficiary of a foreign estate.
Outgoing IRS Commissioner Doug Shulman has made getting international “tax cheats” a focus of his tenure. Just this past June he stated the offshore efforts have garnered more than $5 billion. He was proud to note that “[p]eople are finding it tougher and tougher to keep their assets hidden in offshore accounts.”
While not many would disagree with the effort to stem the hiding of assets offshore – the effort has had unintended consequences.
A recent article by Anita Greil in the Wall Street Journal highlights the unintended consquences. For example, some foreign banks do not want to do business with Americans (regardless of honesty).
Additonally these efforts have substantially increased the costs of reporting compliance with the IRS. It is the rare non-tax person who can wade through the requirments for offshore reporting on their own.
Regardless of anyone’s opinion, the rules are here and taxpayers need to comply.
Here is a list of some of the filings you may be required to make if you do business or live offshore.
- Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts (“FBAR”)
- Form 8938 Statement of Specified Foreign Financial Assets
- Form 3520 Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
- Form 3520-A Annual Information Return of Foreign Trust With a U.S. Owner
- Form 1040, Schedule B, Part III, Foreign Accounts and Trusts
- Form 5471 Information Return of U.S. Persons With Respect To Certain Foreign Corporations
- Form 8865 Return of U.S. Persons With Respect to Certain Foreign Partnerships
Failure to file any of these can result in steep civil penalties. In some cases the penalty for failing to file an FBAR can be the greater of 100,000 or 50% of the account value – per year of violation. Additionally, the Department of Justice is ramping up criminal prosecutions.
Bottom line – get help when trying to figure out your foriegn reporting requirements!