Delinquent FBAR & Foreign Information Reporting

US citizens and tax residents (including all “dual resident” taxpayers) are subject to US information reporting obligations relating to non-US income, assets, trusts, entities and transactions.

Such reporting requirements include the following reports, among others:

1. Form 1040 NR (U.S. Nonresident Individual Income Tax Return), attaching Form 8833, Report of Treaty-Based Return Position, in order to claim the benefits of a tax treaty to exclude Treaty-protected income from US tax, in the case of a Tax Treaty Nonresident;
2. FinCen Report 114, Report of Foreign Bank and Financial Accounts (“FBAR”), which reports to the US Treasury certain non-US bank or other foreign financial accounts having balances exceeding $10,000 at any time during the year;
3. Form 926, Return by a US Transferor of Property to a Foreign Corporation, requiring disclosure of transfers of cash or other property to a non-US corporation (including transfers that occur entirely outside the US);
4. Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Foreign Gifts, requiring disclosure of interests in and receipt of distributions from non-US trusts and gifts from non-US person exceeding $100,000 in a tax year;
5. Form 3520-A, Annual Information Return of Foreign Trust with a US Owner, requiring disclosures concerning a non-US trust which is treated as owned by a US person under the US “grantor trust” rules;
6. Form 5471, Information Return of US Persons with Respect to Certain Foreign Corporations, which is a comprehensive report of the income, assets and transactions of US-controlled, non-US corporations of which the taxpayer is an officer, director or 10% or more shareholder;
7. Form 8621, Information Return by a Shareholder in a Passive Foreign Investment Company “PFIC”), requiring reporting of share ownership in, distributions from and gains realized by a PFIC;
8. Form 8865, Return of US Persons with Respect to Foreign Partnerships, requiring disclosure of interests in and transactions with foreign partnerships;
9. Form 8858, Information Return of US Persons with Respect to Foreign Disregarded Entities, requiring disclosure of an ownership interest in foreign entity whose separate status is disregarded for US tax purposes; and
10. Form 8938, Statement of Specified Foreign Financial Assets, which is a more comprehensive report of foreign financial interests than the FBAR and requires reporting at higher income and asset value thresholds.

The foregoing requirements can become a significant administrative burden in complex trust and entity-ownership situations, even if no income tax consequences result from them. Nevertheless, an even worse fate may await those who don’t file such reports when required to do so. In this regard, penalties for failure to file some of these forms can reach hundreds of thousands of dollars. If you find yourself in such a situation inadvertently, we have experience getting the IRS to waive or reduce such penalties for those who qualify to enter an IRS tax compliance program, which allows penalty-free, back-filing of required information reports in cases of non-willful failure to file.

Having an experienced Cross-Border Tax Attorney evaluate which reports are required to be filed can make the difference between paying or avoiding penalties. If you have failed to file required reports for whatever reason, it is especially important to have an experienced Cross-Border tax attorney assist you with getting back into compliance. This is so because attorneys in the US have the right not to disclose your confidential communications to the IRS in tax matters where criminal charges are possible, which your CPA, CA or public accountant do not. They are also trained to recognize and properly manage situations in which you may be vulnerable to criminal tax prosecution. We welcome any inquiries that you may have concerning your specific tax situation. Feel free to call us at (760) 578-5093, contact us via email at Brent@LanceCrossborder.com or by using our online contact form.