Challenges with Reporting Foreign Assets and Hiring Counsel

Challenges with Reporting Foreign Assets

The United States tax system can be very complicated. This is because, unlike most other countries across the globe, the United States follows a worldwide income tax model. This means that the United States taxes individuals on their worldwide income – even if they reside overseas and even if all of their income is sourced from foreign countries. This can get infinitely more challenging when it comes to ‘reporting’ foreign assets. This is due to all of the different international information reporting forms that a person may have to file based on the different categories of foreign assets and investments they have. Let’s take a look at five important challenges US person taxpayers facts when reporting foreign assets.

Not Just Bank Accounts

Foreign asset reporting is not limited to foreign bank accounts. It includes other assets as well, such as foreign investment accounts, pension plans, entities, trusts, life insurance policies, and pooled funds. Taxpayers generally report these assets on forms such as the FBAR, Form 8938 (FATCA), Form 3520, Form 3520-A, Form 8621, and Form 5471.

Co-Owned Assets and Signature Authority

If a person co-owns assets – even if it is co-owned with a non-US person – they are generally required to report the full value of the asset. In addition, the Taxpayer may have to report assets even if they do now actually ‘own’ the asset, but instead, merely have signature authority – such as having a parent put them on the account and/or if they are an employee with signature authority over an account.

Reporting Foreign Assets Even When No Income is Being Generated

Whether or not the asset generates any income does not impact the reporting requirements. In other words, when a person has a foreign asset that is required to be reported, just because the asset does not generate any income is not dispositive of whether or not it is reportable.

Acquired Prior to U.S. Person Status

Even if an asset is owned prior to becoming a U.S. Person, it is still reportable. Some Taxpayers have received incorrect advice that they only have to report foreign assets that were acquired after becoming a US Person, but that is inaccurate. Rather, the filing of forms such as the FBAR are ‘snapshots’ in time, so if for example in 2024, you are reporting your accounts for 2023, it would include all accounts that were open in 2023, even if they were initially opened before they became a US Person.

Keeping Track of all the Different Forms

There are several different international information reporting forms that a person may have to file when they have ownership or signature authority over a foreign asset or account. We have a separate article detailing the different international reporting forms.

Foreign Asset Penalties

There are also many different international return penalties that a person may become subject to for failing to file certain reporting forms – or filing the forms late. We have a separate article detailing the different international reporting penalties as well.

Current Year vs Prior Year Non-Compliance

Once a taxpayer has missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Hiring Experienced Counsel

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Important Links:

• • • How to Find an Experienced International Tax Lawyer

    • Flat-Fee vs Hourly Fees

    • Avoid Hourly Attorneys Who Pad Their Fees (Case Study Example) 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.