Does a Foreign Company Have to Report Overseas Accounts?

Does a Foreign Company Have to Report Overseas Accounts?

Does a Foreign Company Have to Report Overseas Accounts?

Does a Foreign Company Have to Disclose Foreign Accounts?

For Taxpayers who are considered U.S. persons, each year they are required to report their foreign accounts, assets, investments, and income to the IRS and FinCEN on a myriad of different international information reporting forms, such as the FBAR and Form 8938. Most taxpayers with foreign assets and accounts would prefer to avoid this type of reporting when at all possible — since most people (understandably) do not want to share their private foreign assets, account, and investment information with the IRS. In order to avoid reporting, some Taxpayers may take steps to hide their foreign accounts and assets, by possibly putting the accounts in an overseas company. Will this help the Taxpayer avoid reporting?

Is the Company Owned More than 50% by U.S. Persons?

When a foreign company is owned more than 50% by US Persons, then the IRS can take the position that while it is a ‘foreign company’ (and not a US Person for tax purposes), since it is owned by US Person – the FBAR should be filed by the Company and/or the owners of the Accounts.

Does a U.S. Person Control the Account (FBAR part III)?

Even if the U.S. Individual’s name is not located on the account, they may still be required to file the FBAR – since having ownership of the foreign account is not a requirement for having to file the FBAR. In fact, the FBAR has a section for reporting that is entitled,

      • “Information on Financial Account(s) Where Filer has Signature or Other Authority but No financial Interest in the Account(s).”

Does a U.S. Person have Signature Authority over the Account?

If a U.S. person has signature authority over the account, they are also required to file. For example, if the ‘real owner’ of the account is not listed as an owner of the account, but is an employee for example, and has signature authority, they are also required to file the FBAR.

Does the Overseas Company Really Own the Account (or nominee)

For many years, it was common for Swiss Banks to offer numbered accounts (accounts identified by numbers instead of names) and/or nominee companies that would be designated as the owner of the account – even though the U.S. individual was the real equitable owner. If a US person/individual owns the money in the account, they are generally required to file the FBAR – even if their name is not directly on the account.

Publication 5569 Example:

      • The owner of record or holder of legal title is a person acting as an agent, nominee, attorney, or a person acting on behalf of the U.S. person with respect to the account.

        • Example: John is a U.S. citizen. His brother Paul maintains bank accounts in Mexico on behalf of John.

            • The accounts are held in Paul’s name, but Paul only accesses the accounts following his brother’s instructions. John has a financial interest in the Mexican bank accounts for FBAR reporting purposes.

            • If his brother Paul is a U.S. citizen or resident, Paul must also report the accounts on an FBAR

What are the Risks of Hiding the Accounts?

The risk of hiding the foreign accounts is that the US person may be subject to extensive FBAR willful fines and penalties (civil). In addition — and especially if there is missed income associated with the account – the US Person Individual may also be subject to a criminal investigation for Fraud, Evasion, etc.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a taxpayer 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 who 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. 

Need Help Finding an Experienced Offshore Tax Attorney?

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. 

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.