Foreign Asset Reporting: The Foreign Asset Reporting rules are complex. One important aspect of any Streamlined Procedure submission is foreign asset reporting to the IRS — and specifically, how to report foreign assets to the IRS. Ever since the introduction of FATCA Reporting, the Internal Revenue Service has made foreign accounts and asset compliance, of Offshore Accounts, Foreign Life Insurance and Superannuation reporting such as an Australian Super a key enforcement priority. This is reflected in the sheer magnitude of offshore penalties for not properly reporting foreign assets. This is also why FBAR and FATCA Amnesty programs such as VDP and Streamlined Filing Procedures were introduced – to give U.S. taxpayers a chance to get into offshore compliance before it is too late.
Foreign Asset Reporting
IRS Foreign Asset Reporting has many facets to it. In order to report foreign assets to the IRS, there are five (5) important requirements:
- Identifying what is a foreign asset
- Assessing the type of asset
- Determining the value of the asset
- Selecting the proper international information reporting form(s)
- Evaluating whether you met the threshold requirements for filing
Identifying what is a Foreign Asset
Foreign assets are comprised of many different types of personal and real property. For example, if a person has ownership of foreign stock certificates – these are considered assets.
Other types of foreign assets, include:
- Real Estate
- Business Ownership
- Foreign Life Insurance
- Foreign Investment Funds
- Foreign Pension
Is the Foreign Asset Reportable?
Not all foreign assets are reportable. For example when a person owns a stock certificate, it is reportable– usually on Form 8938. But, if the person also owns foreign real estate, then foreign real estate owned by an individual is not reported.
To keep it confusing, it is important to note that even though individually owned foreign real estate is not reportable, it does become reportable if it is owned in a foreign entity, such as a foreign corporation or (commonly) a Soiceidad Anonima, Hong Kong Ltd., or Australian PVT Ltd.
Determining the Value of the Asset
For most international reporting forms, the Internal Revenue Service is usually most interested in the maximum value of the asset during the U.S. tax year; this can become difficult to obtain.
Common situations, include:
- The foreign country is on a different tax year (Australia)
- The account is a Passbook account and values are sporadic (Taiwan)
- The institution did not keep records (Switzerland)
- The institution will not provide documents unless you arrive in person (Asia in general)
- The records are not maintained or the banks are just being difficult (India)
Selecting the Proper International Information Reporting Forms
The IRS has developed many different reporting forms for taxpayers to use to report their foreign assets.
Some of the more common reporting forms, include:
- Form 3520: Foreign Gifts and Trusts
- Form 3520-AL Foreign Trusts
- Form 5471: Foreign Corporations
- Form 5472: Foreign Owned U.S. Corporations
- Form 8621: Passive Foreign Investment Companies
- Form 8865: Foreign Partnerships
- Form 8938: Specified Foreign Financial Assets
- FinCEN Form 114 (FBAR)
Evaluating Whether you Meet the Threshold Requirements
In order to keep offshore compliance infinitely more confusing, there IRS also developed different threshold requirements for reporting on different forms — depending on the specific form and type of asset being reported.
- FBAR (FinCEN Form 114): Aggregate Annual Total of more than $10,000 in all accounts combined on any day of the year
- FATCA Form 8938: Ranges from $50,000 to $600,000, depending on filing status and U.S. vs. Foreign Residence
- Form 3520: Gift from a Foreign Individual +$100,000; Gift from a Foreign Business $16,388
- PFIC Form 8621: No threshold if excess distributions and certain exceptions apply
We Specialize in Streamlined & Offshore Voluntary Disclosure
We specialize exclusively in international tax, and specifically IRS offshore disclosure.
We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
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We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
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- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
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No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
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