- 1 Is Your Streamlined Foreign Income & Accounts Correctly Filed?
- 2 Streamlined Offshore Tax Complexities
- 3 Including Forms 5471 when it is not Required
- 4 Making an MTM or QEF Election without a Purging Election
- 5 MTM or QEF Elections When they Do Not Apply
- 6 Including PFIC on 8621 when the Treaty Exception Applies
- 7 Excluding IRC 965 Because of the ‘3-Year Rule’
- 8 Excluding 4970 for Certain Foreign Trust Distributions
- 9 Need Help Finding an Experienced Offshore Tax Attorney?
- 10 Golding & Golding: About Our International Tax Law Firm
Is Your Streamlined Foreign Income & Accounts Correctly Filed?
Most minor mistakes in streamlined filing submissions are not a big deal and can be fixed by following the procedures provided by the IRS. But, when an attorney who claims to be a ‘self-purported’ tax expert charges exorbitant fees and gets the filing very wrong, it becomes a problem. These taxpayers have shelled out big bucks to retain the expert, only to learn after the fact that that the attorney was not as experienced as they claimed to be, the tax returns are incorrect, important forms were missed (or filed unnecessarily) and now the taxpayers have to hire a firm that is actually experienced in this area of tax to fix the problems — and sometimes recreate the entire submission.
Streamlined Offshore Tax Complexities
The Streamlined Procedures Submission process refers to the IRS Streamlined Filing Compliance Procedures (Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures). Choosing the right attorney for foreign account and asset reporting is difficult, especially due to all the misinformation and online attorney puffery. Each year, we are approached by Taxpayers who had previously worked with ‘self-proclaimed’ experts who made serious mistakes throughout the streamlined submissions they prepared. At Golding & Golding, we have represented thousands of Taxpayers in streamlined submissions over the past 10 years since the ‘stand-alone’ program was developed. When it comes to the more complex submissions, there are six increasingly common tax and reporting issues that our team has been finding when reviewing prior submissions made by other tax firms. Let’s look at these six tax complexities to be aware of when preparing a streamlined submission that requires the filing of Forms 5471, 8621, and 3520/3520-A.
Including Forms 5471 when it is not Required
The Form 5471 is an important form for Taxpayers who have foreign corporations. But, Form 5471 has five (5) different categories (and sub-categories), and not every person with a foreign corporation is required to File Form 5471 every year they own a foreign corporation. And, oftentimes a firm’s recommendation that the Taxpayer file protective Form 5471 is merely an attempt by the law firm to charge the client more money for unnecessary forms – especially since the Tax Court’s ruling in Farhy.
Making an MTM or QEF Election without a Purging Election
The Mark-to-Market and Qualified Electing Fund are the two main PFIC elections individual taxpayers can make. Sometimes, a Taxpayer will not realize they could have made the election in prior years and now want to make the election as part of the Streamlined Filing. Making a late election is different than making a timely election – and to make a late election, the Taxpayer is generally required to make a purging election as well unless they can meet the very strict requirements for reasonable cause (which is usually handled outside of a streamlined submission).
MTM or QEF Elections When they Do Not Apply
The MTM and QEF elections are great when they can apply, but they do not always apply. For example, MTM only applies to marketable securities. Likewise, for QEF to apply, the foreign financial institution must provide certain documents/information sufficient to meet the IRS’s QEF requirements.
Including PFIC on 8621 when the Treaty Exception Applies
When a Taxpayer owns PFIC, then unless they are below the threshold or meet one of the limited exceptions, they must file a Form 8621. For many taxpayers who own PFIC, the requirement to file PFIC is only because the Taxpayer owns foreign Mutual Funds or ETFs. But, when the Taxpayer owns the Mutual Fund or ETF in a foreign pension plan in a treaty country, then the Taxpayer is not necessarily required to parse out each fund on Form 8621 if they qualify for the treaty exception. This will also depend on whether the Taxpayer has other non-pension PFIC to report.
Excluding IRC 965 Because of the ‘3-Year Rule’
The Streamlined Procedures require the Taxpayer to file/amend the past three years of tax returns. But, if the Taxpayer has an IRC 965 requirement (IRC 965 Repatriation Tax) they are also required to report the Mandatory Repatriation Tax as part of the Streamlined Procedures (noting, it is currently up at the Supreme Court in the case of Moore vs United States). In other words, just because the 2017 return is more than 3 years back does not mean Taxpayers can avoid the IRC 965 as part of the Streamlined Submission. In addition, the 8-year payment plan structure is not available under the Streamlined Procedures.
Excluding 4970 for Certain Foreign Trust Distributions
Foreign Trust reporting and income tax calculations are complicated, due to issues involving the throwback rule and interest payments on distributions that are considered to be ‘accumulated trust distributions.’ Sometimes, depending on the amount of distribution in current years vs. prior years, a Taxpayer may have to include Form 4970 along with Form 3520 and 3520-A. Failing to do so may render the submission incomplete.
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.