A Foreigners Tax Guide to the US International Reporting Rules

US International Reporting Rules 

As far as tax codes and tax rules go, the United States Tax Code is one of the more complicated tax systems across the globe. That is because, unlike most other countries, the United States follows a citizenship-based taxation model instead of a residence-based taxation model. While citizenship-based taxation requires the disclosure of worldwide income to the Internal Revenue Service annually on Form 1040 — the tax aspect is only one part of the equation. In addition to the tax requirements for foreigners considered US persons for tax purposes, there are also the reporting requirements set out in the Internal Revenue Code. When a person is considered a US Person for tax purposes, they must also report their foreign assets to the US government each year on various different international information reporting forms, such as the FBAR and Form 8938 (FATCA). The difficulty levels in preparing these forms can range from relatively straightforward to incredibly complicated. Making matters even more confusing for foreigners is that the due dates for filing these international reporting forms vary as well and the failure to timely file these forms may result in significant fines and penalties—although often times these penalties can be avoided or abated through one of the international tax and reporting amnesty programs. Let’s look at how the reporting requirements work for US persons.

Who is Required to Report Foreign Assets?

When a person is considered a ‘US person for tax purposes,’ they are required to report their foreign assets to the United States on various different international information reporting forms. There are generally three categories of individuals who are considered US persons, which include US Citizens, Lawful Permanent Residents, and foreign nationals who meet the Substantial Presence Test. If a Taxpayer falls into any one of these three categories, they are typically required to report their worldwide assets to the US government.

What Types of Foreign Assets are Reportable?

All different types of assets may be reportable to the US government. It is important to note, that it is not just limited to foreign bank accounts — even though that is very much of the emphasis that has been placed lately by the IRS. In fact, almost all types of foreign assets would be reportable and include items such as foreign:

• • • Investment accounts

    • Stock and Securities accounts

    • Pooled Funds

    • Pension Plans

    • Life Insurance

    • Entities

    • Gifts

    • Trusts

Which International Reporting Forms May be Required?

Here is a list of some of the more common international reporting forms.

FBAR Due Date and Extension

The FBAR is used to report foreign bank and financial accounts to the US Government. The Form is due on April 15, but is currently on automatic extension. Therefore, if you did not file the FBAR (FinCEN Form 114) by April 15, you still have until October to file it. And, you do not have to file an extension form such as Form 4868 or 7004 to obtain the FBAR extension — because the extension is automatically granted.

Form 8938 Due Date and Extension

Form 8938 is used to report foreign assets to the IRS in accordance with FATCA (Foreign Account Tax Compliance Act). It is similar (but not identical) to the FBAR. Form 8938 is filed with your tax return and is due when your tax return is due. If you are an individual filing a Form 1040, then the form 8938 would be due in April along with your 1040 tax return — but if you extend the time to file your tax return, then your Form 8938 will go on extension as well.

Form 3520 Due Date and Extension

Form 3520 is used to report foreign gifts and foreign trust information. The due date for Form 3520 is generally April 15, but taxpayers can obtain an extension to file Form 3520 by filing an extension to file their tax return for that year. Similar to Form 8938, there is no specific Form 3520 extension form required beyond requesting an extension of the underlying tax return.

Form 3520-A Due Date and Extension

Form 3520-A is used to report US ownership of a Foreign Trust. Unlike Form 3520, Form 3520–A is usually due in March and not April. In addition, the rules for filing an extension for Form 3520-A are different as well (subject to the substitute filing rules). In order to extend the due date to file Form 3520-A, the taxpayer must file a separate Form 7004 extension form.

Form 5471 Due Date and Extension

Form 5471 is used to report the ownership of certain foreign corporations. The filing date is the same as when a person’s tax return is due — and if the taxpayer files an extension for the underlying tax return, Form 5471 will go on extension as well. In recent years, Form 5471 has become infinitely more complex — so taxpayers should be cognizant of the different filing requirements and plan accordingly.

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. 

How to Find an Experienced Offshore Tax and Reporting Attorney

Finding an experienced offshore foreign accounts/assets reporting lawyer can be difficult. Unfortunately, the market is flooded with inexperienced attorneys and tax professionals who purport to have international reporting experience that they do not actually have. It is important that your attorney is a Board-Certified Tax Law Specialist who specializes exclusively in offshore and international tax matters. Here is an article summarizing the difference between utilizing a flat fee and an hourly attorney as well as an example of how hourly attorneys may pad their fees.

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.