Foreign assets are always tricky for U.S. tax reporting. A recent court decision also shows that differentiating a foundation from a trust is pivotal.
The levying of tax penalties stood in a recent federal appeals court decision on whether a private foundation was a foreign trust subject to such penalties.
In the Rost v. U.S., the U.S. Court of Appeals for the Fifth Circuit upheld tax penalties against U.S. citizen John Rebold, who failed to report his personal-use Liechtenstein “Stiftung” (a non-charitable private foundation) as a foreign trust.
The decedent Rebold formed the Enelre Foundation in 2005 for the general support and education of him and his children. He transferred $2 million to the foundation in 2005 and $1 million in 2007 and did not disclose the transactions to the IRS.
Rebold later learned that the IRS would consider his foundation a foreign trust with the associated reporting requirements. He filed the reports belatedly, in 2013, and the IRS assessed penalties.
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