Tag Archive for Form 8938

Investments In Foreign Pensions And Annuities

I always liked the interestingly unique name, Phileas Fogg from “Around The World in Eighty Days”. Having traveled the world through books, I always wondered how different life would have been if I had the chance to live and work in many different countries!

Not so much any more as I encounter clients, many US citizens who were based out of the country for a few years. Especially those who could have contributed into or had employers contribute into their then resident country’s retirement accounts. These were either mandated by the resident’s country’s employer rules or were used as a tax saving strategy.

What is a foreign pension or foreign annuity?

Read More

Written by | Posted in Corporate • International

U.S. Persons And Their Investments In Foreign Corporations

It’s like the popular song from Disney, “It’s a Small World After All”! And it’s getting smaller as we speak! The global entrepreneur is a common phenom. Of course this leads to more tax compliance issues. The tax compliance issues can be solved by hiring a knowledgeable tax professional. To give you an overview of the requirements, here’s some information:

What is Form 5471?: If you are a U.S. person or a resident, and are an officer/ director or shareholder in certain foreign corporations, you have reporting requirements to satisfy Sections 6038 and 6046, and the related regulations. This is done via Form 5471.

Generally all U.S. persons or residents falling under the requirements of the Categories of Filers as specified in the instructions have to file Form 5471. The form has to be attached Read More

Written by | Posted in Corporate • Individual

Understanding The PFIC Rules Without Suffering A Migraine

The PFIC regime was not introduced until 1986. Prior to 1986, U.S. taxation of foreign corporations was strictly tied to control of the corporation held by U.S. persons. This allowed not only the foreign mutual fund to avoid U.S. taxation, but also U.S. persons who invested in the fund. How so?

For starters, the fund itself avoided U.S. taxation because it was a foreign corporation that derived only foreign-source income. The fund was able to avoid the taint of being classified as a controlled foreign corporation, or “CFC” because it was owned by a large number of U.S. and foreign investors, each of whom owned a relatively small percentage.

U.S. investors avoided U.S. taxation in two primary ways. First, the fund paid no dividends. Read More

Written by | Posted in International

IRS Reminds Those with Foreign Assets of U.S. Tax Obligations

The IRS reminds United States citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2013, that they may have a U.S. tax liability and a filing requirement in 2014.

The filing deadline is Monday, June 16, 2014, for U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular due date of their tax return. Eligible taxpayers get one additional day because the normal June 15 extended due date falls on Sunday this year. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for details. Read More

Written by | Posted in Expatriate • FBAR • IRS

The IRS Will Soon Be Asking Questions, PART II: Nominees and FATCA

FATCA and the Nominee –

Part I of this post can be found here.

By brief background, under FATCA, foreign financial institutions (FFIs) must agree to verification and due diligence procedures – meaning they must be on the look-out for customers, owners or beneficiaries evidencing any “US indicia”. They must identify and report information on US account holders/owners directly to the Internal Revenue Service or to their own government via an intergovernmental agreement (IGA). They must look through their customers and counterparties’ ownership to find “substantial US owners” (generally, more than 10% ownership) of any entities holding accounts at the financial institution. Read More

Written by | Posted in Expatriate • FATCA • FBAR • International • IRS

Currency Conversion: Timely, Late, Amended FBAR And Form 8938

It’s that time of year when we all worry about getting material ready for preparation of United States tax returns and related information return filings. During the course of this information gathering a taxpayer may discover that some forms were completed incorrectly in the past and should be amended or, perhaps the taxpayer discovers a filing should have been done, but was not. Two very important forms for US persons having overseas accounts or assets are the so-called “FBAR” short for “Report of Foreign Bank and Financial Accounts” (FinCen Form 114) and the “Statement of Specified Foreign Financial Assets” (IRS Form 8938). International tax practitioners know how severe the penalties can be for non-filings or improper filings of these two forms.

Below is some very basic information about these forms to get you ready for tax filing time: Read More

Written by | Posted in FBAR • IRS

US Tax – International Provisions: KISS – Keep It Simple Sweetheart

On Tuesday, December 3, the American Bar Association, Section of Taxation: United States Activities of Foreigners & Tax Treaties Committee (“Committee”) submitted to Congress various “Options” offering proposals for simplification and clarification of various international tax provisions of the Internal Revenue Code. The Committee made some excellent suggestions and one can only hope Congress will take heed. The Committee noted that a remedy is needed to remove many “traps for the unwary” and to ease compliance burdens that cannot reasonably be met.

Tax professionals can learn a great deal about the current law in the areas discussed by reading this proposal. Tax traps are carefully pointed out and the proposal should be required reading for practitioners involved with international tax issues. Read More

Written by | Posted in FBAR

US Tax Disaster – Offshore Funds, Life Policies, Portfolio Bonds

growing taxWhat Every American Investor Must Know

Many American investors are confused by sales pitches of expat investment advisors who are unfamiliar with United States tax laws. While it is true that no tax may be payable in the fund’s jurisdiction (Isle of Man, Guernsey or the UAE, for instance), significant US taxes are payable by the American owner. Confusion abounds when Americans invest in foreign mutual funds, life policies, savings plans, portfolio bonds and similar fund arrangements as compared to when they invest in US-based funds.

Generally, with a US fund virtually all of the income and the gains are distributed annually to investors and reported directly on their US tax returns. The fund sends both the investor and the IRS a form 1099 detailing the shareholder’s income earned in the fund. Foreign investment vehicles are not subject to this kind of disclosure. The American investor must flounder along and determine the proper US tax treatment of his investment.

The US tax laws are clearly designed to deter US persons from investing in offshore funds, whether the investment is made directly or indirectly (e.g., through a BVI company, non-US trust etc.). They prevent the income or gains from escaping US taxation and, impose harsh sanctions on the US investor eliminating any possible tax deferral. Read More

Written by | Posted in Expatriate • FATCA • Individual • IRS • North America

“Quiet Disclosures” – Is the Jig Up?

iStock_tax evasionXSmallCertain findings and recommendations by the Government Accountability Office (GAO) about offshore tax evasion and the IRS efforts to combat it have many taxpayers worried. The GAO is an independent, nonpartisan agency that works for Congress and is often referred to as the “congressional watchdog.” It investigates how the federal government spends taxpayer dollars and makes recommendations as to how a governmental agency can be more efficient and effective.

Recently issued GAO report, Offshore Tax Evasion: IRS Has Collected Billions of Dollars, but May be Missing Continued Evasion, provides key information about the IRS’ offshore voluntary disclosure initiatives. More importantly, however, GAO indicates its review of IRS data shows that the IRS is missing what appear to be rampant “quiet disclosure” and “new account” filings.

“Quiet Disclosures” / “New Account” Filings

With a “quiet disclosure”, taxpayers quietly amend past tax returns and FBARs reporting previously unreported income and accounts. With “new account” filings, taxpayers report the existence of any offshore accounts as well as income from the accounts on the current year tax return, without amending any prior years’ returns. They often also disclose the existence of the accounts by filing FBARs for the current calendar year making it appear as if the account was just newly opened.

GAO takes the IRS to task for not finding enough “quiet disclosures” and “new account” filings which lose billions of Read More

Written by | Posted in TaxConnections

IRS – Flavored FUBAR 2013

The Internal Revenue Service saw all the fun that the FBAR was having and said “Ooh we want one of those, too!”  So the IRS created the FATCA, Form 8938.  The Form 8938 goes into your individual return each year and is similar to the FBAR.  The FATCA is actually administered by the IRS so it has a familiar feel to it, but the content of the form is very similar to the FBAR and unfortunately so are the penalties.  While some of the administration is more intuitive since it is an IRS form, the requirements of who should file and how to report everything is significantly more complex.

The form is due with your return, which means an extension for your 1040 is an extension for the FATCA.  You can also file amended returns to include or change the information on the FATCA just like you would amend a return to include some interest income that inadvertently got missed.  That’s it for the good news; the rest is rather unpleasant.

The FATCA started in 2011 for individuals and now it has also taken affect for business returns in 2012.  There is no tax due on a FATCA, but the penalty for someone who fails to properly file a FATCA is $10,000 per year.  There are some other related forms about foreign accounts and investments that also carry $10,000 penalties for not filing.  The penalties can certainly add up in a hurry at $10,000 per form per year.  Owning interests in foreign companies or foreign trusts will hit you with a few more complex forms, but for now let’s focus on the FATCA. Read More

Written by | Posted in TaxConnections
  Recent Entries »