Besides having to file FBAR reports for a US taxpayer's Interest in Foreign Accounts, US Taxpayers also have the following Reporting Requirement for their Investments in Foreign Entities:
· Form 5471 –Used to report that you are a 10% or more shareholder in a foreign corporation.
· Form 5472 –Used to report that a US corporation had a 25% foreign shareholder or engaged in reportable transactions.
· Form 8886 –Used to report any reportable transaction you participated in.
· Form 8865 –Used to report that you are a 10% partner in a foreign partnership.
· Form 926 –Used to report transfers of property to a foreign corporation, including undistributed earnings.
· Form 3520 –Used to report a foreign trust with a US owner.
· Form 8621 –Used to report a shareholder interest in a Passive Foreign Investment Company (PFIC, most foreign mutual funds) or a Qualified Electing Fund.
These forms are all information returns, meaning they do not calculate any tax but are a document that is simply for the IRS’s information. These are in addition to any tax forms an individual, business, or other entity may have to file to report income and pay tax.
These forms are among the most complex the IRS has to offer, and require meticulous record-keeping and data entry. Knowing whether a person or entity is required to file can be a difficult determination. Furthermore, the penalties for failure to file are extremely steep:
· Failure to file Form 5471 penalties: $10,000 failure to file penalty per year per person required to file.
· Failure to file Form 5472 penalties: $10,000 failure to file per year per person required to file.
· Failure to file Form 8886 penalties: minimum of $5,000 in the case of an individual, $10,000 in the case of any other entity, maximum of $10,000 for an individual and $50,000 for other entities. This rises to a maximum of $100,000 per individual and $200,000 per entities for certain listed transactions for which the form is not filed.
· Failure to file Form 8865 penalties: $10,000 failure to file penalty per year per person required to file.
· Failure to file Form 926 penalties: 10% of the property transfer, up to $100,000 although not limited if the failure to file was due to “intentional disregard.”
· Failure to file Form 3520 penalties: The greater of $10,000 or 35% of the gross value of the property transferred to a foreign trust or 35% of the gross value of distributions received from a foreign trust.
· Failure to file Form 8621: There are no direct penalties for failing to report a shareholder interest in a PFIC or Qualified Electing Fund.
If these failures to file have occurred due to reasonable cause, we have been able to help several taxpayers file previous information returns and receive penalty abatements for failure to file. This is in the case of failure to file information returns only.
If you have failed to file information returns and have a tax liability due to previously unreported foreign transactions or income, you may need to participate in the Offshore Voluntary Disclosure Program in order to protect yourself from steep penalties or other consequences.
Many taxpayers have used foreign entities as a shield to help them hide assets and income from the IRS. Yet because of FATCA such techniques may no longer work and were not advisable in the first place.
Additionally, where a taxpayer fails to report certain information regarding foreign transactions, the time for assessment of any tax with respect to any tax return, event, or period to which the information relates will not expire before the date that is three years after the date on which the information is reported. IRC §6501(c)(8).
Accordingly, it appears that the additional time for assessment applies not only to items related to the failure to report but also any other item pertinent to the return in question.
The good news is those who have failed to file any of the above returns and have unreported income may also enter in to the current IRS Voluntary Disclosure Initiative.
Secret Foreign Investments Keeping You Awake at Night?
Want to get right with the IRS?
Contact the Tax Lawyers at
Contact the Tax Lawyers at
Marini & Associates, P.A.
or Toll Free at 888-8TaxAid (888 882-9243).
Read more at: Tax Times blog