Automatic Foreign Trust & Business Ownership IRS Penalty (2019)
In the last 5-to-10 years, Internal Revenue Service has really ramped up issuing penalties for noncompliance with international and foreign reporting.
In order to make their lives easier, the IRS has authorized – and followed through on – its plan to issue automatic penalties for individuals who are out of compliance for non-filing or late filing a foreign informational returns (without proving reasonable cause or through amnesty).
Common questions, include:
- When are International Informational Returns due?
- Do I have to file them every year?
- What if I did not know about the form(s)?
- How much are the penalties?
- Can I avoid the penalties?
Automatic Foreign Trust & Business Ownership IRS Penalty
The two main culprits that are causing individuals the most headaches is the form 5471 for non-reporting of foreign corporations, and form 3520-A for non-reporting of foreign trusts.
In addition, the IRS has also ramped up issuing penalties against individuals who receive gifts, inheritance, or foreign trust distributions from a foreign person — sometimes reaching upwards of 25% value of the gift/distribution.
National Tax Advocate Annual Report
Each year the National Tax Advocate issues a lengthy (and boring) report detailing the current updates involving the IRS. If you were to review the portion involving foreign penalties, you would find that the IRS has issued several hundreds of million of dollars in penalties against individuals who have not properly disclosed foreign trusts and foreign corporations.
That is not to say that once the penalties are issued that you cannot work to get them abated or removed. But generally, the preferred strategy is to be proactive and submit an effective amnesty package requesting penalties not be issued in the first place.
As with anything in life it’s better to apologize first, than to have to ask for forgiveness later.
IRS International Informational Return Penalties are Severe
Unfortunately, the penalties associated with not properly reporting foreign trusts and foreign corporations are pretty severe — they can range in the tens of thousands of dollars depending on the type of non-compliance and the length of the occurrence.
How to Avoid Automatic Penalties
If you are at risk for being hit with nondisclosure penalties for foreign trusts, corporations come over gifts one are the best options for getting into compliance is through IRS offshore disclosure.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.