Did You Treaty Elect to Exclude Superannuation from U.S. Taxes?

Did You Treaty Elect to Exclude Superannuation from U.S. Taxes?

Did You Treaty Elect to Exclude Superannuation from U.S. Taxes?

In recent months, the international tax law specialist team of Golding & Golding has received many calls from taxpayers who previously worked with tax/law firms that made a Treaty Election on IRS Form 8833 treating their Australian superannuation as privatized Social Security and thus not subject to FBAR, FATCA — and not included on their U.S. tax returns. Some of these tax firms are no longer operational and now many taxpayers are concerned about the state of their taxes for filing in 2024 and beyond.

Unfortunately, there is still a lot of misinformation on the World Wide Web about how taxpayers are required to file a superannuation, and which forms are required when reporting the Superannuation to the IRS. Taxpayers should consult with a Board-Certified Tax Lawyer Specialist who specializes exclusively in international tax matters and has extensive experience working with Australia.

First, Beware of Online Attorney Fear-Mongering

Please beware of tax law firms trying to scare you into believing that a whole spectrum of forms are required to report the Superannuation without explaining the limitations and exceptions. This will help you avoid feeling unnecessarily overwhelmed and being made to believe you are more noncompliant than you are. It will also help prevent paying artificially high tax preparation and lawyer fees.

You will be fine, and the matter can be fixed.

Australian Superannuation and Form 1040

We have several resources online regarding the tax treatment of Australian superannuation. Generally, an Australian superannuation is reportable on the FBAR and Form 8938.

As to Form 3520/3520-A, most of the time the Australian superannuation is not considered a grantor trust and should fall into one of the exceptions under Revenue Procedure 2020-17 and the Foreign Trust regulations.

As to Form 8621, since Australia is a treaty country, and presuming the other elements are met, taxpayers can sidestep having to file Form 8621 for their superannuation.

Unwinding a Form 8833 Treaty Election

For taxpayers who previously filed Form 8833 and made a treaty election, they should consider unwinding the treaty election and gaining compliance for prior years before moving forward with current-year reporting.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer 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 who 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. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

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.