Europe-US Foreign Account & Asset Case Study Examples

U.S. Person foreign account holders across the globe are required to report their foreign accounts, assets, and investments each year to the IRS and FinCEN on various international information reporting forms. Some of the more common foreign IRS tax forms that taxpayers have to file are the FBAR (FinCEN Form 114), Form 8938 (FATCA), and Form 8621 (PFIC). Depending on the number of assets the taxpayer has and whether these assets generate income can impact the complexity of the filing and which forms need to be reported each year. Golding & Golding represents clients in over 85 countries. Below, please find some of the more common examples of foreign account reporting for taxpayers with accounts in Europe.

First, the FBAR/Foreign Account Basics

Not all taxpayers are required to file every foreign tax form each year. Rather, it depends on the category of asset and the value of the accounts owned by the account holder. In some years, the taxpayer may have to file several forms to report their different assets, including reporting the same asset on different forms — and then in other years, the taxpayer may not meet the threshold requirements for reporting or may meet the threshold filing requirements for some forms but not for other forms. Noting that the filing due dates for the different forms will vary, for example, while the FBAR is on an automatic extension, other forms require the taxpayer to file either a Form 4868 (or equivalent extension procedure) or Form 7004

*For all examples, please note that the Taxpayers are U.S. persons for tax purposes who have not made any treaty elections to be treated as a Non-Resident Alien (NRA). Also, these examples are for illustrative purposes only, and Taxpayers should consult with a Board-Certified Tax Law Specialist if they have specific questions about their reporting requirements and not rely on this article for legal advice.

Europe Examples

We have consulted with thousands of taxpayers from all the different European countries, and here are some of the more common FBAR, FATCA, and PFIC reporting scenarios we have encountered.

Austria

- - Candace is a US person who currently resides in Austria where she works for a large company. Candace maintains several bank accounts, but these accounts do not generate any income. Candace is still required to report the accounts to the IRS and FinCEN.

Belgium

- - Charlie is a Belgian citizen and lawful permanent resident who recently relocated to the United States. He has several foreign accounts that were opened before he relocated to the United States and has not opened any accounts since becoming a US person. Charlie is still required to report all his foreign accounts even though they were open before he came to the United States.

Cyprus

- - Chris is a Cyrpus citizen relocated to the United States a few years ago. Before living in the United States, he accumulated a large Cyprus retirement scheme. He no longer works for a Cyrpus employer and has not made any contributions nor received any distribution since becoming a US person. Chris is still required to report these accounts.

Denmark

- - Chip is a naturalized U.S. citizen who previously lived and worked in Denmark and accumulated a significant EPF. Chip is required to report this account on his US tax return and FBAR even though he has not made any contributions or received any distributions for many years.

Finland

- - Clementine relocated to Finland about 10 years ago and began working for a Finnish employer and funding her foreign retirement. She just learned for the first time that she should have been reporting this information on her U.S. tax return and international information returns and since she lives most of the year overseas, she may qualify for the Streamlined Foreign Offshore Procedures (SFOP) and no penalty for the late reporting.

France

- - David is a French citizen who transferred to the United States on an L-1 visa. He married a U.S. citizen and was unaware that there was any reporting requirement for a foreign account and since his spouse takes care of the tax filings he never inquired about foreign accounts because he does not have any. Recently, David realized he should have been reporting this information, and he may qualify for one of the offshore disclosure programs.

Germany

- - Daniel is a dual German and U.S. citizen who lived most of his life in the United States but decided to relocate back to Germany to be closer to his family. Daniel files all of his Danish tax returns and pays any taxes that are due and since all his income is foreign sourced, he was unaware that he was required to report this information on a U.S. tax return, FBAR, etc. Since Daniel lives the majority of the time overseas comma he may qualify for the streamlined foreign offshore procedures and avoid offshore penalties.

Greece

- - Richard and Brenda are originally from Greece and moved to the United States several years ago. While they were in the United States they continued to invest in foreign accounts and assets in the Greece but were unaware they were required to report this information on their U.S. tax return. Since many of the foreign investments involved foreign mutual funds and ETFs, Richard and Brenda may have to go back to file several forms such as the FBAR, Form 8938 and Form 8621.

Hungary

- - Dolly is a Hungarian citizen who first came to the United States on an F-1 visa and then transitioned to an H1B and final to lawful permanent resident status. When she came from Hungary, she had a significant number of foreign accounts and assets managed by her parents but because she was on her first F-1 visa she was not considered a US person. She carried these filings forward not realizing that once she became a US person she is required to report this information on her U.S. tax return and may consider one of the amnesty programs to get into compliance.

Ireland

- - Delia is an Irish citizen who recently retired and relocated to the United States to be closer to his son and grandchild. Delia does not work in the United States but does receive a significant pension distribution each year from her Irish retirement accounts. She also has several assets and investments abroad throughout Europe. Even though Delia is not employed in the United States, she is still required to file a tax return to report the income along with all her foreign accounts and assets.

Italy

- - Daria’s family resides in Italy and Daria recently completed her studies in the United States. His family gifted her $1M into her foreign account so she can access it in order to purchase a property as he begins his new career. Daria is required to report this foreign account even though the money is only in the account for a short amount of time before being transferred to escrow in the United States. Likewise, since Daria’s family members are non-US Persons, she is also required to file a form 3520 to report the gift.

Luxembourg

- - Dean is a US citizen who relocated to Luxembourg to work for a big employer. He earns a significant amount of income and pays taxes in Luxembourg period since the United States has a tax treaty with Luxembourg, Deana misunderstood that he was still required to report this information on his U.S. tax return along with all her foreign accounts and assets. Since Dean resides for more than 11 months out of the year in Luxembourg, he may qualify for the Streamlined Foreign Offshore Procedures (SFOP).

Malta

- - Brian is a lawful permanent resident who previously worked in the UK and Malta. He had transitioned his UK pension into a Malta QROPS. He also has a few bank accounts in Malta as well, but they are below $10,000. Since the value of the QROPS is significant, Brian will report all of the accounts for U.S. tax purposes.

Netherlands

- - Ben is a dual citizen who recently opened a business in the Netherlands. He is operating as his sole proprietor but he has established a few bank accounts in the foreign country in order to conduct business. Even though Ben is acting as a sole proprietor, the accounts are still under his name, so he is required to report this information on his US tax return.

Poland

- - Brandy is a Polish citizen and lawful permanent resident in the United States who recently began receiving investment distributions in Poland. Brandy had these accounts in Poland before she became a US person and the distributions are not taxable in Poland. Since she is now a US person for tax purposes, she is required to report the investments on the various international reporting forms as well as the distributions she receives.

Portugal

- - Blaine is a U.S. citizen who originally purchased a golden visa in Portugal. He currently has no intent of moving to Portugal and is not transferred any of that income he generated from his passive assets in Portugal to the United States, the plan is still required to report this information as U.S. tax return. In addition, since Blaine invested in various passive assets such as mutual funds and ETFs, Blaine may have a PFIC issue as well.

Romania

- - Blake has two small bank accounts in Romania under $10,000 but a very large pension worth about $2M. Even though Blake does not have foreign bank accounts that exceed $10,000, the foreign pension is also included for reporting purposes. Since the total value combined of all accounts including the pension exceeds $10,000, Blake is required to report all of this information on his US tax return and FBAR.

Spain

- - Bailey is a lawful permanent resident of the United States and a Spain citizen who relocated back to Spain to care for his Ellen grandma. His grandma is a non-resident alien and when she passed away, she left Bailey a $3M inheritance. Even though this money was transferred directly from the foreign account owned by his grandma’s estate to his US account, it is still a gift from a foreign non-resident alien and Bailey should file a form 3520 to report the gift.

Sweden

- - Brad is a U.S. citizen who recently relocated to Sweden and began investing heavily in Swedish stocks and funds. These are all growth investments which have not paid out any dividends or capital gains and none of the money has been distributed from the assets. Even though all of the accounts and assets are compliant under Swedish law, Brad is still required to include it on his US tax return.

Switzerland

- - Bonnie is a Swiss citizen who worked for many years in Switzerland and accumulated a high-value pension plan. She has a majority of her savings in Pillar 2 and Pillar 3 (A and B) retirement schemes. Even though Bonnie moved to the United States and has not yet accessed any of these investments, they should still be reported on her U.S. tax return and FBAR.

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.

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.

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.

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Contact our firm today for assistance.