Expatriate Tax (2019) – IRS 5-Year Tax Return Filing Requirement
With the introduction of several new International tax laws come along with the one-time repatriation tax — and coupled by the increased enforcement of foreign account and offshore account/asset compliance – many people are considering expatriation.
For some individuals, even if they are below the $2 million and/or about ^160,000 average tax liability that otherwise deems an individual a “covered expatriate,” there’s a third (lesser known) category which is often overlooked and cause you to unwittingly become a covered expatriate.
U.S. Expatriation & Taxes
Have you been tax compliance in the U.S. for the last five years?
U.S. Tax Compliance
For many people, tax compliance with the Internal Revenue Service is more than just filing tax returns.
That is because if you have international, offshore and/or foreign accounts, assets, investments, and or income — you may have additional reporting that is required.
Some Common Examples include the Following:
The following are common forms which many people are not even aware they have to file:
FBAR (FinCEN 114)
The FBAR is used to report “Foreign Financial Accounts.” This includes investments funds, and certain foreign life insurance policies.
The threshold requirements are relatively simple: on any day of the year, did you have an annual aggregate total maximum value in your “foreign accounts” that exceeded $10,000?
If it does, then you most likely have to file the form. The most important thing to remember is you do not need to have more than $10,000 in each account; rather, it is an annual aggregate total of the maximum balances of all the accounts combined.
This form is used to report “Specified Foreign Financial Assets.”
There are four main thresholds for individuals living in the United States.
- Single or Filing Separate (in the U.S.): $50,000/$75,000
- Married with a Joint Returns (In the U.S): $100,000/$150,000
- Single or Filing Separate (Outside the U.S.): $200,000/$300,000
- Married with a Joint Returns (Outside the U.S.): $400,000/$600,000
Form 3520 is filed when a person receives a Gift, Inheritance or Trust Distribution from a foreign person, business or trust. There are three (3) different thresholds:
- Gift from a Foreign Person: More than $100,000.
- Gift from a Foreign Business: More than $16,076.
- Foreign Trust: Various threshold requirements involving foreign Trusts
Form 5471 is filed in any year that you have ownership interest in a foreign corporation, and meet one of the threshold requirements for filling (Categories 1-5). These are general thresholds:
- Category 1: A U.S. shareholder of a foreign corporation that is a section 965 specified foreign corporation.
- Category 2: Officer or Director of a foreign corporation, with a U.S. Shareholder of at least 10% ownership.
- Category 3: A person acquires stock (or additional stock) that bumps them up to 10% Shareholder.
- Category 4: Control of a foreign corporation for at least 30 days during the accounting period.
- Category 5: 10% ownership of a Controlled Foreign Corporation (CFC).
Form 8621 requires a complex analysis, beyond the scope of this article. It is required by any person with a PFIC (Passive Foreign Investment Company).
The analysis gets infinitely more complicated if a person has excess distributions. The failure to file the return may result in the statute of limitations remaining open indefinitely.
*There are some exceptions, exclusions, and limitations to filing.
What if I am Out of FBAR Compliance?
If you are out of FBAR compliance, the penalties can be severe. Therefore, you may consider entering the IRS offshore voluntary disclosure/tax amnesty, before it is too late.
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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.
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