International Information Return Penalties: The IRS International Information Return Penalties can be brutal. The Internal Revenue Service seems to have carved out a niche for aggressive enforcement of foreign accounts compliance. While the FBAR (FinCEN Form 114) and Form 8938 (FATCA) are the two most common international reporting forms, there are actually many more forms a U.S. person may have to file with the Internal Revenue Service. The reason these two forms are most common, is because they refer to the most common assets (bank accounts and shares) that an overseas investor may have. But, there are many more forms to consider. And, with tax season for 2020 commencing, it is important to understand the different forms, in order to stay compliant and avoid offshore penalties.
International Information Return Penalties
The IRS International Information Return Penalties range extensively. Sometimes, the IRS may issue a warning letter in lieu of penalties. Other times, the IRS may pursue willfulness penalties. A multi-year willful FBAR penalty can literally wipe out the entire foreign account balance.
Here are some of the more common IRS International Information Return forms:
The FBAR is the FinCEN Form 114. It is used to report Foreign Bank and Financial Accounts. The Threshold for reporting is an annual aggregate total of more than $10,000 USD on any day of the year.
The penalties range extensively from a warning letter in lieu of penalty, all the way up to a 50% per year annual willful penalty, with a $100,000 floor.
The Form 8938 is the FATCA reporting form for taxpayers. It is used to report specified foreign financial assets. It is filed along with the tax return, and due when the tax return is filed, including extensions.
The Form 3520 is used to report gifts, inheritances, and trust distributions to a U.S. person, from a foreign person (business, individual or trust). The threshold requirements vary based on the type of gift and who it is from. The penalties for not filing this form are disproportionate to the non-filing, and can reach +25% value of the gift./
The Form 3520 is used to report Foreign trusts. Like the Form 5471 (below), the Foreign Trust Reporting form is highly detailed and complicated – especially of the filer does not have an accounting background.
Form 5471 is a commonly missed form. It is used to report interest in Foreign Corporations (not just controlled foreign corporations). There are multiple categories of filers, and various schedules which may need to be filed as well. The IRS seems to enjoy issuing penalties for non-compliance.
Form 5472 is for foreign persons, with an interest or ownership in certain types of U.S. businesses. The penalties for missing this form recently jumped from $10,000 to $25,000.
Form 8621 is used to report PFIC. Passive Foreign Investment Companies. The rules expanded in 2013, and requires reporting even in situations in which there were no excess distributions. This form is very complicated. Most software programs do not offer the form, and the instructions themselves do not provide any detailed calculations.
Form 8865 is a commonly missed form. It is used to report interest in Foreign Partnerships. As with the Form 5471 summarized above, there are multiple categories of filers for Form 8865, and various schedules which may need to be filed as well. The IRS seems to enjoy issuing penalties for non-compliance as well.
Golding & Golding (Board-Certified Tax Law Specialist)
We specialize exclusively in international tax, and specifically IRS offshore disclosure.
We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
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We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced IRS 3520 Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
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No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.