Golding & Golding – Offshore Disclosure & FATCA Compliance

This is a very common scenario, especially in the Indian and Asian culture.

Here is the typical example: A son or daughter relocates from India or Asia to the United States. While in the United States, the parents begin to worry that their child may not be able access funds the parents might need if they fall ill. Moreover, the parent does not want to burden the child who is pursuing education or work in the United States. Alternatively, the parents have placed the child on the account in anticipation of a “Future Inheritance.”

As such, the foreign parent or relative places the adult child on the account without informing the child.

U.S. “Status” is Confusing

Obviously, the foreign parent does not consider the child to be a US person, since the child was born in a foreign country and may only be residing in the U.S. temporarily. With that said, the Internal Revenue Service sees it a bit differently.

Specifically, if the child is, or becomes a US citizen, Legal Permanent Resident (Green-Card Holder) or meets the Substantial Presence Test while in the United States on a visa (such as a H-1B, L1, E2, or various other visas), they are considered a US person.

While there are many benefits to becoming a US person, one of the biggest detriments is worldwide income reporting and global taxation. In other words, the United States taxes “US persons” on their worldwide income. In addition, the United States also requires US persons to report their foreign accounts on various forms.

In this type of scenario, the US person may have a reporting requirement in many different types of situations, with the most common being the following:

– A child is placed on the parents account, the foreign account earns income, and the child did not report it on the US tax return;

– The foreign parents purchased a gift such as a house or other investment in the name of the US child;

– The child is receiving gifts or trust distribution from foreign parents;

– The child is placed as an owner on a foreign account

– The child’s name is placed as a cosigner or co-owner on one or various foreign accounts.

U.S. Government Penalties

In order to motivate (read: threaten) “US Persons” to ensure that they are in foreign account reporting and tax compliance with United States, the US government may issue extremely high fines and penalties against the US person. Moreover, depending on the facts and circumstances of your case the IRS could seek to Lien, Levy, or Seize funds/accounts/assets if the person fails to get into compliance. These penalties can reach 100% value of the foreign accounts.

Compliance – Streamlined Program or Reasonable Cause

When a person is out of compliance there are various options for getting them back into compliance. Closing your foreign accounts, removing your names, or relocating to a foreign country does not eliminate the reporting requirement for prior years. The two main options when a person who was non-willful (unintentional) is the streamlined program, or a reasonable cause statement submission.

A summary of the difference between these two options is provided below:

Reasonable Cause vs. Streamlined Disclosure

For some taxpayers who were non-willful in failing to comply with IRS and DOT rules for Reporting Foreign Accounts, Foreign Income, Foreign Assets, and Foreign Property — submitting a Reasonable Cause Statement in lieu of submitting to the Streamlined Disclosure Programs may be a viable option.

I Never Knew About Foreign Reporting Requirements

Chances are that if you are reading this article, you have recently learned about certain IRS international tax compliance laws (FBAR, FATCA, 8938, 3520-A, 5471, 8621, etc.) which are causing you to lose sleep. The IRS, DOT, DOJ and U.S. Government overall has made enforcement of Offshore Tax and Reporting requirements a key enforcement priority.

Not only has Offshore Tax Evasion become a mainstay on the IRS Dirty Dozen Tax Scam list, but with the implementation of FATCA (Foreign Account Tax Compliance Act) and other intentional tax compliance programs, the chances of the U.S. discovering your foreign accounts has increased exponentially.

Golding & Golding, A PLC

We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.