Taiwan Stamp Seal (Chop), Parents & IRS Offshore Reporting

 
Foreign Parents Using Your Taiwanese Chop to Open Accounts?

Foreign Parents Using Your Taiwanese Chop to Open Accounts?

Foreign Parents Using Your Taiwanese Chop to Open Accounts?

In some countries across the globe such as Taiwan, individuals are issued a seal or similar type of stamp from the U.S. government which is used to handle personal matters such as opening accounts. Especially for taxpayers who are U.S. persons for tax purposes but have non-resident alien family members living overseas, these family members will sometimes use the child’s chop, stamp, or seal to open foreign accounts in the child’s name, invest in foreign assets, and generate foreign income. Sometimes it could be several years before the U.S. person child is made aware that their overseas parents have been opening accounts and investing in securities. This can become a problem for the U.S. person, because there are various international tax and reporting requirements and if they do not learn about these investments until later then presumably they are out of compliance for multiple years of non-filing and non-reporting. Let’s go through the basics –

Are the Accounts Under the U.S. Person’s Name?

One key issue to determine is whether the accounts are actually in the US tax person’s name or whether the taxpayer is a signatory on the account. If the taxpayer is listed on the account as a single or joint account holder — even if he is not the primary account holder — then typically income will be imputed to the taxpayer. If alternatively the taxpayer is just the signatory on the account then while the taxpayer still has to report the account, there may not be any income implication, but FBAR is usually still required.

What Type of Accounts or Assets?

Depending on the type of assets that are created under the U.S. person’s name, there are various international information reporting forms that taxpayers may have to file. Some assets and accounts require the taxpayer to file multiple forms for the same account in the same year and some forms are much more complicated than others. For example, the FBAR is relatively straightforward while a taxpayer who has an excess distribution for a foreign mutual fund or ETF has a much more complicated undertaking when preparing IRS Form 8621.

Is Foreign Income Generated?

Whether or not income is associated with the foreign account is a separate issue from having to report the accounts. In other words, if the accounts do not have any income implication, the taxpayer still must report the accounts under various international reporting forms — presuming that the threshold requirements are met. However, if there is also income associated with the accounts, the taxpayer may have to include the income on their U.S. tax return. The U.S. tax implications will vary based on various facts and circumstances surrounding the income, if tax returns were filed in the country the accounts were located, and and of any foreign taxes were paid.

Are Foreign Taxes Paid?

If foreign taxes were paid under the taxpayer’s name, then the taxpayer may be able to claim foreign tax credits — whether the parents filed foreign tax returns on the U.S. person’s behalf in the foreign country or taxes are being directly withheld from the account held in the U.S. person’s name. Taxpayers should be aware that if taxes were withheld or paid but then refunded, then generally these foreign taxes paid would not qualify for foreign tax credits because ultimately those foreign taxes paid were refunded to the taxpayer.

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.

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.