Year-Round U.S. Tax Planning Tips for Global Investors

When U.S. taxpayers have significant assets and accounts overseas, they must consider planning tactics throughout the year, not just in April when taxes are due. That is because the foreign country may be on a different tax year than the United States — which means the reporting will be different on matters such as foreign income earned and foreign taxes paid (to claim tax credits for U.S. filing purposes). In addition, when taxpayers have various accounts and assets in foreign countries, they may have different international information reporting requirements, and obtaining all the necessary information to complete the US forms may be time-intensive. Let’s take a quick look at five, year-round tax planning tips for wealthy foreigners who are considered US persons for tax purposes, such as U.S. citizens, lawful permanent residents, and foreign nationals who meet the substantial presence test.

Track Your Foreign Account Balances

When a taxpayer has multiple foreign bank and financial accounts, they may be required to report this information each year on an annual FBAR and Form 8938. Some foreign institutions may be delayed in providing this information to the US taxpayer, and trying to obtain the information from these foreign institutions may be time-intensive — and may lead to delays in filing a U.S. tax return.

Consider Your Foreign Income when Making Estimated Taxes

When taxpayers are paying estimated taxes each year for their U.S. tax return, they should keep in mind that the United States follows a worldwide income tax model — which means they have to pay U.S. tax on their worldwide income. Therefore, taxpayers who earn foreign income will want to consider this income as part of their annual U.S. estimated tax payments in the

Reconcile Your Foreign Income Earnings for U.S. Tax Year Purposes

Especially when a taxpayer has foreign income in countries that have a different tax year, taxpayers should be careful to track their foreign income each year so they know how much income they earned from their January to December earnings in the foreign country, so they can apply it to the US tax return of the same year.

Keep Track of Your Foreign Rental Expenses

It is not uncommon for taxpayers to have foreign rental properties and for these foreign rental properties to generate expenses throughout the year. In addition, under U.S. tax law, taxpayers are required to report the gross income from these foreign property investments, but they can also claim deductions and expenses against this income. Thus, Taxpayers with foreign rental property should be careful to track the expenses, especially if it is in a country where it is not common to issue receipts for work performed or payments made.

Track Your Foreign Taxes Paid

One of the most important components of reporting foreign income in the United States is to be sure to also report foreign taxes paid — so that the tax filer can claim foreign tax credits. Taxpayers who have paid foreign taxes on income that they generate in a foreign country will want to track the amount of taxes they paid in the year so that they can apply these foreign tax credits to their U.S. tax return, if applicable.

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.