We Help With International Transactions & Reporting
You probably found us by searching for “international tax attorney,” “FBAR attorney” or “FBAR penalties.” We are glad you did. We can help with international tax and transactions and foreign account compliance reporting.
We are tax attorneys in Houston and we often help clients comply with U.S. international tax laws. This includes foreign transactions and transfers, such as hiring or paying foreign workers or companies. It also includes foreign account and transaction reporting and audits, appeals, and litigation arising from these accounts and transactions. This includes FBAR penalties, foreign gift and inheritance penalties, U.S.-sourced income, and withholding tax.
What Types of International Tax
We handle the U.S.-side of international taxes. This includes advising and helping clients with inbound and outbound transactions and transfers and reporting of the same. Whether it is planning to take advantage of U.S. Tax Treaties, avoiding FDAP income, minimizing withholding taxes, or simply minimizing tax U.S.-sourced income, we can help.
We also advise on reporting these transfers or transactions, which may involve Forms 1120F, Forms 1040NR, Forms 1042/1042S, Forms 5471/8856, etc., including the following information reporting penalties:
|Tax Code Section||Reporting Requirement||Tax Form||Penalty|
|6038A||Information required with respect to certain foreign-owned corporations||Form 5472||$25,000 for each year of non-compliance|
|6038D||Information with respect to certain foreign financial assets||Form 8938||$10,000 for failure to disclose, up to $50,000 for continued failure after IRS notification|
|6046A||Information regarding certain transfers of property to foreign corporations||Form 926||10% of the fair market value of the property transferred, up to $100,000|
|6662(j)||Accuracy-related penalty for undisclosed foreign financial assets||Form 8938||Up to 40% of the understatement of tax related to the undisclosed asset|
|6721/6722||Penalties for failure to file information returns related to foreign trusts or receipt of certain foreign gifts||Form 3520/3520-A||$10,000 for each year of non-compliance|
|8621||Information required with respect to certain deferred foreign income corporations||Form 8621||$10,000 for failure to file, up to $50,000 for continued failure after IRS notification|
|8865||Return of U.S. Persons With Respect to Certain Foreign Partnerships||Form 8865||$10,000 for failure to file, up to $50,000 for continued failure after IRS notification|
|8971||Information Regarding Beneficiaries Acquiring Property From a Decedent||Form 8971||$10,000 for failure to file, up to $50,000 for continued failure after IRS notification|
|926||Return by a U.S. Transferor of Property to a Foreign Corporation||Form 926||10% of the fair market value of the property transferred, up to $100,000|
The foreign trust reporting penalties listed above are frequently at issue in IRS disputes. This is particularly problematic as it is often not easy to tell what counts as a foreign trust.
What Are the Foreign Account Penalties?
Foreign account penalties have been in the news frequently. This started with the IRS’s offshore credit card initiatives and eventually lead to the restructuring of the IRS to focus on international transactions. In addition to looking for issues that result in U.S. income tax due, the IRS now also looks for information reporting. This information reporting can trigger significant penalties.
The primary question about foreign account compliance and disputes is often, what are the foreign account penalties? This question is understandable as the penalties can be significant.
Here is the short answer for some of the most common non-criminal penalties:
- FBAR: non-willful, $10,000 a year; willful, higher of $100,000 or 50% of the account balance
- Form 8938: $10,000 a year, plus $10,000 a month for each month after 90 days of the IRS request (with a $50,000 cap)
- Form 1040NR and withholding tax: 5% of the unpaid taxes for each month or part of a month that a tax return is late
The penalties and consequences of failing to report a foreign account or transaction properly can be significant. This usually warrants hiring a tax attorney.
More About FBARs
The Foreign Bank Account Reporting forms warrant careful consideration.
The FBAR rules say that a U.S. person has to file an FBAR if that person has a financial interest in or signature authority over any financial account(s) outside of the United States and the aggregate maximum value of the account(s) exceeds $10,000 at any time during the calendar year.
This is an annual filing separate from an income tax return filing. It is filed using FinCEN’s BSA e-filing system (i.e., filed online). It is due on April 15th of each year.
A “United States person” means:
- A citizen or resident of the United States;
- An entity formed in the United States or under the laws of the United States, which includes:
- A corporation, partnership, and limited liability company
- A trust formed under the laws of the United States; or
- An estate formed under the laws of the United States.
- Disregarded Entities: Entities that are U.S. persons and are disregarded for tax purposes may be required to file an FBAR. The federal tax treatment of an entity does not affect the entity’s requirement to file an FBAR. FBARs are required under a Bank Secrecy Act provision of Title 31 and not under any provisions of the internal revenue code.
- A United States Resident is an alien residing in the United States. For purposes of I.R.C. § 7701(b) residency tests, “United States” includes the following: United States includes the States, the District of Columbia, all United States territories and possessions (e.g., American Samoa, the Commonwealth of the Northern Mariana Islands, the Commonwealth of Puerto Rico, Guam, and the United States Virgin Islands), and the Indian lands as defined in the Indian Gaming Regulatory Act.
A U.S. person has a financial interest in the following situations:
- The United States person is the owner of record or holder of legal title, regardless of whether the account is maintained for benefit of the United States person or for the benefit of another person, including non-United States persons.
- The owner of record or holder of legal title is a person acting as an agent, nominee, attorney, or a person acting on behalf of the United States person with respect to the account.
As you can see from these rules, the FBAR filing requirements are broad and apply to quite a few persons and in situations that are not all that intuitive. This is often why those who have to file FBARs fail to comply with the filing requirements. The large size of penalties for failing to file FBARs and the IRS’s approach to handling these forms makes this even more problematic. You can read more about how to file FBARs here.
Get Help With Your International Tax Questions
There is no substitute for experience in working with U.S. international tax. This is not an area for novices or others who do not handle these issues regularly.
An experienced international tax attorney who regularly handles these issues should be engaged or consulted.
We help taxpayers with international tax issues. Please call us at (713) 909-4906 to discuss your international tax concerns with our tax attorneys.
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