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Houston International Tax Attorneys

If you searched for an “international tax attorney,” “FBAR attorney,” or for information about foreign account penalties, you are in the right place. We are Houston tax attorneys, and we handle the U.S. side of cross-border tax matters — inbound and outbound transactions, foreign account reporting, FBAR and Form 8938 penalties, voluntary disclosures, and treaty-based withholding planning. This page explains the major categories of international tax work we do.

U.S. Tax on Worldwide Income

U.S. citizens and resident aliens are taxed on worldwide income, regardless of where the income is earned or where the taxpayer lives. That basic rule drives most of what follows. Nonresident aliens are taxed only on U.S.-source income and on income effectively connected with a U.S. trade or business. The residency line is set by Section 7701(b) using the substantial presence test, the green card test, and various exceptions. A clean residency analysis is the first step in nearly every cross-border engagement.

For U.S. citizens working abroad, the foreign earned income exclusion under Section 911 can shield up to roughly $120,000 of foreign-earned wages (indexed annually). The exclusion has a physical-presence test and a bona-fide-residence test, and the IRS routinely audits returns claiming Section 911. We have written about cases where the Section 911 exclusion was denied for taxpayers who maintained a U.S. residence and an airline pilot stationed overseas who lost the exclusion.

FBAR Filing Requirements

The Foreign Bank Account Report (FinCEN Form 114, commonly called the FBAR) is required of any U.S. person with a financial interest in or signature authority over one or more foreign financial accounts whose aggregate maximum value exceeded $10,000 at any point during the calendar year. The FBAR is filed electronically through FinCEN’s BSA E-Filing System, separately from the income tax return. The deadline is April 15 with an automatic six-month extension. Our page on how to file FBARs walks through the mechanics.

The threshold is per-person on the aggregate value of all accounts, not per-account. Signature-authority-only filers must still report, even though they have no economic interest. Disregarded entities have their own FBAR obligation independent of the owner’s, because the FBAR is a Title 31 Bank Secrecy Act filing, not a Title 26 tax filing.

FBAR Penalties: Willful and Non-Willful

The FBAR penalty structure is what drives most of our foreign-account work. The non-willful penalty is $10,000 per year, applied per form (not per account, per Bittner v. United States, 598 U.S. 85 (2023)). The willful penalty is the greater of $100,000 (indexed) or 50% of the highest aggregate account balance. Criminal penalties under 31 U.S.C. §§ 5322 and 5324 are also available for the worst cases.

“Willfulness” for FBAR purposes is broader than the criminal standard. Courts have held that reckless conduct is sufficient for the civil willful FBAR penalty. We have written about an ongoing constitutional debate over FBAR penalties as unconstitutionally excessive, about the question of whether FBAR penalties die with the taxpayer, and about the IRS’s limited collection rights on assessed FBAR penalties.

Form 8938 and FATCA Reporting

FATCA layered an additional reporting regime on top of FBAR. Form 8938, “Statement of Specified Foreign Financial Assets,” is filed with the income tax return when a U.S. person’s specified foreign financial assets exceed the threshold (varies by filing status and residence). The non-filing penalty starts at $10,000 per form, with continued failure adding up to $50,000. Section 6662(j) adds an accuracy-related penalty of up to 40% on the understatement of tax related to undisclosed foreign financial assets.

Form 8938 is not a replacement for FBAR. Many taxpayers have to file both, with overlapping but not identical asset definitions. We routinely see returns that filed one but not the other.

Streamlined Filing Compliance Procedures

For taxpayers whose noncompliance was non-willful, the IRS Streamlined Filing Compliance Procedures offer a path to compliance without the most severe penalties. The Streamlined Domestic Offshore Procedures cap the miscellaneous offshore penalty at 5% of foreign financial assets. The Streamlined Foreign Offshore Procedures (for taxpayers who meet the non-residency requirement) waive the offshore penalty entirely. Both require three years of amended income tax returns and six years of FBARs along with a sworn certification of non-willfulness.

We have written about the benefits of the streamlined procedures. The certification matters: the IRS audits streamlined submissions, and a certification that turns out to have been incorrect can trigger willful FBAR penalties on the same conduct that the streamlined procedure was supposed to resolve.

IRS Voluntary Disclosure Practice

Where noncompliance was willful and criminal exposure is realistic, the IRS Voluntary Disclosure Practice is the right path. VDP requires up-front pre-clearance, a six-year disclosure period, payment of tax and interest, and a single year’s worth of the civil fraud penalty on the highest-tax year (plus the 50% willful FBAR penalty on the highest aggregate balance in one year). It is harsh but it provides protection from criminal referral, which is the point. We evaluate carefully before recommending VDP over streamlined or quiet compliance.

Foreign Trust and Foreign Gift Reporting

Form 3520 (transactions with foreign trusts and large foreign gifts) and Form 3520-A (annual return of foreign trust with a U.S. owner) carry penalties of $10,000 or 35% of the unreported amount for failure to file. The IRS automatically assesses these penalties, and the taxpayer’s burden to reverse them is significant. We have written about a foreign trust owner held liable for the 35% penalty and a foreign trust beneficiary hit with a double-tax penalty.

Whether a foreign entity is a “foreign trust” for U.S. tax purposes is itself a complicated question, and the line between a foreign trust and a foreign business entity controls the reporting obligations. We have written about when a foreign entity is a foreign trust.

Foreign-Owned U.S. Businesses (Form 5472)

Form 5472 is required of 25% foreign-owned U.S. corporations and U.S.-disregarded LLCs with foreign owners. The penalty for failure to file is $25,000 per form per year, automatically assessed. Many foreign owners of single-member U.S. LLCs do not realize Form 5472 applies to them because they assumed a disregarded entity had no filing obligations. The IRS has been aggressive in collecting these penalties.

Controlled Foreign Corporations and GILTI

U.S. persons who own 10% or more of a controlled foreign corporation are subject to the GILTI (Global Intangible Low-Taxed Income) regime, Subpart F income, and the Form 5471 reporting requirements. The Form 5471 penalty starts at $10,000 per missed return per year and grows quickly. The substantive rules under Sections 951 through 965 are complex enough that even sophisticated international tax practitioners disagree on application. We have written about an important case holding that the IRS cannot assess Form 5471 penalties in certain circumstances.

Withholding on U.S.-Source Income to Foreign Persons

Payments of U.S.-source FDAP income (interest, dividends, rents, royalties) to non-U.S. persons are subject to 30% withholding unless reduced by treaty. The U.S. payor is liable for the tax if it fails to withhold, and Forms 1042, 1042-S, W-8BEN, and W-8BEN-E document the chain. Our page on U.S. tax withholding and reporting requirements covers the basics. Treaty-based withholding planning can substantially reduce the tax for the right facts.

Inbound and Outbound Transactions

For inbound transactions — foreign persons investing in the U.S. — we plan around FIRPTA (Section 1445 withholding on U.S. real property), branch profits tax, and the effectively-connected-income rules. For outbound — U.S. persons doing business abroad — we plan around CFC, GILTI, foreign tax credit, and transfer pricing rules. The right entity structure depends on whether the U.S. person is exiting completely (expatriation under Section 877A), partially shifting operations, or simply receiving foreign income.

Expatriation and the Exit Tax

U.S. citizens and long-term green card holders who give up that status are subject to a “covered expatriate” exit tax under Section 877A if they meet income, net worth, or compliance thresholds. The exit tax treats the expatriate as having sold all worldwide assets at fair market value the day before expatriation. Planning ahead of the expatriation date is essential, and the consequences for accidental covered-expatriate status are severe.

IRS Collection of Foreign Tax Debts

The IRS has limited but real tools to collect from foreign assets and from U.S. persons living abroad. Passport revocation under Section 7345 for “seriously delinquent” tax debts (over $62,000 indexed) is one. Mutual collection assistance under tax treaties is another. We have written about the IRS’s ability to collect foreign assets and how collection rules differ for foreign debts. Our collections page covers the broader toolkit.

Working With Our Houston International Tax Attorneys

Most clients come to us in one of three situations. They have foreign accounts they have not been reporting and want to come into compliance. They received an IRS notice assessing FBAR or Form 3520 penalties. Or they are planning an inbound or outbound transaction and want to get the U.S. tax structure right before they move. The first call sets out the facts — accounts, balances, years involved, whether returns are correct on income — and we tell clients quickly whether streamlined, VDP, or a different path is right. Our fee schedule and attorney bios are public.

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.