Summary of Foreign Information Reporting for U.S. Citizens and Residents

The Internal Revenue Service (IRS) requires U.S. taxpayers who have currency or property invested in foreign countries to file information returns in connection with their foreign holdings and certain foreign transactions they may have engaged in.   There are substantial monetary penalties for failure to file these returns in a timely fashion.

Form TD F 90-22.1 – Report of Foreign Bank and Financial Accounts (FBAR). If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, and the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, you must report file this form. Form TD F 90-22.1 is filed separately from your tax return and is mailed to the Department of Treasury – not the IRS. The form must be filed separately by June 30 each year. It should not be attached to the U.S. income tax return.

Penalties: Willful civil penalties of up to $100,000 or 50 percent of the value of the account, Non-willful civil penalties of $10,000 per violation. Criminal penalties may also apply in some cases.

Form 926 – Return by a US transferor of property to a foreign corporation a U.S. citizen or resident, a domestic corporation, or an estate or trust must file Form 926 to report a transfer of tangible or intangible property (whether or not appreciated property) to a foreign corporation.
The penalty for a failure to file this form is 10% of the fair market value of the property transferred, up to a maximum of $100,000. The penalty may be waived by the IRS due to a showing of reasonable cause by the taxpayer.

Form 3520 – Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Grantors or beneficiaries of  foreign trusts are required to file Form 3520 each time such a trust has any of the following “reportable event”: 1.The formation of a foreign trust; 2.The transfer of cash or other assets by a settlor or grantor to a foreign trust; 3.The receipt of any distributions by U.S. beneficiaries from a foreign trust; 4.The receipt by a U.S. person of more than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that is treated as a gift or bequest by the U.S. recipient; 4. The receipt by a U.S. person of a gift from a foreign partnership or corporation of more than exceeds $14,723 in 2012 or $15,102 in 2013 (this value is adjusted annually for inflation); 6.The loaning of money by a U.S. person to a foreign trust.
Failure to file Form 3520 can result in substantial penalties, including: a. 35% of the gross value of any property transferred or any distributions received from a foreign trust; and b. 5% of the amount of certain foreign gifts for each month for which the failure to report continues. Additional penalties may be imposed if noncompliance continues after the IRS mails a notice of failure to comply with required reporting. No penalties will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect.

Form 3520-A – Annual Information Return of Foreign Trust With a U.S. Owner. A foreign trust with a U.S. owner must file Form 3520-A in order for the U.S. owner to satisfy certain annual information reporting requirements. However, each U.S. person treated as an owner of any foreign trust is responsible for ensuring that the foreign trust files Form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries.
The U.S. owner is subject to a penalty equal to 5% of the gross value of the portion of the trust’s assets treated as owned by the U.S. person at the close of that year if the foreign trust: (a) fails to file a timely Form 3520-A or (b) does not furnish all of the required information or includes incorrect information. Additional penalties may be imposed if noncompliance continues after the IRS mails a notice of failure to comply with the required reporting.

Form 5471 – Information Return of U.S. Persons With Respect To Certain Foreign Corporations. Form 5471 must be filed by certain U.S. persons who are shareholders, officers or directors of foreign corporations (or equivalent foreign entities). Specifically, the list of persons required to file Form 5471 includes the following: 1. A U.S. person who is an officer or director of a foreign corporation in which any U.S. person owns or acquires ten percent (10%) or more of the stock of said corporation; 2. A U.S. person who acquires stock in a foreign corporation which results in such person’s owning ten percent (10%) or more of the stock of said corporation; 3. A person who becomes a U.S. person while owning ten percent (10%) or more of the stock of a foreign corporation; 4. A U.S. person who disposes of stock in a foreign corporation that reduces his interest to less than ten percent (10%) of the stock of said corporation; and 5. A U.S. person who had control (who owned more than fifty percent (50%) of the stock or voting power) of a foreign corporation for an uninterrupted period of at least thirty (30) days during the tax year.
The IRS may impose a $10,000 penalty per foreign corporation for each year that a taxpayer fails to submit Form 5471. Moreover, if the information is not filed within 90 days after the IRS mails a notice of the failure to such a person, an additional $10,000 penalty (per foreign corporation) is charged for each 30 day period, or fraction thereof, during which the failure continues after the initial 90 day period has expired. The additional penalty is limited to a maximum of $50,000 for each failure to file.

Form 8621: Report Return by a Shareholder of a PFIC (Passive Foreign Investment Company) or Qualified Electing Fund
U.S. persons that are shareholders in a PFIC must report certain transactions in respect of the PFIC, including distributions and gains from the disposition of its stock. A PFIC is a foreign corporation which meets either of the following: 1) 75 percent of its gross income for the year is passive income, 2) At least 50 percent of its assets produce or are held for the production of passive income.

Form 8865 – Return of U.S. Persons With Respect to Certain Foreign Partnerships. Taxpayers who must File Form 8865 are in 4 different categories: 1. A US taxpayer who controlled the foreign partnership (>50%) at any time during the partnership’s tax year; 2. A US taxpayer who at any time during the partnership’s tax year owner 10% or greater interest in the partnership while the partnership is controlled by US persons who own more than 10% interest. 3. A US person or related person who contributed property during that person’s tax year to a foreign partnership in exchange for an interest in the partnership, if that person either owned directly or indirectly at least a 10 interest in the partner partnership immediately after the contribution or the value of property contributed by such person or related person exceeds $100,000; 4.A US person who has reportable events during the tax year. The events include acquisitions, dispositions or changes in proportional interest of at least 10% in a foreign partnership.

A $10,000 penalty is imposed for each tax year of each foreign partnership for failure to furnish the required information within the time prescribed. If the information is not filed within 90 days after the IRS has mailed a notice of the failure to the U.S. person, an additional $10,000 penalty (per foreign partnership) is charged for each 30 day period, or fraction thereof, during which the failure continues after the 90 day period has expired. The additional penalty is limited to a maximum of $50,000 for each failure.

form 8858 – information return of U.S. persons with respect to foreign disregarded entities. US persons who are the tax owners of a foreign disregarded entity (FDE) file form 8858. the sole owner/shareholder of a CFC can elect on form 8832 that the foreign corporation be treated as disregarded for US tax purposes. He or she would then file a Schedule C (form 1040) together with form 8858 in place of form 5471. Where there are multiple owners of a foreign entity that elected FDE status, they will file form 8865 in addition to form 8858.
A $10,000 penalty is imposed for each annual accounting period of each CFC or CFP for failure to furnish the required information within the time prescribed. If the information is not filed within 90 days after the IRS has mailed a notice of the failure to the U.S. person, an additional $10,000 penalty (per CFC or CFP) is charged for each 30-day period, or fraction thereof, during which the failure continues after the 90-day period has expired. The additional penalty is limited to a maximum of $50,000 for each failure.
Form 8938 – Statement of Specified Foreign Financial Assets. US citizens, resident aliens and certain nonresident alien must file form 8938 if they hold specified foreign financial assets with an aggregate value exceeding $50,000 to $600,000 reporting threshold as determined by residence and filing status.
Failure to report foreign financial assets on Form 8938 may result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.

Note: information return form 5471 (foreign corporation), 8865(foreign partnership), 3520(foreign trusts), 8858(foreign disregarded entity), 926(property transfer to foreign corporations) are due with filer’s tax return.