International business and offshore investment and banking create genuine risk and exposure with the IRS. This extends to real estate ownership outside of the U.S. and other offshore-related financial activities, which raise red flags with the IRS. The past several years have brought rapid change in FATCA compliance, and the number of institutions with whom the IRS has developed reciprocal reporting agreements has skyrocketed. The vast majority of countries in the world, more than 110, and Foreign Financial Institutions (FFIs) now provide substantive reporting on the accounts and activities of U.S. citizens to the agency.
U.S. citizens with international business and offshore investment and banking leave a trail for the IRS, which one might not be aware of. If you own an interest in a foreign trust or a foreign corporation, IRS reporting requirements are more challenging than ever. You are required to comply with all FinCEN Form 114 (FBAR) reporting requirements and provide information to the IRS about other investors and owners or face significant taxes, penalties, and interest, as well as criminal prosecution for tax evasion.
The IRS exchanges information regarding non-U.S. taxpayers, their accounts, transactional details, and other financial information with thousands of offshore banks, investment houses, and sovereign tax authorities. The world has become much more transparent for those conducting foreign business and investment.
FATCA requires all FFIs around the world to withhold 30% on all U.S. citizen and taxpayer transactions within the few nations (and associated financial institutions) that are not signatories to FATCA. In other words, even if you find an FFI that will not report your information to the IRS, it will be extremely challenging to conduct transactions with any bank, investment house, or FFI anywhere in the world that does.
A U.S. taxpayer is also required to provide a disclosure of foreign financial assets and accounts to the IRS on Form 8938, the Statement of Specified Foreign Assets, when specified accounts and assets exceed $75,000 at any point in the year for single filers or $150,000 for those who are “Married Filing Jointly.” The Form 8938 also applies to those with foreign assets and accounts that amount to more than $50,000 for single filers on the last day of the tax year or $100,000 on the last day of the tax year for married taxpayers who file jointly.
These rules apply to all resident U.S. taxpayers, non-resident U.S. taxpayers, and U.S. expatriates. The reporting thresholds are slightly higher for U.S. taxpayers and citizens residing outside the country and its territories. If the total value of qualifying accounts and assets exceeds $300,000 at any moment during the year or $200,000 on the last day of the tax year (regardless of filing status), non-resident U.S. taxpayers and U.S. expatriates are required to provide the full disclosures and meet the reporting requirements of Form 8938.
Many U.S. taxpayers who participate in international business and offshore investment and banking strategies are initially unaware of the risks they face, the steady stream of information being provided directly to the IRS, and the increased reporting responsibilities accompanying foreign trusts and corporations. All U.S. taxpayers are responsible for understanding tax reporting requirements and providing complete, accurate, and transparent disclosures of all worldwide income and assets to the IRS and many individual state tax agencies.
If you are concerned about the implications of international business and offshore investment and banking We invite you to learn more about the integrated tax, legal, accounting and business consulting services of Allen Barron and contact us or call today to schedule a free consultation at 866-631-3470.
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