The IRS has clearly identified legitimate reasons why “US Persons” would establish or maintain ownership in a foreign trust. However, there are significant and complex tax reporting requirements associated with US taxpayers who are beneficiaries with an investment in a foreign trust. There are specific transactional reporting requirements for those who conduct transactions with a foreign trust including:
- transferring funds
- moving assets
- transfer real property ownership
- receive a beneficial distribution
There are separate reporting requirements for US taxpayers who are beneficiaries or maintain ownership in a foreign trust, as well as separate reporting requirements for the foreign entity or trust itself. Recent international business and tax developments driven by FATCA have eliminated many tax strategies for shielding offshore income and assets. The IRS has developed direct reporting and data sharing relationships with thousands of offshore banks, investment houses, and sovereign tax agencies. The actions you take offshore, and the transactions conducted by a foreign trust will become more and more transparent to the IRS.
Investment in a foreign trust creates complex reporting requirements relating to the IRS Foreign Bank Account Report or FBAR as well. Any United States person / taxpayer that has a financial interest in or signatory authority over foreign financial investments or accounts must file an FBAR each year with the IRS if the value of the foreign trust exceeds $10,000 at any time during each calendar year. Failure to disclose your investment in a foreign trust exposes you to substantial financial penalties and an increased likelihood of an IRS audit.
What action should you take if you have ownership in a foreign trust or if you hold a beneficial interest in an offshore trust? 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.
We will help you to understand all of the reporting requirements associated with these activities, as well as the newest strategies to structure and protect offshore investments and assets.