I think probably one of the most problematic are the foreign partnerships. Just like partnerships here in the states, you don’t have to have a formal agreement with which to create a partnership. So I’ll give you a quick example. I had a Canadian client, US resident that had a ownership of a house in Canada with his brother-in-law. And so most people would think, well, that isn’t a partnership. But in fact, under US law, that’s precisely what it is. So you may think you have a Schedule E reporting requirement for this foreign ownership of the property or real estate in Canada, when in fact you have a foreign partnership filing requirement foreign 8865, in addition to the reporting on the Schedule E that may be required as well. So there are family ownership of generally real estate. It could be other types of assets that you may not think about, but if there’s a commonality of ownership, you need to take a look at whether or not there is a foreign partnership that may come into play and require foreign reporting requirements.

There are the foreign limited liability companies. Frankly, there are no equivalent to the LLCs that we have here in the states. There are modifications of what people call limited companies in the rest of the world, but the LLC is fairly unique in how it is actually structured as an entity here in the states. The, the rest of the world really doesn’t have limited liability companies. They have limited companies, and those companies are generally limited by the number of stocks or shares of stock that can be issued. And so there’s I think an ill-defined association of a limited company with limited liability company and the two should be confused. But if there is a foreign limited company, then what we generally file is form 8858, which allows us to go back and essentially report the same type of information that we would perform if someone held shares in a foreign corporation.

Except that the US regulations and tax law recognizes the fact that it’s not a corporation, it’s something other than a corporation. And then I think one of the last is the trusts. Foreign trusts are very complex and they’re very heavy into penalties if they aren’t reported properly. And I think one of the best examples of this is I can give is the superannuation plans that are really the rage in Australia. And in Australia, these superannuation plans give their foreign trusts, they give Australian residents and citizens enormous tax savings and deferrals. But because the US takes a look at these superannuation plans and treats them as a foreign grantor trust, any income that’s earned in these foreign trusts is then reported in the US on foreign 3520. And unfortunately the income that’s earned from these foreign trusts is taxed at a far higher rate than even the highest individual rate of 36%.

So income from a foreign trust can be taxed as high as 55% of whatever the income is coming from the foreign trust. Wow. The trust can be superannuations, they can be foreign pensions, they can be a number of things. So it’s really critical to understand what it is and what type of entity you’re dealing with, particularly when it relates to foreign trusts. And the biggest, I think one of the biggest foreign trusts that people don’t think about is there are trusts outside of the United States as well, family trusts, which you may be a beneficiary of, which of course is going to impact your US tax return as well.