The Department of the Treasury finalized the new Form 8938, "Statement of foreign financial assets" in late 2011. The form formalized the disclosures required by IRC Section 6038D for individual income tax returns for 2012 onward. This added another layer to the disclosure of foreign assets, which has been steadily increasing recently. The following is an overview of the potential filings that face not just expatriates, but any U.S. citizen or resident alien who has investments or connections to foreign assets.
Form 8858: Information return of U.S. persons with respect to foreign disregarded entities
A U.S. person that directly, indirectly or constructively owns a foreign disregarded entity (FDE) must file this form. An FDE is an entity that is not created or organized in the United States and that is disregarded as an entity separate from its owner for U.S. tax purposes.
Form 8865: Return of U.S. persons with respect to certain foreign partnerships
This form must be filed by a U.S. person who owned more than a 50% interest in a foreign partnership during the year or owned at least a 10% interest if the partnership was controlled by U.S. persons owning a 10% or greater interest. A U.S. person also has a filing requirement if he or she contributed property in exchange for a partnership interest if that person directly, indirectly or constructively owns at least a 10% interest, or the value of the property contributed exceeds $100,000.
Form 5471: Information return of U.S. persons with respect to certain foreign corporations
This form can apply to any U.S. person who is more than a 10% direct or indirect shareholder in a foreign corporation or any U.S. shareholder in a controlled foreign corporation (CFC), which broadly is a foreign corporation, more than 50% of which is owned by U.S. persons. A U.S. citizen or resident who is an officer or director of a foreign corporation may also have a filing requirement if a U.S. person acquired stock in a foreign corporation.
Form 926: Filing requirement for U. S. transferors of property to a foreign corporation
Any U.S. person who transfers property to a foreign corporation and owns more than 10% of the stock, or any amount of stock if cash transferred is more than $100,000, must file this form with his or her U.S. tax return.
Form 3520-A: Annual information return of foreign trust with a U.S. owner
A foreign trust with a U.S. owner, which can sometimes include foreign pensions, must file this form independently with the IRS by March 15 following the year to which it relates. This filing date can be extended with a valid extension. Additionally, if a distribution or other payment is received from the trust, Form 3520 may be required (and should be filed with the taxpayer's tax return).
Form 8621: Information return by a shareholder of a passive foreign investment company or qualified electing fund
Any interest in an overseas "passive" corporation (50% or more of its assets produce passive income or 75% of its income is passive) must be reported on this form. This type of investment comes with other issues such as whether to make a mark-to-market or qualified electing fund election, and subsequently how income and gains are taxed.
Form 8891: U.S. information return for beneficiaries of certain Canadian registered retirement plans
Any investments in Canadian registered retirement savings plans (RRSPs) or registered retirement income funds (RRIFs) must be disclosed on this form.
Form 8938: Statement of foreign financial assets
A U.S. person must file Form 8938 if he or she is a specified individual who has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold. Some assets are not required to be separately listed if they have already been reported on one of the forms listed previously.
Report of foreign bank and financial accounts
A U.S. person with 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 - is required to annually report the account(s) to the IRS by filing Form TD F 90-22.1, Report of foreign bank and financial accounts (FBAR), before June 30 following the year in question.
In conclusion, a person who has any investment in or connection to an investment in a foreign country should be particularly aware of the disclosure requirements and the potentially onerous penalties that can arise from noncompliance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
