Foreign Tax Reporting

Focus on Foreign Reporting and Disclosures

US persons holding certain financial assets or earning income oversees have filing and reporting requirements with the Internal Revenue Service. Failure to properly file and report to the IRS can result in significant penalties.

Reporting of Foreign Income

The Internal Revenue Service collects tax on the worldwide income of US persons. If you are a U.S. citizen or resident alien, the rules for filing income tax returns and paying income tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside. Failure to file and pay U.S. on your worldwide earnings can result in significant penalties and interest.

Reporting of Foreign Financial Assets

U.S. persons are required to file FINCEN Form 114. FINCEN 114, commonly referred to as the FBAR, is required to be filed by US persons with an interest in foreign financial accounts. If you have ownership interest or signatory authority over foreign financial accounts with a cumulative balance of more than $10,000 at any one time then you must make a disclosure. Failure to do so can result in penalties up to 50 percent of the account balances.

Reporting of Certain Foreign Gifts

Form 3520 is used to report gifts over $100,000 from a nonresident alien or foreign estate. The penalty for failure to file Form 3520 to report a foreign gift or bequest is 5 percent of the gift or bequest amount for each month up to a maximum of 25 percent.

Late Disclosure of Foreign Income & Assets

The Internal Revenue Services has provided a number of late disclosure programs that allow for reduced penalties. The Service also provides for abatement of penalties when the failure to file was due to reasonable cause. If you have failed to file one or more foreign disclosures, then working with an experienced tax attorney is essential to reducing penalty assessments and protecting your assets.

Next Step

If you have a foreign reporting or disclosure problem, then you should consult with an experienced tax attorney first. We provide free tax evaluations to taxpayers.  Request your free evaluation today.