UPDATE: INTERNATIONAL TAX COMPLIANCE

During the fourth quarter of 2011, there were many important federal tax developments. For international taxpayers, the federal government enacted The Foreign Account Tax Compliance Act (FATCA). This legislation is designed to combat tax evasion by certain U.S. persons holding investments in offshore accounts.

The FATCA generally requires certain U.S. taxpayers holding specified financial assets outside the United States to report them to the IRS. FATCA also requires foreign financial institutions to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. The IRS posted a final version of Form 8938, Statement of Specified Foreign Financial Assets, and Instructions on its website in December.

Duplicative Reporting

The IRS also issued a Fact Sheet alerting dual citizenship taxpayers, as well as U.S. citizens who reside abroad, to their obligation to file U.S. income tax returns and, if appropriate, a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR.

Taxpayers who file Forms 3520/ 3520A (Foreign Trusts), 5471 (Foreign Corporations), 8621 (Passive Foreign Investments), 8865 (Foreign Partnerships),

and 8891 (Canadian Registered Retirement Plans) are still required to file the Form 8938. If you do file one of these forms, there are modified reporting requirements on the Form 8938 designed to prevent duplicative reporting.

Compliance and Penalties

The FATCA reporting threshold for foreign financial assets or accounts varies depending on whether an individual lives in the United States, is married, or files a joint income tax return with his or her spouse. Form 8938 should be attached to your annual return and filed by the due date (including extensions) for that return. If you are not a calendar year taxpayer, there are additional transitional rules that may apply regarding your 2011 filing requirements.

The IRS described possible severe penalties for failure to file, as well as grounds for avoiding the penalties.

As always, please give our office a call or send us an email if you have any questions about these developments. We stand ready to assist.

3579 Valley Centre Drive, Suite 125
San Diego, CA 92130
  Tel: (858) 794-2800
  Fax: (858) 794-2899
info@friedmanbrannen.com