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Compliance Requirements
by Jeffrey
N. Zisselman
Various Filing Requirements
IRS Form 3520
IRS Form 3520A
IRS Form 926
IRS Form 1040 Schedule B
IRS Form TDF 90-22.1
IRS Form 5471
IRS Form 5472
IRS Form 8621
IRS Form 8865
IRS Form 8858
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Asset Protection Planning Secures Your Legacy |
IRS Form 3520
What causes you to file:
creation of or transfer of property to a foreign trust by US person;
death of a US resident or citizen if such person was treated as owner of any portion of a foreign trust under grantor trust rules or any portion of a foreign trust was included in his/her gross estate;
a trust that was not a foreign trust becoming a foreign trust;
US person with an ownership interest in a foreign trust under the grantor trust rules;
US person who received a distribution from a foreign trust;
US person who received more than $100,000 from a nonresident alien individual or a foreign estate;
US person who received more than $12,375 from foreign corporations/partnerships that were treated as gifts.
IRS Form 3520
Filed annually with grantor’s income tax return and separately filed with an IRS Service Center
Failure to File Penalty = 35% gross value of the property transferred to and from a foreign trust. Criminal penalties may also be imposed for failure to file or filing a fraudulent return.
IRS Form 3520-A
Foreign trust with at least one U.S. owner must report information about the foreign trust, its U.S. beneficiaries and any U.S. person who is treated as the owner of any portion of the foreign trust.
Filed with the Philadelphia Service Center by the trust return’s due date with extensions if applicable.
Failure to file penalty = 5% of the gross value of the trust assets plus criminal penalties. Additional penalties may also be imposed for continued noncompliance.
Many offshore trust companies refuse to file these forms.
Only work with trust companies that file this form and provide it to your advisors.
IRS Form 926
Required when cash that results in at least 10% of the voting power of the Foreign Corporation after the transfer of cash during the 12 month period exceeds $100,000.
Required when property other than stock or securities not part of a reorganization by a U.S. Citizen to a foreign corporation.
Filing required with tax return that include date of transfer.
Failure to File Penalty = 10% of FMV of property at the time of transfer, limited to $100,000.
IRS Form 1040 – Schedule B
Schedule B is form for Interest and Dividend reporting; AND
Part III – Foreign Accounts and Trusts.
Check “yes” if: you have an interest or signature authority over a financial account in a foreign country.
If “yes” then file TD F 90-22.1.
Also, if you receive a distribution from, were a grantor of, or transferor to, a foreign trust then FILE Form 3520.
IRS Form TD F 90-22.1
File this form if you have ownership of a financial interest in or signature authority, or other authority over any financial accounts, including banks, securities or the financial accounts in a foreign country with a value equal to or greater than $10,000.
This form is filed with the Treasury in Detroit, MI and is due June 30th.
Failure to file penalty is up to five years in prison and up to $500,000 fine.
Penalties for Failure to report:
Civil Penalties up to $10,000, which may increase to the greater of $100,000 or 50% of the transaction amount or account balance for willful violations.
Criminal penalties up to $500,000 and 10 years in prison.
IRS Form 5471
File this form if you have ownership of 10% or more of the stock of a foreign corporation by a U.S. person, controlled a foreign corporation, or owns any stock of a CFC that is also a captive insurance company.
This form is filed with the owner’s tax return and a copy is delivered separately to the IRS.
Penalties for failure to file may include a $10,000 fine for each annual accounting period for each foreign corporation and reductions in foreign taxes available for credit. Criminal penalties may also be imposed.
IRS Form 5472
U.S. corporation must file if foreign person owns 25% or more, when a reportable transaction occurs (note that an offshore trust qualifies as a foreign person in most instances). Examples of reportable transactions could include: purchase/sale of stock in trade; purchase/sale of tangible property; payment/receipt of rents or royalties; purchases/sales, leases, licenses, of intangible property; commissions paid/received; amounts borrowed/loaned; interest paid/received; premiums paid/received for insurance or reinsurance; etc.; Not required if controlling shareholder is a U.S. person and has filed Form 5471.
This return is due by the due date of Corporate Income Tax Return and accompanying each related party’s income tax return.
Penalties of $10,000 may be assessed for failure to file or failure to maintain records. Criminal penalties may also be imposed.
IRS Form 8621
File this form if you have direct or indirect stock ownership of a passive foreign investment company (PFIC).
A PFIC is a foreign corporation whereby either: (i) 75% of the corporations income is passive, or (ii) at least 50% of its assets produce passive income.
There is no minimum ownership hurdle of U.S. Shareholders for this requirement.
This form is filed with the owner’s tax return.
IRS Form 8865
The following triggers the filing of Form 8865:
Greater than 50% ownership by U.S. person;
10% or greater ownership interest by a U.S. person, while the partnership is controlled by U.S. persons owning at least 10% interests;
Contribution of property to a partnership, by a U.S. person in exchange for at least 10% of the ownership interests, or if such property exceeded $100,000;
An increase in an existing U.S. person’s partnership interest to equal or exceed 10%;
A U.S. person disposes of a percentage interest that reduces ownership below 10%;
Any disposition that results in the reduction of a U.S. person’s interest in a partnership by 10% or more.
This return is due by the due date of the Individual’s income tax return and is attached to the return.
Penalties for failure to file may include a $10,000 fine for each annual accounting period for each foreign partnership and reductions in foreign taxes available for credit. Criminal penalties may also be imposed.
IRS Form 8858
Information Return of U.S. Persons with Respect to Foreign Disregarded Entities.
Required to be filed by U.S. Persons that own a foreign disregarded entity directly or, in certain circumstances, indirectly or constructively.
This is a new form required to be filed for entities on or after 1/1/04 and will be due with the tax return of owner of the disregarded entity.
Penalties for failure to file may include a $10,000 fine for each foreign corporation or partnership for each annual accounting period and reductions in foreign taxes available for credit. Criminal penalties may also be imposed.
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