All Blog Posts for tax compliance

  • US or Foreign Income? The Ultimate D-I-Y Guide.

    US or Foreign Income? The Ultimate D-I-Y Guide.

    Is it important to know whether your income is attributable to the USA or another country? In fact, the determination of the source of an item of income is a number one priority when it comes to taxation rights, allocation of deductions, and foreign tax credit provisions. As an ease to taxpayers, we have developed this do-it-yourself guide to explain some of the most relevant source of income rules. For simplicity and transparency, we have also presented 14 real-life examples!

  • Foreign Bank Account Reports. Doing them right!

    Foreign Bank Account Reports. Doing them right!

    The last several years marked a tremendous increase in the number of Foreign Bank Account Reports filed with the Treasury Department's Financial Crimes Enforcement Network. In fact, the IRS has announced that the number of Forms 114 (Former TD.F. 90.22-1 or FBAR) filed in 2015 topped at over 1.1 million! This record number shows an upsurge in awareness of the foreign financial account reporting requirements and a trend towards voluntary compliance. Still, many taxpayers experience practical difficulties in complying with the FBAR regulations. So, what it takes to do it right?

  • Tax Guide for Americans & Expats Living in the United Kingdom

    Tax Guide for Americans & Expats Living in the United Kingdom

    This tax guide aims to supplement and enhance your understanding of the UK income tax laws by providing current insights and practical information. In addition, we have also stressed on valuable tax planning opportunities and tax treaty provisions available to United States citizens, permanent residents, and expatriates residing in the UK.

  • The Streamlined Foreign Offshore Procedure: From A to Z

    The Streamlined Foreign Offshore Procedure: From A to Z

    The Streamlined Foreign Offshore Procedure (SFOP) was developed by the IRS to address noncompliance with the foreign financial assets reporting requirements, an omission of a foreign-source income or a failure to file certain information returns. The streamlined procedure is available to US citizens, expatriates and residents whose noncompliance with the internal revenue laws was not borne by a willful conduct or an attempt to avoid paying taxes in the United States. If you have resided outside the United States and you failed to file returns or under-reported foreign-source income, the SFOP is the shortest way to regain compliance without the burden of severe penalties. So what is the fuss about it?

  • Fraud & Tax Numbers. The IRS revokes ITINs not used on a return.

    Fraud & Tax Numbers. The IRS revokes ITINs not used on a return.

    The Individual Taxpayer Identification Number (ITIN) is a nine-digit number that is used to identify certain individual taxpayers within the tax system. The ITIN is assigned directly by the IRS to eligible nonresident and resident taxpayers who do not have and do not qualify for a Social Security Number. The first ITIN was issued back in 1996 when the IRS replaced the temporary Internal Revenue Service Number (IRSN) with the ITIN as a mean to address accurate identification of international taxpayers with tax return filing or reporting requirements. Until recently, the number was personal and valid for life. Well, not anymore!

  • 2017 Return Due Dates under the PATH Act

    2017 Return Due Dates under the PATH Act

    The Protecting Americans from Tax Hikes (PATH) Act of 2015, made major changes to tax and information return filing dates. The rationale behind the accelerated return due dates is streamlining the tax return filing information and strenghtening the IRS identity theft prevention and detection efforts. Most of the changes are effective for tax and information returns due in 2017. How the new return due dates affect you and your business?

  • Form 5472 Now Required for a Foreign-Owned U.S. LLC

    Form 5472 Now Required for a Foreign-Owned U.S. LLC

    On December 13, 2016, final regulations were issued under Sections 6038A and 7701. The new rules treat a U.S. disregarded entity, wholly owned by a foreign person, as a “U.S. corporation” solely for the report on Form 5472 “Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.”

  • The Beneficial Ownership Information (BOI) Report.

    The Beneficial Ownership Information (BOI) Report.

    Starting January 1st, 2024 companies registered in any state face a new Beneficial Ownership Information (BOI) Report disclosure as determined in the Corporate Transparency Act (31 USC 5336). Foreign companies registered to do business in the United States shall also disclose beneficial owners under the same rules applicable to their US counterparts.

    What is the definition of a reporting company?

    A reporting company is any domestic entity organized in any of the 50 states, the District of Columbia, or tribal government, and companies formed outside the United States, that have registered to do business within the United States.

    Domestic reporting companies are corporations, S-corporations, associations, limited liability companies (LLCs), general and limited partnerships, trusts, foundations, and any other entity created with a Secretary of State or similar office in the United States.

    Foreign reporting companies are entities formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a Secretary of State or any similar office.

    A reporting company exemption is granted to governmental authorities, banks, insurance, financial institutions, tax-exempt entities, public utilities, pooled investment vehicles, securities brokers, agents, dealers, and all other large corporations registered under the Exchange Act.

    Who is the beneficial owner?

    "Beneficial owner" refers to the individual who enjoys the benefits of ownership, even when legal ownership of the entity is in another name. In other words, the beneficial owner is the true owner who ultimately benefits from and who directly or indirectly owns or controls a company.

    The regulations further limit the scope of beneficial ownership information reporting to:

    • Individuals who either directly or indirectly control at least 25% of the reporting company’s capital, equity, units, stock, shares, voting rights, or any other instrument used to establish ownership. For example, a U.S. partnership or LLC with 4 individual partners sharing partnership interest equally shall separately identify all 4 individual partners as beneficial owners. Likewise, a single-member LLC will generally have only one beneficial owner.
    • Individuals who exercise substantial control over the reporting company. Common examples include senior officers and executives of a corporation (Chief Executive Officer, President, Chief Financial Offer, and the like). Individuals with substantial control may also make important decisions or have the authority to appoint or remove senior officers (such as a chairman of the board of directors).

    What are the company applicant disclosure requirements?

    In addition to the beneficial owners, newly formed reporting companies shall also disclose information about the company applicants. The company applicants are individuals who are involved in the actual organization or creation of the company, by filing or directing others to file, the reporting company’s formation documents with the applicable Secretary of State, tribal government, or foreign commercial register. Company applicants may cover attorneys, lawyers, paralegals, and the like agents acting on behalf of the beneficial owners and/or the reporting company.

    What is the content of the Beneficial Ownership Information (BOI) Report?

    The BOI Report contains the reporting company’s registration information and identifies the beneficial owners. The information required to be included in the report is:

    1. The reporting company’s name and address;
    2. Doing business name if applicable;
    3. Full name, address, and personally identifiable information of the beneficial owner(s) and the company’s applicant(s) where applicable;

    What are the BOI reporting due dates?

    The BOI report shall be electronically filed with the FinCEN. The FinCEN is a separate agency within the Department of the Treasury. The initial BOI reporting deadline depends on the entity’s formation date as follows:

    1. A US company organized before January 1st, 2024 shall file the initial BOI Report no later than January 1st, 2025;
    2. A foreign company registered to do business in the United States before January 1st, 2024 shall also file the initial BOI Report not later than January 1st, 2025;
    3. Any domestic reporting company organized in 2024 or a foreign company registered to do business in the United States at any time during 2024 is granted 90 days to file the BOI report;
    4. All other reporting companies shall file the initial BOI report within 30 days of formation;

    Shall I file the BOI report annually?

    No. Most companies would not be required to amend or supersede the initial BOI report. An updated BOI report shall be filed if there is a change in the beneficial ownership information. For instance, a corporation shall update the BOI report if any individual acquires 25% or more of the voting stock of the entity at any time after the initial BOI report has been filed. Such a change in the beneficial ownership interest shall be disclosed no later than 30 days from the events giving rise to the reporting requirement. Reporting companies that have been dissolved or terminated before the report's due date are not required to disclose beneficial ownership information and shall not file a BOI report.

    What are the penalties for non-compliance with the BOI report?

    Each person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day the violation continues. A person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, filing false beneficial ownership information, or failing to correct or update previously reported beneficial ownership information. Furthermore, both individuals and corporate entities could be held liable to penalties for willful violations of the BOI reporting requirements.

    How much does it cost to file the BOI Report?

    Should you wish to authorize us to submit the report on behalf of your entity or clients, our processing fees start as low as $179.00 for entities with a single beneficial owner. Submit a quote or authorize the BOI report through your dedicated user account. A beneficial owner, entity, or authorized representative may also file the BOI report for free through the FinCEN.

  • Navigating Form 5471 Filing Requirements: A Comprehensive Guide.

    Navigating Form 5471 Filing Requirements: A Comprehensive Guide.

    Form 5471 "Information Return of U.S. Persons With Respect to Certain Foreign Corporations," is a crucial document that the Internal Revenue Service (IRS) uses to gather information about U.S. persons' interests in foreign corporations. The filing of Form 5471 is part of the United States government's efforts to monitor and regulate international financial activities and ensure compliance with tax laws. In this article, we will explore the key aspects of Form 5471 filing requirements, its significance, and implications for U.S. taxpayers.

    What is a Controlled Foreign Corporation?

    A Controlled Foreign Corporation (CFC) is an entity organized outside the United States classified as a corporation for U.S. tax purposes. The concept of a CFC is designed to prevent U.S. taxpayers from deferring U.S. taxation by moving income to foreign entities that they control.

    Here are the key characteristics of a Controlled Foreign Corporation:

    1. Ownership by U.S. Shareholders: A CFC is defined by the ownership of U.S. shareholders. A U.S. shareholder is any U.S. person (individuals, corporations, partnerships, etc.) that owns 10% or more of the total combined voting power or value of shares of all classes of stock of a foreign corporation.
    2. Controlled by U.S. Shareholders: The term "controlled" means that more than 50% of the total combined voting power of all classes of stock or more than 50% of the total value of the shares of the foreign corporation is owned (directly, indirectly, or constructively) by U.S. shareholders.
    3. Subpart F Income: The tax implications of a foreign corporation being classified as a CFC primarily revolve around the inclusion of Subpart F and GILTI income. Subpart F income includes certain types of passive income, such as dividends, interest, royalties, and certain types of gains, earned by the CFC. This income is subject to immediate U.S. taxation, regardless of whether it is distributed to U.S. shareholders.
    4. Global Intangible Low-Tax Income (GILTI): Section 951A of the Tax Code introduced GILTI as an anti-deferral mechanism separate from the Subpart F income. The GILTI inclusion applies to the net income of CFCs organized in countries with an effective corporate tax rate of less than 90% of the U.S. corporate tax rate. Similar to Subpart F income, the GILTI is subject to taxation in the hands of the US shareholders whether or not an actual distribution has been made.

    Understanding Form 5471

    U.S. shareholders, officers, and directors of a CFC are required to disclose comprehensive organizational and financial information by filing Form 5471. Form 5471 is not a standalone tax return but an information return that must be attached to the taxpayer's individual or corporate tax return. U.S. persons who meet specific criteria and have interests in specified foreign corporations are required to file this form annually. Certain acquisitions or dispositions of CFC stock and various intra-group transactions are also reported on Form 5471.

    Who Must File Form 5471? Annual vs. Transactional Reporting

    The filing requirements for Form 5471 are complex and depend on the individual's or entity's relationship with the foreign corporation. The following five categories of U.S. persons are obligated to file Form 5471:

    • Category 1: U.S. Shareholders of a Specified Foreign Corporation (SFCs): Specified Foreign Corporation (SFC) stands for any CFC or a foreign corporation with at least 10% U.S. corporate shareholder. Category 1 filers must submit Form 5471 annually.
    • Category 2: Officers and Directors of Foreign Corporations: U.S. persons who are officers or directors of a foreign corporation in which a U.S. shareholder acquired in one or more transactions at least 10% ownership of a foreign corporation. The submission under category 2 is triggered by the change in ownership transactions.
    • Category 3: U.S. Shareholders of Controlled Foreign Corporations (CFCs): U.S. persons who increased or decreased ownership in a foreign corporation by a threshold of 10% or more during the year. Category 3 filers have transaction/event-based reporting.
    • Category 4: A U.S. Shareholder in control of the Controlled Foreign Corporation (CFC): Any U.S. person who owns either directly, indirectly, or by attribution (constructively) more than 50% of all classes of stock or more than 50% of the total value of the shares of the foreign corporation at any time during the CFC’s annual accounting period.
    • Category 5: U.S. Shareholders of a Controlled Foreign Corporation (CFC): Any U.S. person who owned either directly, indirectly, or constructively more than 10% of all classes of stock or voting power of the CFC and owned that stock on the last day in that year in which the foreign corporation was a CFC.

    Significance of Form 5471

    The primary purpose of Form 5471 is to provide the IRS with a comprehensive view of the U.S. taxpayer's interests and transactions involving foreign corporations. This information is essential for the IRS to monitor potential tax evasion, ensure accurate reporting of income, and enforce compliance with international tax laws.

    Form 5471 Filing Deadlines

    Form 5471 follows the standard tax filing calendar. It is generally due on the same date as the income tax return of the U.S. person (individual, partnership, or corporate) that is required to include the form. Extensions may be available, but it's crucial to adhere to the deadlines to avoid penalties and interest.

    Penalties for Non-Compliance

    Failure to comply with Form 5471 filing requirements can result in severe penalties. The IRS imposes monetary penalties for late or incomplete filings, starting at $10,000 and increasing depending on the degree of non-compliance. Additionally, the IRS has amplified its focus on offshore tax evasion, and non-compliance may lead to reduced foreign tax credits, audits, investigations, and even criminal charges in extreme cases.

    Navigating Form 5471

    Given the complexity of Form 5471 filing requirements, U.S. taxpayers with interests in foreign corporations often seek the assistance of tax professionals or international tax experts. Properly completing the form requires a thorough understanding of U.S. tax laws, international tax treaties, and the specific reporting requirements for each category of filer. Submit a quote for more information and file Form 5471 now!