Do You Have Unreported Foreign Assets? How to Safely Report

I Missed Reporting My Foreign Assets, What Should I Do?

What if I Missed Reporting My Foreign Assets?

An update to our 2017 version of this article:

Since the initial version of this article was drafted back in 2017, offshore enforcement has become one of, if not the top priority for the IRS and Department of Justice. When it comes to unreported foreign money, most of the time, Taxpayer questions focus on unreported foreign accounts or unreported foreign income. But, with the introduction of FATCA (Foreign Account Tax Compliance Act) and increased enforcement on reporting for Form 3520 (Gifts and Trusts), Form 3520-A (Trusts), Form 5471 (Foreign Corporations) and Form 8865 (Foreign Partnership), issues involving unreported foreign assets, in particular, have become a much bigger concern for taxpayers. While the FBAR (Foreign Bank and Financial Account Reporting) is the most common type of foreign ‘tax’ form — and relatively straightforward — other international information forms can be much more difficult to file, since they are designed to require the taxpayer to disclose detailed information about the specific types of assets they have to report on each form. And, in some years taxpayers may have many different forms they have to file. Let’s take a look at six (6) common assets (aside from foreign accounts) you may have not known you had to report — and what you should do to get into IRS offshore compliance.

Foreign Stock Ownership

When a US person has ownership of foreign stock and they meet the threshold for reporting the stock to the IRS, they may have to file a Form 8938 to comply with FATCA. Unlike the FBAR, which is required whether or not a US Person has to actually file a tax return in the current tax year, Form 8938 is only filed in conjunction with a tax return — so if no tax return is required, then Form 8938 may not be required (in that year).

Foreign Pension Plans

Unlike US pension plans that hold foreign assets, foreign pension plans are generally reportable as foreign asset. Similar to stock ownership, Taxpayers report the foreign pension plan on Form 8938 (although, unlike direct stock ownership, foreign pension plans are reported for FBAR purposes).

Foreign Life Insurance Policies

Not all foreign life insurance policies are reportable. Generally, when a foreign life insurance policy has a surrender or cash value, it will become reportable for Form 8938 and FBAR purposes (some exceptions, exclusions, and limitations may apply).

Foreign Corporations

When a person has ownership or interest in a foreign corporation they may have to file Form 5471, unless their ownership percentage is under 10% and then they can file Form 8938 instead. Form 5471 is a monster of a tax form, especially when the foreign corporation is a Controlled Foreign Corporation — which can lead to Subpart F Income and GILTI issues.

Foreign Partnerships

When a person has ownership or interest in a foreign partnership, they may have to file Form 8865. The reporting requirements for Form 8865 are similar, but usually not as tedious, as Form 5471.

Foreign Trusts

Reporting Foreign Trusts can be very complicated. Whether or not the taxpayer is an owner or beneficiary of the trust — and whether it is a foreign grantor or non-grantor trust will also impact reporting. Generally, ownership of foreign trusts is reported on Forms 3520-A and 3520.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.