Fundamental Form 5471 Concepts | Form 5471 Tax Lawyer & Attorney

Form 5471 is the most important information return that the IRS uses to collect information about foreign corporations with substantial US ownership. US taxpayers must file a Form 5471 with their US tax returns; failure to do so may result in the imposition of significant IRS penalties. In order to identify whether the IRS requires them to file Form 5471, US taxpayers must at the very least understand the following three fundamental Form 5471 concepts: “US Person”, “US Shareholder” and “Controlled Foreign Corporation” (“CFC”). This article introduces readers to these fundamental Form 5471 concepts.

Fundamental Form 5471 Concepts: US Person

The definition of “US Person” is crucial to understanding your Form 5471 filing requirements. Generally, the definition of a US person includes the following categories of taxpayers: US citizens, US tax residents, a domestic partnership, a domestic corporation, certain trusts and certain estates. It should be pointed out that tax-exempt entities can also be US persons.

In order for a trust to be a US Person, it must not be a foreign trust; in other words, it must satisfy the legal tests set forth in the Internal Revenue Code (“IRC”) §7701(a)(30). The first test is that a court within the United States is able to exercise primary jurisdiction over the trust’s administrative issues. The second test is that a US person has authority to make all important discretionary decisions which cannot be vetoed by a non-US person.

In order for an estate to be a US person, it must not be a foreign estate as defined in the IRC §7701(a)(31).

Fundamental Form 5471 Concepts: US Shareholder

The concept of US shareholder is also very important for understanding one’s Form 5471 obligations. The definition of a US shareholder was recently modified by the 2017 Tax Cuts and Jobs Act (“TCJA”).

A “US shareholder” is a US Person who owns either: (a) 10% or more of the total combined voting power of all classes of voting stock of a foreign corporation; or (b) 10% or more of the value of all the outstanding shares of a foreign corporation. The latter rule (10% ownership of the total value of shares) is applicable starting a tax year of a foreign corporation that begins after December 31, 2017.

It is important to point that “ownership” can be direct, indirect or constructive within the meaning of IRC §958(a) and §958(b).

Fundamental Form 5471 Concepts: Controlled Foreign Corporation

Owners of shares in a CFC face a far greater Form 5471 compliance burden than owners of shares in foreign corporations which are not CFCs. Hence, the concept of CFC is extremely important to identifying your Form 5471 obligations.

A CFC is a foreign corporation with US shareholders that own on any day of its tax year, more than 50% of either (1) the total combined voting power of all classes of its voting stock, or (2) the total value of its stock. Again, the “ownership” can be direct, indirect or constructive within the meaning of IRC §958(a) and §958(b).

The 2017 tax reform made profound changes to the definition of CFC. Many foreign corporations which were not CFCs under the pre-TCJA rules have been re-classified as CFCs starting tax year 2018.

Contact Sherayzen Law Office for Professional Help With Your Form 5471 Compliance

If you are a US person with an ownership interest in a foreign corporation of 10% or more, you may have extensive Form 5471 reporting obligations. Given the extreme complexity of the form and the high penalties associated with Form 5471 noncompliance, it is important secure the professional and experienced help of Sherayzen Law Office.

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FATCA Tax Lawyer Karlovy Vary

The End of Swiss Bank Secrecy

Ocultar Dinero En Cuentas Extranjeras es un Delito | Abogado FBAR FATCA

Ocultar dinero o activos en cuentas extranjeras no declaradas es un delito segun el Servicio de Impuestos Internos (“IRS”). De hecho, el IRS incluye cuentas extranjeras no declaradas en la lista de estafas tributarias “Docena sucia” del año 2019. Recopilada anualmente, la “Docena sucia” enumera una variedad de estafas comunes que los contribuyentes pueden encontrar en cualquier momento, incluido los esquemas extranjeros.

Esquemas Para Ocultar Dinero en Cuentas Extranjeras No Declaradas

Ocultar dinero en cuentas extranjeras no declaradas es un esquema promocionado en el Internet por muchas companias. Algunas de ellas proponen de ocultar los ingresos en bancos, cuentas de corretaje o entidades nominales extranjeras. Esas personas dicen a los contribuyentes que ellos luego pueden acceder a los fondos mediante tarjetas de débito, tarjetas de crédito o transferencias bancarias. Otros esquemas son aun mas creativos – usan fideicomisos, planes de arrendamiento de empleados, anualidades privadas o planes de seguro extranjeros para el mismo propósito.

Se Puede Tener Cuentas Extranjeras Declaradas

Es importante de ratificar que tener una cuenta bancaria en el extranjero no es un delito; solamente ocultar dinero en una cuenta extranjera no declarada es ilegal. Existen muchas razones legítimas para mantener cuentas financieras fuera de los Estados Unidos.

Sin embargo, los contribuyentes con cuentas extranjeras deben cumplir con los requisitos de presentación de informes. Los informes mas importantes son el Formulario 8938, Declaración de Activos Financieros Extranjeros Especificados, y Formulario 114, el Informe de Cuentas Bancarias y Financieras Extrajeras. Formulario 114 proviene de la Ley de Secreto Bancario (“BSA”) y es mas conocido como FBAR. Formulario 8938 proviene de FATCA.

Ocultar Dinero en Cuentas Extranjeras No Es Un Esquema Seguro

Ocultar dinero en cuentas extranjeras parece ser seguro, pero no lo es. Hay muchas maneras para el IRS de descubrir las cuentas extranjeras no declaradas: seguir las transactions, informes de terceros, información obtenida durante auditorías y, últimamente, los bancos.

A causa de la Ley de Cumplimiento Tributario de Cuentas en el Extranjero (“FATCA”), su banco extranjero tiene la obligación de declarar sus cuentas bancarias al IRS si el banco descubra que usted es un residente tributario de los Estados Unidos. Además, el IRS recibe más información sobre posibles incumplimientos a través de la red de acuerdos intergubernamentales entre las jurisdicciones de los EE. UU. y los socios.

Ocultar Dinero en Cuentas Extranjeras Puede Terminar en Multas Graves y Cargos Penales

“La evasión en el extranjero sigue siendo un punto focal de los esfuerzos de cumplimiento del IRS,” dijo Chuck Rettig, Comisionado del IRS. “Nuestros equipos de Investigación Criminal y de cumplimiento civil trabajan en estrecha colaboración con el Departamento de Justicia en el ámbito internacional para garantizar que se cumplan las leyes tributarias de nuestra nación. Los contribuyentes que consideran esconder fondos en el exterior deben pensarlo dos veces; las multas pueden ser severas.”

Si usted utiliza esos esquemas para ocultar dinero o activos, eso puede exponerlo a usted a varias multas importantes y aun posibles procesos penales. El IRS realizó miles de auditorías civiles relacionadas con el extranjero que resultaron en el pago de decenas de millones de dólares en impuestos. El IRS también ha presentado cargos penales que llevan a miles de millones de dólares en multas penales y restitución.

Llame Sherayzen Law Office Para Ayuda Professional Con Cuentas Extranjeras No Declaradas

Si usted tiene cuentas extranjeras no declaradas, usted debe communicarse con Sherayzen Law Office lo mas pronto posible. Hay posibilidades de bajar y aun evitar multas de FBAR and FATCA, pero es necesario actuar lo mas pronto posible y antes de que el IRS descrubre su incumplimiento con la ley tributaria de los Estados Unidos.

Llamenos or mandenos un mensaje por el correo electronico hoy para programar una cita confidencial con el abogado Eugene Sherayzen!

FATCA Criminal Penalties | International Tax Lawyer & Attorney

While there are a number of articles in professional publications and attorneys’ blogs covering the civil penalties associated with a failure to comply with the Foreign Account Tax Compliance Act (“FATCA”), there is almost a complete silence with respect to FATCA criminal penalties. This essay intends to fill this gap by introducing its readers to potential FATCA criminal penalties that the IRS may pursue in case of FATCA noncompliance.

FATCA Criminal Penalties: FATCA Background and FFI Reporting Requirements

Congress enacted the Foreign Account Tax Compliance Act (“FATCA”) as part of the Hiring Incentives to Restore Employment (“HIRE”) Act of 2010. The law revolutionized international tax compliance, because, for the very first time, it forced all foreign financial institutions (“FFIs”) to report their US account holders to the IRS, including their names, account numbers and highest values of these accounts.

In other words, FATCA has turned all compliant FFIs into IRS agents. FFIs now carry the entire burden of automatically (and, it is important to emphasize the word “automatically”) disclosing all of the FATCA-required information directly to the IRS. The IRS now only needs to properly process and analyze the data in order to identify noncompliant taxpayers and investigate them.

How did the Congress achieve this goal? It imposed a very harsh penalty on FATCA-noncompliant FFIs without paying much attention to the potential legal and political implications such an over-reaching law has for the sovereignty of other nations. FATCA created a new tax withholding regime under which every noncompliant FFI faces a 30% withholding with respect to any incoming transaction. The penalty is imposed on the gross amount of a transaction, which means that using a noncompliant FFI may result in a net loss for the parties engaged in the transaction.

The net impact of the FATCA FFI penalty is that no bank or person would wish to utilize a noncompliant FFI, effectively cutting off the latter from the any USD-nominated transactions and the world markets.

FATCA Criminal Penalties: FATCA Requirements Imposed on US Taxpayers

FATCA created a new tax reporting obligation specifically for US taxpayers called Form 8938. I have discussed Form 8938 in detail elsewhere on my website and here I will provide just a very simplified description of this requirement. A Specified Person (who can be an individual or an entity) must file Form 8938 if the value of his Specified Foreign Financial Assets (SFFAs) exceeds a certain filing threshold which is determined by the tax return filing status of the Specified Person.

SFFAs are defined very broadly to include pretty much any type of a financial asset, an ownership interest in a foreign business, ownership of a beneficiary interest in a foreign trust, ownership interest in a foreign trust under the IRC Sections 671 through 679, et cetera. Additionally, Form 8938 requires the Specified Person to report foreign income attributable to holding or disposing of SFFAs.

Failure to file Form 8938 may lead to an imposition of a $10,000 civil penalty, subject to reasonable cause exception. An additional $10,000 penalty applies if the taxpayer fails to file Form 8938 within 90 days after the IRS mails notice of the failure to file the form. If the taxpayer persists in his failure to file the form, the IRS will impose additional $10,000 for each thirty-day periods the failure continues up to the maximum of $50,000. It is important to note that the statute of limitations does not start to run if Form 8938 has not been filed.

FATCA Criminal Penalties in General

Interestingly, the US Congress did not create any separate FATCA criminal penalties. The IRS and the US Department of Justice (“DOJ”), however, have not had any problems in engaging into criminal prosecutions of FATCA violations.

There are three major provisions that the IRS and the DOJ can rely upon in their criminal prosecution of FATCA violations. First, 18 U.S.C. section 371 (see below for more details). Second, 26 U.S.C. 7201 – a felony charge for intentional filing of a false Form 8938. Finally, 26 U.S.C. 7203 – a misdemeanor charge for a willful failure to file Form 8938.

So far, the IRS and the DOJ have used Section 371 more than Sections 7201 and 7203. However, as time goes on, I expect that Sections 7201 and 7203 will be used more extensively.

Since Section 371 criminal charges are the most common at this point, let’s explore this type of a criminal prosecution charge in more detail.

FATCA Criminal Penalties: 18 U.S.C. Section 371

As long as there is enough evidence, the IRS and the DOJ can use 18 U.S.C. section 371 to prosecute US taxpayers based on a charge of engaging in a FATCA-related conspiracy. This is likely to become the most favorite tool to prosecute persons for aiding US clients to circumvent FATCA requirements, including tax withholding provisions.

The DOJ already used this tool as early as within two months after FATCA tax withholding obligations became effective in July of 2014. On September 9, 2014, Mr. Robert Bandfield, five other individuals and six corporations were charged under 18 U.S.C. section 371 for a conspiracy to aid US clients with evasion of FATCA reporting requirements.

It is important to point out that criminal charges under 18 U.S.C. section 371 are especially dangerous for foreigners who help US taxpayers with tax evasion.

Contact Sherayzen Law Office for Professional Help With a Willful Failure to File Forms 8938

For persons who willfully failed to file their Forms 8938, the best strategy to avoid a criminal prosecution is to engage in a voluntary disclosure of their undisclosed foreign assets before the IRS finds out about your willful FATCA violations. Sherayzen Law Office can help you!

While the IRS flagship Offshore Voluntary Disclosure Program (“OVDP”) was closed on September 28, 2019, the IRS updated its traditional voluntary disclosure program in November of 2018 to help willful taxpayers voluntarily disclose their prior tax noncompliance. I will refer to this option as Modified Traditional Voluntary Disclosure (“MTVD”).

Sherayzen Law Office can help you with MTVD and any other type of a voluntary disclosure. Our highly-experienced team of tax professionals has helped hundreds of US taxpayers to successfully conduct an offshore voluntary disclosure of their undisclosed foreign assets and foreign income. We have prevented the initiation of numerous criminal prosecutions and saved tens of millions of dollars in penalties for our clients. We Can Help You!

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