Incorrect or Delinquent Form 5471 Penalties

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Various Form 5471 penalties are associated with failure to file Form 5471 or the filing of an incorrect Form 5471. In this article, I will describe the most important of these penalties.

IRS Form 5471

The IRS Form 5471 is an extremely complex form that is used to satisfy the reporting requirements of two esoteric sections of the Internal Revenue Code: 26 U.S.C. § 6038 (“Information reporting with respect to certain foreign corporations and partnerships”) and 26 U.S.C. § 6046 (“Returns as to organization or reorganization of foreign corporations and as to acquisitions of their stock”).

As long as Form 5471 requirements are met, the Form must be filed by certain U.S. citizens and residents who are officers, directors, or shareholders in specified foreign corporations with their US tax returns.  Failure to file Form 5471 or failure to file a correct Form 5471, can result in steep penalties.

Form 5471 Penalties: Failure to file information required under section 26 U.S.C. § 6038(a) 

From the outset, it is important to note that 26 U.S.C. § 6038 applies to two different parts of Form 5471: the Form 5471 proper (i.e. the first four pages containing the identifying information and Schedules A through I) and Schedule M of Form 5471.   Failure to file either is enough to trigger a $10,000 penalty for each annual accounting period of each foreign corporation. If the IRS sends the taxpayer a notice of a failure to file, an additional $10,000 penalty (per foreign corporation) will be charged for each 30-day period (or fraction thereof), during which the failure continues after the 90-day period in which the notification occurred, has expired. This additional penalty is limited to a maximum of $50,000 for each failed filing.

Furthermore, there is an income tax penalty associated with the failure to comply with 26 U.S.C. § 6038 in a timely manner – the taxpayer may be subject to a 10% reduction of certain available Foreign Tax Credits. A further 5% reduction may be applied for each 3-month period (or fraction thereof), during which the failure to timely report or file continues after the 90-day period of IRS notification has expired. (26 U.S.C. § 6038(c)(2) places certain limitations on this penalty).

The Second Set of Form 5471 Penalties: Failure to file information required by 26 U.S.C. § 6046 and related regulations (Form 5471 and Schedule O)

In addition to 26 U.S.C. § 6038 Form 5471 penalties, there is also an additional set of Form 5471 penalties associated with 26 U.S.C. § 6046 (Form 5471 and Schedule O).  Failure to comply with 26 U.S.C. § 6046 will subject the taxpayer to another $10,000 penalty for each failure for each reportable transaction. Additionally, if the failure to report or file continues for more than 90 days after the date the IRS mails notice of this failure, an additional $10,000 penalty will apply for each 30-day period (or fraction thereof) during which the failure continues after the 90-day period has expired. This additional penalty is limited to a maximum of $50,000.

Form 5471 Non-Compliance May Result in Criminal Penalties

In addition to civil penalties under 26 U.S.C. § 6038 and 26 U.S.C. § 6046, criminal penalties may apply to Form 5471 filers in certain circumstances. In particular, a willful failure to file an accurate Form 5471 may activate the  broad provisions of 26 U.S.C. § 7203 (“Willful failure to file return, supply information, or pay tax”), 26 U.S.C. § 7206 (“Fraud and false statements”), and 26 U.S.C. § 7207 (“Fraudulent returns, statements, or other documents”).

Form 5471 Penalties and Persons Other Than the Filer

In situations where the filer should have filed Forms 5471 for other persons, but failed to do so, Form 5471 penalties may be extended to these other persons.

Contact Sherayzen Law Office For Help With Form 5471 Penalties and Compliance

If you partially or fully own a foreign corporation, you may be subject to the Form 5471 requirements.  As explained in this article, failure to timely and/or correctly comply with Forms 5471 may result in steep Form 5471 penalties.

This is why you should contact the experienced Form 5471 tax professionals of Sherayzen Law Office.  We can help you  prepare and file your Form 5471 as part of your annual compliance as well as help deal with the Form 5471 voluntary disclosure. So, Call Us Now to Schedule Your Confidential Consultation!

FATCA Tax Lawyers Update: FATCA Financial Institution Definition

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One of the key concepts in FATCA compliance is a “financial institution”. The definition of a financial institution (“FATCA Financial Institution”) is contained in the FATCA Model IGAs. In this article, I will explore some of the general concepts central to defining a FATCA Financial Institution.

Four Types of FATCA Financial Institutions

The concept of FATCA Financial Institution is defined in the Model IGA Agreements. Both Model 1 and Model 2 IGAs agree on the definition of FATCA Financial Institution: “The term ‘Financial Institution’ means a Custodial Institution, a Depository Institution, an Investment Entity, or a Specified Insurance Company.” Let’s go over each concept in more detail.

Definition of a FATCA Financial Institution: Custodial Institution

FATCA Model Agreements provide a fairly straightforward definition of a Custodial Institution: “The term ‘Custodial Institution’ means any entity that holds, as a substantial portion of its business, financial assets for the account of others.” In this context “substantial” means that, during the specified period of time, twenty percent or more of the entity’s gross income is derived from holding of financial assets and related financial services.

The specified period of time is defined in Model 1 IGA as “the shorter of: (i) the three-year period that ends on the December 31 (or the final day of a non-calendar year accounting period) prior to the year in which the determination is being made; or (ii) the period during which the entity has been in existence.”

Definition of a FATCA Financial Institution: Depository Institution

According to FATCA Model IGAs, “The term ‘Depository Institution’ means any Entity that accepts deposits in the ordinary course of a banking or similar business.”

This definition is fairly self-explanatory, but it should be noted that interest-paying client money accounts operated by insurance companies are included within the definition of a depository institution.

Definition of a FATCA Financial Institution: Specified Insurance Company

According to FATCA Model IGAs, “the term ‘Specified Insurance Company’ means any entity that is an insurance company (or the holding company of an insurance company) that issues, or is obligated to make payments with respect to, a Financial Account.” This definition basically applies to all insurance companies that issue or must make payments with respect to an Insurance Cash-Surrender Value Contract or Annuity contract (which is similar to an FBAR).

For the purposes of this essay, I am not going to engage in the discussion of a Financial Account definition (this is an issue that I addressed in another article); suffice it to say that the definition of a Financial Account under FATCA closely follows the FBAR definition of the same concept.

Definition of a FATCA Financial Institution: Investment Entity

Finally, FATCA Model IGAs provide a detailed definition of what constitutes an “Investment Entity”. This concept includes any entity that conducts as a business one or more of the following activities or operations for or on behalf of a customer:
“(1) trading in money market instruments (cheques, bills, certificates of deposit, derivatives, etc.); foreign exchange; exchange, interest rate and index instruments; transferable securities; or commodity futures trading;
(2) individual and collective portfolio management; or
(3) otherwise investing, administering, or managing funds or money on behalf of other persons. This subparagraph 1(j) shall be interpreted in a manner consistent with similar language set forth in the definition of “financial institution” in the Financial Action Task Force Recommendations.”

Notice that this definition encompasses any entity that is managed by an Investment Entity. Further note that the definition of an Investment Entity should be interpreted in a manner consistent with the definition of a “financial institution” in the Financial Action Task Force Recommendations.

Implications if FATCA Financial Institution Definition on Undisclosed Foreign Accounts

The broad definition of a FATCA Financial Institution has a profound impact on US taxpayers with undisclosed foreign accounts. The chief reason for this conclusion is the fact that as soon as an entity is classified as a FATCA Financial Institution, the entity must be FATCA compliant (unless it falls within a FATCA exemption) and should report all of its accounts owned (directly or indirectly) by US taxpayers.

Contact Sherayzen Law Office for Help With Undisclosed Foreign Accounts

The consequences of the IRS discovery of an undisclosed foreign account can be disastrous for the US owner of this account, including extremely high monetary willful civil penalties as well as criminal penalties.

This is why, if you have an undisclosed foreign account, please contact Mr. Eugene Sherayzen, an experienced international tax attorney of Sherayzen Law Office as soon as possible. Our team is well versed in FATCA compliance, FBARs and other foreign reporting issues. We have helped hundreds of US taxpayers around the globe and we can help you.

So, Contact Us Now to Schedule Your Initial Consultation!

Costa Rica Corporations and U.S. Tax Reporting

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It has become common for U.S. citizens to engage in business abroad through a foreign corporation.  Costa Rica is definitely one of the most favored countries in Central America, partially due to its reputation for stability.  It is important to understand, however, that U.S. citizens who engage in business abroad through a foreign corporation must comply with very important tax reporting requirements.   In this article, I will try to briefly go over some of the most common US tax reporting requirements that may concern U.S. owners of Costa Rica corporations.

Form 5471

IRS Form 5471 is the most direct reporting requirement that U.S. owners of Costa Rica corporations may face.  Form 5471 may undoubtedly be considered as one of the most complex U.S. tax forms, both in its content as well as its scope.

As of the time of this writing, there are four non-exclusive (i.e. a taxpayer can belong to multiple categories at the same time) categories of filers of Costa Rica corporations who must file Form 5471.  Determining the categories, if any, to which a taxpayer belongs is a legal decision and a very important one since the number and severity of the reporting requirements directly depends on the number of  categories applicable to the taxpayer.

If the taxpayer is required to Form 5471 for Costa Rica corporations, then he must do so by attaching the completed Form 5471 with all of the numerous attachments to his tax return.

Failure to file Form 5471 for Costa Rica corporations may have severe consequences.  Explore this article for more information on Form 5471 penalties.

Form 8938

IRS Form 8938 is a newcomer to the world of U.S. tax compliance – in fact, the tax year 2001 is the first year that the form must be filed with the taxpayer’s U.S. tax return.

Form 8938 should be filed only if certain threshold requirements are met.  In case the taxpayer already disclosed the information regarding the specified foreign asset on Form 5471, Form 8938 should be filed to cross-reference Form 5471.  Explore this article to learn more about Form 8938.

FBAR

As long as the basic threshold requirement is met, the Report on Foreign Bank and Financial Accounts (“FBAR”) may be required if the taxpayer is the owner of a foreign corporation and has signatory authority (either as an officer of the corporation or an owner) over the corporate accounts.

It is highly important to comply with the FBAR requirement because the FBAR contains perhaps the most severe penalty structure of any other reporting requirement in the entire Internal Revenue Code (IRC).

Subpart “F” Income

If you are an owner of a Controlled Foreign Corporation (“CFC”) and the CFC has subpart “F” income, then you may be required to report subpart “F” income on your personal tax return (e.g. Form 1040).  This income is likely to be treated in a highly unfavorable way by the IRC.

Other Forms

Other forms may be required to be filed as a result of the your ownership of Costa Rica corporations.   Most of these additional tax reporting requirements are triggered by various transactional activities conducted by the corporation or between you and your corporation.  You should consult an international tax attorney for detailed analysis of your specific situation.

Contact Sherayzen Law Office for U.S. Tax Compliance Requirements if You Own Shares of Costa Rica Corporations

If you own a corporation in Costa Rica or you intend to do so, you should contact Sherayzen Law Office.  Owner Eugene Sherayzen will analyze your particular situation, determine what U.S. tax reporting requirements apply to you and help you comply with them, and offer a rigorous ethical tax plan designed to make sure that you do not overpay your U.S. taxes under the current IRC provisions.

The Location of Your International Tax Lawyers Austin Texas

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Choosing your lawyer among International Tax Lawyers Austin Texas is not a simple task, especially for a US taxpayer thinking about doing an offshore voluntary disclosure. One of the critical questions often arises is whether it is better to retain an international tax lawyer in Austin or in Minneapolis if you live in Austin? It is also related to a broader question: is the location of your international tax lawyer important?

Let’s analyze this question in the context of retaining one or more International Tax Lawyers Austin Texas.

International Tax Lawyers Austin Texas: US International Tax Law and Geography

One of the most critical aspects of US international tax law is that it does not respect national or state borders. Rather, it focuses on the individual taxpayer; if the taxpayer is a US person, then he is subject to US international tax law.

Another important aspect of US international tax law is that it applies uniformly (with a few exceptions, such blockades, sanctions, et cetera) irrespective of where the individual taxpayer is.

This means that, if you are in Austin and searching for International Tax Lawyers Austin Texas, it does not matter whether your lawyer is physically located in Austin, Minneapolis or Buenos Aires. The knowledge of international tax law of your lawyer and the application of that law to your specific case does not depend on the physical location of your lawyer.

International Tax Lawyers Austin Texas: Expertise and Experience in International Tax Law is the Critical Criteria, Not Geography

Based on this logic, it is easy to see that the geographical location of your International Tax Lawyers Austin Texas is not the most important factor in your decision to retain an attorney. Rather, it is a lawyer’s expertise in international tax law that should drive your decision.

If you feel comfortable with the lawyer’s grasp of the subject matter and his experience in handling cases involving issues similar to the ones involved in your case, then these factors should be the critical factors on which your decision to retain the an international tax lawyer should be based.

International Tax Lawyers Austin Texas: “Face-to-Face” Meetings Obstacle Has Been Overcome By Modern Technology

There is a common misconception that your international tax lawyer must be near you in order to understand you and be able to render advice.

About a third of my clients are overseas and, additionally, more than a third of my clients are located in the United States but outside of Minnesota, leaving me with only about a quarter of my clients physically located in Minnesota. Yet, this factor never influenced the outcome in any of my cases.

In the modern world of Video Skype Conferences, the value of the face-to-face meetings has deteriorated and, in most cases, completely disappeared.

Contact Sherayzen Law Office for Help With International Tax Issues

Hence, if you are searching for International Tax Lawyers Austin Texas, contact the international tax law team of Sherayzen Law Office (physically based in Minneapolis, MN). Our team of international tax professionals has developed deep expertise in international tax law based on the help that we have rendered to hundreds of US taxpayers worldwide.

So, if you have international tax issues with respect to undeclared foreign accounts, international tax compliance or international tax planning, please contact an experienced international tax attorney, Mr. Eugene Sherayzen of Sherayzen Law Office for comprehensive legal and tax help.

Call Us Today to Schedule Your Confidential Consultation!

FBAR Lawyers Warn That 2014 FBAR is Due on June 30, 2015

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2014 FBAR may be the most important (in terms of potential penalties) of all 2014 information tax returns. The FBAR is an abbreviation for the Report of Foreign Bank and Financial Accounts (the “FBAR”). The current official name of the FBAR is FinCEN Form 114 (prior to mandatory e-filing, Form TD F 90-22.1 was the FBAR).

Under the Bank Secrecy Act (31 U.S.C. §5311 et seq.), the Department of Treasury (the “Treasury”) requires that an FBAR is filed whenever a US person has a financial interest in or signatory authority over foreign financial accounts and the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. If you had such a situation in 2014, then you must seek an advice from an FBAR lawyer on whether you need to file the 2014 FBAR.

If you believe that the 2014 FBAR requirement applies in your case, then the 2014 FBAR must be e-filed with the IRS by June 30, 2015. There are no extensions available; the 2014 FBAR must be received by the IRS no later than June 30, 2015.

2014 FBAR Must Be Filed Timely and Accurately to Avoid Penalties

If your 2014 FBAR is not timely filed, then it will be considered delinquent and potentially subject to severe civil and criminal penalties. Similarly, if the 2014 FBAR is incomplete and/or incorrect, then it will also be considered delinquent with potentially an even higher probability of the assessment of the FBAR’s draconian penalties.

Multiple Years of FBAR Delinquency and 2014 FBAR

If you were required to file the FBARs in prior years and you have not done so, you should seek advice of an experienced FBAR lawyer with respect to your voluntary disclosure options. In most cases, the failure to file FBARs in the past should not deter you from filing your 2014 FBAR timely; however, this filing should be done in conjunction with your voluntary disclosure strategy as outlined by your FBAR lawyer.

Contact Sherayzen Law Office for 2014 FBAR Assistance

If you need help with filing your 2014 FBAR or you have multiple years of FBAR delinquency and wish to bring your US tax affairs into full compliance, contact owner Eugene Sherayzen an experienced FBAR lawyer of Sherayzen Law Office as soon as possible. We have helped hundreds of US taxpayers around the world to lower their FBAR penalties and bring themselves into full compliance with US tax laws. And, we can help You!

Contact Us NOW to Schedule Your Confidential Consultation!