Streamlined Domestic Offshore Disclosure: Japanese Foreign Inheritance | Form 5471 Lawyer Portland Oregon
Good morning and welcome to Sherayzen Law Office video blog. My name is Eugene Sherayzen and I’m an international tax attorney and owner of Sherayzen Law Office, Ltd.
Today, I’m continuing a series of blogs from Portland, Oregon. As part of that series, I’m doing case reviews related to Asian Americans or Asians who became US tax residents.
Today, I’d like to talk about a case related to Japan. About two years ago, I had a case where a married couple came to me. The husband is a US citizen born in the United States and the wife is a US citizen born in Japan. They came to me because they discovered that a foreign inheritance may have US tax consequences. They read something about it, didn’t understand it; so, they came to me. It turns out that the wife received a foreign inheritance about three years prior to the time they came to me for an initial consultation. As part of that foreign inheritance, she inherited a series of various stocks, bank accounts – savings – checking and real estate properties.
I took this case and we started working on the voluntary disclosure and discovered some new bank accounts; there were other issues that came up but the most interesting thing that I want to talk to you about is what happened sometime toward the end of the consultation. I received some new documents from the client related to one of her foreign accounts and there was another name on this account (I don’t speak Japanese but realized it was not her name). I inquired of the client about it and she said that it was a name of a corporation, so from that we started to investigate further and it turns out that as part of her foreign inheritance, she also inherited a foreign corporation and in reality, the real estate in Japan was owned by that Japanese corporation. Now, after we’d done all of this work with respect to FBAR compliance, Form 8938 compliance, all of a sudden, we had to do work with respect to Form 5471 because this form is used to report US ownership of foreign companies; foreign corporations to be precise. Since this was a controlled foreign corporation, a form 5471 had to be filed for each year. We received the financials from a Japanese lawyer, worked on them, converted them to US GAAP and then completed Forms 5471 and then submitted a voluntary disclosure.
The most important lesson here is that voluntary disclosures almost always contain surprises, even if a client is 100% certain that she found out everything there is to know about her foreign assets; even if she provided a summary of everything. An attorney must always be diligent in his investigation of foreign clients; meaning, you review the documents, minutely review the documents, look at the transactions, see what’s going on there, understand the transactions, understand the logic behind the transactions, understand what may be missing because clients sometimes simply do not know what they need to be looking for and it is the job of an attorney to guide them. Too many times, I have seen where accountants and sometimes even attorneys do not do that. But in reality, it is the job of an attorney to make sure that the voluntary disclosure that is being submitted is the best that can be submitted under the circumstances. In the case of this Japanese inheritance, something like a foreign corporation was so well hidden in the documents, that it was only through extra due diligence that I was able to discover it.
In a next blog, I will discuss another case related to Southeast Asia.
Thank you for watching, until the next time.
