Checklist of tax forms for taxpayers with foreign assets

This year, there is at least one new tax form for US taxpayers to be aware of: Form 8938: Statement of Foreign Financial Accounts. Since there are a number of sometimes obscure U.S. tax forms that U.S. taxpayers are required to file, we have put together the following checklist to help you keep track of them.

1. Form 8938 (New): Statement of Foreign Financial Assets — This is a new tax form that is expected to be required for anyone with more than $50,000 in foreign financial assets in 2010. A product of the 2010 HIRE Act legislation, it’s currently only available in draft form, although a final version including instructions is expected to be released shortly. Note that this form is different from the Form TD F 90-22.1 (FBAR), which is still required. Specifically, Form 8938 requires more detailed information on a variety of foreign assets, including bank accounts, stocks, various types of investment accounts, and potentially other assets such as rental properties and foreign insurance policies. Form 8938 also differs in that it’s included along with your 1040 filing rather than sent separately to the Department of Treasury.

2. Form 8621: Information Return for Passive Foreign Investment Company (PFIC) — If you own shares in a Passive Foreign Investment Company, such as a foreign-domiciled mutual fund, offshore investment scheme, or resident country tax-deferred fund, etc., you’re required to file this form for each PFIC in years that you have a realized gain or distribution for that fund. However, it can also be advantageous to you to file Form 8621 annually. That way, you can elect the method that you’d like used to calculate tax on your PFIC income. If you wait to file Form 8621 until you have realized gains or distributions, you’ll have to accept the IRS’s punitive default method of calculating tax on your investment return.

3. Form 2555: Foreign Earned Income — If you qualify, you may be able to exclude foreign-earned (salary) income of up to $91,500 for 2010, as well as potentially exclude or deduct housing costs using this form.

4. Form 1116: Foreign Tax Credit — If you’ve paid foreign taxes on foreign income (either from your salary or investments) and you haven’t otherwise excluded the income from your U.S. taxes, you may be able to take a credit against any U.S. taxes owed by filing this form.

5. Form 5471: Information Return of U.S. Person with Respect to Certain Foreign Corporations — If you’re a shareholder of a Controlled Foreign Corporation (CDC) you must file this form. A foreign corporation is generally classified as a CDC if you own 10% of the shares or control 10% of the voting rights. US taxpayers who own foreign-registered businesses or significant stakes in restaurants, bars, or other companies may need to file this form.

6. Form 926: Return of a U.S. Transferor of Property to a Foreign Corporation — You’re generally required to file this form in the year you transfer cash, assets, or property (tangible or intangible) to a foreign corporation. U.S. citizens who are either just setting up and providing initial capital to a foreign business or injecting fresh capital/new assets into an existing business may need to file this form.

7. Form 8865: Information Return of U.S. Persons with Respect to Certain Foreign Partnerships — If you’re a partner in a foreign partnership with five or fewer U.S. partners who each own 10% or more interest and in aggregate have more than 50% of the partnership, you may need to file this form to report income and transactions between you and the partnership.

8. Form 3520: Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts — This form is used to report transactions you may have with foreign trusts, as well as if you receive large gifts from foreign persons (greater than US$100,000), or corporations or partnerships (greater than US$14,139).

9. Form 3520A: Information Return of Foreign Trust with a U.S. Owner — If you own a foreign trust, you need to file this form to provide information about the trust, its U.S. beneficiaries, and anyone who’s treated as an owner of any portion of the trust.

10. Form TD F 90-22.1: Report of Foreign Bank and Financial Accounts (FBAR) — If you own or have authority over a foreign financial account, including a bank account, brokerage account, mutual fund, unit trust, or other types of financial accounts, and the aggregate value of all foreign financial accounts is over US$10,000 at any time during year, you’re required to report the account each year to the Department of the Treasury. Please note that this form is still required even with the new introduction of Form 8938 described above.

The above list is not intended to be comprehensive, and other forms may be needed depending on your particular situation.

Our law firm expects unabated aggressive enforcement of the US tax laws, including increased criminal prosecutions and civil audit examinations. We have been advising our clients to expect the unexpected (and the worst) in their tax treatment and disclosure of offshore assets.  Taxpayers should explore the OVDP program to avoid criminal prosecutions and civil audit examinations.

Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.

Patel Law Offices offers a strategy session to discuss how to resolve your legal problem. Conveniently schedule online today with our online scheduler and questionnaire.