International Tax Planning and Reporting Requirements

international tax planning and reporting requirements

Foreign earned income exclusions and foreign tax credits can significantly reduce the U.S. tax liability incurred on foreign- source income and help to avoid double taxation. Complex reporting is required for U.S. persons owning foreign assets including bank accounts and other financial investments. EisnerAmper 2018 personal tax guide 106 The Tax Cuts and Jobs Act of 2017 will have a significant impact Taxsignificant The a have will of2017 Act Jobs and Cuts 100% of a U.S. LLC, it will effectively be treated as disregarded.as treated be effectively will LLC,it U.S. ofa 100% 2, 2017 or December 31, 2017; whichever period has the greater Such entities are now required to file a pro forma Form 1120 Form forma pro a file requiredto now are entities Such with the 2017 tax year,Starting there is a new filing requirement (which includes individuals, and partnerships corporations) owns The maximum 2017 foreign earned income exclusion is $102,100, is exclusion income earned foreign 2017 maximum The shareholders will be allowed a 77.1% deduction for non-cash for deduction 77.1% a allowed be will shareholders addition to filing Form 1120-F. The pro forma 1120 cannot be 1120-F.cannot Form 1120 filing forma proto The addition share U.S. the in includible be will income the and amount, effec The amounts. cash for reduction 55.7% a and amounts foreignspecified a entity. 10% shareholdersleast U.S. at All with NEW IN2018 NEW tive tax rate will ultimately depend on the U.S. shareholder’s tax not have profitswhich and offshore earningsofthe share their in held offshoreofrepatriationearnings foreign one-time tory with the Form 5472 attachment. This filing requirement is in requirementis filing This attachment. 5472 Form the with for foreign-owned U.S. disregarded entities. If a foreign person foreignperson a disregardedIf foreign-ownedU.S. entities. for holder’s 2017 tax return. At the election of the taxpayer,ofthe election return.the Attax tax 2017 the holder’s bracket. The repatriation amount is determined as of November foreign the of portion a Only U.S. the in taxed been previously tax tip can bepaidoveraneight-year period. U.S. percentage. applicable the on based taxable are earnings include requiredareto entity foreign specified a in ownership in the international tax arena. Most notably, there is a manda notably,a Most is there arena. tax international the in Your for severalyears, companysentyoutoworkinDubai2017 As youcanseeinTax Tip26,yourforeign housing exclusion mightbelimiteddependingonwhere youlive.Inorder toseethedifferences subject totax:$482,062dividedby $625,000is77.13%). • • so you qualify as a bona fide resident of the UAE in 2017. Assume 2017. in the UAE fide resident of bona a as qualify you so tax return: you earn peryearandyourcompany reimburses $500,000 you for $125,000 of housing costs which are taxable to you. You would Note: taxes willbeallowableasaforeign taxcredit thatcanoffsetyour U.S.incometax(i.e.,only$482,062 of thetotal$625,000 of incomewillbe regardless of which foreign country you are working in. The hous The in. working are you country foreignregardlessof which income U.S. your from income following the exclude to able be in limits for housing deductions in 2017, see Chart 13onthenextpage. in limitsforhousingdeductions 2017,seeChart may alsobeeligibletoreceive aforeign taxcredit against theU.S.taximposedonremaining income. However, only77.13%of these 26 $102,100of yoursalary. $40,838 of the housingexpensereimbursements. Although the UAE does not impose an income tax, in this example, if you paid income tax to a country thatimposesatax,you Although theUAE doesnotimposeanincometax,inthisexample,ifyoupaidtaxtoacountry INCOME ANDHOUSINGEXCLUSIONS TAX BENEFITS OF THEFOREIGNEARNED - - - - There are oneruspenaltiesfornon-filing. and resident aliens are aware of their obligation to report their report to obligation their ofawareare aliens resident and report and/or taxation to subject are they that discovering are LLC.the ofclosure and setup the include certainly would and a reporting requirement.a reporting FOREIGN TAX ISSUES tax forms. These complex issues not only impact you if you areyou if you impact only not issues complex These forms. tax worldwide income to the IRS. As a result, the U.S. continues to continues U.S. the result, a As IRS. the to income worldwide filed electronically. It is due April 17, 2018 and can be extended. be can electronically.and filed 2018 17, April due is It Multinational clients with cross-border income from employ fromcross-border income with clients Multinational foreign its LLCand U.S. the between transactions Reportable reaching implications even if you have never left the U.S. For U.S. the left never have you if even implications reaching certain file and income report to fail who persons U.S. pursue ment and investments are in today’s mainstream. Many taxpayers retirement plans. Even holding cash in a foreign bank can trigger on an overseas assignment or retired abroad, but have broad- have retiredbut abroad,or assignment overseas an on two, the between distributions and contributions include owner operating businesses or invest in foreign securities or have foreign foreign in interests own that entities other and funds, equity ing in both U.S. and foreign jurisdictions. Not all U.S. citizens U.S. all Not jurisdictions. foreign and U.S. both in ing instance, these issues arise if you invest in hedge funds, private funds, hedge in invest you if arise issues these instance, Therefore, you will be taxed in the U.S. on $482,062 related to your your to related $482,062 on U.S. the in taxed be will Therefore,you - ($57,174 $40,838 be will exclusion housing 2017 your Therefore, $102,100, youcanexcludeatotalof $142,938. $16,336). When added to your foreign earned income exclusion of (see Chart 13forsomeof themore(see Chart commonforeign cities). are not eligible to exclude $44.76 per day, or $16,336 for a full year. you amount, this Of $57,174. is amount exclusion housing annual ua i cniee t b a epnie iy o ie n s the so in, live to city expensive an be to considered is Dubai employment in Dubai ($500,000 compensation plus $125,000 hous $125,000 plus compensation ($500,000 Dubai in employment ing costreimbursements lesstheexclusionsof $142,938). in living are you city and country which on based is exclusion ing - - -

Through the creation of the FATCA regime, the U.S. has inspired income the of overview an provide to intended is chapter This See FATCA section below. imposed Act”) “HIRE (the 2010 in enacted legislation Significant access into U.S. taxpayers’ foreign financial account information. accounts and entities set up in foreign jurisdictions. This provision non-U.S. by earned income U.S. for regime withholding U.S. a a movementtowards greater globaltax transparency; similar to the FATCAthe to investment other and banks regime, compliance tions involvingforeign employment andinvestments. known as FATCA.as known FATCA financial foreign certain requiresthat requirementsoffshore for reporting the tightened and persons of the HIRE act is the Foreign Account Tax Compliance Act, also exclusions, foreign requirements, taxcredits, reporting andelec institutions play a key role in providing U.S. tax authorities greater FOREIGN HOUSINGEXCLUSIONS adjustment forthedailylivingcostof $44.76perday, or$16,336forafullyear. andcityyouare livingin. Below are listedthemaximumamountsyoucanexcludeforsomecommonforeign cities,beforecountry the The amountof foreign housingexclusionscoststhatyoucanexcludefrom your2017U.S.incometaxreturn dependsonboththe United Kingdom United ArabEmirates Switzerland Russia Japan Italy India Germany France China Canada Country Paris Beijing Hong Kong Toronto City London Dubai Zurich Moscow Tokyo Rome New Delhi Berlin - • AND FOREIGN HOUSINGEXCLUSION/ DEDUCTION INCOMEFOREIGN EARNED EXCLUSION for oneormore specialtaxbenefits: residentsliving or citizens U.S. to requirementsapply filing that In general, the worldwide income of a U.S. citizen or resident who reporting responsibilities. reporting in the U.S. However, if you are working abroad, you may qualify is working abroad is subject to the same income tax and return additional significant have will nations foreignof institutions $104,100 in2018. Exclude up to $102,100 of$102,100 to up and Exclude foreign2017 in income earned

Housing Exclusion Maximum Annual $ 45,600 114,300 108,000 44,200 66,400 39,800 68,700 85,700 56,124 39,219 71,200 57,174 13 chart

international tax planning and reporting requirements 107 EisnerAmper 2018 personal tax guide 108 • • • • This test requires you to be physically present in a foreign country for a in residency establish must Toyou test, this under qualify To qualify for the foreign earned income and the foreign housing You should considerwhether foregoing the exclusion may result On the other hand, if the foreign jurisdiction imposes tax at a your status as a bona fide resident, as long as the trips are brief and there isintenttoreturn totheforeign country. presence physical or residence fide bona the either meet and sion election will mitigate yourstate tax burden to the extent that test, definedbelow: for at least 330 full days in a consecutive 12-month period, but period, 12-month consecutive a in days full 330 least at for that a larger amount of foreign tax credits can be carried back carried be can credits tax foreign of amount larger a that tax credit regardless of whethertheexclusionisclaimed. the foreign earned will income be offsetcompletely by the foreign whether the foreign earned income exclusionand housing exclu Planning Tip: Planning Physical presence test Bona fideresidence test not necessarilyacalendar-year period. calendar year. Brief trips outside the foreignwill not country risk for eign an country uninterrupted period that includes an entire country foreign a in home tax a establish must you exclusions, in alower utilization of foreign tax credits in the current year so in the foreign jurisdiction islower than the U.S. effective tax rate, or forward for utilization in other years. You for utilizationinother years. or forward shouldalso consider claiming theexclusionwillgenerallybemore beneficial. higher effective rate than the U.S., it is likely that the U.S. tax on tax U.S. the that likely is it U.S., the than effective rate higher “treaties that cover social security taxes” designed to eliminate to designed taxes” security social “treatiescover that taxes youpayoraccrue toaforeign country, orif more benefi If eligible, claim exemption from paying social security tax in the Reduce your overall tax liability under tax treaties that the U.S. Claim a foreign tax credit against your U.S. tax liability for income Either (a) exclude or part, all, of any housing income reimburse with the foreign country. Totalization Agreements are essentially foreign country, based on a Totalization Agreement the U.S. has U.S. SocialSecurityandMedicare taxonsuchincome. has withforeign countries. housing ofany all, or part, deduct (b) or receive you ments dual coverage for the same work. You will be required to pay requiredYouto work. be same will the for coverage dual cial, takeanitemizeddeductionforthetaxespaid. earnings). costs paid (i.e., for taxpayers or having self-employmentsalary

If you pay no foreign tax or the effective tax rate tax effective the or tax foreign no pay you If - - - - You are entitled to claim either a tax credit or an itemized deduc An exception to this includes New York State, which allows a allows Yorkwhich New State, includes this to exception An residentcitizens, U.S. by claimed be may credit tax foreign A your U.S.federaltaxliabilityonadollar-for-dollar basis. as itemizeddeductionsonyour U.S. incometaxreturn for2017. a flow-through entity. Youcredit. tax foreign the claim to order in country foreign a aliens, and in cases certain by nonresident aliens. Typically states FOREIGN TAX CREDIT tion for taxes paid to foreign countries. Though not always the always not Though countries. foreign to paid taxes for tion through a mutual fund, and foreign business income earned by paid dividends include credits tax foreign generate may that Generally, only foreign income taxes qualify for the foreign tax tax foreign the for qualify taxes Generally,income foreign only by foreign corporations, including those paid on your behalf your on paid those including corporations, foreign by may be eligible for the credit if you paid or accrued foreign taxes do not qualify. However, these other taxes may still be deductible credit. Other taxes, such as foreign real and personal property taxes, case, the tax credit is typically more beneficial since it can reduce above, youdonotneedtoliveorworkin exclusions discussed the Unlike taxes. income provincial Canadian certain for credit liabilities. tax income offsetstate to taxes foreign allow not do in the tax year.tax foreign-sourcedofincomethe examples in Common Claiming the exclusion is a binding election. Once you have you Once election. binding a is exclusion the Claiming circumstances, it may be more in certain beneficial to Otherwise, years. Thereyears. is no downside of forgoing the exclusion if you have you remain taxable onworldwide income inthe state of residency. IRS. If you have claimed the exclusion in the past, the benefit the past, the in exclusion the claimed have you If IRS. the yearof revocation unlessyoureceive permission from the tax credit. Note: forego the exclusion infavor of claimingonlyagreater foreign income exclusionisnotconsidered whencalculatingtheappli be not will you election, the revoke you If years. future all in it of revoking the exclusion must be weighed against the possible the against weighed be must exclusion the revoking of allowed toclaimtheexclusionagainuntilsixthtaxyearafter claimed the exclusion, you will be required to continue to claim on earned income. TaxMedicare Additional .9% the or income investment net on TaxContribution Medicare 3.8% the either for thresholds cable ramifications oframifications beingunabletore-elect forfive theexclusion never claimeditinthepast. For Americans residing the foreign overseas, earned - - • The credit is calculated for each separate type of foreign-sourced This deduction is eliminated virtually for 2018 under the Tax Cuts subject to a separate limitation than foreign taxes paid on income and JobsActof 2017. the allowablecredit: treated asforeign-source under anincometaxtreaty. is income which in country each for basket limitation credit tax • • • • • from salary fromor an salary active trade or business. Foreign-source income In addition you are required to maintain a separate foreign separate a maintain to requiredare you addition In resourced under an income tax treaty.tax income resourcedan to under provisionapplies This income classified as U.S. sourced income under U.S. tax law, but is generallyclassifiedintotwodifferent basketsfordetermining are dividends on paid taxes foreignwords, other In income.

Your ability to claim a credit for the full amount of foreign taxes subject toasimilarlimitationinthoseyears. sourced taxable income to your total taxable income. This ratio the remaining credit is carried for forward the next ten tax years, can you that credit the of amount maximum the determine to Contribution Tax on net investment income) before the creditTax the beforeContribution income) investment net on paid oraccruedislimitedbasedonaratioof yourforeign- diately preceding tax year and if not utilized in the prior year,prior the in utilized not if and year tax preceding diately creditofthe amount full the claim to able arenot you If claim. in the current year, you the must excess carry back to the imme Medicare 3.8% the (excluding tax actual your to applied is tion taken). Taxes paid on income excluded from U.S. gross income (e.g., income Taxesgross U.S. from excluded income on paid foreign earned incomeexclusionoratreaty-based return posi salary, pensionsoranactivetradebusiness. tional boycotts. General limitation income: limitation General Passiveincome: Taxesand corporations foreigncontrolling persons U.S. of Certain taxes paid on foreignon taxes paid oil-related, and oil and mineral, Certain interna certain in Taxesparticipate that countries the to paid from foreign sources which does not fall into the passive sepa partnerships if annual partnerships certain international returns are not filed. rents, royalties, andannuities. rate limitation category and generally is income earned from rate limitation category gas extractionincome. This category includes dividends, interest,dividends, includes category This This category includes income includes category This - - - - The 3.8% additional Medicare Contribution Tax on net investment 2008. The tax does not apply to the extent that the gift or bequest A U.S. citizen or resident will have to pay tax on a gift or bequest (or the taxpayer’s death, if sooner) provided a bond or other or bond a provided sooner) if death, taxpayer’s the (or your U.S. legal permanent residency status (“green card”) and are security is given to the IRS. Deferred compensation items and items compensation Deferred IRS. the to given is security subject to the exit tax. Any gain on the deemed sale in excess of subject totheexpatriationregime ifthey: a floor of $699,000 for 2017 ($713,000 for 2018) is immediately is 2018) for ($713,000 2017 for $699,000 of floor a at their fair market value on the day before the expatriation date. EXPATRIATION TAX EXIT the expatriate. IRAs and other certain tax-deferred accounts are to made be apply.can not election do An rules sale wash the taxed (“mark-to-market tax”). Losses are taken into account and assets ofyour all sold had you though as rate gains capital the transfer is reported on a timely filed gift taxreturn orestatetax onatimely filedgift transfer isreported time during eight out of the last 15 years and all U.S. citizens are the expatriationdate(earlydistributionpenaltiesdonotapply). treated as if they were completely distributed on the day before • • • which iscurrently 40%. for 2017 and $15,000 for 2018). The tax does not apply if the if apply not does tax The 2018). for $15,000 and 2017 for If you plan on giving up your U.S. citizenship or relinquishing or citizenship U.S. your up giving on plan you If Former long-term residents who held a U.S. green card for any return or to transfers that qualify for the marital or charitable or marital the for qualify that transfers to or return 17, June after expatriated had who individual an fromreceived generally subject to a 30% withholding tax on distributions to distributions on tax withholding 30% a to subject generally sold actually is asset the until sale deemed the on tax the defer considered a “covered expatriate,” you will pay an income tax at deductions. The value of a transfer not covered by an exception ($14,000 exclusion tax gift annual the within is year the during interests in non-grantor trusts are not subject to the tax but are “covereda ofis case who the expatriate” in apply may income is taxable to the recipient at the highest rate on taxable gifts, gifts, taxable on rate highest the at recipient the to taxable is and $165,000for2018; Failed compliance to under certify penalties ofon Form perjury or citizenship when more or million of$2 worth net a Had years five the for liability tax income net annual average Had federal tax obligations for the five tax years preceding the date 8854, Initial and Annual Expatriation Statement, with all U.S. all with Statement, Expatriation Annual and Initial 8854, residency ended;or of expatriation. dency in excess of an annual ceiling, which is $162,000 for 2017 ofresitermination or ofexpatriation date the before ending - -

international tax planning and reporting requirements 109 EisnerAmper 2018 personal tax guide 110 2017, 2016, and 2015 counting all of the days of physical presence A foreign national is generally deemed a resident alien of the U.S. U.S. INCOME TAXATION OF at any time during the day. Exceptions include days spent in the aliens are taxed on worldwideincomeatgraduatedtaxrates NONRESIDENT INDIVIDUALS trade or business (unless a lower income tax treaty rate applies). • • U.S. forthefollowingcircumstances: country the in present physically are you that day any on U.S. U.S. a with connected effectively not is that income U.S.-source If an individual is physically present in the U.S. for at least 31 days Except as noted below, you are treated as being present in the in presentbelow, being noted aretreatedas as you Except Medicare ContributionTax onnetinvestmentincome. 3.8% the from exempt specifically are taxpayers Nonresident Resident nonresidents. than differently taxed are Residents be deemedaresident forU.S.taxpurposes. however,alien, nonresident A citizen. U.S. a as same the much only one-sixth ofonly thenumberofwill the individual in 2015, days during 2017 and has spent at least 183 days during the period of connected with a U.S. trade or business or at a flat 30% rate on in 2017, but only one-third of the days of presence in 2016, and if oneof thetwofollowingtestsismet: effectively is that income on only rates graduated at taxed is Substantial presence test. Lawful permanent residence (green card test);or 1. 1. 2. 3. 4. 4. 5. 5. residence inCanadaorMexico. Days you regularly commute to work in the U.S. from afrom U.S. the in work to commute regularly you Days Days you were in the U.S. for less than 24 when hours you Days you were temporarily in the U.S. as a regular crewregular a as U.S. the in temporarily were you Days the U.S. unless engaged you in otherwise trade or business Days you were unable to leave the U.S. because of a medical a professional athlete competing in a charitable sporting sporting charitable a in competing professionalathlete a Days you were an exempt individual (e.g., foreign gov foreign (e.g., individual exempt an were you Days were travelingbetweentwoplacesoutsidetheU.S. between the U.S. and a foreign country or a possession ofpossession a or foreigna and between theU.S. country member of aforeign vessel engaged intransportation on suchaday. event). or student trainee, ernment-relatedor teacher individual, condition or medical problem that arose while you were you while arose that problem medical or condition in theU.S.

- This form is used by nonresident aliens of the U.S. to annually to U.S. ofthe aliens nonresident by used is form This You will be considered to have a closer connection to a foreigna Youto connection closer a consideredhave be to will Alternatively, you may be considered a nonresident if you also you if nonresident a considered be Alternatively,may you U.S. REPORTING REQUIREMENTSFOR you have maintained more significant contacts with the foreignthe with more contacts maintained significant have you state incometaxonthe earned inoneormore states. NONRESIDENT ALIENS Exempt Individuals and Individuals with a Medical Condition. In Condition. Medical a with Individuals and Individuals Exempt test, you will not be treated as a U.S. resident for 2017 if you do to the U.S. Treasury. A U.S. nonresident may also be subject toTreasury. subject U.S. be the also to may nonresident U.S. A tax due in excess of payments made during the year is remitted tie breaker clauseof anincometaxtreaty withtheU.S. test and you are exempt from it because you also meet the closer • • • would qualify as a resident of your home jurisdiction under the under jurisdiction residentofhome a your as qualify would will need to be submitted with your U.S. nonresident income tax tion or medical problem, you must file Form 8843, Statement for IRS Form 8840, Closer Connection Exception Statement for Aliens, Even though you may otherwise meet the substantial presencesubstantial the meet otherwise may you though Even Foreign nationals, nonresident aliens and other taxpayers who taxpayers other and aliens nonresident nationals, Foreign Note: Form 1040NR/1040NR-EZ not haveagreen card and: payments. The U.S. tax liability for the year is computed and any made tax, ofU.S. payments the and U.S.-sourceincome report presence substantial the meet you which in year the for return because you were an exempt individual (other than a foreign a than (other individual exempt an were you because either through withholding by the payor or through estimated tax connection test. thanwiththeU.S. country that establishes IRS the or you if U.S. the to than other country addition, there are certain electionsavailabletononresidentsaddition, there who are certain move totheU.S.thatcouldminimizeglobaltaxation. government-related individual) or because of a medical condi medical a of because or government-relatedindividual) two foreign countries. You establish that during the calendar year,closer calendar a the had during you Youthat establish You establish that during the calendar year, you had a tax home You were present in the U.S. for fewer than 183 days during the home than to the U.S., unless you had a closer connection to connection closer a had you unless U.S., the to than home calendar yearinquestion, connection to one foreign country in which you had a tax a had you which in country foreign one to connection in aforeign country, and If you qualify to exclude days of presence in the U.S. the in presence of days exclude to qualify you If - There are many IRS tax forms that must be completed and completed be must that forms tax IRS many are There This form is provided by a foreign entity to document its foreign This form is provided by a nonresident alien to a payor to certify ofthe 15 March than later no distributed normally is form This status to a payor to certify the recipient’sthe beneficial as status certify to payor a to status attached to your tax return to disclose foreign holdings and to and holdings foreign disclose to return tax your to attached address, amount and type of income paid and any taxes withheld. andfor personnel exceptionsforfamiliesofare military certain FOR U.S.CITIZENSAND RESIDENTS FOREIGN REPORTING REQUIREMENTS Form 1040NR/1040NR-EZ and include applicable forms to report the recipient’s residency status as beneficial owner of the income. of residence.to thetaxauthoritiesinrecipients’ country ofthe 31 January than later no persons U.S. by received be to ofthese copies or certificates) birth and passports (e.g., tion following following year. Information on Form 1042-S may also be reported a person, U.S. a is year.income following the ofrecipient the If U.S. sources, you will receive Form 1042-S. This is the annual the is This 1042-S. Formreceive will you sources, U.S. If applicable, this form should also be completed to claim the claim to completed be also should form this applicable, If from income receive and U.S. ofthe nonresident a are you If will TaxpayerIRS Individual The (“ITIN”). Number Identification Form 1099 would be issued instead; Forms 1099 are generally due Form W-8BEN-E Form W-8BEN Form 1042-S Note: Caution: financial accounts(seebelow). make elections that could prove valuable to you. If you have you If you. to valuable prove could that elections make benefits of anincometaxtreaty. withhold to subject income of types certain have who persons not are and law U.S. under obligations payment or filing have expiration period. documents that have been by certified the issuing agency. There documenta original include applications when ITINs issue only arenumber security for eligible a social required anto obtain completed toclaimthebenefitsof anincometaxtreaty. be also should form this applicable, If income. the of owner information return prepared by the payor to report your name, your report to returnpayor preparedinformation the by ing (e.g., pensions). ITINs issued after 2012 may have a five-year interests in foreign entities, (e.g., Forms 8621, 5471, and 8865) and country under the provision of a treatycountry will be required to file receive unnecessary (and avoidable) correspondence from the IRS. When reporting asaU.S.nonresident, residentsWhen reporting of another

If you give the payor the wrong form you will likely will you form wrong the payor the give you If

- - — REPORT OFFOREIGN BANKAND These requirements place an additional burden on the amount the on burden additional an requirementsplace These The FBAR must be filed on an annual basis if you have a finan a have you if basis annual an on filed be must FBAR The $10,000 at any time during the year. Beginning with the 2016 FBAR and forward, the due date for this form will be April 15 ofthe 15 April be will form this for date due the forward, and accounts in a foreignwith an country aggregate value exceeding FINANCIAL ACCOUNTS (“FBAR”) FORM 114(FORMERLY TDF90-22.1) • • • • • • • • forms are: following year and a six-month extension of this deadline may deadline this of extension six-month a and year following If you are a U.S. person (including a corporation, partnership, partnership, corporation, a (including person U.S. a are you If Failure to do so could result in substantial penalties and the loss FBARs untilOctober15for2016 and2017returns. Note: nership or hedge fund, your reporting requirementsincrease. reporting your fund, hedge or nership be granted. FinCEN automatically extended the due date for all may besubjecttoFBARreporting. of beneficial tax elections. Some of the most common ofthese common most ofthe Some elections. tax ofbeneficial of information you must include with your U.S. income tax return. part investment an as such entity pass-through a through or cial interest in or signature authority over one or more financial exempt organization, trust or estate) and have a financial interest investments in foreign companies, whether held directly by you in or signature authority over a foreign financial account, you account, financial foreign a over authority signature or in Trusts Foreign andReceiptof Gifts. Certain a U.S.Owner. Form 8865, Return of U.S. Persons With Respect to Certain Certain to Respect PersonsWith ofU.S. Return 8865, Form Form 926, Return by a U.S. Transferor of Property to a Foreign ForeignPassive a of Shareholder a by Return 8621, Form of Foreignand Bank Report 90-22.1), TDF (formerly 114 Form Form 8938,Statementof Foreign FinancialAssets. Form Annual 3520-A, Information Return of Foreign Trust With Form 3520, Annual Return To TransactionsReport With Foreign Form 5471, Information Return of U.S. Persons With Respect To Corporation. Certain Foreign Corporations. Certain Investment Company(PFIC)orQualifiedElectingFund(QEF). Financial Accounts. Foreign Partnerships. The requirement forsubmissionof both newandamended - -

international tax planning and reporting requirements 111 EisnerAmper 2018 personal tax guide 112 Since 2009 the IRS has offered various programs designed for designed programsoffered various has IRS the 2009 Since 50% of thecurrent income. A financial interest in an account includes being the owner ofowner the being includes account an in interest financial A (“SFCP”). Both programs provide an opportunity for taxpay for opportunity an provide programs Both (“SFCP”). ProcedureCompliance Filing Streamlined the and (“OVDP”) (e.g., minor children, parents, etc.) are also reportable. A financial you own, directly or indirectly, more than 50% of the total voting and file information returns while paying a reduced penalty or,penalty reduced a paying while returns information file and PROGRAMS BSA Identification number must be provided from the original filing. taxpayers to voluntary disclose previously unreported foreign disclosepreviously unreported tovoluntary taxpayers then allocate it to each year. The single penalty is 50% ofthe 50% year.is each penalty to single it The allocate then beneficial present a has person U.S. other any or you which to OFFSHORE VOLUNTARY DISCLOSURE where there is willfulness. The memo specifically instructs exam others by owned accounts over authority signatory have who Criminal penaltiescouldalsobeassessedforwillfulviolations. financial financial institution). The IRS continues to suspend the reporting the year. In the case of a nonwillful failure to file the FBAR, the IRS may IRS the FBAR, the file to failure nonwillful a of case the In Financial accounts include banks, securities, derivatives, foreignderivatives, securities, banks, include accounts Financial Note: forms on behalf of their clients as long as they have a document FBAR file CPAscan and online done be must years all for filings highest aggregate balance in any of the years under examination. an own you which in partnership a ofshares; value or power record or having legal title, even if acting as an agent, nominee, savings, any (including accounts financial other or funds mutual ers to come forward and disclose unreported foreign income unreported disclose and to come forward ers of foreign assets are the Offshore Voluntary Disclosure Program behalf ofon in someothercapacity or Taxpayers person. U.S. a equity funds. of offshore commingled funds, such as hedge funds and private a with maintained account other or insurance term than other contract insurance annuity,life deposit, or checking, demand, in some cases, no penalty at all. In the case of the OVDP,ofthe case the In all. at penalty no the cases, some in income or assets. Two of the programs which focus on disclosure combined and to calculate a single penalty for all years iners imposed penalty maximum the limit 2015 in IRS the by issued impose a maximum penalty of $10,000 per account. Procedures than morereceives or assets ofthe 50% than more in interest as trust a profits;or or capital the in 50% than moreofinterest interest also includes an account held by a corporation in which of $100,000 or 50% of the highest balance in the account during granting them that authority. If amending an FBAR filing, the prior In previous years the maximum penalty was the greater the was penalty maximum the years previous In - - SFCP program in taxpayer friendly ways to include taxpayers taxpayers include to ways friendly taxpayer in program SFCP Alternatively, a shareholder of a PFIC may make an MTM election stock or certain distributions (“excess harsh distributions the distributions”) certain or stock announced important announced changes important to both programs. Specifically, the are required to annually include in income the pro rata share of and that gain is taxed at the income highest rate in on ordinary or election QEF a Unless regime. PFIC harsh the to subject are ELECTING FUND(“QEF”) BYFORM 8621,RETURN ASHAREHOLDER the stock; or deducts the excess of the PFIC’s adjusted basis over the close of the tax year over the shareholder’s adjusted basis in the excess, if any, of the fair market value of the PFIC stock as of the shareholder includes in income each year an amount equal to corporation, the of gains capital net and earnings ordinary the tax canexceed100%of thegain(ergo, “harsh”). COMPANY (“PFIC”)ORQUALIFIED OF APASSIVE FOREIGN INVESTMENT whether ornotdistributed,thusavoidingtheonerous PFICtax. Classification as a PFIC occurs when 75% or more of the cor ofthe more or 75% when occurs PFIC a as Classification for taxpayers in participating the OVDP, and expanded the original from the PFIC (“excess distributions”). Also if neither of these two U.S. persons who invest in a foreigna in PFIC a invest who is which corporation persons U.S. U.S. shareholders who make the QEF election on Form 8621 Form on election QEF the make who shareholders U.S. to end them altogether at any time. Thus, taxpayers whocan to endthemaltogetheratanytime.Thus,taxpayers IRS imposed stricter requirements and potentially higher penalties PFIC rules will also apply. These rules require a ratable allocation Note: limited to cumulative income that was included in previous years). long-term capital gains rate in the year of disposition. An interest residing bothintheU.S. andabroad. poration’s income is passive or when more than 50% of the of 50% than more when or passive poration’sis income this situations, certain In allocated. is gain such which to period on tax pay will they made mark-to-marketis election (“MTM”) benefit from participating inthesebenefit programs from should act promptly. participating on Form 8621 for marketable PFIC stock. If the election is made, Passiveincomeincome. corporation’s passive generate assets charge is also imposed on the tax, and begins running from the beneficial the than rather involved, years ofthe each for effect held wereshares the which during years the over gain ofany PFIC ofthe some or ofall disposition upon made, is elections gains from the sale of the investment or distributions on certain individual may also avoid criminal prosecution. In 2014 the IRS the 2014 In prosecution. criminal avoid also may individual its fair market value at the close of the tax year (the deduction is includes, but is not limited to, interest, dividends, and capital gains. and the IRS can change the terms, increase penalties or decide or penalties increase terms, the change can IRS the and There isnosetapplicationdeadline for these programs - TRANSFEROR OFPROPERTY TO The exception applies only if the shareholder is not subject to subject not is shareholder the if only applies exception The A limited filing exception applies for certain shareholders with shareholders certain for applies exception filing limited A A FOREIGNCORPORATION stock, are treated as ordinary incomeorloss. stock, are treated asordinary share of the upper-tier PFIC interest in the lower-tierupper-tierthe ofthe sharedoes in interest PFIC PFIC another PFIC, and the value of the shareholder’s proportionate ofshareholder’svalue proportionate the the and PFIC, another all of value aggregate the (a) either and distributions excess as also instances. trigger U.S. in reporting persons certain who are and estates) owning PFICs are required to file Form 8621 regard as gain or loss on the actual sale or other disposition of the PFIC FORM 926, RETURN BYFORM 926,RETURN AU.S. to reportable transfers: to reportable treated asexcessdistributions. receivesthe beneficiary an excess distribution or recognizes gains trusts are only required to file if the estate or trust fails to file the Ownership of PFIC stock through another U.S. taxpayer may taxpayer U.S. another through stock PFIC of Ownership filers), filers), or (b) the PFIC stock is owned by the shareholder through form. U.S. beneficiaries are required to report in any case in which U.S. persons who are beneficiaries of foreign estates and foreign U.S. person holds the PFIC stock timely files. The filing applies to trusts, partnerships, corporations, individuals, (i.e., persons U.S. If the election is made, the PFIC rules do not apply.not do Amounts rules PFIC the made, is election the If Form 926 is used transfers ofto certain report tangible or intan shareholderofthe end by the owned at stock year PFIC tax the PFIC tax with respect to any excess distributions or gains treated less of whether an excess distribution has occurred or an election not exceed$5,000. respect to an interest owned in a PFIC for which the shareholder or estates ofdomestic beneficiaries those while requiredfile, to are elections MTM or QEF made have that trusts non-grantor the which throughshareholder another if file requiredto not are taxpayer U.S. another through held stock PFIC for regimes required to include an amount in income under the QEF or MTM has been made. This applies to U.S. shareholders who own shares or foreign grantortruststhatownPFICstock. domestic estates, non-grantor trusts and U.S. owners of domestic companies. ofchain ofa tier lowest the at are who indirectly and directly exceptions exceptions to the filing, generally the following special rules apply foreigna to thereWhile corporation. areproperty gible certain joint for ($50,000 $25,000 exceed not does shareholder the of is subject to PFIC tax where no QEF or MTM election is in effect. included in income or deducted under the MTM election, as well

- - The penalty for failure to comply with the reporting requirements There are four categories which define who is required to file requiredto is who define which categories four areThere WITH RESPECTTO CERTAIN FOREIGN schedules, isrequired foreachforeign partnership. acquisitions, dispositions, and changes in foreign partnership partnership foreign in changes and dispositions, acquisitions, PARTNERSHIPS OFU.S.PERSONSFORM 8865,RETURN to intentionaldisregard. transfer, limited to $100,000 if the failure to comply was not due the form and how much information must be provided. The provided. be must information much how and form the trolled foreign transfers to partnerships, foreign or partnerships, • • • • • Form 8865 is required to report information with respect to con categories are: applicable the with along 8865, Form separate A ownership. is 10% of the fair market value of the at property the time of the $100,000. 926 if immediately after the 926 transfer if the holds, immediately person directlyafter share of thetransferred property. a Category 1 filer at any time during that tax year,tax that person during no time any at filer 1 Category a the 12-month period ending on the date the transfer exceeds transfer the date the on ending period 12-month the during corporation foreign the to person the by transferred ofcash amount the or corporation, foreign ofthe value total proportionate partner’s the on based 926 Form on transfer the value of the property contributed by such person or related U.S. by controlled was partnership the while partnership the tax year. If the transfer includes cash, the transfer is reportable on Form Category 3: Category 2: Category Category 1: If the transferor is a partnership, the U.S. partners of part the partners U.S. the transferorthe If partnership, a is will be considered a Category 2filer.will beconsidered aCategory nership, not the partnership itself, are required to report the itself, report requiredareto partnership the not nership, property property to a foreign the arepartnership, partners considered person exceeds $100,000. If a domestic contributes partnership person either owned directly or indirectly at least a 10% interest in partnership exchange for an interest in the if partnership, that persons each owing at least 10% interest. However, if there was or indirectly, at least 10% of the total voting power or the or power voting total the of 10% least indirectly,at or contributed property during that person’s tax year to a foreign in interestgreater or 10% a owned partnership foreign ofthe in the foreign immediately partnership after the contribution, or partnership’s the during time any at partnership foreign a in A U.S. person who owned more than a 50% interest A U.S. person who at any time during the tax year A U.S. person, including a related person, who person, related a including person, U.S. A - -

international tax planning and reporting requirements 113 EisnerAmper 2018 personal tax guide 114 A penalty of $10,000 can be assessed for failure to furnish the furnish to failure for assessed be can $10,000 of penalty A U.S. PERSONS WITHRESPECTTO CERTAIN applied for each tax year of each foreign Furthermore, partnership. FOREIGN CORPORATIONS FORM 5471,INFORMATION OF RETURN • • • foreign corporations. You will be required to file this form if you Form 5471 is used to satisfy the reporting requirement for U.S. requirementfor reporting the satisfy to used is 5471 Form meet one of the 1 following has tests been (Category repealed): certain in shareholders or directors,officers, are who persons is penalty This prescribed. time the within requiredinformation of $50,000foreachfailure. each 30-day period that the failure continues, up to a maximum once the IRS has sent out a notification of the failure to report the information, anadditional$10,000penaltycanbeassessedfor stock that makes him/her a 10% owner with respect to the to respect with owner 10% a him/her makes that stock the the date of acquisition or without regard to stock already owned, the outstandingstockof theforeign corporation. partnership foreign the if 6038B, section IRC under transfer contributed the ofshare proportionate a transferred have to Category 3: Category 2: Category 4: Category foreign corporation,or foreign corporation which, when added to any stock owned on foreign corporation, or acquired an additional 10% or more of had a change in proportional interest may be required to report inthepartnership. partner that report requiredto was and partnership the to property files partnership Form 8865 and properly reports all the required However, domestic the partnership. if foreign the to property meets the 10% stock ownership requirement with respect to the under this category if certain requirements are ifcertain met. under thiscategory of a foreign corporation in which a U.S. person has acquired has person U.S. a which in corporation foreign a of a remained person U.S. the while property such of disposed generally not be required to report the transfer. 3 also Category includes a U.S. person that previouslythat person U.S. a includes transferred appreciated will partners its contribution, the to respect with information • • 10% stock ownership requirement.10% stockownership the 10% stock ownership requirement with respect to the to respectrequirement with ownership stock 10% the You are a U.S. person who disposes of sufficient stock in the You are a person who becomes a U.S. person while meeting foreign corporation to reduce your interest to less than the than less to interest your reduce to corporation foreign foreign corporation,or A U.S. person who had acquired or disposed of or You are a U.S. person who is an officer or director You are a U.S. person who acquires stock in a in stock acquires who person YouU.S. a are The information required to properly complete Form 5471 can 5471 Form completeproperly required to information The also 8865 Form file to failure for apply that penalties same The Another oft-encountered rule under the F Subpart regime is the Accordingly the look-through rule operates to reduce the global aim to subject such income to federal tax in the year in which in year the in tax federal to income such subject to aim anti-deferral rulesintroduced byCongress overtheyears. previoussection). the in discussion the (see 5471 Form to apply stock ownership for these purposes. Beginning in 2017, a nonresi the subsidiary earns it. The CFC the look-throughsubsidiary rule provides that as such jurisdictions, tax low into moved easily be could that • • One of the issues faced by U.S. multinationals is that profitsthat is multinationals U.S. by faced issues the of One federal income tax, even if the cash that represents those earn representsthose that cash the if even tax, income federal the rest of your family are not, yet each (or any) individual owns individual any) (or resteach the areyet offamily not, your and areyou person consideredIf U.S. a related person. a U.S. to Most notably, F Subpart was designed to tax the types of income Note: Observation: Observation: rule which limits the CFC’s investment in U.S. Under this provision F. Subpart of calculation the from excluded are parties related be extensiveandattimesdifficulttoobtain. effective taxrateformanymultinationalcompanies. dividends,interest, rents and royaltiescertain paidbetween rules anti-deferral The royalties. and rentsinterest, dividends, U.S. to subjected be often can subsidiaries foreign by earned if a CFC extends a loan to its U.S. shareholder or relateda party of variety wide the ofresult the is This repatriated. not is ings dent’s inaforeign ownership corporationcannowbe attributed attributed to your own. If you did not meet one of the filing require an interest in the same foreign gets corporation, their ownership ments previously, youmaymeetitnow. permanently extendedasaresult of PATH. 50% of the total combined voting power of all classes of stock Category 5: Category 4: Category has U.S. shareholders (counting only those with at least a 10% period of 30 days or more and who owns the stock on the last of thecorporation. stock ofthe value total the or stock, voting ofits classes ofall corporation more than 50% of the total combined voting power day of that year. A CFC is defined as a foreign corporation that uninterrupted an for (“CFC”) corporation foreigncontrolled or more duringanytaxyearof theforeign corporation. entitled to vote or more than 50% of the total value of the stock interest) that own on any day of the tax year of the foreign the of year tax the of day any on own that interest) in a foreign corporation for an uninterrupted period of 30 days Certain Certain constructive ownership rules apply in determining You are a U.S. shareholder who owns stock in a in Youstock owns shareholderwho U.S. area The look-through rule for related parties has been You are a U.S. shareholder who owns more than

- - - TRUST WITHAU.S.OWNER TRANSACTIONS WITHFOREIGN TRUSTS The information return must be filed in connection with the for the with connection in filed be must return information The A foreign trust is defined as a trust in which either a court out court a either which in trust a as defined is trust foreign A AND RECEIPT OFCERTAIN FOREIGN valued in the aggregate at more than $100,000 annually and gifts side of the U.S. is able to exercise primary supervision over the over supervision exerciseprimary to able is U.S. ofthe side subject you to a penalty of 35% of the gross value of any property a requirement to file Form Annual 3520-A, Information Return of a market rate interest or the user makes a payment equal to the and must be The reported. use or loan of trust will property not Any trust. foreign a from beneficiary U.S. a by distributions any persons non-U.S. more or one or trust the of administration FORM 3520,ANNUAL TO RETURN REPORT transferred to the trust, 35% of the gross value of the distributions to obtainabankloanintheU.S. trade certain are loan a of definition the in Included taxpayers. U.S. for dividend shareholder,a U.S. deemed its is to loan the GIFTS AND FORM 3520-A, ANNUAL ANDFORM 3520-A, GIFTS Gifts Gifts or bequests that you receive in the form of money or prop fair marketvalueof suchusewithinareasonable timeframe. from aforeign orbequestsfrom trust,orreceive foreign gifts U.S. persons who either create a foreign trust, receive distributions In addition to the filing requirements of Form 3520, there is also INFORMATION OFFOREIGN RETURN Foreign Trust With a U.S. Owner, which is an annual information individual your of date due the by filed be must 3520 Form received from the trust, or 5% of the amount of certain foreign ofofamount certain 5% the or receivedtrust, fromthe poration or foreign are partnership also reported on Form 3520. be considered a distribution to the extent the loan is repaid with related is person treated as a distribution to the grantor or ben ofreceipt the and trust, foreign a to grantor or settlor the by assets other or ofcash transfer the trust, foreign ofa mation have the authority to control all substantial decisions of the trust. arepersons required tofileForm 3520. receivables as well as using the CFC as collateral or as a guarantor uncompensated use of foreign trust property (e.g., real estate real (e.g., property trust offoreign use uncompensated or personal property) by a U.S. grantor,U.S. a by property) any beneficiary,or personal U.S. or exceed 25%of the gift). (not to goes unreported for each month for which the gift gifts fromerty a non-resident alien (including a foreign estate) that is equal to eficiary the fair market value of the use of the property income tax return, including extensions. The failure to do so may in excess of $15,797 in 2017 ($16,111 for 2018) from a foreign cor - - - - - $50,000 for single taxpayers) in certain foreign assets (e.g., a (e.g., assets foreign certain in taxpayers) single for $50,000 year, in the case of a calendar-year trust. A six-month extension annually trust foreign the that ensuring for responsibleare you and beneficiariesof thetrust. owner,ofU.S. benefit the the As for accumulated person. U.S. a or paid be can trust the of corpus or income no agreement, a reporting exception for foreign financial assets reported on exceptionforforeign financialassetsreported a reporting addition to the FBAR Form reporting. 8938 ofis part the annual jointly filing taxpayers Those 8938. Form on assets those about and issued by a foreigner) will be required to report information FINANCIAL ASSETS FORM 8938,STATEMENT OFFOREIGN trust unless you can demonstrate that under the terms ofthe terms the under that demonstrate can you unless trust taxpayers). taxpayers). Also, individuals not required to file a U.S. income tax the taxyearor$75,000atanytimeduringyear. the total value of those assets exceeds $50,000 on the last day of regardlessofobligation filing a have also year the during time (oryear, $100,000 ofthe than end ofmoreaggregate the an whether the end-of-year threshold is met. This requirement is in who hold $150,000 (or $75,000 for single) in foreign assets at any furnishes certain information to the IRS and the other owners owners other the and IRS the to information certain furnishes file penalties up to $50,000. In addition, a 40% understatement understatement 40% a addition, In $50,000. to up penalties file filing thresholds are increased to $400,000 (or $200,000 for single financial assets (special domestic entities) must file Form 8938 if for the purpose of holding, directly or indirectly, specified foreign held is that investment for held contract or instrument financial foreign interest an account, financial aforeign in entity, any or U.S. citizens or resident aliens filing joint returns who hold, at hold, who returns joint filing aliens resident or citizens U.S. Form 3520-A must be filed by March 15 after the foreign trust’s tax Noncompliance with these rules for any tax year could result could year tax any for rules these with Noncompliance the U.S. ofthe outside living aliens resident or citizens U.S. For domestic corporations, December 31,2015,certain Beginning after presumed to have a and U.S. is beneficiary considered a grantor return of a foreign trust with at least one U.S. owner and which is penalty for underpayment of tax asaresult of atransaction even 8938 Form file requiredto not are year tax the for return and partnerships, trusts that are considered formed or availed of can berequested onIRSForm 7004. is trust the trust, foreign a to property transfers indirectly or considered a grantor trust. If you are a U.S. who person directly certain information returns. certain in afailure-to-file penaltyof andcontinuingfailure $10,000 to is there and threshold reporting appropriate the than more is assets financial foreign specified the ofvalue aggregate the if income taxreturn, whereas theFBARisfiledseparately.

international tax planning and reporting requirements 115 EisnerAmper 2018 personal tax guide 116 ACT —FATCA special agreement with the IRS by June 30, 2014. A participating accounts held by U.S. taxpayers, or by foreign entities in which in entities foreign by or taxpayers, U.S. by held accounts assessed; criminalpenaltiesmayalsoapply. and proceeds from thesource of securities. Those IRS. the to information the report will institution the and accounts. The U.S. account holder will need to provide the insti FOREIGN ACCOUNT TAX COMPLIANCE shore hedge funds, private equity funds, andreal estate holding to provide information will be subject to a 30% withholding tax withholding 30% a to subject be will provideinformation to person U.S. a as status the identify to W-9 Form a with tution financial about information certain IRS the to directly report to the transaction or the asset if the failure to report was due to due was report to failure the if asset the or transaction the relatedsubmitted to is reporting informational certain date the cross-bordertransactions regardto with tax assessing for tions would not begin to run until the taxpayer files the return disclos U.S. taxpayers hold a substantial ownership interest. To properly Beginning July 1, 2014, foreign2014, 1, July Beginning areinstitutions financial required limita of statute the 2010, 18, March after filed returns tax For Observation: Observation: holders who have opened accounts or after the effective date effective the after or accounts opened have who holders account U.S. identify account, an opening to proceduresprior in is omission an If omission. willful not and cause reasonable broader than under the FBAR rules and includes interests in off in interests includes and rules FBAR the under than broader on certain U.S.-source payments including interest, dividends interest, including payments U.S.-source certain on of the agreement,procedures and have certain for pre-existing comply, aforeign financial institution was required to enter into a of limitations will be extended from three and to six years years statute the asset, foreignfinancial a relatedto of$5,000 excess or for foreigncertain assets will be extended for three years from institutions that do not and participate account owners unwilling duediligence institution willberequired toimplementcertain foreign asset. ing thereportable involving an undisclosed specified foreign financial asset can be companies. The definitionof foreign assetismuch areportable

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