International Entanglements

No, this has nothing to do with the potential for the US to acquire Greenland, the Panama Canal, or even St. Petersburg (Russia?/Florida?). Nor does it have anything to do with our firm reaching out (in a more economically viable form) for us to acquire let’s say Roatan. Rather, this article focuses on 2 areas of tax return reporting that involve having a nexus internationally. One of these 2 points is fairly well-known to many people and relatively common; the other is less well-known and less common. 

• While many people are aware of the requirements to declare when you have foreign bank accounts (FinCen forms that go with your tax return) and that there can be severe penalties for failure to comply with the rules, it doesn’t hurt to briefly reiterate the basics. And those basics are fairly straight-forward – putting aside any confusion and complicating factors, if you at any time in the year have at least $10,000 cumulatively in total, in any number of foreign bank accounts, you are required to report same with your tax return. It doesn’t matter if it’s spread over several bank accounts, none of which even gets close to $10,000; nor does it matter if you peak at $10,002 once in the year, but all the other time during the year you are under $100. None of that matters. The qualifying benchmark is having $10,000 or more (in US money) in any single or combination of foreign bank accounts, anytime during the year.

• The less common situation, but one which can be far more complicated in terms of responding as required, is if you own or control 10% or more of any foreign company, or have a significant role in running/managing/directing that company. Thus, any US citizen or resident who owns or controls more than 10% of a foreign entity; or, controls 10% or more of the voting power or value of a company; or is a (high level) director, officer, etc. (generally someone with a level of control and major influence) qualifies for this filing requirement. In addition, for this purpose, a US citizen also includes not only individuals, but a partnership or a corporation that is a US based entity. Similarly as to an estate or a trust. To put it more simply, if you as a US citizen or resident have a significant involvement in a foreign entity, very likely you are required to file Form 5471 each year. The issues involved therein and the form are far more complex than we could ever do justice to in this article. For instance, that Form has sub-schedules b through r – yes, this can get out of hand. Suffice it to say that if you are in this position, or think you are, you must discuss this with your tax professional.

Obviously, expanding your financial reach into the international arena, has the potential to cause you to be required to file any number of forms and reporting that would not otherwise be the case. By the way, this has nothing to do with whatever else might be required of you by the foreign country. For the more paranoid among us, this may compel you to stick to home base.

If you have any questions contact Kal Barson at kal@barsongroup.com