Like most things tax related, at the surface level offshore disclosure, that is reporting of foreign assets like bank accounts, trusts, and certain gifts, is pretty simple. In the US, taxpayers are required to report their offshore holdings to the IRS and failure to do so can constitute tax evasion and involve heavy penalties. In practice, of course, offshore disclosure tends to be a bit more complex than in theory.
There are three main agencies involved in offshore disclosure and corresponding investigations and they all have their own forms. Below are a few of the main forms, grouped by the agency they’re for, with a brief description of their purpose.
Forms for the IRS
There are two main forms for offshore disclosure from the Internal Revenue Service. Both of them are about reporting, i.e. a taxpayer doing his or her legal obligation to disclose assets to the IRS. There are also a number of other, miscellaneous IRS forms connected to offshore disclosure and cash transfers.
Form 3520 is the main form for transactions with foreign assets, trusts and the like, and for reporting certain foreign gifts. It’s filed annually, just like the familiar 1040 and it’s due at the same time. Forms filed for estates have different deadlines.
Form 3520-A, as the name suggests, is closely related to Form 3520. 3520-A is filed annually to report foreign trusts with a U.S. owner. It is used, among other things, to help determine if as the owner of a foreign trust the taxpayer in question owes taxes on income derived from that trust to the IRS
Form 8300 must be filed to for cash transactions of $10,000 or more. Multiple transactions within 24 hours, or multiple transactions taking place over a longer period of time but which the recipient knows to be connected, are considered related and are added together to determine if they are over $10,000 and thus require Form 8300 to be filed. Form 8300 can also be required for suspected suspicious activity.
Form 5470 reports information to the IRS about foreign corporations with U.S. ownership. There are several categories of individuals who must file Form 5470 and they must complete different schedules of the form. The most basic requirement is owning at least 10% of the stock of a foreign company. Depending on other conditions, such a person must file Form 5470.
Form 8938 is new for the 2011 tax cycle. At present the IRS has released a draft of the form without instructions. In addition to filing an FBAR, taxpayers whose total foreign assets exceed $50,000 must file Form 8938 as well. It asks for similar information as the forms used for taking part in the IRS Offshore Voluntary Disclosure Initiative.
Forms for FinCEN
FinCEN (that’s the Financial Crimes Enforcement Network) are a division of the Department of the Treasure tasked with investigation financial malfeasance, money laundering, tax evasion and similar criminal activity. There are several FinCEN forms dealing with offshore disclosure. These aren’t forms filed by taxpayers, but instead these are forms filled out by FinCEN investigators, documenting transactions and accounts involved in suspected criminal activity.
FinCEN Form 101 is for reporting suspicious (possibly criminal) activities within the context of the securities and futures industries–who did what with whom and in what setting. FinCEN Form 109 is almost the same, but is for reporting suspicious activity in the context of money survives business.
FinCEN Form 104 reports transactions of currency, while FinCEN Form 105 is for when money crosses borders, whether carried or shipped.
FinCEN Form 110 is for designating exempt persons in an investigation of suspicious activity, and also for renewing that status, something that is every two years.
Treasury Department Forms
Finally, the Department of the Treasure, of which both FinCEN and the IRS are parts, has forms of its own. These include both forms for reporting by taxpayers and for reports of suspicious activity. Principally, we’re talking about TD F 90-22.1, which is for reporting foreign bank and foreign account information (this is commonly called the FBAR form) and TD F 90-22.47, which is used to report suspicious activity regarding financial transactions and assets, including issues of offshore disclosure.
Horowitz Law Offices has helped clients with offshore disclosure, IRS voluntary disclosure (OVID), and other tax legal issues. For more information on tax concerns, contact Horowitz Law Offices.