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Reporting Obligations of US Taxpayers with Foreign Financial Investments


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Navigating the complexities of global mobility demands meticulous attention to various factors. One critical, yet often overlooked factor, is the evolving landscape of reporting obligations for US taxpayers with international financial investments. The success of employee transitions across borders requires not only seamless relocation but also adhering to intricate compliance requirements in an ever-changing regulatory environment.

In this article, we will delve into the essential aspects of reporting obligations encountered by US taxpayers holding foreign financial assets. We’ll explore the international information returns required for US taxpayers with foreign assets, the penalties of unfiled or incomplete international information returns, and what a mobility manager can do to help their mobile employees through this process.

For purposes of this article, a US person is a citizen or resident of the United States, US corporation, US partnership, or US estate or trust. This article will focus on reporting obligations of individual taxpayers who are US citizens, green card holders, or US tax residents.

International information returns for US taxpayers with foreign assets

Mobility managers play a crucial role in ensuring the financial compliance of both their employees and their company. However, complications arise when these mobile individuals possess assets or investments overseas, unknowingly entangling themselves in complex reporting obligations. Understanding these obligations is vital, as missteps in compliance can not only result in steep fines but also pose significant challenges for the individual and the company.

In recent years, the IRS has scrutinized activities outside of the United States, including foreign investments. As a result, US taxpayers—US citizens, green card holders, or US tax residents—who own foreign financial investments may be required to file extra forms, known as international information returns, with their individual income tax return.

International information returns require taxpayers to report information relating to foreign assets, interests in various entities, certain transactions, and information relating to foreign-sourced income.

Below are some of the international information returns that may apply to US taxpayers:

  • FinCEN 114 – Report of Foreign Bank and Financial Accounts
  • Form 8938 – Statement of Specified Foreign Financial Assets
  • Form 8621 – Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund
  • Form 5471 – Information Return of US Persons with Respect to Certain Foreign Corporations
  • Form 926 – Return by a US Transfer of Property to a Foreign Corporation
  • Form 8858 – Information Return of US Persons with Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs)
  • Form 8865 – Return of US Persons with Respect to Certain Foreign Partnerships
  • Form 3520 – Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts
  • Form 3520-A – Annual Information Return of Foreign Trust with a US Owner

Learn more about each form in our eBook A Guide to Navigating International Reporting Obligations for US Taxpayers with Foreign Financial Investments. This guide takes an in-depth look at the required forms, thresholds, implications, and penalties, so you can ensure compliance and the efficient management of your mobility program. 

Penalties for unfiled or incomplete international information returns

Failing to provide required information to the IRS when requested or submitting incomplete and/or inaccurate returns can lead to serious consequences when it comes to international financial reporting. Even if a return has been submitted, it may still be deemed "unfiled" if it lacks completeness or accuracy, potentially resulting in penalty assessments.

For a US person with multiple reporting obligations in a given tax year, each unmet obligation poses a risk of incurring penalties. These penalties can apply separately to each required information return, amplifying the financial exposure for non-compliance. Penalties could include:

  • Financial – most forms carry significant monetary penalties with some starting at $10,000
  • Legal – repercussions of non-compliance can be severe, ranging from litigation and fines to imprisonment depending on the gravity of the violation
  • Reputational – non-compliance can damage an organization’s reputation and result in a loss of trust from customers, investors, and partners

Moreover, the repercussions of unfiled international information returns extend beyond immediate penalties. They leave the tax return perpetually open for examination by the IRS. Ordinarily, the IRS has a three-year statute of limitations to audit a tax return. However, failure to file an informational return nullifies this time limit, giving the IRS an indefinite window to scrutinize and audit the entire tax return.

How mobility managers can help

Noncompliance with reporting foreign financial accounts can result in significant penalties. Hence, it's imperative for mobility managers to offer comprehensive assistance to their mobile employees. This not only fulfills duty of care responsibilities but also ensures a smoother compliance process. Here are a few ways in which you can help your mobile employees through this process.

Conduct program review and establish processes.

Companies should conduct a thorough review of their mobility program and establish robust processes before any international travel. This review should consist of where every employee is, how long they have been there, and what job they are performing in each location. This preemptive step is crucial in proactively addressing compliance concerns, allowing for taxpayer education, and enabling the provision of services. Collaborating with a mobility tax provider can significantly aid in this process.

Offer tax counseling sessions and education.

Initiating tax counseling sessions before employees relocate is pivotal. These sessions allow tax providers to identify foreign investments early on, aiding in penalty avoidance and tax planning opportunities, and managing the cost of additional forms. Additionally, providing extensive education through webinars, online tools, and access to mobility tax professionals lessens the burden on employees and demonstrates support throughout the relocation process.

Check out our new resource center dedicated to educating mobile employees. It contains guides and insights covering global tax requirements, foreign reporting, and cross-border compliance so your mobile employees have the information they need to be successful. 

Authorize tax return assistance. 

Assisting with tax return preparation for the initial years in both Home and Host countries, particularly with international information returns, is essential. International workers often encounter varying reporting and withholding rules for income and social taxes. Seeking professional guidance helps navigate these complexities. Early advice minimizes financial, legal, and reputational risks, fostering peace of mind for both employees and the organization.

Proactive management to ensure seamless global mobility

Understanding and fulfilling reporting obligations for US taxpayers with foreign financial investments isn't just a matter of regulatory compliance; it's a crucial element in ensuring seamless global mobility for employees and safeguarding the interests of the company. The intricacies of international information returns underscore the necessity for meticulous attention to detail, accuracy, and timeliness in reporting.

However, among these complexities lies an opportunity for proactive management. Mobility managers play a pivotal role in mitigating these risks by instituting comprehensive processes, providing professional guidance, offering tax counseling sessions, and facilitating education and assistance. By collaborating with mobility tax providers and initiating early support for employees, companies can navigate these reporting obligations effectively, minimizing risks and ensuring a smoother transition for their mobile workforce.

We’re here to help! Whether it's guidance on compliance, assistance with reporting obligations, or proactive strategies to navigate these complexities, we have the expertise to assist you and your mobile employees. Schedule a call with our team today. Let's work together to ensure seamless transitions, risk mitigation, and upholding of compliance standards, which will empower your workforce to thrive in a global landscape.

Mobility tax specialists

Author Alina Hagness

Alina, Senior Manager at GTN since 2023, brings over a decade of expertise in expatriate tax services. Her role involves guiding clients through assignment administration, ensuring international payroll compliance, facilitating remote work structures, and navigating the complexities of information reporting concerning individuals' foreign financial assets. Known for her prompt responsiveness and meticulous attention to detail, Alina simplifies expatriate tax advice, making it easily comprehensible. And she's recognized as a go-to resource for intricate tax reporting obligations associated with non-US investments. | +1.763.270.7543
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