International Tax Compliance Overview: Forms, Troubleshooting Issues, and Navigating Green Card and Visa Residents

This presentation delves into international tax compliance with a focus on U.S. issues, planning, inbound and outbound aspects, tax information reporting, and financial reporting. It covers common tax forms, troubleshooting offshore account compliance, and navigating tax issues for Green Card and Visa holders.

• International tax
• Compliance issues
• Green Card
• Visa residents
• Tax forms

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1. INTERNATIONALTAX COMPLIANCE 101 AN OVERVIEW OF THE FORMS, TROUBLESHOOTING COMPLIANCE ISSUES, AND NAVIGATING THE TRICKS AND TRAPS OF GREEN CARD AND VISA RESIDENTS AUSTIN C. CARLSON, CPA, JD GRAY REED & MCGRAW, P.C. ACARLSON@GRAYREED.COM August 15th, 2014 Texas Association of CPAS

2. International Tax Categories What s covered in this presentation U.S. Issues Compliance* Planning Inbound X Outbound X *Specifically U.S. Tax Information Reporting. Financial reporting is another sub-category. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

3. Presentation Overview Part 1: An Overview of the Most Common International Tax Forms Part 2: Troubleshooting Offshore Account Compliance Issues A Field Guide to the OVDP including the July 2014 revisions (the 2014 OVDP ) Part 3: Navigating the Tricks and Traps of Tax Issues of Green Card and Visa Residents INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

4. Part 1: Overview of International Tax Information Returns 1. FinCEN Form 114 Foreign Bank Account Report 2. Form 8938 Statement of Specified Foreign Assets 3. Form 8833 Treaty Based Disclosure Position 4. Form 2555 Foreign Earned Income Exclusion Form 5471 - Information Return of U.S. Persons With Respect to Certain Foreign Corporations Form 5472 - Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business 5. 6. 7. Form 8865 - Return of U.S. Persons With Respect to Certain Foreign Partnerships 8. Form 8858 - Information Return of U.S. Persons With Respect To Foreign Disregarded Entities 9. 10. Form 3520-A - Annual Information Return of Foreign Trust With a U.S. Owner Form 3520 Return for Foreign Trusts and Receipt of Certain Foreign Gifts INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

5. FinCEN Form 114 Foreign Bank Account Report ( FBAR ) Simplified History of the FBAR Created in 1970 Bank Secrecy Act The Secretary of the Treasury shall require a resident or citizen of the United States or a person in, and doing business in, the United States, to keep records, file reports, or keep records and file reports, when the resident, citizen, or person makes a transaction or maintains a relation for any person with a foreign financial agency. Amendments in 2004 New Penalties for Non-Willful Violations, Stronger Willful Penalties. Amendments in 2011 Some New Clarifications and Modifications of Terms. June 30th, 2013 Switch from Form TD F 90-22.1 to Mandatory Filing of FinCEN Form 114 --Compliance Remains Low-- INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

6. FBAR: Who Must File (Basic Definition) A U.S. PERSON that has a FINANCIAL INTEREST or SIGNATORY AUTHORITY over FOREIGN FINANCIAL ACCOUNTS if the aggregate value of the foreign financial accounts EXCEEDS $10,000 at any time during the calendar year. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

7. FBAR: Who Must File (U.S. Person) U.S. citizens; U.S. residents; U.S. entities, including but not limited to, corporations, partnerships, or limited liability companies created or organized in the United States or under the laws of the United States; Trusts or estates formed under the laws of the United States (note, this is a complicated analysis). U.S. residents: Based on I.R.C. Sec. 7701 Residency Rules Green Card and Visa Residents may have to file. Will discuss further in Part 3 INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

8. FBAR: Who Must File (Financial Interest or Signatory Authority) 1. Owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the United States person or for the benefit of another person; or 2. Owner of record or holder of legal title which includes: Agent, Nominee, Person Acting on Behalf of U.S. Person Owns directly or indirectly MORE THAN 50% of value or voting power of any entity Partnership interest in 50% of profits or capital Trust if trust grantor and has an ownership interest for tax purposes Trust if beneficiary has MORE THAN 50% present beneficial interest (remaindermen do not have interest) INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

9. FBAR: Who Must File (Foreign Financial Accounts) 1. Foreign: Outside the U.S. i. Foreign Branches of U.S. Banks = Foreign ii. U.S. Branches of Foreign Banks = Non-Foreign 2. Financial Accounts i. Checking, Deposit, Savings, Securities, Brokerage, Demand, Time Deposit ii. Commodity Futures or Options Account iii. Insurance Policy with Cash Value (whole life insurance) a) Note: a very complicated analysis, foreign countries have vastly different insurance arrangements. b) Foreign Insurance Excise Tax may Apply Annuity Policy with Cash Value Shares in a Mutual Fund or Similar Pooled Fund iv. v. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

10. FBAR: Who Must File (Exceeds $10,000) 1. At any time during the year Highest account balance i. Can use reasonable estimate ii. Must use year end rates published by the Treasury Department 2. $10,000: Add all accounts together. File if Aggregate balance above $10,000 INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

11. FBAR Filing Notes: Families 1. Spouses - One spouse can file on behalf of both spouses ONLY if all of the accounts non-filing spouse owns are reported by filing spouse. 2. Children Must also file FBARs. Parents can sign on behalf of children. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

12. FBAR Filing Notes: The Parts 1. Part One Personal Information. NOTE if over 25 accounts, do not need to report information. 2. Part Two Accounts Owned Separately. 3. Part Three - Accounts Owned Jointly. 4. Part Four Nominee Accounts. 5. Part Five Consolidated Return Accounts.An entity that is a United States person that owns directly or indirectly a greater than 50 percent interest in another entity that is required to file an FBAR is permitted to file a consolidated FBAR on behalf of itself and such other entity INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

13. FBAR Filing Notes: Deadline and Penalties 1. Deadline June 30th i. Must be filed Electronically ii. Not filed with a tax return iii. Must be received by June 30th, Not postmark deadline. 2. Penalty Worst Case Scenario Up to 50% of the Highest Account Balance Each Year for Each Account. Criminal liability. i. Discussed Further in Part II of this Presentation. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

14. Form 8938: Statement of Specified Foreign Assets Short History: Required for Tax Years starting after March 18, 2010 (2011 Tax Returns) Basic Rule: A specified individual that has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

15. Form 8938: Definitions (Specified Individual) U.S. Citizen U.S. Resident Green Card ( Lawful Permanent Resident ) Resident Alien Non-Resident Alien that makes election Treaty Tie-Break Non-Resident Alien (Described further in Section 3) Does NOT Currently Apply to Domestic Entities May in the future! INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

16. Form 8938: Definitions (Interest) General Rule - Interest if any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the asset are or would be required to be reported, included, or otherwise reflected on your income tax return. Specific Rules Assets of disregarded entities - Report assets as if you own them directly. Jointly owned accounts Each must report entire interest. Owner of Grantor Trusts Report all assets. Interest in Foreign Estates and Trust Must report. Foreign Pension Plans and Deferred Compensation Plans Report interest in plan. Foreign Financial Interests in U.S. Accounts Don t report! INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

17. Form 8938: Definitions (Specified Foreign Financial Asset) Financial accounts maintained by a foreign financial institution (basically anything on the FBAR) Certain assets if held for investment and not in an account by a financial institution: Foreign stock or securities Interest in a foreign entity Financial instrument or contract that has an issuer or counterparty that is foreign For example, loan between U.S. person and foreign family member Interest in foreign trust and estates INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

18. Form 8938: Definitions (Thresholds) Living In the U.S. Living OUTSIDE of the U.S.* Highest Balance Highest Balance Year End Balance Year End Balance Unmarried OR Married Filed Separately $75,000 $50,000 $300,000 $200,000 Married Filed Jointly $150,000 $100,000 $600,000 $400,000 *Satisfies living outside if tax home in a foreign country, AND either bona fide resident or present in foreign country 330 full days. See Form 2555 discussion later. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

19. Form 8938 Filing Notes: Duplicate Reporting Do not have to report asset IF reported on one of the following forms: Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations. Form 8621, Information Return by Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. Form 8891, U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans. Also, note that no Form 8938 is required if a tax return is not otherwise required to be filed INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

20. Form 8938 Filing Notes: Deadline and Penalties 1. Deadline With Personal Tax Return, Including Extensions 2. Penalty Worst Case Scenario $10,000 initial penalty. $10,000 per 30 additional days up to $50,000 i. Both spouses penalized, joint and several liability. 3. Statute of Limitations Extension Indefinitely till filed. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

21. Form 8833: Treaty Based Return Position Who must file? Anybody taking a treaty based return position Information on Tax Treaties i. What are the tax treaties? ii. Which countries does the U.S. have tax treaties with? (Currently 46) iii. What kind of benefits does they have? iv. What kind of client would use these? i. Dual Citizens/Resident Aliens ii. U.S. Persons Working Abroad (Also See Foreign Earned Income Exclusion) iii. U.S. Companies with Foreign Operations v. How do the treaties interact with the I.R.C.?

22. Form 8833: Filing Notes: Deadline and Penalties 1. Deadline With Tax Return, Including Extensions 2. Penalty Worst Case Scenario $1,000 for Individuals, $10,000 for Corporations i. Doesn t disallow the Treaty Benefit 3. Simple Form (See Next Slide) INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

24. Form 2555: Foreign Earned Income Exclusion Who must file? U.S. Citizens or Resident Aliens MAY choose to exclude a certain amount of foreign income from U.S. Taxation if they qualify for the exclusion. Who Qualifies? 1. Must maintain tax home in the foreign country; and 2. Meet at least one of these requirements: i. Be a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or ii. Be physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

25. Form 2555: Definitions (Tax Home) Regular Place of Business - A tax home is the taxpayer s regular or principal place of business, employment, or post of duty, regardless of where the taxpayer maintains his family residence. Exception for Home in U.S. - However, the taxpayer is not considered to have a tax home in a foreign country for any period during which his abode is in the United States. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

26. Form 2555: Definitions (Bona Fide Resident) Bona Fide Resident - A taxpayer is determined to be a bona fide resident of a foreign country based on his intention about the length and nature of his stay. Evidence of intention may be words and acts. If these conflict, acts carry more weight than words. Generally, if a taxpayer goes to a foreign country for a definite, temporary purpose and return to the United States after heaccomplishes it, he is not a bona fide resident of the foreign country. If accomplishing the purpose requires an extended, indefinite stay, and he makes his home in the foreign country, the taxpayer is a bona fide resident. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

27. Form 2555: Filing Notes: Deadline and Penalties 1. Deadline With Tax Return, Including Extensions i. Automatic Two Month Extension INCLUDING for tax (but owe interest on the two months) ii. Must file with timely return, amended return, or late filed return within one year. iii. Can file even after one year IF YOU OWE NO TAX. iv. IF YOU DO OWE tax, can file BEFORE the IRS contacts you- You must type or legibly print at the top of the first page of Form 1040 "FILED PURSUANT TO SECTION 1.911-7(a)(2)(i)(D)." v. If YOU DO OWE tax AND the IRS CONTACTS YOU FIRST You must request a private letter ruling. 2. Can File Form 2555-EZ If Meet Several Requirements INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

28. Form 5471: Information Return of U.S. Persons With Respect to Certain Foreign Corporations Who Must File (There are four categories of filers, but generally, same as FBAR) U.S. Persons: U.S. Citizens and Residents, U.S. Entities U.S. Trusts (Again Trust Rules are Complicated) That fall in one of the following categories: Category 1: Repealed Category 2: U.S. Citizen or Resident who is an officer or director of a foreign corporation where a U.S. Person has initially acquires 10% or more of the stock of the foreign corporation, or acquires an additional 10% Category 3: A U.S Person who acquires 10%, acquires an additional 10%, disposes of stock to reduce interest to less than 10% Category 4: A U.S. Person has control of a foreign corporation for at least 30 days (Control: 50% of voting power or value) Category 5: A U.S. person is a shareholder in a CFC for 30 days in the year and owned the stock on the last day of the year. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

29. Form 5471: Filing Notes Additional Definitions CFC: Controlled Foreign Corporation U.S. Shareholders (Only counts if U.S. Person owns 10% or more of the shares) Own more than 50% of the voting or value Constructive Ownership Rules Apply The phrase constructive ownership means that one taxpayer is deemed to own the shares of certain other related taxpayers - such as a spouse, child or parent The primary definition of constructive ownership and attribution of ownership is provided in IRC Section 318 INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

30. Form 5471: Filing Notes Penalties and Deadline 1. Deadline With Tax Return, Including Extensions 2. Penalty Worst Case Scenario - $10,000 initial penalty. $10,000 per 30 additional days up to $50,000 3. Statute of Limitations Extension Indefinitely till filed. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

31. Other Entity Reporting Forms 1. Form 5472 - Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Only required for reportable transactions with foreign related parties. 2. Form 8865 - Return of U.S. Persons With Respect to Certain Foreign Partnerships. Very Similar to Form 5471 but for Partnerships. 3. Form 8858 - Information Return of U.S. Persons With Respect To Foreign Disregarded Entities. Similar to Form 5471 but for Foreign Disregarded Entities. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

32. Form 3520 - Return for Foreign Trusts and Receipt of Certain Foreign Gifts Who must file? U.S. Persons (similar definition to FBAR) with 1. Certain transactions with foreign trusts, 2. Ownership of foreign trusts 3. Receipt of certain large gifts or bequests from certain foreign persons. Brief Definition of Foreign Trust. A foreign trust is a non-domestic trust. A trust is domestic if BOTH of the following apply: 1. A court within the United States is able to exercise primary supervision over the administration of the trust; and 2. One or more U.S. persons have the authority to control all substantial decisions of the trust. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

33. Form 3520 Reporting Foreign Gifts A U.S. person must report on Form 3520 any gift from a foreign person if: The gift or bequest is valued at more than $100,000 from a nonresident alien individual or foreign estate (including foreign persons related to that nonresident alien individual or foreign estate); or The gift is valued at more than $15,102 (adjusted annually for inflation) from foreign corporations or foreign partnerships (including foreign persons related to the foreign corporations or foreign partnerships). Must aggregate gifts from related parties. Foreign gifts from corporations and partnerships can be reclassified just like domestic gifts. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

34. Form 3520 Filing Notes: Deadlines and Penalties 1. Deadline With Tax Return, Including Extensions. i. BUT filed separately from U.S. Tax Return 2. Penalty Worst Case Scenario - Greater of $10,000 or 5% of the amount of the gift for each month that the failure continues, up to a maximum penalty of 25%. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

35. Form 3520A - Annual Information Return of Foreign Trust With a U.S. Owner Who must file? Foreign Trust with U.S. Owner Note, this is the foreign trust NOT the U.S. Owner. However the U.S. Owner can be held financially responsible for non-filing. Filing Deadline March 15th NOT APRIL 15th! Typically Foreign Trust provides beneficiary with Foreign Trust Beneficiary Statement Penalties Same as 3520 - Greater of $10,000 or 5% of the amount of the trust for each month that the failure continues, up to a maximum penalty of 25%. INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.

36. Questions for Part One? Austin C. Carlson, JD, CPA Gray Reed & McGraw, P.C. acarlson@grayreed.com 713-986-7213

37. Want more International Tax planning focused CPE? State Bar of Texas, 17th Annual International Tax Symposium International Tax Committee of the Tax Section Houston: Thursday, November 6, 2014, 8am-3:30pm Hess Club, 5430 Westheimer, Houston, TX Plano: Friday, November 7, 2014, 8am-3:30pm Center for American and International Law, 5201 Democracy Drive, Plano, TX 6.5 Hours of CPE Credit, 5.75 Hours of CLE Credit Contact me for additional information and to get on the mailing list. Austin Carlson, International Tax Committee Chair acarlson@grayreed.com 713-986-7213 INTERNATIONAL TAX COMPLIANCE 101 INTERNATIONAL TAX COMPLIANCE 101- - AUSTIN C. CARLSON, CPA, JD, GRAY REED & MCGRAW, P.C.