Foreign Information Report Penalties

Have you failed to timely file a complete foreign information report such as Forms 5471, 5472, 114, 8938, 3520, 8865 or any of the other forms? If you are not sure what these forms are but you are either a foreign owner in a U.S. business entity or American owner of a foreign business entity or own foreign financial accounts or other specified foreign assets either directly or indirectly through ownership in foreign entities or persons you are probably delinquent. Even if you were not an owner but merely had signing authority  with the ability to control monetary transfers of funds in foreign accounts, or a Director or officer of a foreign corporation that was deemed a Controlled Foreign Corporation (or other entity), or if you are the beneficiary of a foreign trust or estate  you have information return responsibilities. The bad news is that the IRS or U.S. Treasury Department will assess a non filing or incomplete filing penalty of $10,000 for each and every form and for every year of delinquency once they find out, and with the new information sharing programs between the U.S. and other countries in effect, it is not about if they find out, but more of a matter of when..and there is no statute of limitation to protect you.

The good news is there are government programs available that can help you get caught up with past due income tax returns and foreign information reports and if there is no unreported or unpaid U.S. income tax  bringing your tax matters current could be relatively painless if you act now the bring yourself into compliance before the IRS sends you a Notice of Penalty Charge CP215.

The House and Senate Tax Bills

The House and Senate tax bills are a lot alike. Both plans have similar big-picture themes:

Reduce individual rates, pare back some write-offs, slash the corporate rate to 20%, give tax preferences to individual owners of pass-through businesses and move to a territorial tax regime for multinationals.

However, there are also marked differences. We’ll delve into a few of the major ones. The Senate wants temporary individual cuts. This includes lower rates, higher standard deductions and child credit, repeal of the alternative minimum tax, breaks for self-employed persons and owners of pass-through firms, estate tax changes.

The House plan has four individual tax rates, ranging from 12% to 39.6%. The Senate proposes seven rates, starting at 10% and topping out at 38.5%. It’s a close call, but it wouldn’t surprise us to see fewer rates than under current law.

There’s huge disagreement over the popular state and local tax write-off. The Senate wants to fully ax it, while the House has come up with a compromise: End income tax write-offs and cap the deduction for real property taxes at $10,000. We think the Senate will cave when both chambers iron out their differences.

Other itemizations are also in dispute: The home mortgage interest write-off. The House would nix the break for second homes and lower the $1-million ceiling on home acquisition indebtedness to $500,000. These proposals aren’t included in the Senate bill, but there’s a chance they could make it into any final tax legislation.

The write-off for medical costs. The House would do away with this break. The Senate would keep it. We continue to think this deduction will survive in the end.

Turn to the estate tax. The House wants to double the lifetime exemption until 2025, when it would then fully repeal the tax. The Senate would preserve the tax but double the lifetime exemption. Look for the Senate proposal to prevail here.

The treatment of owners of pass-through firms is in flux. The House bill applies a 25% top rate to a portion of a person’s share of income from proprietorships, LLCs, S corporations and partnerships. The Senate calls for a new 17.4% deduction for pass-through income. Both versions contain lots of limitations and anti-abuse rules that have drawn the ire of powerful lobbying groups and at least one GOP senator. We anticipate that these provisions will be substantially revised in any tax package.

New Site In Progress

After 15 years our old site, built on the Microsoft Front Page Platform, has finally died. We are now in the process of building a new site that we hope that you will find cleaner and easier to use.

The download our most recent tax organizer can now be found on our home page under Individual Income Tax Return Preparation. As before, you will need Adobe PDF to read it.

This new tax law being enacted makes it of critical importance that you review your personal and business tax situation to determine what, if anything, is required by year end in order to maximize deductions or minimize tax on income.

You can contact me if you need assistance prior to year end and we will do our best to summarize those new laws that will impact our clients both domestic and international.