- You have an obligation to keep the IRS informed of your currrent address using their form 8822. If you do not, they can take any action they wish (audit, assessment, etc) and it is valid because you failed to keep them current on your address.
- Your tax return can be audited for 3 years after it is filed and six years if you omitt more than 25% of your income.
- The statute of limitations on assessing taxes NEVER runs out if you fail to the a US tax return. That means the IRS may make an assessment for any year you failed to file a return and were required to forever.
- The statute of limitations for failing to file a foreign bank account report (FBAR form 114) is six years. The criminal and civil penalites are huge and the IRS is currently collecting those penalties and prosecuting non filers who clearly intentionally were hiding their funds and not reporting as income.
- Dual citizenship does nothing for you as a US taxpayer. All rules are the same as if you were just a US citizen.
- The IRS is currently receiving reports on US taxpayers funds held in foreign banks and stock brokers, etc. from over 78,000 foreign institutions around the world.
- If you owe the IRS more than $50,000 in taxes and penalites when you enter the USA they can request the US Customs and Border Protection seize your passport.
- The US has no regulations forbidding or making it illegal to own foreign real estate, stocks, or other property abroad including foreign bank accounts. The IRS does have special forms to report ownership on many of these items to the IRS with $10,000 or more penalties for failing to file these required forms.
- Owning foreign real estate (so long as it is not a rental or income producing) in your individual name does not have to be reported to the IRS.
Here are the details of the new provision:
All U.S. shareholders of a SFC must include in their 2017 income their pro-rata share of accumulated post-1986 deferred foreign income. This income will be taxed in a manner that should result in the quoted federal effective tax rate on earnings of:
- 5% on cash and cash equivalents and,
- 8% on illiquid assets
The IRS has allowed the taxpayer to elect to pay the tax over an 8 year period, starting with the 2017 return, using a specific weighted installment calculation. However, the entire tax liability or the first installment is due by the original due date of the shareholders tax return.
A taxpayer’s pro-rata share of accumulated post-1986 deferred foreign income is considered Subpart F income. For future taxation purposes, this income generally will be considered previously taxed income. Thus, the future actual cash repatriation of these earnings will not trigger any additional tax consequence as the cash will not be considered taxable income.
What is the definition of a U.S. shareholder for this purpose?
A U.S. person who owns (directly, indirectly, or constructively) 10% or more of the total voting stock.
- A U.S. person includes US citizens and residents, domestic partnerships, corporations, estates and trusts.
What is the definition of a Specified Foreign Corporation for this purpose?
- A controlled foreign corporation (CFC), or
- A noncontrolled foreign corporation that has at least one domestic corporate shareholder.
Calculation of Income Inclusion:
The income inclusion amount is the greater of the shareholders share of the accumulated post-1986 deferred income (Earnings and Profit or E&P) as of November 2* or December 31, 2017. Thus, for all U.S. shareholders of SFCs the accumulated E&P will need to be calculated. This will need to be allocated to pre and post-1986 deferred income as applicable and/or pre and post date of becoming an SFC. If there is an accumulated E&P deficit, there are special rules that will allow U.S. shareholders to aggregate their total allocable E&P from all sources for this purpose, but not below zero.