Passport Information May Be Used by the IRS to Collect Unpaid Taxes

  The State Department issued passports to 16 million individuals during fiscal year 2008 and some 224,000 of these individuals owed more than $5.8 billion in unpaid federal taxes as of Sept. 30, 2008, according to a report released on April 11 by the Government Accountability Office (GAO).


 The State Department cannot restrict the issuance of passports to delinquent taxpayers, and federal law bars IRS from disclosing any taxpayer information to the State Department without a taxpayer's consent. However, federal law does permit certain restrictions on the issuance of passports to individuals, such as individuals owing child support debts over $2,500, the report noted.


The  GAO selected 25 passport recipients to investigate for abuse related to the federal tax system or criminal activity. “These case studies were chosen, among other things, by the more egregious amount of federal taxes owed and cannot be generalized beyond the cases presented,” GAO said. Of these cases, at least 10 passport recipients had been indicted or convicted of federal laws. In addition, IRS assessed trust fund recovery penalties on several passport recipients when the individual did not remit payroll taxes to the federal government. At least 16 passport recipients traveled outside the country while owing federal taxes, and at least 4 resided in another country at the time of GAO's investigation.


 Two individuals used the identities of deceased individuals to fraudulently obtain passports and then used these passports to travel to Mexico, France, and Africa. In one case, the unpaid tax debt belonged to a deceased individual, and in the other case, the debt was incurred by the imposter. “If Congress is interested in pursuing a policy of linking federal tax debt collection to passport issuance, it may consider taking steps to enable State to screen and prevent individuals who owe federal taxes from receiving passports,” GAO said. “This could include asking State and IRS to jointly study policy and practical issues and develop options with appropriate criteria and privacy safeguards.” The report is available athttp://www.gao.gov/new.items/d11272.pdf.

No 1 Item on IRS List of Tax Scams is Taxpayers Hiding Assets Abroad

The IRS has released their list of the 12 most common tax cheating and scam methods. Hiding income and assets offshore is the first item on the list. The IRS aggressively pursues taxpayers involved in abusive offshore transactions as well as the promoters, professionals and others who facilitate or enable these schemes. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans.


The 2011 IRS Voluntary Offshore Disclosure Program ends 8/31/11.  As both an Attorney and CPA we can advise you on the program, and represent you should you enter it.

Justice Department Investigating US Citizens With Bank Accounts in India

The Justice Department said Thursday it is trying to get a court order that would allow the Internal Revenue Service to request bank account records from HSBC Bank’s India unit to help identify U.S. residents who are evading federal taxes.  (click here to read more)

Federal law requires U.S. taxpayers to pay federal income taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. A willful failure to report a foreign account can result in a penalty of up to 50 percent of the amount in the account at the time of the violation.

Doug Shulman, IRS
Commissioner 

PASSIVE FOREIGN INVESTMENT COMPANY SPECIAL RULES FOR TAXES - Form 8621

For purposes of income tax in the U.S., U.S. persons owning shares of a passive foreign investment company (PFIC) may choose between (i) current taxation on the income of the PFIC or (ii) deferral of such income subject to a deemed tax and interest regime. The provision was enacted as part of the Tax Reform Act of 1986 as a way of placing owners of offshore investment funds on a similar footing to owners of U.S. investment funds (regulated investment companies). The original provisions applied for all foreign corporations meeting either an income or an asset test. However, 1997 amendments limited the application in the case of U.S. Shareholders of controlled foreign corporations.

PFIC Defined

Any foreign (i.e., non-U.S.) corporation meeting either the income test or the asset test is a PFIC with respect to each shareholder when the test is met. PFIC status applies separately for each U.S. person owning shares, and also separately with respect to shares acquired at different times. PFIC status does not, itself, have any impact on the foreign corporation or foreign shareholders.

The income test is met if 75% or more of the foreign corporation's gross income is passive income, defined as foreign personal holding company income with modifications.

The asset test is met if 50% or more of the foreign corporation's average assets (as defined in the IR Code) produce, or could produce passive income, or are assets (such as cash and bare land) that produce no income. The test is applied based on the foreign corporation's adjusted basis, for U.S. tax purposes, of the assets, or at the election of the particular shareholder, fair market values of the assets.

Look-thru of 25% subsidiaries: Interests in 25% or more owned foreign corporations are treated similarly to partnership interests (i.e., looked through) for the income test and the asset test.


Effect of PFIC Status

If a U.S. person receives income from a PFIC or recognizes gain from disposition of shares of a PFIC, such person is subject to a tax and interest regime. A shareholder may elect out of this regime (see QEF below). The regime applies only to any distribution or gain in excess of 125% of the average distributions for the prior three years. This regime is as follows: First, such income or gain (in excess of the 125%) is allocated pro rata to each day of the person's holding period for the particular shares. Next, the amounts allocated to prior years after 1986 are excluded from current year taxable income. Then tax is computed on amounts allocated to each prior year at the maximum rate of tax applicable to the type of taxpayer for such year (prior year tax). Then interest is computed on such prior year tax as if it were an underpayment of tax (interest charge). Finally, current year tax is increased by the aggregate of prior year tax amounts and interest charge amounts.

The interest charges are computed using daily compounding. Thus, the interest charges and prior year tax amounts may exceed the income recognized, if the holding period of the shares is long enough.

Shareholders of a PFIC (including a QEF) are eligible for foreign tax credit with respect to the current and deemed prior year taxes, including the deemed paid credit for 10% corporate shareholders of the PFIC.
Shareholders of a PFIC should consider filing IRS Form 8621 to make certain elections which may reduce their tax burden. Read more about the PFIC rules by downloading the IRS Instructions.

US Individual Income & Social Security Rates Compared with Other Countries

The percentage of income that the average worker pays for income taxes and social security taxes is set forth below for various countries:

• Germany 41.3%
• Austria 32.7%
• Italy 29.3%
• France 27.7%
• United Kingdom 25.3%
• Canada 22.6%
• USA  22.4%
• Japan 20.1%

The US does not look that bad and is far from the highest. These figures were put together by the Organization for Economic Cooperation and Development for the year 2009.

INDIVIDUAL & CORPORATE TAX RATES BY COUNTRY

International US Tax Law

Wikipedia has an excellent listing of the income tax and VAT tax rates for most of the countries in the world. Use this schedule to determine where you want to live personally and locate your offshore business.

Contact us for US Tax Planning and Strategies concerning your Offshore and International business operation and personal tax.

Visit our websites for more information.  www.TaxMeLess.com  and www.ExpatAttorneyCPA.com

Foreign Financial Transactions (FBAR Reporting)

Persons connected with the transportation into or out of the U.S. of monetary instruments exceeding a specified dollar amount on any one occasion must report the transaction, subject to a number of exceptions. 

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Except as provided below, each United States person (as defined below) who has a financial interest in or signature or other authority over bank accounts, securities accounts, or other financial accounts in foreign countries, must make a report of those relationships for each calendar year during any part of which the aggregate value of the accounts exceeded $10,000. The report is made on Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts or FBAR. 


A United States person means:

... a U.S. citizen,

... a individual who is a resident alien under Code Sec. 7701(b) of the U.S., the District of Columbia, the Indian lands (as that term is defined in the Indian Gaming Regulatory Act), and the Territories and Insular Possessions of the U.S.,

... an entity, including a corporation, partnership, trust or limited liability company organized or formed under U.S. laws or the law of any State, the District of Columbia, the U.S. Territories and Insular Possessions or Indian Tribes. 

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Signature or other authority means the authority of an individual (alone or in conjunction with another) to control the disposition of money, funds or other assets held in a financial account by direct communication (whether in writing or otherwise) to the person with whom the financial account is maintained. 

For this purpose, a reportable account includes:

... bank account , e.g., a savings deposit, demand deposit, checking, or any other account maintained with a person engaged in the business of banking,

... a securities account (an account with a person engaged in the business of buying, selling, holding or trading stock or other securities),

... an account with a person in the business of accepting deposits as a financial agency,

... an insurance or annuity policy with a cash value,

... an account with a broker or dealer for futures or options transactions in any commodity on, or subject to rules of, a commodity exchange or association, or

... a mutual fund or similar pooled fund which issues shares available to the general public that have a regular net asset value determination and regular redemptions. ²⁸

 

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In addition, a debit card account is a financial account, and a credit card account may be treated as a financial account under certain circumstances. ²⁹

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Accounts that are not subject to the FBAR reporting requirement include:

... an account of a department or agency of the U.S., a State or subdivision or Indian Tribe.

... an account of an international financial institution of which the U.S. is a member.

... an account in a U.S. military banking facility or a U.S. military finance facility operated by a U.S. institution designated by the U.S. government to serve U.S. government installations abroad.

... correspondent or nostro accounts that are maintained by banks and used solely for bank to bank settlements

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A U.S. person with a financial interest in 25 or more foreign financial accounts need only provide the number of financial accounts and certain other basic information on the report. The person will be required to provide detailed information when requested. 

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Participants and beneficiaries in retirement plans under Code Sec. 401(a) , Code Sec. 403(a) , Code Sec. 403(b) as well as owners and beneficiaries of individual retirement accounts under Code Sec. 408 or Roth IRAs under Code Sec. 408A are not required to file an FBAR with respect to a foreign financial account held by or on behalf of the retirement plan or IRA. 

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The FBAR is due to be received by the IRS by June 30 following the year for which it applies. That due date cannot be extended for any reason.  It is filed separately from your personal tax return.

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Persons with signature authority over, but no financial interest in, a foreign financial account must file FBARs for the 2008, 2009, 2010 and earlier calendar years by June 30, 2011. 

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Corporations, partnerships, trusts, and LLCs  must all file Form TD F 90-22.1 on their foreign financial accounts.

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The Supreme Court has upheld the constitutionality of the foreign financial transaction reporting requirements. Extreme civil monetary penalties and criminal prosecution can result from failure to file these forms.

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US Expatriates Living and Working Abroad Get Automatic Extension of Time to File Return until 6/15/11 - All Others due 4/18/11

Your tax return is due on 4/18/11 for the 2010 tax year. You can extend your return and pay in any tax due (to avoid interest and penalties on late payment) by filing Form 4868.  You may also need an extension for state tax purposes if you owe taxes to any US state. You need to refer to the tax rules of each particular state to determine how to extend that tax return.

However, if you are a US expatriate living and working abroad on 4/18/11, you get an automatic extension of time to file your 2010 personal return until 6/15/11 and then that expatriate return can be extended until 10/15/11 using Form 4868.

It is important to extend your return because the late filing penalty for non extended returns is 5% per month of any tax due with that return up to a maximum of 25%.  The penalty for paying taxes late, if you file an extension, is only 1/2 % per month an a small interest charge.

TYPES OF INFORMATION AND QUESTIONS ASKED IN IRS AUDIT OF WEALTHY TAXPAYERS- DOWNLOAD ACTUAL AUDIT QUESTIONS

The IRS has stepped up audits of wealthy taxpayers and others at the higher income levels. The Wall Street Journal has released a copy of the audit requests given one of those taxpayers. You can download a copy of the IRS audit questionnaire here.

Though you may not consider yourself wealthy, this questionnaire will give you a good idea of the possible questions the IRS will ask you upon audit. Read it and plan to have you tax return prepared based on the types of questions you may be asked later on audit. Audits usually do not occur until 2-3 years after the return is actually filed. Remember, when audited if you have written documentation of an item of income or expense, it is probable that the IRS agent will accept that item on your tax return. If you have no written support, it is probable that item will be disallowed.


Do not ever represent yourself on an IRS or State Audit. It is always best to have an independent tax practitioner represent you so you can in most situations avoid talking with the IRS auditor in person and perhaps making statements that will hurt you.

IRS TAXATION ON NONRESIDENTS WORKING IN THE USA

IRS and immigration are working together.  If  a foreign executive visits the United States five times a year and works here and if eachh trip is for a week.  The visitor owes U.S. income tax on one-tenth (5/52) of his foreign salary.  The IRS tax scheme is outlined below:

• The Taxation of Nonresident Alien US Visitors
  
  • Who Must File an Income Tax Return 
  • What Income Is Taxed 
  • What Tax Forms You May Need 
  • Income Tax Withholding 
  • When and Where To File 
  • Departing Aliens and the Sailing or Departure Permit 
    • Aliens Not Required To Obtain Sailing or Departure Permits 
    • When To Get a Sailing or Departure Permit 
    • What Is Needed To Get a Sailing or Departure Permit 
• Index  
• Write us if you need help  US nonresident tax planning for or filing your US nonresident tax returns.

Enron Whistleblower Scores $1.1M Reward from IRS

The Internal Revenue Service has paid a $1.1 million reward to an anonymous whistleblower for information that exposed an alleged tax fraud scheme by Enron, Bankers Trust and others before the company collapsed. Many of these schemes involved use of offshore accounts and entities to avoid US taxation.

It is one of the few whistleblower rewards the new IRS Whistleblower Office has made since Congress created the IRS Whistleblower Office and a new tax whistleblower program in 2006. The IRS made the award under the previous whistleblower program (known as the IRS 211 program), which allowed the IRS to award whistleblowers nothing or up to 15 percent of the tax funds the IRS recovered as a result of the whistleblower’s information.

The whistleblower, a Wall Street banker who has chosen to remain anonymous to protect his job and career, received the maximum reward of 15 percent. 

This same program is being used to catch expatriates living and working abroad with unreported foreign income and assets.  Your foreign banker, investments advisor, friend, neighbor or accountant can decide it is more profitable to turn you in to the IRS, than to remain loyal to you. Be careful out there!

IT IS YOUR OBLIGATION TO KEEP IRS INFORMED OF YOUR CURRENT ADDRESS

Many  US expats who have moved abroad call us after learning of tax liens and other IRS change, letters, etc and state they never received them.  They want to use that as an excuse for their failure to respond or to get  additional taxes, penalties and interest abated.  That does not work.

It is your obligation as a US Taxpayer to keep the IRS Informed of your current mailing address. If you do not, you are solely responsible for any adverse consequences, not the IRS.  If the mail delivery is poor in the country you plan to live, it is best to use a friend or relative's address in the US so you are certain you will receive all IRS communications.

 Change Your IRS Address Records  You can change your address on file with the IRS in several ways:

• Write the new address in the appropriate boxes on your tax return;
• Use Form 8822, Change of Address, to submit an address or name change any time during the year.  It can be downloaded at www.irs.gov;
• Give the IRS written notification of your new address by writing to the IRS center where you file your return. Include your full name, old and new addresses, Social Security Number or Employer Identification Number and signature. If you filed a joint return, be sure to include the information for both taxpayers. If you filed a joint return and have since established separate residences, each spouse should notify the IRS of their new address.

MEXICO RENTAL INCOME…………….PAYING TAX IS NOW EASIER THAN EVER AND WITH STATESIDE BENEFITS!!

by Linda Jones Neil

Those who have rental properties in Mexico can now rest easy. SAT, Mexico’s Uncle Sam, has provided a straightforward and relatively simple way to declare and pay taxes on rental income for those foreigners who have long wished to be in compliance but did not know the way to do so.

As of February 2010, SAT eliminated the requirement for a taxpayer identification number (RFC) which had previously been obtained only through extreme efforts,

Now the foreign taxpayer has two options: One to obtain the taxpayer identification number (RFC), file monthly declarations whether there is income or not, and enjoy a deduction of expenses. This is Option One.

Option Two provides for the taxpayer to make a declaration when income is received, pay a flat tax and obtain a receipt to take to the tax authorities in his/her tax residence, for credit or deduction of taxes in the home country.

On any rental the owner, or his/her property managers, are responsible for collecting the IVA tax (the added value tax) which is 11% on the Baja Peninsula and the Yucatan peninsula and 16% elsewhere. Owner or property manager must also collect the state hospitality tax which is 2 to 4% of the rental amount. These taxes must be delivered to the federal and local governments, as applicable.

It is important for the foreign person with rental property in Mexico to make arrangements for payment of these taxes since penalties can be high in Mexico for non-payment and, additionally, these same tax payments and expenses can be deducted or credited against income in taxpayer’s home country.

The next part of the equation for the US taxpayer has been deciding how to declare this income and enjoy the deductions in their US returns.

Don Nelson, Attorney and Certified Public Accountant located in California reports the following regarding tax treatment for U.S. taxpayers:

• If the Mexican rental property owned in an individuals name or through a Fideicomiso, all rental income and expenses are reported on Schedule E of the form 1040.
• Allowable rental expenses are the same as for a US property.
• Management fees, interest, property taxes, utilities, repairs, maintenance, association dues, insurance…ALL are deductible!
• Depreciation on a Mexican property is 40 years straight line
• Taxpayer can take a Foreign Tax Credit against the US income tax paid on the net rental income for income taxes paid in Mexico on that income.
• IVA (added value tax) collected from the renter must be included in rental income, but then deducted out so no double taxation.
• The special Vacation Home rules applicable to US rental property occupied part time by the owner is also apply to Mexican rental property.
• IN A SALE OF THE PROPERTY, net gain is taxed in the US at the applicable lower capital gains rates and Mexican ISR paid is a credit against that US tax on that profit.

For further information on the Rental Payment Program for Mexican properties, please contact: Lic. Quirino Parra: quirino.parra@settlement-co.com.

For further information on the payment of US taxes when Mexican income is involved, please contact attorney and CPA Don D. Nelson: ddnelson@gmail.com . His website is at www.taxmeless.com.

Author Linda Neil is the founder of The Settlement Company. It is the first escrow company in Mexico, and is dedicated to counseling buyers and sellers, processing the trusts and title transfers of Mexican real estate for foreign buyers and sellers for properties located ANYWHERE in Mexico and, now, for payment of taxes on rental income for foreigners with properties in Mexico.. Ms. Neil is also licensed as a Real Estate Broker in California, is an Accredited Buyer Representative through NAR, and has over thirty five years of hands on experience in all aspects of Mexican real estate. She holds membership in AMPI, NAR and FIABCI and PROFECO Certificate 00063/96.

E-Mail; linda.neil@settlement-co.com Web Site: http://www.settlement-co.com.

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copyright 2011, Consultores Phoenix, S.C., reproduction prohibited without permission.

Offshore Potential Employers Are Doing Credit Checks of Potential Employees

We have recently learned that foreign companies hiring US expatriates abroad are now having pre-employment credit checks done before hiring those US expats.  US companies as well have been doing this type of credit check on potential employees for some time.

Those pre-employment credit checks will reveal the existence of IRS and state tax liens if you have not filed all required US returns or have unpaid taxes in the US.  If the credit report shows unpaid US taxes,  those offshore employers are choosing not to employ the US expatriate.

To avoid this problem, US expatriates need to keep current on current IRS tax filing requirements and file any past tax returns that are in arrears.  If there are any IRS and state tax liens outstanding, it is best to pay them off or get assistance with the resolution of any liens you dispute.  Let us know if you need help with past returns or resolving past tax liens.

COLLECTING SOCIAL SECURITY WHEN RETIRED ABROAD

You can still get US social security

If you are a U.S. citizen, you may receive your benefits in most foreign countries, usually by check or direct deposit. If you are not a U.S. citizen, the answer is more complicated, with certain rules applying to certain countries. For specifics, see the Social Security publication "Your Payments While You Are Outside the United States." 


You generally must pay into social security for ten years to get benefits. Many US expats who work for foreign employers do not pay into US social security and therefore may not have enough credits to collect benefits.  You cannot receive it just because you are a US Citizen if you did not pay into the system. Read more at www.ssa.gov

IRS Announces 2011 Voluntary Offshore Disclosure Program (new program)

The IRS TODAY announced a New 2011 Voluntary Offshore Disclosure Program which will be available through August 31, 2011. It gives taxpayers who are hiding assets abroad, or not disclosing those assets on their tax returns as required by tax law , or those who failed to  file the required forms disclosing their assets abroad a second chance to come out of the closet. The new program will give participants  reduced penalties from those they would have paid if they did not enter the program. The new program's penalties however are in many circumstances higher than those charged participants in the 2009 Offshore Voluntary Disclosure Program which ended 10/15/09.  Over 15,000 taxpayers participated in the original program and over 3,000 taxpayers have  since that time have filed to  disclose foreign bank accounts which had not previously been disclosed to the IRS.

Read more about the program here.  Our firm counseled and represented many  clients involved in the previous IRS Offshore Disclosure program with great results. Please contact us if you need assistance of an Attorney CPA with this New program. Anything you tell us is totally confidential under the attorney-client privilege rule.

2011 IRS Voluntary Offshore Disclosure Program Frequently Asked Questions and Answers

Associated Press Says American Taxes are the Lowest since 1950

By STEPHEN OHLEMACHER, Associated Press 

WASHINGTON – Taxes too high? Actually, as a share of the nation's economy, Uncle Sam's take this year will be the lowest since 1950, when the Korean War was just getting under way. Read More of the Story

IRS INDIVIDUAL TAX RETURN STATISTICS

The IRS now published extensive table showing information and statistics from individual tax returns that have been filed.  You can use this information to determine just how rich or poor you are compared with other taxpaying Americans. You can also use this information to see if your income and deductions are in line with other taxpayers who have similar incomes.  The IRS in some way uses these tables to determine which taxpayers to audit. The IRS Individual Taxpayer Statistics Page Can be accessed here.

IRS Releases Foreign Housing Expense Limitations for 2011

The IRS has provided the inflation-adjusted limitations on foreign housing expenses for 2011 (Notice 2011-8).

Under IRC § 911(a), a qualified individual can elect to exclude from gross income his or her foreign earned income and housing costs. Section 911(c)(1) provides a formula for determining the excludible amount of the individual’s foreign housing costs. Generally, under section 911(c)(2)(A), a qualified individual will be limited to maximum housing expenses of $27,870 in 2011.

If you are an expat you can deduct
your foreign housing expenses

However, the IRS can adjust the maximum limitation based on geographic differences in housing costs relative to housing costs in the United States, and since 2006 it has issued annual notices adjusting the limitation for qualified individuals who live in countries with high housing costs compared to U.S. housing.

Notice 2011-8 provides a table of more than 400 foreign locations for which the IRS is allowing an increased limitation on housing expenses. Some of the highest limitations for 2011 are for Bermuda ($90,000 for the full-year limitation); Hong Kong ($114,300); Paris ($84,800); Tokyo ($118,500); and Moscow ($108,000). 

In locations where the amount has increased from the amount in 2010 (listed in Notice 2010-27), the notice also allows taxpayers who incurred housing expenses in 2010 to elect to apply the 2011 limitation amount to the 2010 year.

US IRS TAX RULES YOU MUST FOLLOW WHEN YOU OWN AND RENT OUT PROPERTY LOCATED IN A FOREIGN COUNTRY

By Don D. Nelson, Attorney, CPA

with over 20 years experience helping clients living and working abroad

When you are renting out your real property in a foreign country, as a US Citizen or permanent resident, you must not only comply with all tax requirements of that foreign country, but you must also report all rental information on your US income tax return.. The rules are almost the same as those for rental property located in the US, but with some variations.

• If you own the Mexican rental in your individual name, you report all of your rental income and expenses on Schedule E of your Form 1040. All of the allowable expenses are the same as for US property.
• Expenses you can deduct include management fees, interest, property taxes, utilities, repairs, maintenance, association dues, insurance, depreciation, and other miscellaneous expenses.
• Unlike property located in the US, you must depreciate the property (amount allocatable to the structure) over a 40 year period rather than shorter times sometimes allowed for US property.
• You can take a credit against your US federal income tax for income taxes paid to the foreign country on your net rental income after deducting all expenses. That credit is limited to the amount of US Federal tax you paid on that rental income on your tax return. Any unused foreign tax credit can be carried over to future year. Most US states do not allow any credit for income taxes paid foreign countries.
• Any Value Added Tax (VAT) or occupancy tax collected from the renter should be included in your rental income, but then you can deduct out those taxes so you do not have to pay any tax on those items.
• The same restrictions and limited allowable deductions for “vacation homes” apply when you have occupied the property yourself part of the time and rented it out to third parties at other times.
• When the property is sold (if it is held in your individual name ) your net gain is taxed in the US at the applicable lower capital gains rates, and you can claim a credit against your US tax on the sale for the foreign capital gains or income taxes paid on that profit to Mexico.

If the property was used for the 2 years during the previous 5 years prior to sale as your personal primary residence (you must actually live in it full time during that period), you may be able to exclude up to $500,000 of the gain from your US income taxes under the exclusion allowed for sales of personal residences. If the property was rented out part of that time, some of the gain on sale will be subject to US income tax.

If your foreign real property is held through a foreign corporation, there can be adverse US tax consequences while renting out the property and upon sale on your US tax return. With the proper type of foreign corporation, certain elections can be made with the IRS which will negate almost of these US tax problems. These elections are only made for US tax purposes and do not in any way affect the way your foreign corporation is taxed under the tax laws of its country of location.

Other US Tax Forms That May be Required:

Form 8865: If you own your foreign rental in a foreign partnership (if you own 10% or more) or LLC you must filed this form each year with your personal tax return to report the details of its income, expenses, etc.

Forms 3520/3520A: If you own your foreign rental property or personal residence in a foreign trust, you must file both of these forms each year. They are not filed with your personal tax return. One form is due 3/15 after the end of the calendar year and the other is due on the extended due date of your personal tax return. Failure to file these forms can result in extreme penalties.

Form 5471: If your Foreign real estate is held in a Foreign corporation, you must file this form each year if you own 10% or more of the shares (actually or constructively) in the corporation. This form is due on the extended due date of your personal return. The IRS can impose a $10,000 per year penalty for filing this form late or not at all.

Form TDF 90-22.1: This form reports your ownership in foreign bank and other financial accounts. It would include any accounts where your property manager or accountant is using to collect rents or pay foreign taxes and rentals. If the highest total of all of your foreign financial and bank accounts when combined together equal or exceed at any time $10,000 US per year, you must file this form to report details of all accounts. It is filed separately from your tax return and is due on June 30^th following the end of each calendar year. The due date cannot be extended. The IRS can impose a $10,000 penalty for filing the form late or not at all.