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Showing posts with label 8621. Show all posts
Showing posts with label 8621. Show all posts

March 6, 2022

US Expatriate IRS Forms Which May Cause an Audit Unless Prepared Correctly

 As a US expatriate you generally need to file certain special reporting forms with your US tax return. Filing these forms do increase your chance of audit by the IRS. If your return includes any of the following forms, make certain they are filled out correctly to avoid IRS audits:

Form 2555: Foreign Earned Income Exclusion                           

Form 1116: Foreign Tax Credit

Form 8621: Passive Foreign Investment Company (PFIC)

Form 3520 & 3520a: Foreign Trust Reporting

Form 5471: Shareholder of Foreign Corporation

Form 8938: Statement of Specified Foreign Financial Assets

Our firm has assisted US expatriates with their tax returns and inernational tax issues for over 25 years. If you need help with these forms, advice  or need your entire return prepared by experts contact us by email HERE.  We are US attorneys and CPAs.





January 29, 2017

DO NOT Purchase Foreign Mutual Funds - Or You May Have to File Form 8621 Which Could Take you 48 hours

If you live abroad, or in the USA, do not make the mistake of purchasing a foreign mutual fund.  Why?  Such You must file as separate form for each foreign mutual fund each year.  If the aggregate value of your PFIC stocks are less than $25,000 if filing as single for $50,000 if fiing jointly you are excepted from filing.  There are other exceptions but they are complex and you should read 8621 Instructions to see if your particular situation is excepted.

The IRS estimates it could take 48 hours to analyze the data, analyze the law and then complete the form for just one foreign mutual fund investment (if not excepted from filing). You can  only guess the amount professional tax return preparers will charge to complete these forms.

What is solution to avoid this horrendous tax return problem?  Only purchase foreign stocks directly owned in your own name since these are treated the same as US stocks and the purchase, sale and reporting would be the same as for US stocks. An alternative is to purchase US mutual funds that invest in foreign stocks (these are not considered PFICs) and again treated the same on your tax return as a US stock.

July 8, 2012

Passive Foreign Investment Companies -Form 8621

One of the most overlooked forms for US expatriates making investments abroad, or any US taxpayer living in the US that invests in foreign mutual funds is Form 8621.  If you do not file this form and make certain elections allowed by that form (SEE INSTRUCTIONS TO FORM HERE) you may incur extremely adverse US tax consequences  when you finally sell your foreign investment.  This form is complex and often difficult to complete due to the elections you must make and the information which must be included in the form.  Most taxpayers overlook this form and its important elections because they assume a foreign mutual fund will  be treated the same as a US mutual fund.  It is not!

WHEN MUST THIS FORM BE FILED?  It should be filed when you own a foreign mutual fund (not sold in the US securities market) or you own a foreign corporation that as a major portion of its activities invests in foreign equities, foreign mutual funds and other foreign investments.  This form does not need to be filed is you merely own actual foreign stock certificates, or shares in a foreign corporation that does not produce passive investment income.

Form 8621 is filed annually with your personal tax return. A separate Form must be filed for each separate foreign mutual that you own.  If the foreign mutual fund is held in your US  stock brokerage account, you do not need to file this form.  See The Form 8621 here.  Though it appears simple, this form is difficult to complete correctly. Let us know if you need help.


November 16, 2011

INVESTMENTS IN FOREIGN MUTUAL FUNDS AND OTHER INVESTMENTS REQUIRE MANY SPECIAL IRS FORMS


Investments in foreign stocks, investment companies, foreign corporations that hold investements, etc.  from a U.S. tax point of view a could be for a U.S. individual, pension fund, or trust a paperwork nightmare .  If you are thinking of investing in Foreign stocks, please remember your friends at the IRS.  Any investment gains you make will be offset by IRS penalties if you do not do the proper paperwork.  To comply with the rules and keep the the US taxes down you should be filing form 8621 each year with your tax return.

Do not buy foreign mutual funds (funds not sold in the US).  These are PFICs (“Passive Foreign Investment Companies”) and they create a metric ton of complexity and accounting expense for your U.S. income tax returns.  (This, by the way, is one of the U.S. government’s little non-tariff trade barriers, designed to discourage U.S. capital being deployed into foreign capital markets).
Remember your FBAR.  The account you open that will buy the stock will need to be reported on Form TD F 90-22.1.

Remember Form 8938.  This is the new reporting form for foreign financial assets, largely duplicating the FBAR reporting requirements.

Foreign tax credit.  Undoubtedly a tax of some kind will be imposed for the foreign country where the investment is located. This will end up on an individual return on Form 1116.   This form will allow you to take a foreign tax  credit against your US income tax paid on the investment income.

What if you die while owning foreign investments? Be sure you have a plan for simple transfer of your accounts to your heirs if you die.  The cost of probate procedures in many foreign countries  could eliminate any stock market profits you make.  If you set up a foreign trust to try to reduce those foreign estate costs, you will then have to file forms 3520 and 3520A each year to report that trust.

November 1, 2011

Form 8938 proposed instructions analyzed

Trusts and Estates Magazine has analyzed the proposed instructions to the 2011 Form 8938 for reporting foreign financial assets.  Read here.  The good news is if you have already filed forms 3520, 5471, 8865, 8621, 8891 , you just have to state so on the form 8938, and do not have to fill out the rest of the form.  The filing thresholds, penalties, statute of limitations, etc are set forth in this easy to read article.