When you do almost anything financial outside the U.S., you trigger reporting requirements. It’s as though the U.S. government is even hungrier for information about you than it is for money from you. It can be a nuisance and a burden, but rather than being a reason not to seek offshore protection, it should be a reminder of why that protection has become so important.
The reporting rules are strict. Even an innocent and inadvertent failure to report can attract serious penalties… even if there is no underpayment of tax. It would be foolish not to be careful and thorough about filing all the required reports and filing them on time.
The starting point is gain a general understanding of the requirements. This is not an invitation to take a do-it-yourself approach. You should rely on your accountant to know what reports to file and how to prepare them. So let your accountant know what you are doing offshore. Your general understanding of the requirements is valuable because it will help you avoid any miscommunication with the professionals you go to for help.
Certain steps should be taken promptly after establishing an offshore limited liability company or offshore trust.
Initial, one-time matter for an offshore trust or an offshore LLC…
IRS form SS-4 (Application for Employer Identification Number). A foreign trust or a foreign LLC each needs its own an Employee Identification Number (EIN) that you can cite on the reports you file. (Some forms may require your Social Security number, but do not use it on any report as a substitute for the entity’s own EIN.)
To obtain an EIN for an LLC or for a trust, file IRS Form SS-4. Because you will be requesting an EIN for a foreign entity, you cannot do it online. Instead, submit each SS-4 by mail. See IRS/SS-4
Initial, one-time matter for an offshore LLC…
IRS Form 8832 (Entity Classification Election). Unless you want the LLC to be classified as a foreign corporation (which happens automatically if you do nothing), file Form 8832 on behalf of the LLC one time for it to elect to be a disregarded entity or a partnership. The election can be retroactive, but not for more than 75 days. The most cautious approach is to file the election before you transfer any money or other property to the LLC. See IRS/Form8832 .
Initial, one-time matter for an offshore trust…
Information Agent. When you transfer money or other assets to an offshore (foreign)
trust, you incur a legal duty to “assure” that the trustee appoints a U.S. person as the trust’s agent for receiving information requests from the IRS.102. The easiest way to satisfy that requirement is for your trustee to appoint you as its agent for that limited purpose. There is no government form for this; it should come to you as a letter from the trustee.
Annually in connection with an offshore LLC or offshore trust…
Treasury Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts). File this form (sometimes called “FBAR”) in your own name to report every “foreign financial account” (including accounts a foreign bank, broker, mutual fund, insurance company or depository) owned (i) by you personally or (ii) by your LLC if it is a disregarded entity or (iii) by your Trust if their aggregate value exceeds $10,000 at any time during the year. The due date is June 30. No extensions are available.
The form must be filed online using the truly creepy BSA E-Filing system maintained by the Financial Crimes Enforcement Network. See BSA/FBAR .
I RS Form 8938 (Statement of Specified Foreign Financial Assets). File Form 8938 annually in your own name to report your “specified foreign financial assets” (SFFAs) if their aggregate value exceeded $75,000 at any time during the year or exceeded $50,000 at the end of the year. Higher limits apply for husband and wide who file a joint income tax return. (Note that the definition of SFFAs is broader than the FBAR definition of “foreign financial account”.)
If your foreign LLC elected to be a disregarded entity, include its SFFAs on your Form 8938. If the LLC has elected partnership status, simply indicate that its SFFAs have been reported on its Form 8865 (about which see below). For the foreign financial assets in your Trust, it is sufficient for Form 8938 to note that its SFFAs have been reported on Form 3520 or Form 3520-A (about which see below).
The due date for Form 8938 is the the due date (including extensions) for your personal income tax return. See IRS/8938 .
Annually for an offshore LLC…
Treasury Form TD F 90-22.1. Your foreign LLC must file its own FBAR to report its foreign financial accounts. The due date is June 30.
IRS Form 8858 (Information Return of U.S. Persons With Respect To Foreign Disregarded Entities). If the LLC has chosen to be a disregarded entity, file Form 8858 annually. The due date is the same as the due date for your personal income tax return, including extensions. See IRS/8858 .
IRS Form 8865 (Return of U.S. Persons With Respect to Certain Foreign Partnerships). If the LLC has elected to be treated as a partnership, file Form 8865 annually. The due date is the same as the due date for your personal income tax return, including extensions. The due date for your Form 3520 is the the due date (including extensions) for your personal income tax return. See IRS/8865 .
Annually for your Trust…
Schedule B of IRS Form 1040. This Schedule asks, “During year, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust?” If you contributed to your trust or received a distribution from it during the year, Say “Yes.” This would include transfers you make to an LLC the Trust owns. See IRS 1040 Schedule B.
IRS Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts). File Form 3520 to report your transfers of property to the Trust,
including transfers that you accomplish by transferring property to the Trust’s LLC. If your spouse or anyone else transfers property to the Trust (or its LLC), that person also must file Form 3520, as must any Beneficiary who receives a Trust distribution. See IRS/3520.
IRS Form 3520-A (Annual Information Return of Foreign Trust With a U.S. Owner). File Form 3520-A on behalf of the trustee to report the Trust’s income. Notice that the due date, March 15, is a month before the due date for your personal income tax return. To obtain a six-month extension of time to file, submit IRS Form 7004. See IRS/3520-A .
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