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New Haven London Greenwich New York Geneva Hong Kong Milan International Tax Issues for the Domestic Estate Planner By N. Todd Angkatavanich, Esq. Edward.

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Presentation on theme: "New Haven London Greenwich New York Geneva Hong Kong Milan International Tax Issues for the Domestic Estate Planner By N. Todd Angkatavanich, Esq. Edward."— Presentation transcript:

1 New Haven London Greenwich New York Geneva Hong Kong Milan International Tax Issues for the Domestic Estate Planner By N. Todd Angkatavanich, Esq. Edward A. Vergara, Esq. Andrea Zakko, Esq. IRS required statement This written advice was not intended or prepared to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.

2 2 The Internationally Connected Client  Increasing investment by foreign persons in U.S. assets  International families with cross-border connections, including spouses, children and businesses  Non-resident non-citizens (otherwise known as “non-resident aliens” or “NRAs”) increasingly look to the U.S. as a safe haven Correct U.S. structuring can minimize tax and provide legitimacy  Knowledge of the rules can avoid traps for the unwary  Increased international financial transparency mandates correct U.S. and non-U.S. structuring

3 3 International Triage  Three preliminary questions : Who is subject to the US Federal estate, gift, generation skipping transfer (“GST”) and income taxes? Which assets and income are subject to the taxes? Is there a treaty that overrides the U.S. tax principles?

4 4 Who is Subject to the Estate, Gift, and GST Taxes?  These three types of taxes can be imposed on gratuitous transfers of property  But they only apply if the testator or donor: Is a US citizen; Is a US domiciliary for estate, gift, and GST tax purposes (different than “residency” for Federal income tax purposes); OR Is a non-citizen/non-domiciliary who transfers certain assets that are situated in the US

5 5 Domiciliaries – Subject to U.S. Transfer Taxes  Two requirements for domicile, Treas. Reg (b): Living in a place, even for a brief period of time No definite present intention of leaving the place  Difficulty in determining intent  Courts look to many factors (highly subjective): Location of residences, expensive possessions and investments Relative amount of time spent at claimed domicile and in other countries Location of family and friends Location of church, business activities and club memberships Jurisdiction of voter’s registration and driver’s license Declarations or statements of residence or intent (visa applications, wills, trusts, letters, oral statements, tax returns, etc.) Case law indicates holding green card is not determinative

6 6 Who is Subject to U.S. Income Taxes?  Three types of persons are subject to U.S. income tax: U.S. citizens U.S. residents An NRA, but only on U.S. source portfolio type income or net income effectively connected income with a US trade or business

7 7 Citizens – Subject to U.S. Transfer Taxes and Income Tax  Typical ways to obtain U.S. citizenship (no passport needed): Birth within the U.S. Birth outside of the U.S. to at least one U.S. parent (subject to certain additional requirements depending on DOB) Naturalization  Important to ask clients about their citizenship and the citizenship of their family members

8 8 Residents – Subject to U.S. Income Taxes  Ways to be a resident:  Green card holder (determinative)  First year election to be treated as a resident under §7701(b)(4)  Spousal election under § 6013(g)  Satisfaction of the Substantial Presence Test under §7701(b)(3) Presence in the U.S. for at least 31 days in the test year, and Day count: current year days + 1/3 of prior year days + 1/6 of second prior year days >= 183 days Certain days do not count “Closer Connection” exception under § 7701(b)(3)(B)

9 9 Estate Taxation of NRAs – Overview  Gross Estate  Situs Rules  Deductions  Credits

10 10 Estate Taxation of NRAs – Gross Estate  Gross estate of an NRA includes only assets situated in the U.S., §2103  Transfers where §§ 2035 – 2038 are applicable will trigger inclusion in the NRA’s gross estate if the assets are U.S. situs assets at the time of the transfer or at the NRA’s death, § 2104(b) Planning note: Do not mix U.S. situs assets with non-U.S. situs assets, and consider carefully retaining “strings” in trusts  Jointly Owned Property – based on actual contributions of joint owners

11 11 Estate Taxation of NRAs – Situs Rules  Real Property  Real Property Interests  Tangible Personal Property – situated where located  Includes currency, jewelry, furnishings, clothing, collectibles  Exceptions for certain artwork on loan to a public facility, on exhibition or in transit to or from an exhibition  Exception for “in transit” tangibles, Delaney v. Murchie, 177 F.2d 444 (1st Cir., 1949)  Intangible Personal Property  includes U.S. corporate stock, partnership interests, interests in trusts, life insurance proceeds, mutual funds and debt obligations

12 12  Debt Obligations Generally Debt obligations are U.S. situs if the primary obligor is a U.S. person under §7701(a)(30)  Exceptions swallow the rule (mostly) Certain bank deposits  Deposits and CDs with a U.S. bank (but not brokerage house)  Deposits with a foreign branch of a U.S. commercial bank  Deposits in a U.S. branch of a foreign commercial bank Certain OID instruments Portfolio debt Estate Taxation of NRAs – Situs Rules – Debt Obligations

13 13  Hold assets with U.S. situs (or assets where situs is in question) in a foreign corporation to avoid estate tax — can create income tax issues FIRPTA issues if real property is involved ECI or § 367 issues if U.S. trade or business property is involved Estate Taxation of NRAs – Situs Rules – Planning Notes

14 14 Estate Taxation of NRAs – Deductions  Deduction for Expenses Deductions are allocated pro rata, based on ratio of U.S. assets to non-U.S. assets Generally requires disclosure of worldwide assets on Form 706, otherwise lose the deduction No deductions for debts or expenses associated with property not situated in the U.S.

15 15 Estate Taxation of NRAs – Deductions  Deduction for Debts Recourse debt – allocated pro rata, based on ratio of U.S. assets to non-U.S. assets Non-Recourse debt – full offset so only net equity is included in the NRA’s gross estate Example: NRA’s only U.S. property is an apartment in NY worth $5 million, subject to a recourse mortgage of $4 million. NRA has $15 million of non-U.S. property. Value includible in NRA’s estate is $5 million gross minus $1 million allocation of the recourse mortgage, or $4 million. This $4 million is $3 million more than the net equity in the NY residence. The $1 million allocation of recourse mortgage is calculated as follows: $4 millionx $5 million gross estate situated in US = $1 million $20 million worldwide gross estate

16 16 Estate Taxation of NRAs – Deductions  Marital Deduction Only allowed for the proportion of U.S. situs assets passing to the surviving spouse (disclosure required) If surviving spouse is a U.S. citizen, there is an unlimited marital deduction If surviving spouse is not a U.S. citizen, property must pass to a Qualified Domestic Trust (QDOT) or surviving spouse must form a QDOT or must become a citizen before the filing of Form 706

17 17  True credit of $13,000 (equivalent of ~$60,000 exemption) OR possible treaty option for pro rata amount of applicable exclusion amount available to U.S. citizens and residents (based on proportion of U.S. situs assets) If they have the option, NRAs often choose the $13,000 credit to avoid disclosure If no treaty option is available, consider arguing that the decedent was a U.S. domiciliary if assets are mostly U.S. situs (Estate of Kahn) Estate Taxation of NRAs – Credits or Exemptions

18 18 Gift Taxation on Transfers by NRAs - Overview  Situs Rules  Credits and exclusions  Deductions

19 19  Property subject to gift tax Real and tangible personal property situated in the US Gift by check? PLR  Gifts of U.S. intangible property are not subject to gift tax under §2501(a)(2) Debt obligations of a US person Stock of US corporations  Planning Point - Better to gift U.S. intangibles during life (gift tax-free) because if held until death they will be included in the estate of a non-domiciliary Gift Taxation on Transfers by NRAs - Situs Rules

20 20 Gift Taxation on Transfers by NRAs – Credits and Exclusions  No unified credit available  Annual exclusion allowed ($14,000 for 2015)  No gift splitting unless both spouses are U.S. citizens

21 21 Gift Taxation on Transfers by NRAs – Deductions  Charitable deduction allowed for gifts to U.S. charities or trust using assets in the U.S.  Limited marital deduction for gifts to non-citizen spouses, §2523(i) No lifetime QDOT available Expanded annual exclusion for present interest gifts is available ($147,000 in 2015)

22 22 GST Tax on Transfers by NRAs  Direct Skips – Subject to GST tax only to the extent that the transfer is subject to estate or gift tax  Taxable Distribution or Taxable Termination – Subject to GST tax only to the extent that the initial transfer by the NRA to the trust was subject to estate or gift tax  GST Exemption – Same as for U.S. citizens and residents ($5.43 million for 2015)  Automatic exemption allocation rules apply  Tax is imposed at the highest rate in effect at the time of the transfer (i.e. no marginal rates)

23 23 Which assets are subject to the GST tax?  Situs rules at time of transfer control A transfer by a non-domiciliary transferor is a “Direct Skip” subject to GST Tax only to the extent that the transfer is subject to Federal estate or gift tax (Treas. Reg. § (b)(1)) The GST Tax applies to a “Taxable Distribution” or a “Taxable Termination” to the extent that transfers of property to the trust were subject to Federal estate or gift tax (Treas. Reg. § (b)(2))  Planning Opportunities / “Remaining Out of the Net” Gifts of US situs intangibles avoid GST Tax in addition to gift tax and estate tax Generally, as long as there is no estate or gift tax on transfers into the trust, there is no GST Tax on transfers out of the trust

24 24 Treaty Protections  U.S. has numerous bilateral estate tax treaties with foreign countries  Treaty provisions in general override U.S. tax law unless U.S. tax law enacted after treaty was signed to override treaty provisions  Bilateral transfer tax treaties generally allow taxation of intangibles only to country of transferor’s residence  Bilateral transfer tax treaties generally allow tax credit to transferor in host country for taxes payable to country where property transfer is taxed to non-domiciliaries

25 25 US Estate Tax Exposure Non-US Citizen Spouse – Transfers at Death  Transfers to non-US citizen spouse estate taxable unless transfer into Qualified Domestic Trust (‘QDOT’) (§2056A) Timely Election Must be Made Income Automatically Payable Only to Surviving Spouse Principal Payable Only to Surviving Spouse During Lifetime Payout of Principal attracts US Estate Tax Charge Principal Remaining at Spouse’s Death subject to US Estate Tax Must Have One ‘US Trustee’ with the power to withhold the tax imposed on distributions from a QDOT – if assets > $2 million must be a bank or must furnish bond or letter of credit Surviving non-US citizen spouse can “self-settle” a QDOT before the filing date of the decedent’s US estate tax return (§2056(d)(2)(B)) Taxed as part of decedent spouse’s estate

26 26 US Estate and Gift Tax Exposure Non-US Citizen Spouse  Jointly Owned Property – Trap for the Unwary  ‘Consideration Provided Rule’ (§2040(a)) - Full value of property included in the US decedent's estate, except to the extent that estate proves consideration was provided by surviving non-US citizen spouse  Depends on Type of Property  Real Estate – Generally no deemed gift on creation of joint tenancy. May have estate tax consequences. Gift upon sale or severance if proceeds are divided  Joint Accounts – Generally deemed gift on purchase of joint property (if non-contributing spouse can “sever” the joint tenancy under applicable law)

27 27 Income Taxation of NRAs  U.S. Source Fixed or Determinable, Annual or Periodical (“FDAP”) income Includes U.S. source interest, dividends, rents, salaries, wages, annuities and debts Generally does not include interest on portfolio debt 30% withholding on FDAP, subject to treaty benefits  Income “effectively connected” to a U.S. trade or business (“ECI”) Income derived from a U.S. trade or business Generally taxed on a net basis, at regular graduated rates Treaty benefits may be available FIRPTA  Generally not subject to tax on capital gains (unless effectively connected with a U.S. trade or business or FIRPTA asset)

28 28 FDAP  Subject to a flat 30% gross tax unless reduced by treaty  No deductions  Typically satisfied through withholding at source  Includes dividends, rents, royalties and other investment income Note: virtually all capital gains are excluded and interest income is rarely taxed as FDAP (due to portfolio and bank interest exceptions as well as relevant treaty provisions). However: an additional withholding tax may apply to FDAP income or the gross proceeds upon the sale or disposition of FDAP producing assets unless certain additional reporting requirements are met under the FATCA provisions beginning July 1, 2014.

29 29 Effectively Connected Income  ECI – Net tax at graduated rates applicable to individuals, trusts or corporations  Requires a foreign person to have a US trade or business (USTB)  Only income effectively connected to the USTB is taxed  Deductions and credits available against ECI only if a tax return is timely filed (subject to a good faith exception)

30 30 FIRPTA – Foreign Investment in Real Property Tax Act  Enacted in 1980 to eliminate the perceived tax advantage of foreigners purchasing U.S. real property over U.S. taxpayers  FIRPTA applies to U.S. real property interests, other than interests held solely as a creditor (“USRPI”) Also applies to U.S. real property holding corporations (“USRPHC”) if more than 50% of the FMV of the corporation over 5 years is USRPI Certain exceptions to USRPHC: publicly traded companies, certain REITs, etc.  Gain on the disposition of USRPI is treated as ECI Must file a U.S. income tax return and pay tax on a net basis at graduated rates Transferee must withhold 10% of gross sale proceeds (including transferred liabilities), unless an exception applies

31 31 Trust Status in International Planning  Foreign or Domestic  Grantor or Non-Grantor  Taxation of trust and beneficiaries is dependent on both characteristics

32 32 “Foreign Trust”  A trust is a “Foreign Trust” (§7701(a)(31)) unless: A Court within US exercises primary supervision over administration of the trust (the “Court Test”); and One or more US persons have authority to control all substantial decisions of the trust (the “Control Test”)  Watch special power of appointment holders, protectors * If you fail either test then have a Foreign Trust

33 33 Taxation of Foreign Non-Grantor Trusts  Income taxation of the trust  Taxed as if the trust were an NRA under income tax rules  Difference in treatment of capital gains if accumulated  Income taxation of NRA beneficiaries  Trust is a conduit, so all items of income are carried out with the same character to each beneficiary, pro rata

34 34 Taxation of Foreign Non-Grantor Trusts  Income taxation of U.S. beneficiaries Distributions carry out DNI; DNI includes capital gains Distributions in excess of DNI (“UNI”) are subject to the “throwback rules” Accumulated long-term capital gain income and dividend income are taxed at ordinary rates when distributed  65-day rule for distribution planning

35 35 Foreign Non-Grantor Trusts – Distributions to U.S. Beneficiaries  Indirect Distributions Indirect distributions are treated as if they were made directly from the foreign trust to the U.S. beneficiary, if for the principal purpose of tax avoidance (conduit rules)  Use of Property Use of personal property (residences, jewelry, artwork) is deemed to be a distribution at market value of use unless rented for fair rental value  Loans to a U.S. Person Loans of cash or securities to a U.S. beneficiary, U.S. grantor or U.S. persons related or subordinate to the beneficiary or grantor are treated as distributions Exception for loans satisfying certain requirements of IRS Notice and regulations (qualified obligations)

36 36 Throwback Rules  Throwback rules apply whenever a distribution of accumulated income from a prior year (UNI) is made in excess of the current year’s DNI  Draconian rules aimed to recapture tax that was deferred offshore Prior accumulations all treated as ordinary income Capital gains and dividends lose character and are taxed as ordinary income Interest charge based on accumulated income from past years “thrown back” to year of accumulation on a FIFO basis

37 37 Foreign Non-Grantor Trust Accumulation Distribution Planning  Avoid throwback rules by: Distribute DNI currently Structure Trust to qualify for “3 gift rule” Using Total Return Trust – Manipulate FAI vs. DNI Using offshore Private Placement Variable Universal Life (“PPVUL”) “Carve-off” undistributed net income (“UNI”) to a new foreign trust and the remainder of the trust can make distributions to US beneficiaries “Default Method” three year rolling average Migrate Trust to US

38 38 Grantor Trust Status for Foreign Grantors  Section 672(f) - special grantor trust rules apply to trusts with non-U.S. grantors  For non-U.S. grantors, there are generally two ways to create “Grantor Trust” status: The grantor has the power to revest the property in himself – can require the consent of a related or subordinate party subservient to grantor (power of revocation), or Distribution of income or principal can only be made during the grantor’s lifetime to the grantor or the grantor’s spouse

39 39 Taxation of Foreign Grantor Trusts - Planning Opportunities  If Section 672(f) requirements are satisfied, substantial opportunities for efficient income tax planning for foreign grantors of trusts with US beneficiaries  All income is deemed taxable income of foreign grantor – US beneficiaries can receive distributions free of tax  Foreign grantor only taxed on ECI or US source FDAP, so trust can invest in the US and generate capital gains (excluding FIRPTA gains) and interest income, as well as non-US income, without incurring an income tax burden in the US  Can be US transfer tax free if properly structured  Planning necessary with respect to estate and income tax consequences following grantor’s death  Need to understand taxation of grantor in grantor’s jurisdiction

40 40 Planning when Foreign Grantor Dies  Benefits of Foreign Grantor Trust cease when Grantor dies; trust becomes a Foreign Non-Grantor Trust  Plan to avoid the Throwback Rules and reporting requirements Purge DNI each year (outright or to a “mirror” foreign or U.S. trust) Domesticate the foreign trust

41 41 Overview of Tax Hurdles  Historic Deferral Opportunities Foreign holding companies Foreign trusts  Section 679 for U.S. grantors of certain foreign trusts  Section 684 for transfers by U.S. persons to foreign non-grantor trusts  Anti-Deferral for foreign holding companies – CFCs and PFICs

42 42 Section 679 – Foreign Grantor Trusts - U.S. Grantor  U.S. person who transfers property to a foreign trust will be treated as the income tax owner of the portion of the trust attributable to that property if:  the trust is an inter vivos trust; and  there is a current, future or contingent U.S. beneficiary of any portion of the trust  Trust agreement should specifically identify class of persons who can receive distributions  Presumption of a U.S. beneficiary for new trusts unless information is submitted to the IRS  Five year look-back period for transfers in trust by a foreign grantor who then becomes a U.S. person if foreign trust has U.S. beneficiaries

43 43 Section 679 – Foreign Grantor Trusts - U.S. Grantor  Section 679 creates potential traps for the unwary Loans of cash or securities by a U.S. person to a foreign trust with U.S. beneficiaries is treated as a contribution, triggering grantor trust status unless qualified obligation is used Loss of grantor trust status (e.g. no more U.S. beneficiaries) under Section 679 would trigger Section 684 mark to market taxation

44 44 Section 684 – Transfers by U.S. Persons to Foreign Non-Grantor Trusts  A U.S. person must recognize gain (but not loss) on transferring property to a foreign trust unless the transferor is treated as the owner of the trust for grantor trust purposes Indirect transfers through certain third parties Constructive transfers – paying or assuming an obligation of the trust, or certain guarantees of an obligation of the trust  Applies only if a U.S. person is not treated as the owner of the foreign trust  Does not apply to assets passing at death that are includible in the transferor’s estate

45 45 Foreign Holding Companies  Controlled Foreign Corporations (CFCs) CFC is a (i) foreign corporation where (ii) U.S. shareholders have more than 50% by vote or value, (iii) with each U.S. shareholder each owning at least 10% of the vote Controlling shareholders are taxed on (i) Subpart F income which includes (ii) passive income, even if not distributed from the CFC to the shareholder Subpart F income, generally, is income from the CFC's nonoperating or passive assets or certain income derived with respect to related party transactions Reporting Requirements

46 46 Foreign Holding Companies  Passive Foreign Investment Companies (PFICs) PFIC is a foreign corporation where (i) 75% or more of its gross income for a taxable year is passive income, or (ii) 50% or more of its assets produce or are held for production of passive income Taxation occurs only on actual distributions or dispositions absent a Qualified Electing Fund Draconian rules on “excess distributions” and upon disposition of PFIC shares: (i) subject to an interest charge and (ii) treated as ordinary income, regardless of underlying character in a manner similar to foreign non-grantor trust distributions Reporting Requirements  CFC rules trump if a company is both a CFC and a PFIC

47 47 Typical Structure – During Grantor’s Life  Foreign holding company avoids U.S. estate tax  Foreign grantor trust (with a foreign grantor) avoids PFIC and CFC issues NRA Grantor Foreign Grantor Trust (may have U.S. beneficiaries) Foreign Holding Company Underlying Assets (may be U.S. situs)

48 48 Typical Structure – After Grantor’s Death  Foreign holding company may be treated as a PFIC or CFC  Use of check-the-box elections after the death of the NRA foreign grantor  Can be used retroactively up to at least 75 days before filing date  Careful of U.S. situs assets  Foreign Non-Grantor Trust may be subject to Throwback rules  Purge trust of DNI each year or domesticate the trust Foreign Non-Grantor Trust (may have U.S. beneficiaries) Foreign Holding Company Underlying Assets (may be U.S. situs)

49 49 Income Tax Basis Issues  Rules for step up in basis may not apply to non-domiciliary decedent's estate when property is held in trust unless property is subject to U.S. estate tax  Foreign trusts when property not subject to U.S. estate tax at grantor’s death need special provisions to allow asset basis step-up  Foreign trusts must be revocable (or amendable, terminable) and decedent must have right to receive or control payment of income during lifetime  Testamentary general powers of appointment can also be exercised

50 50 Income Tax Basis Issues – CFCs and PFICs  CFCs may receive step-up in basis but need to liquidate within 30 days after death  PFICs may not receive step-up in basis  PFIC/CFC overlap rule for entities held prior to 1998

51 51 Pre-Immigration Planning  Basis step-up through asset churning prior to establishment of U.S. income tax residency  Drop-off foreign trust planning for estate/gift/GST tax protection prior to establishment of U.S. transfer tax domicile  Section 679 can pull income from trusts into U.S. person’s tax base if foreign trust formed within 5 years of U.S. residency  Use of deferred variable annuity and private placement variable life insurance to “wrap” income

52 52  Section 877A applicable to certain persons expatriating or relinquishing long-term U.S. residency after June 16, 2008  Old rules may still apply  Who is subject to the rules? “Covered Expatriates”  US citizens and “long term” green card holders (8 out of 15 tax years) who meet one of the following tests:  (i) Net Worth Test  (ii) Income Tax Liability Test; or  (iii) Failure to certify tax compliance  For green card holders, tax year requirement includes partial years (e.g., 6 years and 2 days could constitute 8 years)  Two exceptions: (i) certain minors before age 18½ and (ii) certain dual citizens  Re-entry into U.S. Expatriation Regime

53 53 Expatriation Regime - Taxation of Covered Expatriates  Exit Tax or “Mark-to-Market” Tax  Deemed sale of worldwide property for its fair market value on the date prior to the expatriation, with an exclusion of $600,000 of gain, indexed for inflation ($690,000 in 2015)  Lingering U.S. Tax Effects of Expatriation:  30% withholding tax on distributions from: (i) certain deferred compensation arrangements and (ii) trusts that are non-grantor trusts immediately before expatriation  The U.S. donee (including U.S. trusts) of any gift or bequest from a covered expatriate is responsible for U.S. transfer tax at highest marginal rates (currently 40%).  Exceptions for annual exclusion gifts, gifts to qualified charities or gifts to a U.S. spouse

54 54 Reporting Requirements  Form 3520 – Transfers involving foreign persons and foreign trusts  Form 3520-A – Foreign trust annual reporting  Form 8621 – PFIC ownership  Form 5471 – CFC ownership  Form 8865 – Foreign Partnerships ownership  Form 8858 – Foreign single member disregarded entities ownership  Form 8938 – Foreign Financial Assets  FinCEN Report 114 (“FBAR”)

55 55 Form 3520 – Foreign Gifts and Trusts  Required to be filed by any U.S. person (or the estate of a U.S. person) who: Received a gift of more than $100,000 from an NRA; Received more than $15,358 (in 2014) or $15,601 (in 2015) of gifts from foreign corporations and partnerships; Received a distribution from any foreign trust or estate; Created or funded a foreign trust; Is treated as the owner of any foreign trust under Sections 671 through 679; or Dies as the owner of a foreign trust or with assets of the foreign trust includible in his estate.  Due on the same due date as income tax return, with extensions  Minimum $10,000 penalty for the failure to file or incorrect filing If greater, the penalty will be 35% of the property transferred to trust, 35% of the value of distributions received from a foreign trust, or 5% of the value of any trust treated as owned by the U.S. person

56 56 Form 3520-A – Annual Reporting of Foreign Trusts with U.S. Grantors  Required to be filed by the trustee of a foreign trust that has a U.S. owner for grantor trust purposes  Disclosure of trust income during the year  Due date of March 15  Penalty for failure to file or an incorrect filing is the greater of $10,000 or 5% of the gross value of the portion treated as owned by the U.S. person

57 57 Forms 5471, 8621, 8858 and 8865  Due on the same due date as income tax return, with extensions  Minimum $10,000 penalty for each failure to file or late filing plus loss of certain foreign tax credits  Form 5471 (CFC): Required to be filed by a U.S. person who controls, transacts with or has certain relationships with the CFC  Form 8621 (PFIC): Required to be filed by a U.S. person who is a direct or indirect shareholder of a PFIC in each tax year where he (i) receives a distribution (ii) disposes of the PFIC stock or (iii) is making certain elections relating to the PFIC  Form 8858 (U.S. Owned Foreign Single Member Disregarded Entities): Generally created with foreign entity check the box election  Form 8865 (Foreign Partnerships): Required to be filed by a U.S. person who is a 10% partner (measured by capital or profit share) of the foreign partnership

58 58 Form 8938 – Foreign Financial Assets  Any U.S. person with an interest in “specified foreign financial assets” must file, if the value of those assets exceeds a certain threshold  Broad definition of foreign financial assets, including interests in certain foreign trusts  Threshold varies from $75,000 to $600,000 depending on residence and filing status  Currently only individual filing is required; anticipated regulations on filings required by U.S. entities and trusts so filings by non-individuals still not required  Due on the same due date as income tax return, with extensions  Minimum $10,000 penalty for each failure to file or late filing  No duplicative reporting is required if information is reported on Form 3520, Form 8621, Form 5471 or Form 8865

59 59 FinCEN Report FBAR  U.S. owners with beneficial interests in, or signature authority over, foreign bank accounts must file an FBAR if aggregate value of the accounts exceeds $10,000 at any time in the calendar year FBAR requires disclosure of the highest balance in the year  Due on June 30 of the year following any year in which a filing is required (with no mailbox rule)  Electronic filing requirement

60 60 N. Todd Angkatavanich Edward A. Vergara Andrea Zakko Withers Bergman LLP 660 Steamboat Road157 Church Street 1 st Floor 12 th Floor Greenwich, CT 06830New Haven, CT 06510


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