#form 5472 instructions

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Reporting Foreign Real Estate Rental Income

This form is due by 15th day of the 3rd month after the end of the trust’s tax year. irs form 8865 U.S. citizens and U.S. residents who are the tax owners of a Foreign Disregarded Entity are responsible for filing Form 8858, Information Return of U.S. U.S. persons with assets located outside the United States may be subject to additional reporting. Starting in tax year 2013, the form had to be filed by any individual who had a PFIC value that exceeds the specific exemption/exclusion amounts. The U.S Government takes a very heavy hand against taxpayers on issues involving the reporting of foreign mutual funds. If you are out of compliance for failing to report foreign assets to the IRS, IRS Offshore Voluntary Disclosure is one of the best and safest methods for getting back into compliance. Finally, do keep in mind that the value of these specified foreign (non-Canadian) properties need to be reported both in Canadian dollars and in the foreign currency. The exchange rate to be used to convert from the foreign currency to Canadian dollars should be based on the exchange rate in effect at the time of the transaction. That is, at the time the income was received from the property, or the exchange rate on the date the property was purchased. For income received from the specified foreign property an average exchange rate may be used. However, while you should be careful with your FBAR filing, do not let the process intimidate you. Consider consulting a tax expert, especially one with experience in international tax compliance. It is also worth noting that the due date for the FBAR recently changed. The term “offshore accounts” is often used as shorthand to suggest that such account holders are trying to dodge tax responsibilities. Individuals can file the form electronically for the 2014 taxation year. The T1135 for a corporation cannot yet be filed electronically with the tax return, but must be sent by mail. It can be attached to the tax return or partnership information return, and mailed to your tax centre, or can be mailed separately to the Ottawa Technology Centre. Individuals can file the form electronically for the 2015 taxation year. The tax calculation on unreported PFIC income is both onerous and complicated. Expats with foreign real estate rental income are required to report their rental income as part of their worldwide income on form 1040. Previously, the form was only filed if income was actually received. In addition, the revised form seeks information on first year of receipt of FDI/ODI and disinvestment. The foreign asset reporting requirement extends to trusts outside India where the ROR is a trustee, a settlor or a beneficiary. As with bank accounts, details for each investment and/ or investment account needs to be reported separately. Schedule FA also specifically requires reporting of details in relation to bank accounts where the individual has a signing authority. The reporting requirement for bank accounts include name and address of the bank, account number, name of the account holder, date of opening, peak balance during the year and interest earned. Owning shares of a passive foreign investment company, or PFIC, subjects U.S. taxpayers to a complicated set of rules enacted in the 1980s in order to eliminate beneficial tax treatment for certain offshore investments. Under the current rules, in most cases PFIC distributions are taxed as ordinary income, rather than as long-term capital gains or dividends. Judging by the sheer number of questions on the Intuit website regarding foreign interest income this amendment would be time well spent. Again, thanks to TTML for the helpful clarification and explanation. A trust is a collection of assets that are handled by a third party, the “trustee,” whose objective is to manage the assets on behalf of the trust fund’s beneficiary. The difference between a domestic trust and a foreign trust is that a foreign trust is neither under the jurisdiction of a U.S. court, nor do U.S. persons control major decisions about the trust. Further, a domestic trust can become a foreign trust after its establishment. (I suspect that what the wording meant to say is "later" in a different section, not in the current 1099INT section). Even the "learn more" link for 1099INT does not mention that foreign interest income should be input in this section. The 1099INT section has a graphic image of the top of a 1099INT form as well as questions about various boxes on the 1099INT form, all of which creates the impression that without a 1099INT you are in the wrong place. The other alternative was to assume that foreign interest income might be input into the field for "foreign accounts" but again the TT software does not allow you to do this . The easy solution would be to amend the wording on the 1099INT page to state that even without a 1099INT, foreign interest income should be added in this section. It seems quite simple to correct this (time consuming!) impression with a few extra words or some additional info in the "learn more" link. This is because the IRS wants to make sure they get their chance to tax the foreign mutual fund in accordance with the PFIC anti-deferral of tax regime. A foreign trust with a U.S. owner must file Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Can something be done to amend the TT software to remove the confusing and misleading language? When entering interest income the website says that if you have interest from something else - which would clearly seem to include foreign interest which is not on a 1099INT - it will be added later. Despite this statement, the software does not provide the option to add foreign interest later. Previously, he worked in the corporate accounting department at Motorola where he oversaw financial reporting and tax preparation for the firm’s mobile division of Eastern Europe. The form will seek investor-wise direct investment and other financial details on fiscal year basis as hitherto, where all reporting entities are required to provide information on FATS related variables . Curious about how the recent Tax Cuts and Jobs Act of 2017 impacts FBAR? Largely, foreign reporting requirements remain unchanged, despite tax reform. Kunal helped us with a successful streamlined filing disclosure of foreign assets. He came across as very knowledgeable and answered all our questions…He was efficient and quick in completing the process after we had put together all our documentation. Peak balance refers to the maximum account balance during the year and not the balance at the end of the year. Even where an ROR does not have any taxable income in India, a tax filing requirement arises if the individual has any assets outside of India. Foreign financial accounts maintained on a United States military banking facility. in which the U.S. person has a greater than 50% direct or indirect present beneficial interest in the trust’s assets, or receives 50% of the income. While the Foreign Account Tax Compliance Act has provided U.S. persons with foreign assets guidance on how to get compliant with the IRS since 2009, the Treasury Department has demanded their compliance via the Banking Secrecy Act since 1970. In addition to the penalties already discussed, if you fail to file Form 8938, fail to report an asset, or have an underpayment of tax, you may be subject to criminal penalties. Do all of these foreign account disclosure rules and regulations seem unnecessarily burdensome or duplicative? However, these same rules and regulations define the present state of "foreign" account disclosure and reporting required, as a function of United States law. Passive Foreign Investment Companies sound like an exotic and highly specialized investment and it’s easy to assume that you don’t own any. However, this conclusion would be a mistake as PFICs include hedge funds, money market accounts, mutual funds, private equity funds and a long list of other foreign investments.

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Neglecting this IRS form can cost multinationals a bundle

Neglecting this IRS form can cost multinationals a bundle

2/12/2020

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        By Marcia DeForest, Director, U.S. Tax

As business becomes more global, tax authorities worldwide are strengthening compliance regulations, raising fines and demanding more information from corporations that do business internationally. One example of the increased emphasis on enforcement is an information-only form many multinationals must send the IRS along with their tax returns. Those who fail to complete and submit the form on time now face stiff penalties.

Filing Form 5472

U.S. companies that are 25 percent or more foreign-owned, foreign companies that are engaged in business with the U.S., and single-member disregarded entities owned by foreign companies all must file informational Form 5472 along with their U.S. corporate tax return if they engage in a reportable transaction during the tax period. Reportable transactions include: sales; rental income; loans to or from a related party; interest received or paid; royalties received or paid; consideration for services paid or received that involve the U.S. company and the foreign owner or an entity related to the foreign owner. Companies must file a separate Form 5472 for each party with whom they have a reportable transaction.

The form itself is nothing new, but reporting requirements were expanded under the Tax Cuts and Jobs Act of 2017, and the penalties were increased. The penalty for failure to file or for filing late increased from $10,000 to $25,000 per form, plus an additional $25,000 for each 30-day period after the date the initial violation notice was mailed, for up to 90 days total. Since a Form 5472 is required for each reportable-transaction partner, some companies have been fined multiple times for not including 5472 forms associated with a single return.

If you fail to submit a Form 5472 on time, the IRS will certainly find out about it. Starting in 2013, the agency began issuing automated “robofines” to companies that don’t file the form with their tax returns, rather than holding up the process with manual reviews. That means companies that fail to include the form are guaranteed to face penalties.

As a result of these changes, more companies face fines. Many firms are struggling to meet the growing and changing demands of international information requests, and errors and omissions are becoming more commonplace. New non-U.S. companies whose managers are unfamiliar with U.S. tax laws often run into difficulties with Form 5472.

Companies that are penalized can request an abatement if they show they were unable to file for a “valid reason,” such as a natural disaster or medical emergency. Alternatively, they may endeavor to show that they have a “reasonable cause” for not filing or for filing late.

First-time abatement

Companies hit with a penalty for the first time have yet another option: a first-time abatement waiver. The company must file a tax return and pay any taxes owed before requesting a waiver, and must have a history of paying its taxes on time.

If the tax filing and good payment history requirements are met, a first-time abatement request has a good chance of succeeding. Some companies also include a “reasonable cause” defense with their first-time abatement waivers, but whether this tactic is helpful is unknown, since the IRS does not state the reasons for penalty removal.

Abatement for a reasonable cause

Companies can request penalty abatement if they show they exhibited “ordinary business care and prudence” but were nevertheless unable to comply with the law. In making a determination, the IRS will consider the explanation for the failure to file (or file on time) and any circumstances beyond the company’s control. It will also examine tax payment and penalty history and the company’s reaction to the notice of the violation — did the company take steps to comply before or after the notice was received? If so, how long did it take to respond?

There are in short no bright-line rules indicating what constitutes acceptable reasonable-cause explanations. For example, a claim of not having access to records or information is not considered a reasonable cause. Neither, in many cases, is purported ignorance of the law. The IRS will consider a taxpayer’s education, whether the taxpayer has been subject to the tax before, whether there were recent changes to the law or tax form, and the complexity of the compliance issue. If the form has been filed in previous years, it is not possible to argue ignorance of the reporting rules.

The best way to avoid trouble is to file your tax return on time and err on the side of including a Form 5472 for any transaction that looks like it may merit one. Companies can find IRS information about Form 5472 and instructions for completing it online.

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If you're a non US entrepreneur (with no Social Security Number) trying to process credit card payments with Stripe, receive Amazon payouts to a non-supported country, or just hold & spend USD personally without restrictions - here's how I solved a few big pain points for myself & opened a USD bank account (business + personal) as well as a US credit card. ​Context/why I did this: I'm a digital nomad, Aussie, living in Panama, with companies in Hong Kong & the US. I need to regularly make USD payments to Europe, China, the US, the Philippines, and more.  International banking is one of my biggest challenges personally, as a traveller + for my businesses. ​NOTE - I'm not in a position to answer any questions about the tax implications of doing this. Just wanted to share this info as it took me a lot of trial and error to work this stuff out.​This is a summary of my notes. I also made a video explaining in more detail:  https://www.youtube.com/watch?v=QlgtDj8mnCo​This is for you if -  Individuals:    You want to receive and send a lot of US dollars    Your banks back home aren’t very good.    You want a US credit card    You aren’t a US resident and you don’t have a Social Security  Number (SSN)​Businesses:    You want to start an online business    You want access to US banking facilities, Amazon FBA payments (but you're not on the supported countries list), payment processors like Stripe, etc    You want a US credit card​This is probably not for you if:You haven't already experienced this painYou already have a business setup + accounts that are working fine for youYou're looking to 'hide money' or avoid taxes​Part  1: Open a PERSONAL US bank account without SSNEasiest option: Transferwise Borderless AccountI am loving Transferwise at the moment & they are doing great things to make cross-border banking easier. The (very rough) gist of how it works in the back end is they match cross-border transactions as much as possible with a reverse transaction so no money actually has to "cross borders" - which cuts down on fees. They are a "Money Service Business" and NOT a full service bank - but the borderless account will (in most cases) give you proper bank account details for receiving money. Advantages:NO NEED to visit the USThe best for international payments – lowest feesReal local bank accounts for major currencies USD, AUD, NZD,  GBP, EURAbility to send payments in most other currenciesNo SSN requiredDisadvantages:Sometimes significant transfer limitations depending on your country of residence & country you want to send money to. Examples: Panama resident does not get real USD bank details, Transferwise does not send money to Colombia, etcNo credit card availableDebit card only available in some countriesNot a fully featured bankHow to open a USD borderless account with Transferwise:Go to transferwise.com (10 minutes)Identity verification - passport + proof of address (3-5 days)Add bank accounts as needed​Better option: Visit a real bank in the USAdvantages:Real bank account from a real bankAbility to get debit & credit cards​Disadvantages:Must visit the US in personMay have to visit multiple banks and/or branches to be successful​How to open a personal US bank account without SSN:Note - There's no legal requirement to have a SSN to open a US bank account. It's all up to the individual bank and branch policy. (Source: https://www.consumerfinance.gov/ask-cfpb/can-i-get-a-checking-account-without-a-social-security-number-en-929/)Go to the US, in personTry any of these banks: Bank of America, TD Bank, Wells Fargo (and potentially others, but these are the ones I have seen recommended as being the easiest)Go to a branch & ask to open a checking accountProvide your passport & second form of ID    Requirements vary by bank & branch – just go and ask    You may need to go to multiple branchesYou need a US mailing address to receive your cards    Airbnb works, ask your host    Friends or acquaintancesThe bank will open your account on the spotAfter 7 days you will receive your bank cards in the mail​Getting a Personal US credit card as a NON-US RESIDENT.You actually have two obstacles here:No SSN / ITINNo Credit historyI believe it is possible to get an ITIN as a workaround but I did not get one, nor look into this further. 1. Find credit card issuers that DO NOT REQUIRE A SSN:I found this list of credit card issuers and their requirements for SSN. Again, there is no legal requirement to have this. (source: https://wallethub.com/best-credit-card-without-ssn/)American Express: SSN, ITIN or PassportBank of America: SSN, ITIN or PassportCitibank: SSN, ITIN or Passport (select cards only)Chase: SSN* Capital One: SSN or ITINU.S. Bank: SSN or ITIN (secured cards only)Discover: SSNWells Fargo: SSN or ITIN (secured cards only)Barclaycard: SSNSynchrony Bank: SSNUSAA: SSNSo - pick one of the providers on the list that does not require a SSN - AMEX, BoA, or Citibank.​2. Finding credit cards from those issuers that DO NOT REQUIRE  CREDIT HISTORYSource: https://wallethub.com/credit-cards/no-credit/A quick search narrowed it down to my personal pick - Bank of America Travel Rewards Credit Card:No annual fee1.5% reward points on purchasesNo foreign transaction feeBank of America will easily open a bank account for you without SSN as well. I believe you could also try the American Express Blue credit card.​How to open a US credit card without SSN and no credit history:Ask in the branch while you are opening a bank accountAnswer standard questions about your personal income, etc. You will either get approved/disapproved on the spot, or have to wait 7 days for a credit check\Wait 7 days to receive your card at your US mailing addressIt is possible they will reject you for the first credit card, but offer a secured credit card - you just need to put money on this first & it functions in the same way. This will also build your credit history so your choice of options expands down the line (6-12 months).​Part 2: Open a business bank account  without SSNEasiest option: Transferwise Borderless  AccountExactly the same process as for individuals (above)Register as your business incorporated in your home countryBe aware of the country-specific limitations (check with Transferwise for your exact situation)Bonus: easily create new Borderless bank accounts for each Amazon marketplace (Euros, GBP, etc)Alternative easy option: World FirstPretty much the same as TransferwiseFees are roughly equivalent​Opening a REAL business bank account / credit cardYou CANNOT open a corporate bank account or credit card for a foreign-owned company in the US. But your foreign entity can own a US entity...​You need:US entity (LLC) + US mailing addressEIN​1. Register a US LLCChoose a state based on cost, privacy, annual filing requirements (Best options: Wyoming, New Mexico)Find an incorporation agent + registered agent (I used wyomingagents.com to do both)Cost = $150Time = a few daysNow you have a US LLC + a registered address​2. Get an EIN (Employer Identification Number)You need this to sign up for banking, payment systems, taxes etc​1. Fill out SS4 form:https://www.irs.gov/pub/irs-pdf/fss4.pdfhttps://www.irs.gov/forms-pubs/about-form-ss-4Detailed instructions on filling out the form: https://www.llcuniversity.com/irs/how-to-apply-for-ein-without-ssn/​2. Fax the form in to the IRS (1-855-641-6935)Any fax number works (US or non-US)I used efax.com​3. Wait 7 daysIRS will return the form with your EIN on it in about 7 days.Then a final confirmation letter will go to your registered business address after 3 weeks.Cost = freeTime = approx. 7 daysNow you have your EIN​3. Keep in mind your LLC annual obligations:IRS 5472 – April 15 each yearState-specific requirements (In Wyoming: annual report 1 year after formation)Registered agent fee​4. Open the bank account / credit cardFollow earlier instructions as per individualsBring your EIN & company docs with you as well as personal passport & IDAs the owner of the LLC you are still limited to banks that don’t require a SSNNeither you or the LLC have credit historyIf you can’t get a normal credit card straight away you may need to get a secured credit card first​That's about it. One more option for debit cards: Payoneer. I have no experience with this so won't talk about it.You're done! Last step – enjoy banking in the land of the free :)​​