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Offshore Steuer-Erklärungen USA für Amerikaner

Streamlined Filing Compliance - Selbstanzeige - Expatriation Tax

Offshore Steuer-Erklärungen USA

The U.S. is the only OECD country to tax its citizens, including an estimated 7 million expatriates, wherever they reside. For U.S. citizens or resident aliens the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether they are in the United States or abroad. Their worldwide income is subject to U.S. income tax, regardless of where they reside. The 2010 Foreign Account Tax Compliance Act (FATCA), designed to curb tax evasion by U.S. taxpayers with offshore assets, has made tax matters very complex, requiring tax expertise typically not available abroad. Our experience has shown that U.S. citizens or residents living outside the US are not always aware of the additional reporting requirements.

Penalty regimes associated with these reporting requirements are severe. Nondisclosure can result in serious consequences. Taxpayers who previously failed to comply with US tax laws may have several options available to get on par with reporting requirements at a lower penalty rate provided they meet certain conditions.

The Tax Cuts and Jobs Act ("TCJA") made significant changes that affect international and domestic businesses, such as deductions, depreciation, expensing, tax credits and other tax items. A side-by-side comparison can help taxpayers understand the changes and plan accordingly. Some provisions of the TCJA that affect individual taxpayers can also affect business taxes. Businesses and self-employed individuals should review tax reform changes for individuals and determine how these provisions work with their business situation.

We are ready to evaluate and suggest. Please contact us for support. We are only a phone call away, +49 89 2351 3218 or +1 914 816 1115 after 15h (9 am ET).

Passport Revocation – Another Arrow in the Quiver

Internal Revenue Code Section 7345 authorizes the IRS to certify to the State Department that a taxpayer has “seriously delinquent tax debt”. Once the State Department receives certification of the tax debt from the IRS it will not issue or renew the individual’s US passport, it may even revoke the passport. In the case of passport revocation, the State Department may limit the passport to return travel to the US. Having a “seriously delinquent tax debt” generally means that the taxpayer has an outstanding IRS tax bill in which (i) the IRS is owed more than $51,000 in back taxes, penalties and interest AND (ii) the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired, or the IRS has issued a levy with regard to the tax debt.

Americans abroad are at an increased risk now that foreign financial institutions and the German Fisc are sending detailed financial information to the IRS. If tax returns have not been filed or have not properly been including income, the IRS can prepare a tax return based on the information it has available. This is called a “Substitute for Return” (“SFR”) and it can be a dangerous thing. The IRS uses the SFR to assess the amount of tax owed to calculate applicable penalties and interest and to move forward with the collection process. Because the IRS will prepare the SFR without utilizing any deductions or exemptions that could otherwise have been taken by the taxpayer, the threshold of more than $51,000 in “seriously delinquent tax debt” can easily be reached.

Please contact us for assistance. The Streamlined Filing Compliance Procedure may be the solution.

Reporting Obligations for Foreign Assets and Investments

Foreign Financial Account Reporting (FBAR)

While reporting obligations have been on the books since the 1970s, reporting requirements and penalties under this regime increased in recent years. Today, U.S. taxpayers are required to disclose their financial interest in or signature or other authority over any foreign financial accounts if the combined value of their account(s) exceeds $10,000 at any time during a given calendar year.

The report can only be filed electronically. The prescribed exchange rate for 2018 is 0.8720 EUR / 1 USD (list of all exchange rates since 2001, for 2018). FINCEN Financial Crimes Enforcement Network) has issued detailed FBAR - Electronic Filing Instructions. Please contact us for assistance.

For more information about the FBAR, please click on the following link or contact us:

Additional Reporting Requirements by U.S. Taxpayers Holding Foreign Financial Assets (Form 8938)

Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer's requirement to file FBAR.

Penalties for failure to properly report offshore transactions can be severe. A summary of these potential penalties as well as a comparison of what must be reported on Form 8938, Statement of Specified Foreign Financial Assets, and the Report of Foreign Bank and Financial Accounts (FBAR) can be found on IRS.gov.

For more information about Form 8938, please click on the following link or contact us:

Passive Foreign Investment Companies (PFICs)

Among the most complex of IRS requirements affecting individual taxpayers are the rules for passive foreign investment companies (PFICs). Taxpayers owning interests in PFICs have a significantly higher reporting burden than U.S. taxpayers owning interests in U.S.-based mutual funds. Further complicating matters is that, unlike U.S.-based funds, foreign investments have no obligation to furnish U.S.-based investors with any tax reporting information, so the responsibility falls entirely on the shareholder to determine ownership share and tax obligations arising from that share.

U.S. taxpayers who hold certain types of investment in certain foreign entities generating mostly passive income are required to disclose them. U.S. taxpayers investing in these funds e.g. in foreign funds or ETFs are taxed even on the undistributed income the foreign investment generates. U.S. taxpayers holding this kind of investment cannot benefit from the potential tax deferral created by a systematic non-distribution of the foreign entity's income. The PFIC legislation provides options to taxpayers wanting to decrease the burden of this taxing regime.

For more information about PFICs, please click on the following links or contact us:

Foreign Pensions and Retirement Accounts

U.S. citizens who live and/or work for significant periods of time in foreign countries, as well as non-citizens who relocate to the U.S., often own some type of foreign pension or retirement account. These assets create unforeseen tax and reporting obligations.

The major concern in evaluating the taxability of ownership of foreign retirement accounts is that most overseas plans will not be considered “qualified plans” under IRC 401, which means the accounts generally do not qualify for tax-deferral treatment. In some instances, however, the Double Taxation Treaty and the Totalization Agreement may provide a reprieve, see also www.ssa.gov/international.

Taxpayers required to file a U.S. tax return may have to treat employer contributions to the foreign retirement accounts as taxable compensation, and any increase in the account’s value will be considered as taxable in the year the growth occurs.

Another major concern is the reporting obligation that ownership of foreign retirement account assets creates. Taxpayers with foreign retirement account interests often must file informational reports, such as FinCen Form 114, Report of Foreign Bank and Financial Accounts (FBAR), FATCA reporting, and IRS Form 3520.

For more information about Foreign Pensions and Retirement Accounts, please contact us.

Controlled Foreign Corporations (CFCs)

If a foreign corporation qualifies as a "Controlled Foreign Corporation", its U.S. shareholders owning 10% or more of the total combined voting power of all classes of stock entitled to vote in this corporation must include certain types of the CFC's income in their U.S. gross income.

When a U.S. shareholder holds more than 50 percent of the vote or value of a foreign corporation, the company is a controlled foreign corporation or CFC. A U.S. shareholder is a U.S. person who owns 10 percent or more of the foreign corporation's total voting power. That triggers reporting, including filing an annual IRS Form 5471. It is an understatement to say this is an important form. Failing to file it means penalties, generally $10,000 per form. A separate penalty can apply to each Form 5471 filed late, and to each Form 5471 that is incomplete or inaccurate.

The penalty can apply even if no tax is due on the return. That seems harsh, but the next rule-about the statute of limitations-is even more surprising. If you have a CFC but fail to file a required Form 5471, your tax return remains open for audit indefinitely. Normally, the statute expires after three or six years, depending on the issue and its magnitude. This statutory override of the normal statute of limitations is sweeping. The IRS not only has an indefinite period to examine and assess taxes on items relating to the missing Form 5471. In fact, the IRS can make any adjustments to the entire tax return with no expiration until the required Form 5471 is filed. You might think of a Form 5471 like the signature on your return. Without it, it really isn't a return.

And don't assume that you have no issue if there is no CFC because U.S. shareholders don't own over 50%. In fact, Forms 5471 are not only required of U.S. shareholders in CFCs. They are also required when a U.S. shareholder acquires stock that results in 10 percent ownership in any foreign company.

For more information about CFCs, please click on the following link or contact us:

Transnational Tax Information Reporting: A guide
Form 926 - Return by a U.S. Transferor of Property to a Foreign Corporation
Instructions for Form 926
Form 1042S - Foreign Person's US Source Income Subject to Withholding
Form 1116 - Foreign Tax Credit
Instructions for Form 1116
Form 3520 - Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
Instructions for Form 3520
Form 3520-A - Annual Information Return of Foreign Trust With a U.S. Owner
Instructions for Form 3520-A
Form 5471 - Information Return of U.S. Persons With Respect To Certain Foreign Corporations
Instructions for Form 5471
Form 8621 - Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund
Instructions for Form 8621
Form 8621-A - Return by a Shareholder Making Certain Late Elections To End Treatment as a Passive Foreign Investment Company
Instructions for Form 8621-A
Form 8832 - Entity Classification Election
Form 8854 - Initial and Annual Expatriation Statement
Instructions for Form 8854
Form 8858 - Information Return of U.S. Persons With Respect To Foreign Disregarded Entities
Instructions for Form 8858
Form 8865 - Return of U.S. Persons With Respect to Certain Foreign Partnerships
Instructions for Form 8865
Form 8938 - Statement of Specified Foreign Financial Assets
Instructions for Form 8938
Report of Foreign Bank and Financial Accounts
Form 8992 – US Shareholder Calculation of Global Intangible Low-Taxed Income
Instructions for Form 8992
Form 8993 – Section 250 Deduction for Foreign-Derived Intangible Income and GILTI
Instructions for Form 8993

Voluntary Disclosure - Selbstanzeige USA

US taxpayers with unreported foreign assets beware! The Offshore Voluntary Disclosure Program (2014 OVDP) had been used by taxpayers to avoid criminal and to reduce civil penalties for willful failure to report foreign assets. The IRS ended this program on September 28, 2018.

The IRS offers the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those investments:

  1. Offshore Voluntary Disclosure Program;
  2. Streamlined Filing Compliance Procedures;
  3. Delinquent FBAR submission procedures; and
  4. Delinquent international information return submission procedures.

Please call us if you would like us to accompany you and to protect you. Together with you we assist you in determining which option is the most appropriate for you.

The courts have made it increasingly easy for the IRS to succeed in proving “willful” behavior. The IRS continues to combat offshore tax avoidance and evasion using whistleblower leads, civil examination and criminal prosecution. Since 2009, 1,545 taxpayers have been indicted related to international activities through the work of IRS Criminal Investigation. Taxpayers with offshore tax noncompliance skeletons in their closet need to respond to this danger. The appropriate action may vary between taxpayers depending on the specific facts. Doing nothing is a dangerous game, especially now that the IRS can revoke US Passports due to “seriously delinquent” tax debt. The IRS will maintain a pathway for taxpayers who may have committed criminal acts to voluntarily disclose their past actions and come into compliance with the tax system.

The Streamlined Filing Procedure – How it works

While returns submitted under the Streamlined Filing Compliance Procedures would not be subject to IRS audit automatically, the IRS points out that they may be selected for audit under existing audit selection processes applicable to any U.S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources. Thus, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate. This process has become more stringent. The audit now includes an interview process and a request for relevant documents as an auditor determines whether you qualify for a non-willful designation. After a taxpayer has completed the streamlined filing compliance procedures, he or she will be expected to comply with U.S. law for all future years and file returns according to regular filing procedures.

The following material is provided by the IRS for addressing previous failures to comply with U.S. tax and information return obligations with respect to those investments:

"Quiet Disclosure" – Playing with Fire

The IRS warns against so-called "Quiet Disclosures" (see FAQ 8, Frequently Asked Questions for Closing of OVDP 2014). The IRS is aware that some taxpayers have made "quiet disclosures" by filing amended returns, by filing delinquent FBARs, and paying any related tax and interest for previously unreported income from offshore assets without otherwise notifying the IRS. Unlike a voluntary disclosure, quiet disclosures provide no protection from criminal prosecution. The IRS has announced that all quiet disclosures will be reviewed and will be subject to civil or criminal penalties as determined under existing law.

"Those who still think they can hide their assets offshore need to rethink their strategy." Please call us for a confidential consultation.

Consequences of the FATCA Regime on U.S. taxpayers not in compliance with their U.S. tax requirements

As stated previously, FATCA requires taxpayers who own specified foreign assets to disclose them when they exceed certain thresholds. However, more than requiring such disclosure from the asset holders, the FATCA regime requires certain foreign institutions to disclose their US account holders (but not only). Failure to do so results in the withholding of a 30% tax on certain payments made from the U.S. to these specific foreign institutions. Since this withholding constitutes a real threat, foreign institutions are likely to try to comply with the FATCA disclosure requirements.

Most importantly, the U.S. has entered into bilateral intergovernmental agreements ("IGA") to implement the information reporting and withholding tax provisions of the FATCA regime. Through these agreements, the U.S. authorities will have access to the information of accounts held abroad by U.S. persons. That, in turn, will make it easy for the U.S. authorities to find out about any undisclosed foreign asset a U.S. person may hold.

U.S. taxpayers not in compliance with their U.S. tax requirements may want to think very seriously about reporting, instead of waiting for the IRS to discover their foreign assets, and facing criminal prosecution. Full details of the options available for U.S. taxpayers with undisclosed foreign financial assets can be found on IRS.gov.

For assistance with this, contact us.

Expatriation Tax – Wegzugsbesteuerung USA

We guided and piloted many of our clients through the maze of the expatriation and the expatriation tax (amerikanische Wegzugsbesteuerung).

For more information about Expatriation - Wegzugsbesteuerung USA,  please contact us. We will walk with you and explain, step by step, the expatriation rules, using the references below.

IRS on Expatriation Tax
Form 8854 - Initial and Annual Expatriation Statement
Instructions for Form 8854
IRS Publication 519 - residence rules, dual status tax return
Notice 2009-85 - the only thing the IRS has published on expatriation so far
Notice 97-19 - from the old expatriation rules
Internal Revenue Code Sections 877877A - the old and current exit tax rules, respectively
Internal Revenue Manual Section 3.21.3.74.5 - how the IRS will process your return

Proposed Regulations Under Section 2801 – Gifts and Bequests from Covered Expatriates
Other Taxes - A Trap for the Unwary