Blog » US Tax Compliance Issues
October 3rd 2023Disclosure requirements for U.S. tax residents is extensive and failure to comply can result in significant penalties. Non Residents who inadvertently become US tax residents via the substantial presence test are obligated to comply with the disclosure outlined below. In addition, Non Residents who control a US resident entity, must ensure that their US entity complies with all required disclosure.
US citizens residing abroad remain obligated to file an annual tax return as well as comply with the disclosure rules referenced below.
Generally speaking the direct ownership of US property by Non US Residents will not constitute the operation of a trade or business and therefore there will be no need to file a branch tax return or other US tax return. (i.e. all income is FDAP).
State Tax: Florida law prohibits tax on individuals, and partnerships with no corporate members will have no obligation to file a Florida tax return. A corporation, must have its Commercial Domicile in Florida (Head Office ) in order to be taxed on income connected to its ownership of intangible property ( see F.S. Section 220.16). However, see F.S. 220.16 and the broad scope of F.S. 12C-1.003 definition of doing business with respect to Corporate taxes on property located in Florida or business transactions connected with Florida.
Note that – South Dakota, Washington, Wyoming and Nevada have no Corporate or Personal Taxes
See below for disclosure obligations with respect to interests in foreign accounts and entities.
FBAR (Foreign Bank Account Reporting): If a U.S. citizen has a financial interest in or signature authority over any foreign financial accounts, including bank accounts, brokerage accounts, or certain foreign trusts, and the aggregate value of these accounts exceeds $10,000 at any time during the calendar year, they must file FinCEN Form 114.
FATCA (Foreign Account Tax Compliance Act) Reporting: U.S. citizens with specified foreign financial assets exceeding certain thresholds must report those assets on Form 8938, which is filed along with their annual federal income tax return. Specified foreign financial assets can include interests in foreign corporations, partnerships, and other entities.
Form 5471 (Controlled Foreign Corporation Reporting): If a U.S. person (which includes U.S. citizens) owns or controls a certain percentage of shares or voting power in a foreign corporation, they may be required to file Form 5471 to report the corporation's financial information and transactions.
Form 8865 (Foreign Partnership Reporting): U.S. persons with an interest in a foreign partnership may be required to file Form 8865 to report the partnership's financial information, income, and transactions.
Form 8858 (Foreign Disregarded Entity Reporting): U.S. persons with interests in foreign disregarded entities (such as single-member LLCs in foreign jurisdictions) may be required to file Form 8858 to report the financial information of these entities.
Form 3520 (Foreign Trust Reporting): U.S. citizens who are beneficiaries of, or who receive gifts or inheritances from, foreign trusts may be required to file Form 3520 to report these transactions.
Form 3520-A (Annual Information Return of Foreign Trust with a U.S. Owner): If a U.S. person is treated as the owner of a foreign trust, they may need to file Form 3520-A to provide information about the trust.
Form 926 (Transfer of Property to a Foreign Corporation): If a U.S. person transfers property to a foreign corporation, they may need to report the transfer on Form 926.
Form 8938 (Statement of Specified Foreign Financial Assets): As mentioned earlier, this form is used to report specified foreign financial assets, which can include interests in non-resident entities.
Additional Reporting Requirements: Depending on the specific type of non-resident entity and the individual's involvement, other forms and requirements may apply.
DISCLAIMER: This document is written for general information only. It is not intended as legal advice or opinion.
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