Foreign Investment Reporting Series

REPORTING OF FOREIGN INVESTMENT BY U.S. PERSONS

The existence, operations, and/or structure of a foreign investment may give rise to the need to include some of many special purpose Internal Revenue Service tax forms with the basic income tax return of a U.S. based taxpayer. However, the basic, substantive, tax reporting forms are three in number:

  1. IRS Form 5471 – This form is used for reporting the economic results, relevant capital structures, and operating characteristics of a foreign corporation in which the United States taxpayer has
    • a. A material interest, or
    • b. A change in material interest, or
    • c. A strong voice in strategic and/or operational management
  2. IRS Form 8865 – This form is used for reporting the economic results, relevant capital structures, and operating characteristics of a foreign partnership in which the United States taxpayer has a partners’ interest.
  3. 3. IRS Form 8858 - This form is used for reporting the economic results and operating characteristics of a foreign entity of which the United States taxpayer is the sole owner, and for which the U.S. taxpayer has elected to have the legal entity (i.e. the corporate tax shell) disregarded for purposes of United States taxation.

Each of the above forms contains information that will have current and/or future impact on the determination of United States income taxes for the reporting taxpayer. The linkage to U.S. taxation can be obscure and complex. Nevertheless the IRS has shifted to an aggressive stance, from what might be considered a permissive attitude as recently as 2004/5. Penalties of ten thousand dollars, per form, per year, are authorized by statute and IRS has adopted a no-nonsense approach to taxpayers who fail to file OR properly, accurately, and entirely complete the forms including all required schedules.

A fourth reporting form, although not an income tax reporting form, has received much public attention and generated concern to businesses and individuals alike. Treasury Form TD F 90-22.1 is used to report foreign financial accounts in which the taxpayer (or a taxpayers designee) has a direct or indirect financial interest or signature authority.

NEOITG understands the implications of the disclosures required by these important forms.  We can assist your in-house or outsourced tax compliance professionals with the understanding of and preparation of each form and the required disclosures associated therewith.  Contact us today.