Scariest Tax Form? Skip It, and IRS Can Audit Forever

Are you a U.S citizen or resident who is an officer or director of a foreign corporation ?
Do you have a company that holds a foreign bank account ?

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.

1040 form

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.

What’s more, this 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.

The harsh statute of limitation rule for Form 5471 was the result of the HIRE Act passed March 18, 2010. Not coincidentally, this was the same law that brought us FATCA, the Foreign Account Tax Compliance Act. Bottom line: be careful with CFCs and with Form 5471. The possibility that a statute will remain open can ruin more than your day.

Whats New: Filers of Form 5471 may be subject to net investment income tax on income from CFCs controlled foreign corporations.

This problem is commonly paired with other failings, such as the filing of foreign bank account forms known as FBARs. That means the potential for large civil penalties and perhaps even criminal liability can be palpable.

This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
Forbes Article Source:

The Plan to Trap Your Money

The $3.5 Billion in Taxes the IRS is Ignoring

I often think the Internal Revenue Service was designed to strike fear into the hearts of Americans — the government’s own boogie man. And what better way to scare people who have been careful enough to protect their wealth from America’s downward spiral by putting it on those of us smart enough to stock our wealth outside of U.S. shores and financial institutions.

The government’s latest attempt at currency controls comes in the form of the Foreign Account Tax Compliance Act (FATCA), which is set to take effect on July 1. By forcing banks across the globe to report on any American account holders, the IRS will now have the ability it wants to go after wealth held overseas. But the real value of FACTA will be to make Americans unattractive clients … giving us no way to move our money out of harm’s way.


Democratic Senator Carl Levin claims that $100 million in taxes is being evaded each year by U.S. citizens through the use of offshore accounts.

That’s a pretty figure, Senator Levin, but I’ve got a better one for you.

How about $3.5 billion in unpaid taxes from just federal employees?

Shocking, isn’t it? But it’s true.

According to the IRS, and reported by USA Today, more than 311,000 federal employees were tax delinquents in 2011, owing a total of $3.5 billion to the government.

Yes, as you can see, the best way to avoid paying taxes is to actually work for the government. And here I thought having an offshore account to protect and diversify my assets against the coming dollar collapse due to government mismanagement and asinine monetary policies was the best choice. It’s almost as if FATCA were little more than a diversion to keep you from realizing that the real money owed is held in Washington D.C.

And the icing on the cake? The pièce de résistance?

You could actually earn a bonus while not paying your taxes. A recent report from the Treasury Inspector General for Tax Administration showed that the IRS paid out discretionary awards of more than $1 million in cash bonuses and more than 10,000 hours in paid vacation time — valued at about $250,000 — was awarded to more than 1,100 IRS employees who have not paid their taxes. What’s more, five employees were given performance awards after they were disciplined for intentionally under-reporting their tax liabilities for several years, paying their taxes late and under-reporting taxes.

Last I checked, the entire purpose of the IRS was to enforce U.S. tax laws. If I had failed to pay my taxes last year, I’m pretty sure that IRS wouldn’t have handed me a cash bonus. But apparently all I really needed to do was get a job with the IRS.

An Old-Fashioned Witch Hunt

Rather than get its house in order and force its own employees to operate by the rules they are supposed to be enforcing, Washington has chosen to chase after fiscally responsible Americans who are trying to protect what they’ve worked hard to earn.

The palpable desperation in Washington to bring in funds for their reckless spending has made them indifferent to that fact that the implementation of FATCA will result in banks spending about $1 billion to ensure compliance, according to a survey by the Securities Industry and Financial Markets Association. They also seem indifferent to the fact that record numbers of Americans are giving up their citizenship not to avoid taxes but to protect their privacy and the income of their non-American spouses from FATCA. Instead these people trying to protect themselves have been labeled traitors and tax dodgers, while the real tax dodgers are living fat and sassy working for the government.

We’ve seen countries enact harsh laws in the past to keep money from leaving their borders. Just look at Iceland in 2008 when they made it illegal for their citizens to exchange their massively deflated krone for dollars or euros. Or how about Argentina’s corralito in 2001, when banks froze all assets for 12 months, allowing only small sums to be withdrawn. FATCA is proving to be a more subtle form of the exact same monetary policy, making America landlocked for investments. If the government makes it too difficult to diversify your assets in offshore accounts, the idea is that you will give up and keep them in the U.S., where they remain vulnerable to dollar collapse and economic upheaval.

There is a small hope of reform. Bills have been introduced to both the House of Representatives and to the Senate that would require federal employees to be fired if they are seriously late paying their taxes. Despite the government’s efforts to get its hands on our hard-earned wealth, keeping a portion of your money outside the U.S., while being fully compliant in all the reporting regulations is an absolute necessity so you are protected against additional government antics.

“Trust me, they’re not done yet”
By Erika Nolan, Executive Publisher of The Sovereign Society


Conclusion:  Take Action Now !

Discover how to plan your taxes & how to maximize this opportunity
Free FATCA SEMINAR at the Ritz Carlton Tokyo: June 4th at 18:45

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The FATCA Tax Hunt is for Anyone – not just the Rich!

July 2014 enter the Foreign Account Tax Compliance Act ( known as FATCA )
or put another way: Finding Americans True Capital Abroad.
imageHere are a few IRS FATCA Strategies that I have read via online sources and 20 ways the IRS will find you, shown further below;

Banking clerks & cashiers are now agents for the IRS, if they tell you that your under investigation, they can go to jail.
IRS extended authority to airport personnel with incentives for reporting & seizing US passports if viewed as non compliant, behind, or under reported taxes!
Mobile phone networks & service providers.
When you access the internet & social sites.
Online payment transactions,
Credit card services, Visa & MasterCard etc
Renew your passport or Green Card
Registrations & Licences
All PO Box addresses are assumed American owned!


All U.S. persons, green card holders, all nationalities exceeding 10% business interests in a US company as an owner, shareholder, partner, beneficiary etc, any company doing business with, providing or receiving services with a US company, or a foreign company with a US partner or US entity with more than 10% interest in the business.

FATCA requires foreign financial institutions (FFI) of broad scope — banks, stock brokers, hedge funds, pension funds, insurance companies, trusts — to report directly to the IRS all clients’ accounts owned by U.S. Citizens and U.S. persons (Green Card holders).


Starting July 1, 2014, FATCA will require FFIs to provide annual reports to the Internal Revenue Service (IRS) on the name and address of each U.S. client, as well as the largest account balance in the year and total debits and credits of any account owned by a U.S. person.

If an institution does not comply, the U.S. will impose a 30% withholding tax on all its transactions concerning U.S. securities, including the proceeds of sale of securities.


In addition, FATCA requires any foreign company not listed on a stock exchange or any foreign partnership which has 10% U.S. ownership to report to the IRS the names and tax I.D. number (TIN) of any U.S. owner.

FATCA also requires U.S. citizens and green card holders who have foreign financial assets in excess of $50,000 (higher for those who are bona-fide residents abroad) to complete a new Form 8938 to be filed with the 1040 tax return, starting with fiscal year 2011.

20 ways the IRS will catch you.


By acts that re-establish US ties

It may seem obvious, but Americans who have lived abroad for many years and not filed tax returns still sometimes do not realise that they will bring the IRS down on them like a ton of old tax records when they:

1. Register the birth of their child at a US embassy in the country where they now live, or

2. Renew a long-dormant US passport.

3. Appearing at a US airport with a non-US passport that reveals the bearer was born in the US is almost certain to set alarm bells clanging back at IRS headquarters in Washington. This is because even though they may have been full citizens of other countries for decades, Americans are not allowed to enter the US on anything but an American passport – as American-born London mayor Boris Johnson discovered (to his fury) in 2006. (Those who try, as the then-Spectator columnist discovered, will be barred by sharp-eyed border staff, who spot the place of birth in their foreign passports.)

4. When the children of Americans who left the tax system years before apply to attend US universities, their university application forms can reveal the existence and residence details of the parents that, until this point, had not been known.

5. An American who is unknown to the IRS and who notifies the US authorities of his or her presence overseas in order to begin receiving Social Security payments, and/or any other US pension entitlements, is likely to receive some considerable official interest, alongside the new monthly cheques.

6. Merely paying money into the US domestic banking system can, in some situations, call attention to a “lost” American’s existence by reactivating dormant records.

By getting married, divorcing or dying

The IRS takes an active interest in the key life events of American citizens, for the simple reason that such events can shine a spotlight on individuals who may have disappeared from its radar years before.

For example:

7. If a US parent or relative of a non-US-resident individual dies, and leaves that non-US resident money, the IRS will immediately want to see that this “income” is declared by the recipient.

8. and 9. Marriage and divorce are other rites of passage that can reveal “lost” Americans to the US authorities.

10. The action of having someone granted power of attorney on behalf of an incapacitated non-US living individual who at one time held an American passport, meanwhile, can be a giveaway.

By showing up in gov’t, tax authority exchanges

There has long been the possibility that the existence of Americans who are not living in the US and have been unknown to the authorities there for some time might become known to the IRS

11. As a result of data exchanged between the US and other governments under long-standing, existing treaties.

However, since the 2001 attacks on the US, Washington has been ramping up the amount of information it expects to receive from other countries on all people, not just Americans. The Foreign Account Tax Compliance Act is just the latest in a series of such measures.

Thus, the presence of Americans may now also be revealed to the IRS:

12. By the IRS’s foreign counterpart bodies, such as HM Revenue & Customs.

13. As a result of information supplied to it, under FATCA, from foreign banks and financial institutions.

14. As a result of information provided to it by the Serious Organised Crimes Office (SOCA), after a UK professional adviser alerted SOCA to his or her suspicions that a client might have unpaid US tax liabilities.

15. From data held by the US Treasury’s Financial Crimes Enforcement Network.

16. From data already held by the IRS, for example, provided to them through the Offshore Voluntary Disclosure Program, perhaps by other taxpayers.

17. From data stolen from banks and financial institutions and acquired by governments (as has happened a couple of times in recent years in Europe).

18. From information provided to the IRS in return for payment of a reward (the largest reported reward paid out so far having been $104m).

By participating in online activities

It is a well-known fact that the Internet is a wealth of information about people, whether they like it or not. So it is hardly surprising that the IRS may discover someone who does not live in the US is an American from the trail of information they leave online.

For example, it may obtain the fact of a “lost” American’s birth…

19. From information gathered from eBay, Google, Apple, Visa or MasterCard or another US institution that has servers located in the United States, and which hold data on US persons who live overseas.

20. From any other information in the public domain, such as LinkedIn entries listing individuals living outside the United States who the IRS records show is not filing US tax returns.

Original source link: 20 ways the IRS will catch you

ABA American Bar Association on a Case Illustrating the US Reporting Liability for Having a Foreign Trust

An example of how the IRS imposed penalties on an estate for the decedent’s, and later the executor’s, failure to properly file the Forms 3520 and 3520-A.

The IRS requires certain U.S. persons to file informational returns to report
their relationships to, and transactions with, foreign trusts. Internal Revenue
Code § 7701(a)(30). This requirement also imposes the responsibility to file
such informational trust returns on the estates of some deceased U.S. persons.
Informational returns are just that, used to report certain information, but not
to directly impose taxes.
This article specifically explores the effects of these filing requirements on the executors of the estates of U.S. decedents, while also considering the effect of the open-ended Offshore Voluntary Disclosure Program (OVDP), offered by the IRS as an option to seek resolution of prior filing mistakes or omissions.

ABA Source Link: Foreign Trusts: Form 3520 and From 3520-A—Filing Deadlines and Liability of a Decedent’s Estate


Swiss clocks ticking – Hidden US accounts to be revealed!

Fines & even jail time for any bank that does not share information on American citizens!

Are you a citizen or a permanent resident of Japan? Are you aware of this new law?

A recently-passed tax law in Japan requires Japanese citizens and permanent residents to report for the first time their foreign assets (assets held outside of Japan). If you or someone you know is a citizen or permanent resident and owns assets outside of Japan on December 31, 2013 in excess of 50 million yen in aggregate value, you or they will have to be report them to Japanese tax authorities on a special new form for the first time when your 2013 Japanese taxes are filed early in 2014.

Japan’s parliament in June passed revisions to its tax treaty with the US, heightening its ability to get information from the US on delinquent taxpayers’ activities abroad while providing the US with increased means of tracking its delinquent taxpayers’ activities in Japan.

A pending US-Japan agreement (IGA) on how to implement FATCA in Japan holds numerous risks and challenges for global and Japanese corporations as well as Japanese permanent residents and citizens.

What are you doing about your overseas assets? Whether property, stocks, bonds, cash or other holdings, they may be subject to being reported if you meet the profile mandated by this new law.

Some wealthy are making plans to sell foreign assets held abroad during 2013 so they don’t have to report them in 2014. Others, including many Japanese, are still unaware of the new law. The implications of Japan’s soon-to-be-passed ‘My Number’ system (similar to US social security number), which will also affect almost everyone, as well as the recently passed revisions to the US-Japan tax treaty.