Stephen C. Fox, CPA
U.S. International Tax
Stephen C. Fox, CPA, CMA
PO Box 880695
Port Saint Lucie,  FL  34988
+1(973) 610-5669

International Tax Returns

Your CPA is probably very competent in preparing most parts of your tax return.  However, theinternational tax return portions may exceed your CPA's abilities.  Among the parts that may require international tax advice are:
  • Forms 5471:  must be filed for each controlled foreign corporation (CFC) in which you are a 10% or more shareholder
  • Forms 8865:  must be filed for each controlled foreign partnership in which you are a 10% or more partner
  • Forms 8858:  must be filed for each wholly owned foreign entity for which a "check the box" election is in effect
  • Forms 5472:  must be filed for each 25% or more direct or indirect foreign owner of a U.S. corporation, as well as each corporation (domestic or foreign) owned by any such owner and with whom the U.S. corporation has transactions

These international tax return forms are complex.  Penalties for failing to file, or incorrectly filing, each of the above forms are $10,000. Additional penalties may apply.
Form 5713, International Boycott Report, must be filed by every company or individual conducting business (directly or through subsidiaries) with the government of, a company in, or individual resident of nine countries.  Failing to file can result in a penalty of $25,000 and possibly jail time plus loss of foreign tax credits.
There are also complex international tax calculations that may apply, and forms that may be required to be filed related to such calculations.  Form 1116 or Form 1118, Foreign Tax Credit, requires not only identification and reporting of foreign source income and taxes, it also requires calculation and disclosure of allocation and apportionment of expenses (including interest and R&D) and of E&P and taxes of subsidiaries paying dividends. Failures related to this form may result in loss of credits.
In addition, there are numerous disclosures required for U.S. taxpayers with international transactions, including those relating to corporate events (formation, reorganization, liquidation, etc.).  Failing to file appropriate disclosures does not usually result in a monetary penalty, but may result in invalidation of tax planning or converting a nontaxable event into a taxable event.  International acquisitions, in particular, pose significant risks for incorrect filings, including loss of ability to step up basis of assets under IRC section 338.
Individuals are not immune to this complexity.  Form 8621 must be filed by even fractional shareholders of passive foreign investment companies (such as foreign mutual funds) if the PFIC tax and interest regime is to be avoided.  Forms 3520 and 3520-A, related to foreign trusts, carry onerous penalties for failures. Significant complexities are possible for nonresident individuals filing 1040NR, especially with respect to treaty issues requiring disclosure on Form 8833 or changes of residency.
You or your CPA should call Steve Fox to help you properly prepare your international tax return.

It's your business:  get personal.  Call Steve Fox at  1(973) 610-5669  or  email steve @ sfoxcpa .com
Get the best tax reference source, available for your desktop or portable device:   Income Tax in the USA 2016