There are a number of information reporting requirements for individuals and businesses with cross-border operations. Provided below is an overview of some of the key international information reporting forms. Additional forms may be needed that are not provided below depending on your specific circumstances. Also, as a result of the Tax Cuts and Jobs Act of 2017 (TCJA) signed into law by President Trump on December 22, 2017, there were a number of new international provisions introduced into law. There are a number of new forms which may be required as a result of these new laws.
As a general rule, most of these forms are informational only such that they merely provide information regarding the operations to the Internal Revenue Service (IRS) and do not result in additional tax being due. However, in some cases, the information reported on these forms may have an impact on U.S. taxable income such as calculations of Subpart F income or Global Intangible Low-Taxed Income (GILTI) reported on Form 5471.
Failure to file these forms may result in significant penalties, loss of the ability to claim certain advantageous tax benefits such as foreign tax credits, or, in some cases, criminal penalties.
Taxpayers commonly express concerns about the ability to obtain the information needed to complete the forms. In some cases, there may be relief available or shortcuts that can be taken. Nonetheless, as a general rule, it is necessary that all taxpayers ensure the required forms are filed each year to avoid unwanted inquiries from the IRS or other adverse implications.
The Form 5471 is filed with the federal tax return on an annual basis.
Form 5472: Information Return of a 25% Foreign Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business
Form 5472 is filed to report certain related party transactions involving a U.S. corporation which is directly or indirectly owned at least 25% by a foreign person. Foreign-owned U.S. entities which are treated as disregarded for U.S. tax purposes may also be required to file a Form 5472. The form is also filed by foreign corporations that are engaged in a U.S. trade or business.
The Form 5472 is only required to be filed if there was a “reportable transaction” during the year. Examples of common reportable transactions include the following:
- Sales of inventory or tangible property between related parties;
- Payments of interest or royalties between related parties; or
- Loans between related parties.
The information required to be reported on the form generally includes background information on the corporation for which the form is filed, background information on the 25% foreign shareholder, and the amounts for any reportable transactions that occurred during the year.
Form 5472 is filed with the federal return on an annual basis.
Form 8865: Return of U.S. Persons With Respect to Certain Foreign Partnerships
Form 8865 is similar to Form 5471 and is an information return required to be filed by U.S. persons with an ownership interest in a foreign entity that is treated as a partnership for U.S. tax purposes. The form is typically required to be filed by U.S persons owning a 10% or more interest in the foreign partnership if the foreign partnership is owned more than 50% by U.S. persons owning 10% or more of the partnership. U.S persons who contributed property to a foreign partnership or otherwise acquired or disposed of an interest in a foreign partnership may also be required to file a Form 8865.
There are various schedules that may be required to be filed with the Form 8865. The determination of which schedules must be filed is made based on which category or categories of filers are applicable to the owner. The information reported on the schedules includes background information on the foreign partnership, information regarding the income earned by the partnership during the year, a balance sheet, and information regarding transactions between the foreign partnership and related parties during the year.
Form 8865 is filed with the federal return on an annual basis.
Form 8858: Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches
The Form 8858 is also similar to the Form 5471 and is an information return required to be filed by U.S. persons with an ownership interest in a foreign entity which is treated as a disregarded entity for U.S. tax purposes or is otherwise operating outside the U.S. through a branch. The form must be filed by any U.S. person who is the owner of an FDE or foreign branch. In some situations, a U.S. person that is an indirect owner of an FDE or foreign branch is also required to file the form. For example, if a U.S. person owns 100% of a CFC which owns an FDE, the U.S. person is required to file a Form 5471 for the CFC and a Form 8858 for the FDE owned by the CFC.
The information required to be filed on the form includes certain background information on the FDE or foreign branch, income statement, balance sheet, and information regarding any related party transactions between the FDE or foreign branch and its owner or certain parties related to the owner.
Form 8858 is filed with the federal return on an annual basis.
Form 5713: International Boycott Report
Form 5713 is used to report certain activities that take place with respect to countries labeled boycotting countries due to their boycotting of Israel. The form must be filed by any U.S. person who has operations in or relating to a boycotting country or is engaged in transactions with the government of a boycotting country or a company located in a boycotting country.
The current list of countries which are considered boycotting countries includes the following:
- Saudi Arabia
- United Arab Emirates
1 The list of countries considered boycotting countries is maintained and updated by Treasury. The list contained in this article is the current list published in the Federal Register as of September 27, 2019. The list may have been updated since that date.
The information required to be reported on the Form 5713 includes background information on the filer and information regarding the activities taking place in the boycotting country.
Form 5713 is filed with the federal return on an annual basis.
Form 926: Return by a U.S. Transferor of Property to a Foreign Corporation
U.S. persons who transfer property to a foreign corporation may be required to file a Form 926 to report the transfer. Transfers of tangible and intangible property are reportable, even if the transfer does not give rise to U.S. tax. Moreover, any transfers of cash to a foreign corporation must be reported on Form 926 if the U.S. transferor holds a direct or indirect 10% or more interest in the foreign corporation immediately after the transfer. U.S persons that transfer more than $100,000 of cash to a foreign corporation are also required to report the transfer on Form 926 regardless of whether the U.S. transferor owns 10% or more of the foreign corporation.
The information required to be filed on the form includes background information on the U.S. transferor, background information on the foreign corporation to which the property is transferred, and information regarding the property transferred.
Form 926 is filed with the federal return for the year in which the transfer occurred.
Form 3520: Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts
U.S. persons are required to file a Form 3520 to report certain gifts from foreign persons. A gift from a foreign person is required to be reported if the U.S. person received more than $100,000 from a foreign person treated as gifts or bequests or the U.S. person received more than $16,649 (2020 tax year) from foreign corporations or foreign partnerships treated as gifts. The form is also used to report ownership interests in foreign trusts and certain transactions with foreign trusts.
Form 3520 is filed with the federal return for the year in which the relevant transaction occurred.
Form 8621: Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund
U.S. persons with an ownership interest in a Passive Foreign Investment Company (PFIC) are required to file a Form 8621 if the U.S. person receives a distribution from the PFIC or recognizes gain in connection with the disposition of shares in the PFIC. The form is also used to make certain elections relating to the PFIC and report information relating to previously-made elections.
As a general matter, a PFIC is a foreign corporation which meets an income or asset test provided in the statute for a given year.
Form 8621 is filed with the federal return on an annual basis.
Form 8990: Limitation on Business Interest Expense under Section 163(j)
The rules relating to limitations on deductions of business interest expense under IRC Section 163(j) were expanded under the TCJA. The form is required to be filed by both businesses and individuals with business interest expense for the given tax year.
As a general matter, the form must also be filed if the taxpayer has a disallowed business interest expense carryforward or current or prior year excess business interest expense.
The purpose of Form 8990 is to compute the amount of business interest expense the taxpayer is permitted to deduct for federal tax purposes. Any excess interest expense which is disallowed will be reflected as a carryover on the form.
Form 8990 is filed with the federal tax return on an annual basis
Form 8992: U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI)
The TCJA also introduced the new GILTI rules. As a general matter, the GILTI rules apply to U.S. shareholders which own 10% or more a CFC. CFCs are foreign corporations which are more than 50% owned by a U.S. shareholder(s) holding a 10% or more interest in the foreign corporation. GILTI is applicable to both individuals and corporations.
U.S. shareholders subject to the GILTI rules report their share of GILTI, if any, on the Form 8992. The form requires high level information necessary to compute the GILTI liability for each CFC in which the U.S. shareholder holds a 10% or more interest.
Form 8992 is filed with the federal tax return on an annual basis.
Form 8938: Statement of Specified Foreign Financial Assets
Form 8938 is used to report certain foreign financial assets if the total aggregate value of such assets exceeds the relevant reporting threshold. The reporting thresholds differ depending on the taxpayer’s filing status and whether the taxpayer is presently residing in the U.S. or abroad. Unmarried individuals living in the U.S. are required to file a Form 8938 if the total value of all foreign financial assets is more than $50,000 on the last day of the year or more than $75,000 at any point during the year. The filings thresholds for married taxpayers are $100,000 and $150,000 respectively.
The definition of foreign financial assets which could give rise to a reporting requirement is very broad and includes bank accounts with a foreign financial institution, an interest in property located outside the U.S., and certain foreign retirement or pension plans.
Form 8938 is filed with the federal return on an annual basis.
FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FBAR)
U.S. persons are required to report information regarding certain foreign financial accounts with the Treasury Department every year. Reportable accounts include bank accounts, brokerage accounts, and mutual funds with a financial institution located outside the U.S. There is a requirement to file an FBAR for every year if the aggregate value of all relevant foreign accounts exceeds $10,000 at any point during the year.
The form is not filed with the federal tax return and generally must be filed electronically through the Financial Crimes Enforcement Network’s E-filing system. The due date for the FBAR is April 15, with an automatic extension to October 15 granted in most instances.