Increasing Financial Costs Associated With Foreign Compliance

Kevin Packman is a Partner in our Miami office

United States law requires taxpayers who own foreign assets, have a connection to foreign entities and who engage in foreign activities to report such assets, entities and activities to the IRS. Taxpayers who fail to file the appropriate informational forms risk being subjected to significant monetary penalties. The Foreign Account Tax Compliance Act (FATCA) increases by two the number of required informational forms. Section 521 of FATCA amended Section 1298 of the Code to require shareholders in a Passive Foreign Investment Company (PFIC) to file an annual information return disclosing their ownership of the PFIC (Section 1298(f)). Additionally, Section 511 of FATCA created a new annual filing, Form 8938, for U.S. taxpayers with specified foreign financial assets.