Guest Feature: Foreign Tax Reporting Requirements

By Phoebe Trumpler, CPA and Shareholder at Kerkering Barberio 

We are fortunate to present this article on foreign tax reporting requirements written by Phoebe Trumpler, CPA and Shareholder at Kerkering Barberio. The Allegiant Private Advisors team is proud of our 22-year partnership with Kerkering Barberio, one of the leading independent accounting firms in Florida. Through KB, Allegiant advisors have access to top-notch tax advice for our clients, and in this article, Phoebe outlines just some of the considerations necessary if you’ve lived, worked, or invested overseas. 

Before 2011 if a U.S. taxpayer had offshore financial assets, world-wide income was supposed to be reported, bank and brokerage accounts offshore were supposed to be disclosed on the Foreign Bank Account Report (FBAR), and certain other informational and compliance reporting was required. There wasn’t a great deal of IRS scrutiny and there were known tax havens around the world for those who wanted secrecy. Attitudes and awareness changed in 2011 with the new U.S. Foreign Account Tax Compliance Act (FATCA). 

Change was actually in the wind several years before that. In 2007 Bradley Birkenfeld, an American private banker working in Switzerland, disclosed to the U.S. Department of Justice information about violations by U.S. clients at UBS Geneva using Switzerland’s secret banking laws. He received a reported $104 million under an IRS whistleblower program as well as a prison term and a fine of $30,000 for his role in the violations. His disclosures ultimately led to the UBS Geneva release of previously privileged information on U.S. tax evaders. FATCA became law. Over the next decade taxpayers and CPAs alike learned that ignorance is no longer bliss when it comes to reporting world-wide income and offshore financial assets. 

Let’s talk about some often-overlooked offshore reporting: 

You live and work abroad

You may qualify for the foreign earned income exclusion. However, a U.S. tax return must be filed to claim this exclusion; it’s not automatic. Another word of caution is the length of the job. For example, if you accept a regular school year nine-month contract to teach in another country, you would not qualify for the foreign earned income exclusion because the requirement that the job must be for at least one year would not be met. Because you don’t qualify, all of your earnings are taxable in the U.S. 

You bought a villa in another country and you rent it when you are not there 

You report rental income, depreciation, operating expenses and gain or loss on disposition just as if the property was in the U.S. 

You receive a gift or an inheritance from a non-U.S. person 

If the fair market value of all assets transferred during a calendar year is over $100,000 on the date received, you have to file an information return to report what you received. 

You have an interest in a foreign trust 

Transactions with foreign trusts have to be reported. This includes contributions, distributions, loans, and receipt of cash or property whether received personally or through intermediaries and in some cases the earnings in the trust itself are taxable income to you. 

You have an interest in a foreign corporation or partnership 

Tax-deferred income in an offshore entity is all but a thing of the past. U.S. international tax rules changed dramatically in 2017 to encourage the repatriation of offshore earnings and to reward offshore sales through domestic rather than foreign corporations. 

You have offshore bank accounts and financial assets 

The FBAR requires U.S. persons to annually report the highest value in bank and brokerage accounts and certain other financial assets held overseas. U.S. persons includes all U.S. individuals, businesses, trusts, and estates who have a financial interest in, signature authority over, or a specified relationship to the asset. 

Taxpayers must understand that each situation is different and needs to be reviewed on its own. Doing this requires well-versed and knowledgeable professionals. The International Tax Team at Kerkering Barberio has a wealth of experience providing personalized tax consulting and compliance services to clients who are U.S. citizens and U.S. permanent residents in all parts of the world, as well as non-U.S. residents seeking personal or business tax advice when relocating to the United States. Click here to learn more about Kerkering Barberio.