Cross-Border Tax Compliance

Why this goes wrong so often

Cross-border obligations are reporting obligations. You can owe no tax at all and still face tens of thousands of dollars in penalties for failing to file a form whose name you had never heard. Most people find out once it is too late to act cheaply.

The risk is also asymmetric. Getting it right costs a professional fee; getting it wrong sometimes costs more than the asset itself.

Form 5472

Filed every year when a U.S. corporation has a 25% or greater foreign shareholder and — the case that catches most people — when a single-member LLC is owned by a foreign person. It goes in with a pro forma Form 1120 even if the company had no activity whatsoever. The penalty for not filing is $25,000 per year.

Founders who form a U.S. LLC from abroad are almost always within scope and frequently have no idea. Sending your own money into your own company is itself a reportable transaction.

FBAR and Form 8938

Two separate obligations that are constantly confused. The FBAR is required when your foreign accounts together exceed $10,000 at any point during the year, and it goes to FinCEN rather than to the IRS. Form 8938 is filed with your tax return; its thresholds are higher and its scope is wider — alongside bank accounts it picks up company shares and pension arrangements.

The same person can be subject to both in the same year. Filing one does not satisfy the other.

Most countries now exchange account information with the United States under FATCA and the reporting standards built alongside it. The assumption that an overseas account is invisible to U.S. authorities stopped being true some years ago.

The other reports

Form 3520 — a gift or inheritance from a foreign person above the threshold
Form 5471 / 8865 — a 10% or greater interest in a foreign company
FinCEN BOI — beneficial ownership reporting for U.S. entities
Form 1116 — the foreign tax credit, so the same income is not taxed twice

If you are already behind

The voluntary disclosure programs exist precisely for people who did not know. The Streamlined Filing Compliance Procedures can reduce penalties substantially and sometimes remove them altogether, where the failure was not wilful. The single condition is coming forward before the IRS contacts you. The moment an examination opens, that door closes.

What changes once we are working together

You know which reports apply to you from a list, not from guesswork

Anything missed in earlier years is closed through voluntary disclosure

Every year, which form is due and when sits on a calendar

The prospect of a letter from the IRS goes away

Common questions

I have one small account abroad. Do I really have to report it?

The threshold applies to the total, not to each account.

If all your foreign accounts together passed $10,000 at any moment during the year, the FBAR obligation arises no matter how small each individual account was. An account that was emptied before year end does not change this either.

My company had no activity at all last year.

A dormant year is not skipped. It is reported as zero.

If the LLC is foreign-owned, Form 5472 is still required, filed with a pro forma Form 1120 even for a year with no movement. This is the most common assumption people make and the most expensive one.

I have missed several years of reports.

This is fixable — but it is a race against time.

Talk to us before the IRS talks to you. The door to the voluntary disclosure programs shuts the moment an examination opens. Acting early here converts directly into money.