So, what’s the big deal with the international parts of US taxation, anyway? If I am not resident in the US, I don’t have to pay US taxes, right?
Wrong. The US is only one of two countries (the other being Eritrea, in case you are interested) that taxes on the basis of citizenship as well as residency. So, if you take a dream job in Australia or Zimbabwe, Uncle Sam still expects you to report your tax affairs. You may not actually end up paying any tax in the US for various reasons, but you still have to file your taxes if you earn over the filing threshold.
Because the IRS is interested in your affairs in Outer Mongolia, if you own any assets or business interests abroad, chances are you will also need to file reports known as information returns. These, as the name suggests, are reports that detail your business income, what assets you own, and how much wealth you have abroad, so the IRS can compare this data to the income you report on your tax return. These are filed with your tax return and have a dazzling array of form numbers (5471 for foreign company interests, 3520/A for foreign trusts, 8938 for foreign financial accounts, and so on) that can become confusing.
The IRS, in its wisdom, has decided over the past few years to increase the depth of reporting regarding foreign assets and now these forms, for example the 5471, are now mind-bogglingly detailed and baffling, and beyond the experience of the average local CPA. Where all this becomes really important is that the majority of these forms attract a whopping $10,000 per form for missing or incomplete submissions.
These situations also apply to people immigrating to the US. The most usual scenario is that they come to the US assuming that all of the foreign affairs are not subject to US taxation rules and then find themselves in significant difficulties.
Thus it is extremely important that your tax preparer has a history of preparing information returns as well as the standard expat return. We are experienced in these situations for quite a while now, so if you are a non-resident looking to come to the US or a US person looking to move abroad, talk to us before you get into a situation you cannot remedy.
