Businesses and individuals often engage in international income-producing activities across borders, which brings them under the scope of the U.S. federal tax system. This system extends to U.S. taxpayers with activities abroad (outbound) and nonresident taxpayers with activities within the U.S. (inbound). Compliance with U.S. international tax reporting is crucial and affects federal income tax return filings.

Outbound Reporting for U.S. Taxpayers

U.S. taxpayers, including businesses and individuals, must report foreign accounts if they have ownership or signature authority over them. Key reporting requirements include:

• FinCEN Form 114 (FBAR): Report foreign bank accounts.
• Form 8938: Report specified foreign financial assets, with thresholds based on the total value of accounts.

Ownership of foreign companies must also be reported, often requiring detailed financial statements. Relevant forms include:

• Form 5471: For U.S. owners of foreign corporations.
• Form 926: For reporting cash or property transfers to foreign corporations.
• Form 8865: For U.S. partners in foreign partnerships.
• Form 8858: For U.S. owners of foreign disregarded entities and branches.

Additional reporting may be required for activities in boycotting countries, tax treaty positions, and passive foreign investment companies (PFICs), using forms like:

• Form 5713: For activities in boycotting countries.
• Form 8621: For PFICs.

Other outbound reporting includes:

• Forms 1116 or 1118: For foreign tax credits.
• Form 1120-IC-DISC: For Interest Charge Domestic International Sales Corp (IC-DISC).
• Form 8993: For FDII and GILTI deductions.
• Form 8991: For BEAT.
• Form 8992: For GILTI from controlled foreign corporations.
• Form 8832: For entity classification elections.
• Form 8975: For country-by-country reporting by MNEs.
• Form 2555: For foreign earned income exclusion.
• Form 8854: For expatriates.

Inbound Reporting for Nonresident Taxpayers

Nonresident taxpayers with U.S. source income must comply with various reporting requirements, such as:

• Forms 1042 and 1042-S: For nonresident withholding tax.
• Form 5472: For U.S. C corporations and disregarded entities with foreign ownership.
• Forms 8804 and 8805: For partnerships with foreign partners.
• Form 1120-F: For foreign corporations with U.S. trade, business, or income.
• Form 1040NR: For nonresident individuals with U.S. income.

For foreign individuals and entities owning U.S. real property, FIRPTA requires forms:

• Forms 8288, 8288-A, and 8288-B: For reporting and withholding on property sales.

Noncompliance and Penalties

The IRS prioritizes international tax compliance and can impose substantial penalties for noncompliance, including financial penalties and potential criminal charges for willful violations. Working with a specialist is advisable to navigate these complex regulations and avoid errors and penalties.

U.S. International Tax Consulting, Planning, Structuring, Modeling, and Related Services

For U.S. businesses:

• Support for U.S. businesses with cross-border international employees and independent contractors.
• Conducting international tax due diligence for mergers and acquisitions.
• Advising on outbound activities and managing foreign subsidiary operations in other countries.

For foreign businesses and individuals:

• Assisting foreign businesses and individuals with inbound activities and establishing U.S. operations.

For U.S. shareholders:

• Providing expertise for U.S. shareholders of controlled foreign corporations (CFCs), including:
  • Handling Subpart F income and GILTI reporting.
  • Advising on foreign tax credits and §962 election for U.S. individual shareholders.
  • Managing ownership attribution and maintaining CFC status

For U.S. nonresidents:

• Guiding nonresident individuals and entities on U.S. nonresident withholding tax exemptions under U.S. income tax treaties with foreign countries.