Foreign Tax Planning and Compliance

Foreign tax planning and foreign tax compliance has become increasingly important in recent years, and NDHA will help you with these issues.

Holding Assets in Foreign Accounts

If you hold assets in foreign accounts:

  • You must report the income from these foreign accounts on your income tax return.
  • Often, there are often other reporting obligations.  These filings (such as FBARs, Form 5471 and Form 8938) alert the government as to the existence and the amount of your foreign holdings.

Conducting Business Through a Foreign Entity

If you conduct business through a foreign entity, the key question is whether your share of the income of the foreign entity must be recognized currently or whether recognition occurs at the time and in the amount of any distribution or repatriation of income to you.

Prior to the enactment of the 2017 Tax Act: 

  • If you were a US shareholder of a controlled foreign corporation (CFC) with subpart F income, you were required to recognize your share of the subpart F income of a foreign entity currently.  
  • Current recognition of income could also be required if the foreign entity was a passive foreign investment company (PFIC).  

After the passage of the 2017 Tax Act, if you are a US shareholder of a CFC, you must include currently your share of the CFC’s Global Intangible Low-Taxed Income (GILTI).  

There are strategies for mitigating the effect of GILTI, including:

  • Form a US corporation (Blocker corporation) to own the stock of the CFC and mitigate the effect of the GILTI; or
  • Make a Section 962 Election, which essentially allows an individual shareholder to be taxed as a corporate blocker.

Delinquent Offshore Filings

If you have delinquent filings, NDHA can help you select an approach that is best suited for your circumstances from the following options:

  • The offshore voluntary disclosure program (OVDP) ended September 28, 2018.  Making a voluntary disclosure is still an alternative, but civil fraud and willful FBAR penalties will apply unless you present convincing evidence that such penalties are not applicable.
  • Second, streamlined filing procedures are designed for non-willful taxpayers.  To be considered non-willful, your underreporting must be due to negligence, inadvertence or a good faith misunderstanding of the law.
  • Third, if you have reported all income and paid all tax, but failed to file the necessary FBARs, the delinquent FBAR submission procedures may be the best alternative for you.  However, you must make the FBAR filings before you have been contacted by the IRS.