When it comes to assets held offshore and U.S. tax reporting requirements, the stakes are often high. Improperly completing the required tax forms, failing to file, or failing to pay necessary taxes often result in steep fees and penalties. Most taxpayers can at least look to the statute of limitations on an IRS audit to provide them with some amount of peace of mind as time passes. In some rare cases, however, the IRS may have an unlimited amount of time in which to begin an audit.
10 Facts About Audit Time Limitations and Interest in Foreign Corporations
U.S. shareholders with an interest in foreign corporations should be especially diligent when it comes to their tax obligations. Failing to do so can expose the taxpayer to a potential audit for many years to come. The following are ten tips that provide an overview of this issue:
- Typically, the IRS has three years in which to pursue an audit.
- In some cases, such as if you do not handle your offshore account reporting, the IRS may have six years in which to pursue an audit.
- Having a company that holds a foreign bank account is even more risky when it comes to an audit.
- U.S. shareholders who have more than 50% of the vote or value of a foreign corporation have an interest in what is known as a controlled foreign corporation.
- U.S. shareholders are those who own 10% or more of the foreign corporation’s total voting power.
- These shareholders are required to file an annual IRS Form 5471, an Information Return of U.S. Persons With Respect to Certain Foreign Corporations. U.S. shareholders who acquire stock that results in 10% ownership in any foreign company also must file this form, regardless of whether the company is a controlled foreign corporation.
- If the return is not filed, penalties accrue. Typically, these penalties equal $10,000 per form.
- Additional penalties apply to each Form 5471 filed late and for each form filed that is incomplete or inaccurate.
- The penalties can apply even if no tax is due on the return.
- During the time period in which a Form 5471 is not filed, the shareholder’s entire tax return remains open for audit indefinitely.
If you are facing a tax problem as a result of your foreign assets or accounts, it is crucial to seek guidance from a knowledgeable tax professional. We are here to provide the assistance you need. We encourage you to learn more about the experiences of our past clients by checking out our client testimonials today.