Abusive Offshore Tax Avoidance Schemes - Facts (Section V)


Filing Requirements

There are multiple filing requirements associated with legitimate foreign transactions. Failure to file required returns may subject the taxpayer to substantial civil and criminal penalties. Also, failure to file these returns may extend the statute of limitations for assessment and collection of the related taxes (IRC 6501(c)(8)).

Form 3520 - Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts - (IRC §§6039F and 6048 - effective for returns due after August 20, 1996)

There are several situations in which a Form 3520 (or statement with similar information) is required to be filed. The most common circumstances are where a U.S. person:

  1. Creates or transfers money or property to a foreign trust (IRC 6048(a)).
  2. Receives (directly or indirectly) any distributions from a foreign trust (IRC 6048(c)).
  3. Receives certain gifts or bequests from foreign entities (IRC 6039F).

Form 3520-A - Annual Information Return of Foreign Trust with a U.S. Owner - (IRC § 6048(b))

Any U.S. person who is considered to be the "U.S. owner" of a foreign trust must ensure that the trust files Form 3520-A. The determination of what constitutes a "U.S. owner" is made pursuant to IRC §§671 through 679.

Form 5471 - Information Return of U.S. Persons With Respect to Certain Foreign Corporations - (IRC §6038)

Form 5471 is required of a U.S. shareholder who acquires, disposes of, or owns certain proportions of the stock of a foreign corporation, or who controls or serves as an officer or director of a "controlled foreign corporation" (IRC §§6038 or 6046). A controlled foreign corporation (CFC) is a foreign corporation, the stock of which is more than 50 percent owned (by vote, or value, at any time during the year) by "U.S. Shareholders." The determination of whether a "U.S. Shareholder" will be taxed directly on a portion of the earnings of the foreign corporation, even if the foreign corporation does not distribute them, is made pursuant to IRC § 951.

Form 5472 - Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business - (IRC §§6038A and 6038C)

Form 5472 is required to be filed by a "reporting corporation" that has "reportable transactions" with foreign or domestic related parties. A "reporting corporation" is either a U.S. corporation that is a 25 percent foreign-owned or a foreign corporation engaged in a trade or business within the United States. A corporation is 25 percent foreign-owned if it has at least one direct or indirect 25 percent foreign shareholder at any time during the tax year.

Form 926 - Return by a U.S. Transferor of Property to a Foreign Corporation - (IRC §6038B)

Generally, a U.S. citizen or resident, a domestic corporation, or domestic estate or trust must complete and file Form 926 to report certain transfers of property to a foreign corporation that are described in section 6038B(a)(1)(A), 367(d) or 367(e).

Form 8865 - Return of U.S. Persons With Respect to Certain Foreign Partnerships - (IRC §§6038, 6038B, and 6046A)

Form 8865 is used to report the information required under §6038 (with respect to controlled foreign partnerships), §6038B (transfers to foreign partnerships), or §6046A (acquisitions, dispositions, and changes in foreign partnership interests). For more information about the requirements to file, refer to the Form 8865 Instructions. Within the instructions, there are four categories of filers. If a U.S. person falls into one of the four categories, that person must file Form 8865.

Form 8938 – Statement of Specified Foreign Financial Assets - (IRC §6038D)

Form 8938 is used to report specified foreign financial assets if an individual is a specified person that has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold. A specified person must file Form 8938 to report the specified foreign financial assets in which an interest is held even if none of the assets affects the tax liability for the year.  For more information about the requirements to file, refer to the Form 8938 Instructions.