Awards & Recognition
Hawaii’s economy sits at the crossroads of the Pacific. Hospitality, construction, real estate, defense contracting, shipping, and professional services all draw capital, people, and data across borders. That reality creates federal international tax touchpoints for Hawaii residents and businesses: foreign accounts and entities, cross-border services, mobile executives, equity in overseas ventures, and inbound investment into the United States. At the Tax Law Offices of David W. Klasing, our dual-licensed International Tax Attorneys & CPAs help you meet federal tax filing, reporting, and payment duties and resolve federal controversies that arise when those duties are missed or challenged.
The IRS continues to prioritize offshore tax compliance. FATCA reporting by U.S. taxpayers on Form 8938, the FBAR filed with FinCEN, and a web of international information returns provide the government with multiple avenues to identify mismatches and expand an examination. The IRS Criminal Investigation Division reports thousands of new cases each year, with conviction rates near 90 percent. This is why an early, disciplined strategy is critical whenever a life-altering criminal tax exposure is a possibility.
What “International” Means in Federal Tax, and Why it Matters in Hawaii
For individuals, international tax exposure often begins with foreign financial accounts and assets, equity in offshore funds or businesses, or time spent working abroad. U.S. persons must report specified foreign financial assets on Form 8938 when certain thresholds are met, in addition to the FBAR requirement to report foreign financial accounts with an aggregate value exceeding $ 10,000 at any time during the year. The IRS outlines the Form 8938 thresholds and explains how they apply to taxpayers residing in the United States or abroad. In contrast, FinCEN’s FBAR rules apply regardless of whether you reside in Hawaii or abroad. These are parallel regimes, and both can apply.
For businesses and investors, federal “international” issues include ownership of foreign corporations, partnerships, and disregarded entities; transfers of property to or from foreign entities; related-party transactions; inbound operations by foreign owners; withholding and information reporting to non-U.S. payees; and transfer pricing. The information return regime is extensive. U.S. persons may need Forms 5471, 8865, and 8858 for foreign corporations, partnerships, and branches or disregarded entities, and Forms 926, 3520, 3520-A, and 8621 in other common fact patterns. Penalties for late or incomplete filings are significant and often automatic unless successfully challenged.
The Federal Reporting Matrix and Penalty Landscape
FATCA and FBAR
Form 8938 is attached to the tax return and reports specified foreign financial assets once thresholds are met. FBAR is filed electronically with FinCEN on the BSA E-Filing system when aggregate foreign accounts exceed 10,000 dollars at any time during the calendar year. These regimes overlap yet serve distinct purposes. Non-willful FBAR penalties are limited per form rather than per account under the Supreme Court’s 2023 Bittner decision. Willful FBAR penalties remain severe.
Foreign Entities and Branches
Form 5471 covers certain U.S. officers, directors, and shareholders of foreign corporations. Form 8865 applies to certain interests in foreign partnerships. Form 8858 applies to foreign disregarded entities or foreign branches owned directly or indirectly by U.S. persons. Each form carries specific category tests, schedules, and late-filing penalties, which the IRS details in governing instructions and the Appeals IRM.
PFICs and Offshore Funds
U.S. investors in foreign mutual funds and many non-U.S. pooled vehicles often hold PFICs, which require Form 8621 filings, specialized income computations, and careful basis tracking. The instructions outline when a QEF or mark-to-market election is available and how excess distributions are taxed.
Foreign Trusts and Transfers
U.S. owners and beneficiaries are required to report on Form 3520 and 3520-A. U.S. persons transferring property to a foreign corporation may trigger Form 926. The penalty structures for these filings are substantial, which is why proactive planning and accurate, timely filings matter.
Withholding and Inbound Reporting
Withholding regimes for U.S.-source fixed or determinable annual or periodical income paid to non-U.S. persons require Forms 1042 and 1042-S. U.S. corporations with significant foreign ownership may need to file Form 5472. These systems integrate with FATCA due diligence and information reporting.
Income Rules that Frequently Surprise Hawaii Clients
Foreign Earned Income Exclusion and Foreign Tax Credit
U.S. citizens and residents remain taxable on worldwide income. The foreign earned income exclusion is indexed annually and is $130,000 for 2025. Many Hawaii-based professionals who are posted abroad can utilize the FEIE and housing rules, provided the requirements are met, while others rely on the foreign tax credit with Form 1116. The IRS outlines these mechanics, limitations, and interaction with housing and treaty rules.
CFCs, Subpart F, and GILTI
U.S. shareholders of controlled foreign corporations must test for Subpart F inclusions and GILTI. Form 8992 reports GILTI under section 951A, while Form 5471 provides the underlying financial and ownership details. Elections and computations are highly technical and can materially change the effective U.S. tax rate.
Expatriation
Renouncing U.S. citizenship or abandoning a long-term green card can trigger the section 877A mark-to-market exit tax, with compliance reported on Form 8854. The IRS explains covered expatriate tests and certification requirements. Planning well in advance is essential.
Crypto with Offshore Connections
Digital assets remain “property” for federal tax purposes. Airdrops, hard forks, and staking are addressed in IRS guidance. Offshore exchanges and wallets add FBAR and FATCA angles, and the government continues to use John Doe summonses and data analytics to identify taxpayers.
Resolution Options When Filings were Missed or Income was Underreported
Streamlined Filing Compliance Procedures
For taxpayers whose failures were non-willful, the Streamlined programs remain available and require three years of amended or delinquent income tax returns and six years of FBARs, accompanied by a detailed certification of non-willfulness. The IRS maintains specific FAQs for U.S. residents and non-residents and has reiterated that submissions require valid TINs.
Delinquent International Information Return Submission Procedures
The DIIRSP page explains that taxpayers should file delinquent international information returns through the standard procedures, and penalties may be assessed in accordance with existing rules. DIIRSP no longer guarantees penalty relief, making careful and reasonable-cause submissions, as well as defense planning, crucial.
Delinquent FBAR Submission Procedures
The IRS explains how to file late FBARs in coordination with a broader compliance strategy. For many U.S. residents outside the Streamlined paths, the safest route depends on facts, timing, and what the government already holds.
IRS Criminal Investigation Voluntary Disclosure Practice
Where conduct was willful, the CI-administered VDP, initiated on Form 14457 in two parts, remains the primary pathway to resolve criminal exposure while restoring compliance. The program requires truthful, timely, and complete disclosure, cooperation, and arrangements to pay tax, penalties, and interest. The IRM for international compliance reflects that OVDP is closed and has been replaced by VDP.
Appeals and litigation
When proposed penalties or adjustments are not supportable, the Independent Office of Appeals offers an administrative forum. If litigation becomes necessary, the U.S. Tax Court, U.S. District Court, and Bankruptcy Court hear federal tax disputes. The strategic use of Appeals and pre-filing programs can reduce costs and risk.
How The Tax Law Offices of David W. Klasing protects Hawaii clients in International Tax Matters
At the Tax Law Offices of David W. Klasing, our objective is straightforward: restore or maintain compliance while minimizing civil tax penalties and avoiding criminal tax prosecution wherever possible. Our team combines dual-licensed Attorneys and CPAs in one coordinated unit. This combination is critical in international cases, where results often turn on defensible return positions, accurate reconstruction of foreign account and entity records, and rigorous protection of privilege and procedure from first contact through final resolution.
Controlling the First Contact
If you receive an IRS letter about foreign accounts, a Form 8938 or Form 8621 mismatch, or you are approached by IRS personnel, do not respond on your own. We verify the posture of the case, route all communications through counsel, preserve attorney-client and work-product protections, and, when necessary, engage accountants under a Kovel arrangement to ensure that fact development does not compromise privilege.
Fixing the Record Intelligently
We rebuild foreign account histories, PFIC basis, CFC E&P, GILTI calculations, and trust accounting, then choose the correct path among Streamlined, DIIRSP, or VDP. We align our filings with published guidance, including Notice 2014-21, Revenue Ruling 2019-24, Revenue Ruling 2023-14, the FBAR rules administered by FinCEN, and current IRS instructions for Forms 8938, 5471, 8865, 8858, 8621, 3520, and 3520-A.
Defending Penalties and Keeping Cases Civil
We use the Appeals IRM for international penalties and post-Bittner FBAR principles to structure defenses and negotiate outcomes. Where criminal exposure is present, we evaluate timing and eligibility for the IRS-CI Voluntary Disclosure Practice and manage parallel civil and criminal tax risks.
Planning Going Forward
For ongoing operations, we design filing calendars and controls for foreign entity reporting, withholding, and information returns, transfer-pricing documentation, and treaty-aligned planning. For larger taxpayers, the IRS Pre-Filing Agreement program can provide certainty on defined issues.
Contact the Tax Law Offices of David W. Klasing Today for Your International Tax Issues
At the Tax Law Offices of David W. Klasing, we focus on high-risk federal civil and criminal tax controversies, including international tax matters. Our team is built to deliver courtroom advocacy and forensic tax precision inside one coordinated practice. David W. Klasing holds dual licenses as an Attorney and CPA and has earned a Master’s in Taxation. He maintains an A+ rating with the Better Business Bureau and a perfect 10.0 AVVO score. Our firm balances civil and potential criminal matters at any given time, which keeps the government guessing and positions our clients favorably in negotiations.
From Honolulu, we serve clients across Hawaii with federal tax matters that cross borders: FBAR and FATCA compliance, PFIC and Form 8621, foreign entity reporting on Forms 5471, 8865 and 8858, CFC Subpart F and GILTI computations with Form 8992, foreign trust reporting on Forms 3520 and 3520-A, foreign transfers on Form 926, withholding and inbound reporting on Forms 1042 and 1042-S, and expatriation planning and compliance on Form 8854. We are equally focused on remediation. Whether your best path is Streamlined, DIIRSP, or a full voluntary disclosure through CI, we craft a plan that aims to keep the matter civil, reduce penalties, and protect your liberty and your net worth.
David’s proven proficiency is now available in Honolulu, Hawaii, at our appointment-only satellite office, providing both legal and federal tax services in one place—at a single hourly billing rate. We have introduced a flexible scheduling option, allowing our clients to reserve a four-hour slot at any of our satellite locations. David W. Klasing will travel to any of our satellite offices to meet with you personally. This option must be preceded by a one-hour phone or GoToMeeting consultation to warrant incurring the travel expenses and opportunity costs of traveling. We have designed this service to benefit our clients, with no additional travel expenses added to your bill. Call us at 1-(808)-518-2380 or complete our online contact form today.
Our Honolulu, Hawaii Office is Conveniently Located at:
1003 Bishop Street, Suite 2700
Honolulu, HI 96813
Telephone: 1-(808)-518-2380
