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Some taxpaying individuals and businesses are required to submit offshore information returns to the government when dealing in matters that concern foreign entities and offshore financial accounts. Information returns do not require payment but should still be taken seriously because of the civil penalties involved for failing to file them.
Late filing or filings with mistakes can cause fines that compound the longer they go unaddressed. Fortunately, there are options for you to file delinquent or amended offshore information returns and avoid painful civil penalties.
The Dual Licensed International Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing are here to help. Call our offices today at (800) 681-1295 or click here to schedule a reduced-rate case evaluation.
More and more businesses are operating on a global level, even small businesses and startups. In recognition of that fact, the IRS requires U.S. businesses that have foreign ownership, or foreign businesses that do a significant amount of business in the U.S. to file Form 5472. The form discloses information about reportable transactions, and is submitted along with IRS Form 1120, your annual tax return. Form 5472 differs from Form 5471, which is used for U.S. citizens that have ownership in foreign corporations.
The IRS wants you to include all reportable transactions on Form 5472. The phrase “reportable transactions” is defined very broadly as basically any activity carried out between a U.S. corporation and a foreign owner. Some examples include any money or property exchanged, loans or interest payments, and any use of U.S. property by foreign owners.
If 25 percent or more of your U.S.-based corporation is owned by a foreign individual (which can include both businesses and individuals), you will need to file Form 5472. In addition, any company that’s foreign and is engaged in a U.S. trade or business must file. Some U.S. LLCs that are owned by foreign entities may need to file. If your company has multiple foreign shareholders, a separate Form 5472 must be filed for each.
If a business that does not fit these categories does certain types of reportable transactions with a company that is subject to Form 5472 disclosure requirements. These are referred to as transactions with a “related party.” Examples of the types of reportable transactions that may require a Form 5472 filing include the following:
The rules for which entities qualify as a “related party” can be tough to interpret. The same is true for determining whether a corporation is 25% foreign-owned. To learn the details of your own situation, consult a Dual Licensed International Tax Attorney and CPA.
Form 5472 is due at the same time as your company’s income tax return (Form 1120). For tax year 2022, that would mean the due date for your filing of Form 5472 would be April 18. However, if you file a six-month extension for your Form 1120, Form 5472 will also be postponed to the same date (or October 17 for tax year 2022). You must file a new Form 5472 every year your company meets the filing requirements.
The standard penalty for failing to file a Form 5472 on time is a $25,000 fine. There is an additional fine of $25,000 if you fail to file a Form 5472 within 90 days of being notified by the IRS. This fine continues to apply for each month that passes after those 90 days.
For instance, let’s say that you are a year late on filing Form 5472. You would have the $25,000 initial fine for missing the deadline, plus $25,000 for the first three months that you didn’t file, plus nine more fines worth $25,000 each for the months after the 90-day fee. This would amount to a total balance of $275,000.
You should bear in mind that a filing with a mistake on it will be considered a late fine for purposes of the IRS’ assessment of fines. IRS Form 5472 is a highly complicated filing, so to ensure that a serious mistake does not result in immense penalties, we urge you to utilize the experience of a Dual Licensed International Tax Attorney and CPA.
Taxpayers who have identified the need to file delinquent international information returns who are not under a civil examination or a criminal investigation by the IRS and have not already been contacted by the IRS about the delinquent information returns should contact our offices to explore all of the available options to return to compliance.
To learn more about the available options in your situation and our services, contact the Tax Law Offices of David W. Klasing at (800) 681-1295 or click here to schedule your first case evaluation for a reduced rate.
If you are dealing with serious tax matters, you deserve tax assistance that you can rely on. Schedule your first reduced-rate case evaluation with our Criminal Tax Defense Lawyers by calling (800) 681-1295 today or schedule online here.
If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.
As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!