Numbers to Know – 8938, 8621, 5471, 3520

Dec 1, 2015

There are many IRS forms that taxpayers need to be aware of particularly when filing overseas with additional expatriate reporting requirements. These include Form 8938 (FATCA); Form 8621 (PFIC); Form 5471 (certain Foreign Corporations); Form 3520 (Foreign Trust).

 

Foreign Account Tax Compliance Act (FATCA) The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 to help the IRS enforce U.S. tax reporting by individuals with offshore accounts. Under FATCA, U.S. taxpayers with foreign financial accounts above certain thresholds are required to report those accounts on Form 8938 as a part of the annual federal income tax return. FATCA also places a requirement on the foreign financial institutions to report financial accounts held by U.S. taxpayers directly to the IRS.

 

Foreign Corporations and Foreign Trusts If you are a U.S. citizen or U.S. lawful permanent resident (green card holder) and you are a shareholder in a foreign corporation or trust, then further reporting obligations to the IRS are relevant. This applies to any owner of an Israeli corporation if the ownership percentage is 10% or greater. Reporting requirements include (but are not limited to) filing a complete and accurate IRS form 5471. Failure to comply can result is penalties of $10,000 per year. See IRS instructions to form 5471 for full details on penalties.

  1. Do you (and/or your spouse if relevant) have 10% or more ownership in any non-USA corporation?
  2. Have you received any distributions from any non-USA trust fund?

If the answer to any of these questions is “yes”, you may need to file a Form 5471 or Form 3520.

 

Passive Foreign Investment Company (PFIC) A passive Foreign Investment Company (PFIC) is a foreign-based corporation that has one of the following:

  1. At least 75% of the corporation’s income is passive income
  2. At least 50% of the corporation’s assets are investments (generate interest, dividends or capital gains)

The most common forms of PFICs are foreign-based mutual funds, partnerships and other shared investment vehicles that have at least one U.S. shareholder. PFIC investors are typically required to pay income tax on distributions as well as appreciated share values, even if capital gains tax rates would usually apply.

If any of these forms are relevant for you, it is best to speak directly with our office for further guidance.

 

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Many taxpayers receive identity verification notices from the IRS, and in most cases, the process is straightforward and can be resolved without much difficulty.

You have the following options to verify your identity:

Option 1: Verify through the IRS using your ID.Me account

 

Option 2: Use the IRS Document Upload Tool

    • Please note when they ask for the access code answer "no" and put in the notice/letter type 5447C

    • Alternatively, we can upload the documents on your behalf. (Please note additional fees apply.)

For both options 1 and 2:

    1. Allow at least 30 days to process.
    2. You can then check your status on IRS Where's My Refund or request that we pull your transcript.

    Option 3: Call the IRS

      1. Phone number: 1-267-941-1083

      1. When calling the IRS please note that there could be long wait times. We recommend the best time to call is as close to 1PM Israel time as possible, when the lines first open.

    When speaking with the IRS agent:

      • Let them know you are calling in response to a Letter 5447C letter for tax year 202x.

      • Provide the control number as it appears on the first page of the letter.

      • Be prepared to answer any question they ask from the first 2 pages on both tax returns, including:

          • complete address

          • filing status (Head of Household /Married Filing Separately / Married Filing Joint/ Single)

          • refund amount.

      • If you are unsure of an answer you may ask the agent where it can be found on the return.

      • Know the dates of birth for you and the children on the return

      • Know your mother's maiden name

      • If they ask about W-2 income, tell them since you live outside of the US your income isn’t reported on a W-2, but rather the equivalent form 106 instead.

    They hopefully will not ask any more financial questions.

    If your identity is successfully verified during the call, the IRS will typically inform you immediately. Your refund should then be released within approximately 6-9 weeks.

    Documents Required in All Cases

    Regardless of the verification method you choose, you will need:

      • a copy of the 5447C letter you received

      • the first 2 actual 1040 pages of your 202x and 202x tax returns

    Additional Documents for ID.me or Document Upload Verification

    If you are verifying online through ID.me or using the IRS Document Upload Tool, you will also need:

    Two clear copies of acceptable identification, as listed in the IRS letter (for example passport and license).