Foreign Asset Reporting for Trusts and Estates: Impact of Loper Bright, FATCA, FBAR, Forms 3520, 5471, and 8865

Description

U.S. federal tax reporting requirements for foreign assets and gifts apply to U.S. persons, citizens, and resident aliens along with some special rules for individuals residing in U.S. territories. Due to the complexity of these tax rules and reporting requirements, executors and counsel must include determining a taxpayer's U.S. tax compliance with respect to foreign assets as a necessary step when reviewing, settling, or reporting a decedent's estate.

The government is able to assess and collect FBAR liability and penalties from beneficiaries and executors after a decedent's date of death and after assets are distributed. The penalty for non-willful FBAR violations is $10,000; this can be waived for reasonable cause. Willful non-filing, however, can result in penalties of $100,000 or 50 percent of the account balance, whichever is larger. Counsel must be able to identify and distinguish between a potentially willful or non-willful violation to accurately advise clients.

In addition to the FBAR, Form 3520 may need to be filed when a U.S. person receives a gift, inheritance, or distribution from a nonresident alien, foreign estate, and certain foreign trusts. In addition to the 3520, owners of foreign grantor trusts must file Forms 8938 and the FBAR. Such owner must also ensure that the trust itself annually files 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner.

Furthermore, the recent SCOTUS decision in Loper Bright significantly changes key aspects of tax and estate planning. The Court's overturning of the Chevron doctrine removed the deference and latitude federal judges would give agencies over how to interpret the statutes they administer when disputes arise. This could have a profound impact on specific tax planning considerations, taxpayer and IRS disagreements, how tax regulations are issued, and more.

Listen as our panel of experts discusses identifying trusts and estates with foreign reporting obligations, the current government initiative to assess penalties, and the impact of Loper Bright, as well as outlines best practices for bringing taxpayers into compliance.