USA tax questions: foreign RE, foreign bank accounts

[Jurgis]

Anyone knows answers to following questions. My guesses/DD are also listed, but I'd like confirmation or disconfirmation.

 

1. If someone gifts you foreign RE, is this reportable to IRS? (I believe no - not until sale)

2. If you buy foreign RE, is this reportable to IRS? (I believe no - not until sale).

3. If you sell foreign RE, is this reportable to IRS? (I believe yes, and taxable yes).

4. What is the cost basis on foreign RE that is gifted to you? Zero? What documents would work to establish non-zero cost basis?

5. Is there a diff if you inherit foreign RE from a non-US person? (I.e. there are no US documents/probate/inheritance, it's all non-US).

 

6. If you have non-US bank account, you have to report this to IRS on the tax form. Has anyone done this and are there immediate negative consequences? Or it's just formality (that maybe raises your audit chance and/or chance of you being tracked by three letter agencies)?

7. Same as 6, but bank account is above $large-sum (10K? 100K? 1M?)? Actual info preferred, not speculations. :)

 

Asking for a friend obviously.  8)

 

Thanks for any info. Would also be interested in contact info for a professional (CPA?) who knows this area and could answer these questions profesionally.

[rpadebet]

Are you hinting at a use case for bitcoin? 8)

[rb]

Anyone knows answers to following questions. My guesses/DD are also listed, but I'd like confirmation or disconfirmation.

 

1. If someone gifts you foreign RE, is this reportable to IRS? (I believe no - not until sale)

2. If you buy foreign RE, is this reportable to IRS? (I believe no - not until sale).

3. If you sell foreign RE, is this reportable to IRS? (I believe yes, and taxable yes).

4. What is the cost basis on foreign RE that is gifted to you? Zero? What documents would work to establish non-zero cost basis?

5. Is there a diff if you inherit foreign RE from a non-US person? (I.e. there are no US documents/probate/inheritance, it's all non-US).

 

6. If you have non-US bank account, you have to report this to IRS on the tax form. Has anyone done this and are there immediate negative consequences? Or it's just formality (that maybe raises your audit chance and/or chance of you being tracked by three letter agencies)?

7. Same as 6, but bank account is above $large-sum (10K? 100K? 1M?)? Actual info preferred, not speculations. :)

 

Asking for a friend obviously.  8)

 

Thanks for any info. Would also be interested in contact info for a professional (CPA?) who knows this area and could answer these questions profesionally.

Not 100% sure on 1-5 so I won't answer.

 

On 6 and 7, yes report the foreign bank accounts. Most countries have information sharing agreements with the US. Meaning that IRS will already know about your foreign bank account because the country it's in told the IRS about it. There are some countries that don't have this type of agreements in which case your friend might take his chances. But I suspect your friend's accounts are in a jurisdiction with an information sharing agreement with the US.

 

As for professional advice you should be looking for tax professional not a CPA. This is a common misconception. A lot of tax professionals are CPAs, some are not - there's no required designation. A lot (most?) of CPAs are not tax professionals and don't really have a clue about it. Then there are some CPAs that think they know some stuff about taxation but they really don't. These are the most dangerous cause they screw up their clients. What I'm trying to say is make sure you get someone who know what he/she's doing. Don't just go oh look a CPA he should know.

[whiskybravo]

If you have a foreign account greater than $10,000 in value, then you have to report it on your tax return and separately file an FBAR form:

 

https://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html

 

I have an account with Banca Intesa in Italy and have filed this form for the past three years. Other than an email confirmation that my submissions (you have to file the same form yearly) had been accepted, I have not heard a beep from the IRS.

[Jurgis]

Thanks guys. Anyone with knowledge about items 1-5?

 

Specific answers:

@John - I'll ask Sanjeev to move the thread.

 

@rpadebet - No, this is not yet another bitsomething thread.

 

@rb - yeah, I know it's tax professional. But 90%+ tax professionals don't know this area - they just do local US taxes and not much clue about international situations. You are right that I need a pro in this specific area. That's why I am asking for recommendations. :)

And I'm not asking for tax evasion advice - I'm interested in the fully-compliant above-board rules.

BTW, aren't you in Canada? ;)

 

@whiskybravo - thanks. That answers questions 6-7.

[rb]

@rb - yeah, I know it's tax professional. But 90%+ tax professionals don't know this area - they just do local US taxes and not much clue about international situations. You are right that I need a pro in this specific area. That's why I am asking for recommendations. :)

And I'm not asking for tax evasion advice - I'm interested in the fully-compliant above-board rules.

BTW, aren't you in Canada? ;)

Yes I am in Canada but I do a lot of international tax work. So I didn't answer the parts that I'm not 100% sure about but I answered the parts that I am 100% sure about  ;).

[scorpioncapital]

http://premieroffshore.com/need-report-offshore-real-estate-irs-form-8938-3/

 

Foreign real estate is not a foreign financial asset required to be reported on Form 8938.  So, a personal residence or a rental property outside of the United States does not need to be reported on this form.

 

However, if the real estate is held through a foreign entity, such as a corporation, partnership, or trust, then your interest in the entity is a specified foreign financial asset that might be reportable on Form 8938.  The value of the real estate held by the entity is used to determining the value of the shares to be reported on Form 8938, but the real estate itself is not separately reported on Form 8938.

 

All of this is to say that, if you purchase foreign real estate in your name, without an entity, you do not need to include that asset on Form 8938…but be careful, there are a number of traps for the uninitiated.

 

 

 

 

[Jurgis]

OK, I moved the topic to Personal Finance.

 

Thanks @scorpioncapital. This answers questions 1-3.

 

Now only questions 4-5 remain, which might be too obscure for this forum. But if anyone knows answers, please post.

And additional question:

5a. If you have foreign RE and gift it to someone, are there any US taxes payable and what has to be reported? (My guess: this goes into your estate accounting, but I'm very fuzzy on how that is accounted/reported and especially with foreign RE that is gifted to foreign individual).

[Grafter]

I'm not an international expert, so this is all just my understanding and not tax advice.  In addition, this is only US reporting, and doesn't deal with any reporting in non-US countries.

 

My understanding is that gifts from a foreign individual are potentially reportable to the IRS via Form 3520 by the donee (for #1), if the amount is more than $100k (either in cash or property). 

 

If it is a gift of RE from a US resident to a US resident, of property located in a foreign country, I know that the donor will have to file a gift tax return (form 709) if its value is more than the annual gift tax exclusion amount (of $14k).  There may be additional requirements on top of this, depending on a number of factors (though I'm not 100% sure).

 

As for #2, it will depend on a number of factors, as to how it is held (directly or in some legal entity), how it was funded (as the funding may be subject to reporting), etc.

 

I'm unsure about #3 and #4, and am unsure what you are talking about in #5.

 

In the case of 6 and 7, if you have a foreign account, it most likely reportable on schedule B with a checkbox (see the instructions for that form).  Depending on the type of the gift and amount, it may be reportable on other forms and you would want to look at the instructions for Fincen 114 (aka FBAR) and form 8938.  The following is a link to an IRS comparison of these forms:  https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements 

 

The rules around reporting these accounts and transactions these are complex (and this is a limited brief overview), but the penalties of not reporting can be significant (which you can see at the link for Fincen 114 and 8938 and at https://www.cpajournal.com/2017/12/19/irs-form-3520-penalties-whether-make-protective-filing/ for Form 3520).

 

The filing of these forms is not things to mess around with if you don't have experience doing so.  The IRS has information sharing agreements with a number of countries/entities (so they have ways of gathering information and matching it to what is filed and then questioning you if something isn't filed).  If you have received such a gift currently or have previously and not reported such information, and need to file for multiple gifts or years, I would strongly recommend that you seek out experienced tax or legal assistance (if you need to search, look for mentions of OVDP and streamlined filing compliance along with the form numbers).

[Jurgis]

Thanks Grafter. I think your answers and pointers cover most of what I needed.

 

 

[Jurgis]

I have another related and somewhat obscure USA tax question.  8)

 

Following situation: US person invests in Canadian SPV as an LP. SPV in question invests its funds into a startup. The startup is not controlled by SPV and is not a subsidiary of SPV. US person is minority of LPs, so I don't think this would be "US controlled company".

 

Questions:

1. Would this be considered a PFIC?

2. Would this be considered something that is even worse than a PFIC from tax standpoint?

3. Any other (tax) issues, caveats, nasties for the said US person?

 

As before, I'm not asking for tax evasion advice - I'm interested in the fully-compliant above-board rules.