Volume No. US-19-08
The enactment of the 2017 Tax Cuts and Jobs
Act (TCJA)) brought significant changes to the international tax world for U.S.
taxpayer including, among other provisions, an expanded definition of a “United
States shareholder”, the repatriation tax of IRC §965 and the global low tax
intangible income (GILTI) under IRC §951A.
We have discussed these provisions in earlier Tax Tips.
As many non-resident U.S. taxpayers are now
filing their 2018 U.S. personal tax returns (due October 15, 2018 on extension)
many are seeing, for the first time, new Form 5471, “Information Return of U.S. Persons With Respect to Certain Foreign
Corporations”. What becomes clear,
once more, is that the U.S. Congress did not consider the impact on United
States citizens living abroad. The new
form is clearly aimed at the large U.S. multi-national enterprises (MNE) who
have both the expertise and resources to accurately complete these forms.
One IRS estimate states that it takes, on average, 38
hours to prepare Form 5471, 82.5 hours to do the appropriate book and record
keeping and 16 hours to learn about the Form. Someone who has little or no experience with
U.S. international compliance will spend significantly more time. If the financial statements have been
prepared by a professional accountant we are still looking at an average
estimate of 38 hours just to prepare the Form!
Using an estimated hourly rate of $200 per hour (which is probably on
the lower side given the expertise that is needed) we are looking at a
potential fee of approximately $7,500 to complete each Form 5471. One thing is for certain, compliance fees
will be going up. Increasing compliance
costs are a factor that many U.S. citizens, abroad, are considering when
determining whether they want to renounce their U.S. citizenship.
The IRS may impose a penalty of US $10,000
on a late filed or INCOMPLETE form. As such
taxpayers cannot ignore this form or take a light hearted approach to complete
it. In the past the IRS would not have,
automatically, imposed a late filing penalty on individual United States
shareholders. This, however, may be
changing. The Large Business and
International (LB&I) division of the IRS has a number of programs in place
and foreign compliance, in general, is on their target list.
Some significant changes include
- A new classification for a Category
1 filer. There are now 5 (again)
classifications of filers.
- Schedule B, Part II is new
- Schedule C, line 8a and 8b are
new. These lines report foreign currency
transaction gain or loss
- Schedules E and H are now
- Schedule E has been greatly
- An expanded Schedule G – Other
information – may additional questions have been included.
- Schedule I-1 is new. This schedule is used to report information
with respect to GILTI
- An expanded Schedule J
- Schedule M has new lines, and
- New Schedule P
Schedules E, H, I-1, J and P must be
completed separately for each applicable category of income. For example schedule E-1 has 13 different
columns for the tracking of taxes, 9 columns alone for “Taxes related to
previously taxed E&P”. The same
level of detail is required for Schedule H, “Current Earnings and Profits”, Schedule J, “Accumulated Earnings and Profits (E&P) of Controlled Foreign
Corporation” and Schedule P, “Previously
Taxed Earnings and Profits of U.S. Shareholder of Certain Foreign Corporations”.
Schedule I-1, “Information for Global Intangible Low-Taxed Income” is almost a
duplicate of new Form 8992, “U.S.
Shareholder Calculation of Global Intangible Low-Taxed Income”.
What is abundantly clear is that the level
of compliance complexity has dramatically increased. Smaller, less sophisticated taxpayers are
going to have a difficult time complying or are going to have to incur
additional compliance costs.
Congress and the IRS really need to
consider the impacts on taxpayers other than the Apples, Starbucks and Amazons
of this world.
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The material provided in this U.S. Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither Cadesky Tax nor Cadesky U.S. Tax can accept any liability for the tax consequences that may result from acting based on the contents hereof.