Taiwan Bank Accounts and Corporation Voluntary Disclosure Case Study

Taiwan Bank Accounts and Corporation Voluntary Disclosure Case Study

Taiwanese Account and Asset Offshore Disclosure Case Study

It is very common for a U.S. Taxpayer who is a citizen of Taiwan to become a U.S. person for tax purposes while still maintaining assets, accounts, and then investments in Taiwan – or for a U.S. person expat who relocates to Taiwan to accumulate Taiwanese investments. Golding & Golding has represented hundreds of taxpayers from Taiwan on matters involving offshore disclosure and voluntary compliance. While each person’s facts and circumstances are unique, oftentimes the general fact patterns will overlap -and so there are common themes as to why a person may have unreported income and accounts in Taiwan that they did not report on their U.S. tax return. Let’s take a brief look at some of the common issues involving U.S. persons who have accounts and investments in Taiwan by working through a case study.

Tom is a Taiwanese Citizen/U.S. Green Card Holder

Tom is a citizen of Taiwan who previously lived and worked in Taiwan before moving to the United States. He first came to the United States on an L-1 transfer visa and then became a permanent resident. Since Tom spent a significant amount of time in Taiwan working, he amassed a 7-figures portfolio in Taiwan comprised of foreign accounts and assets. Tom is tax-compliant in Taiwan and files all the necessary forms. Tom’s Taiwanese investments include bank accounts, mutual funds, ETFs, and a corporation. He also has an additional corporation in Hong Kong, which is a Hong Kong Private Limited. Each year Tom files his U.S. tax returns to report his US income but was completely unaware that he was required to file any forms for his assets in Taiwan. He was also unaware that he was required to include the income on his US tax return.

FBAR

Tom will have to file the annual FBAR (Foreign Bank and Financial Account Reporting Form aka FinCEN Form 114) to report his foreign bank and financial accounts. The FBAR requires that Tom report the maximum value of his foreign accounts, which also includes his investment accounts and a life insurance policy he has from Tokio Marine and AIA.

Form 8938 (FATCA)

Since the combined value of these accounts is in the low-7 figures, Tom meets the threshold requirements to have to report FATCA Form 8938 as well — which is similar to the FBAR but has its specific requirements and challenges.  Whereas the FBAR is an electronic form filed separately with FinCEN, Form 8938 is filed with the tax return directly to the IRS.

Form 5471

This is where Tom’s tax filing begins to get more complicated. Because Tom is a U.S. person and owns more than 50% of multiple foreign corporations, Tom is required to file a Form 5471 for each foreign corporation that he owns. In addition, Tom has various other income-related issues to contend with since some of the corporations generate passive income, including GILTI and Subpart F income.

Form 8621

The Form 8621 is used to report Passive Foreign Investment Companies. Even though Tom’s foreign corporations do not meet the 50%/75% threshold requirements for being PFIC, he does own several foreign mutual funds and foreign ETFs — and unfortunately, these types of foreign investments get stuck in the PFIC matrix. This requires Tom to file a Form 8621 to report each separate fund. Making matters more complex is the fact that some of these funds distribute significant amounts of dividends (in certain years only) and Tom also sold some of these funds as well — so there will be excess distribution calculations.

Taiwanese Income

Since Tom has various types of investments, he will have different categories of income required to report as well, such as the passive income from his funds, the year-over-year growth of his insurance policies (minus the premiums paid), and business income for his CFC — even when that income is not being distributed.

VDP, Streamlined or Delinquency

Taxpayers need to be cautious when dealing with international tax attorneys who handle offshore disclosure because many of them claim to be experts but are not experts or specialists — despite what they claim. Oftentimes these attorneys will scare taxpayers into believing that they are willful and have to go the voluntary disclosure route when in fact they are non-willful and would qualify for the streamlined procedures or delinquency procedures which have a much smaller penalty or even possible penalty waiver.

Late Filing Penalties May Be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.