Foreign trusts are subject to many tax filing requirements, and failure to meet them can result in significant penalties. Annual information reporting generally includes a U.S. person’s transfers of money or other property to, ownership of, and distributions from, foreign trusts.
Exempts certain U.S. individuals from information reporting requirements for their transactions with, and ownership of, foreign retirement and foreign nonretirement savings trusts and foreign trusts; and
Establishes procedures for these individuals to request abatement or refund of penalties assessed or paid under for failing to comply with the information reporting requirements.
The Treasury Department and IRS have determined that certain U.S. individuals should be exempt from information reporting requirements because:
a. the trusts are generally subject to written restrictions (e.g., contribution limitations, conditions for withdrawal, and information reporting) by the laws of the country where the trust is established; and
b. U.S. individuals with an interest in these trusts may be required by FATCA (Foreign Account Tax Compliance Act) to separately report information about their interests in accounts held by or through the trusts.
Eligible individuals who have been assessed a penalty for failing to comply with foreign trust reporting for an applicable tax-favored foreign trust and want relief must complete Form 843, Claim for Refund and Request for Abatement.
The guidance is effective as of Mar. 3, 2020.
The complexity that surrounds foreign trusts should be regularly reviewed by taxpayers in order to minimize unfavorable tax implications.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.