Individuals Receive Information Reporting Relief for Transactions with Certain Foreign Trusts

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.

The IRS has issued guidance[1] that:

  1. 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
  2. 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.

Reporting Relief

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.

Penalty Relief

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.

 


[1] Rev. Proc. 2020-17, Mar. 3, 2020

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

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.

© 2022 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
Tax, Tax Policy BY James Sayre
Accounting for Pennsylvania Corporate Income Tax Rate Change
Why We Focus on Industry Specialization
Potential Income Tax Attribute Limitation with Ownership Change
Automobile, Tax BY Steven Barber
The FTC Safeguards Rules Are Extended to June 9, 2023
401(k) Plans, Tax BY Luke Dovell
Want More Money? Start Investing Early
IRS Gave the Gift of Higher Estate and Gift Tax Limits for 2023
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×