Foreign Gifts

Foreign Gifts Reporting

File Form 3520 if:

1) More than $100,000 in gifts received from a nonresident alien individual or a foreign estate (or related persons), or

2) More than $12,760 (2006) in gifts received from foreign corporations or partnerships (or related persons).

If a reportable gift is not included on Form 3520, penalties may result. The recipient may be subject to a penalty equal to 5% of the value of the gift for each month in which the gift is not reported (not to exceed 25%).

Foreign Bank Account Reports (FBAR) Reporting Requirements

Any person or entity subject to the jurisdiction of the U.S., having a financial interest in, or signature or other authority over, a bank, securities or other financial account having a value exceeding $10,000 in a foreign country shall report such relationship. Such persons or entities shall report the relationships to the Commissioner of the Internal Revenue on or before June 30th of the year following the calendar year in which such relationship exists. To report the relationship, the person or entity is required to file Form TD F 90-22.1. Substantial civil and criminal penalties are prescribed for the failure to file the form. If the person willfully fails to file an FBAR, the civil penalty imposed will equal the greater of 50% of the balance in the account at the time of the violation or $100,000, but not less than $25,000. The criminal penalty for willful failure to file an FBAR is a fine of not greater than $250,000 and/or imprisonment for not more than five (5) years. If the violation is part of a pattern of criminal activity, the criminal fine and/or term of imprisonment may be doubled. You must provide our firm with information regarding any interest you may have in a foreign account, if you want us to prepare any of the required disclosure statements.

Information Return by U.S. Person Controlling a Foreign Corporation (Form 5471) or Partnership (Form 8865)

If you had control of a foreign corporation or a foreign partnership for the annual accounting period of that corporation or partnership that ended with or within your tax year, you may have to file an annual information return. If you do not file the required information return, you may have to reduce the foreign taxes that may be used for the foreign tax credit. See Penalty for not filing Form 5471 or Form 8865, later.

U.S. persons controlling foreign corporations. If you had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of that corporation, you may have to file an annual information return on Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations. Under this rule, you generally had control of a foreign corporation if at any time during the corporation's tax year you owned:

Stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote, or more than 50% of the total value of shares of all classes of stock of the foreign corporation.

U.S. persons controlling foreign partnerships. If you had control of a foreign partnership at any time during the partnership's tax year, you may have to file an annual information return on Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. Under this rule, you generally had control of the partnership if you owned more than 50% of the capital or profits or interest, or an interest to which 50% of the deductions or losses are allocated.

You also may have to file Form 8865 if at any time during the tax year of the partnership, you owned a 10% or greater interest in the partnership while the partnership was controlled by U.S. persons owning at least a 10% interest. See the Instructions for Form 8865 for more information.

Penalty for not filing Form 5471 or Form 8865. Generally, there is a dollar penalty of $10,000 for each annual accounting period for which you fail to furnish information. Additional penalties apply if the failure continues for more than 90 days after the day on which notice of the failure to furnish the information is mailed.

If you fail to file either Form 5471 or Form 8865 when due, you may also be required to reduce by 10% all foreign taxes that may be used for the foreign tax credit. This 10% reduction shall not exceed the greater of $10,000 or the income of the foreign corporation or foreign partnership for the accounting period for which the failure occurs. This foreign tax credit penalty is also reduced by the amount of the dollar penalty imposed.

Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business

A U.S. corporation with non U.S. shareholders who own 25% or more of the stock of the U.S. corporation must file Form 5472 in any year when the US corporation has a reportable transaction with the foreign shareholders. A separate form must be filed for each foreign shareholder.

Generally, a reportable transaction is any exchange of money or property with the foreign shareholder except for the payment of dividends.

The penalty for failure to file this form is $10,000.