US Citizens With UK Businesses

Many US citizens  living outside of the US may not be aware of the additional filing obligations required by the IRS if they own or become shareholders in foreign corporations.

They must still include this information in their annual tax returns or face serious consequences for noncompliance. We have set out below some of the main requirements you’ll need to be aware of in relation to UK (or other foreign) business owned by US taxpayers.

Form 5471:  ‘Information Return of US Person with Respect to Certain Foreign Corporations’

Who Must File:        
Form 5471 must be completed for any US citizen or green card holder who owns 10% or more of the shares in a non-US company at any point during the year.

When to File:
The completed Form 5471 must be filed by April 15th for the previous year as an attachment to the taxpayers Income Tax Return Form 1040. Extensions of time to file the years’ tax return for an additional 6 months to October 15th will also extend the filing of the related form 5471 for the year.

What to Report:  
The Form must report the shareholdings of all US citizens and green card holders in the company at the beginning and end of the year, as well as the balance sheet and profit and loss account of the company as at 31 December of the applicable year.

If companies with US shareholders do not already have a 31 December year end we strongly recommend that the accounting period is changed for this reason so as to reduce the burden of unnecessary administration and accountancy fees.

Penalties:  
From 2008, the IRS charge penalties to taxpayers of up to $10,000 for each Form 5471 that is filed after the due date or does not include complete and accurate information. 

Form 8938: ‘Statement of Specified Foreign Financial Assets’

Who Must File:           
If you are not living in the US, you must be required to file Form 8938 if your foreign financial assets are valued at more than $200,000 on the last day of the tax year, or $300,000 at any point during the tax year (rates vary for married filing jointly and taxpayers living in the US).

A foreign financial asset excludes property, but includes things like investment portfolios, pension funds and company bank accounts of which you have control over. Hence it is important to consider this form if you own a UK company as you may not fall below the threshold considering your personal assets alone, however taking the your business into consideration could mean that you are required to report this information to the IRS.

When to File:              
As per Form 5471, this Form is submitted with the taxpayers’ income tax return for the year.

What to Report:          
The Form 8938 must report specific information relating to your Foreign Financial Assets held during the relevant tax year, including any related earnings received from each asset.

Penalties:                    
The IRS can enforce penalties of up to $10,000 for failure to disclose information and an additional $10,000 for each 30 days of non-filing after the IRS have issue a notice of failure to disclose, up to a maximum of $60,000.

FinCEN (FBAR) Report of Foreign Financial Accounts

Who Must File:           
This form must be completed by any US person with financial accounts holding a combined balance of $10,000 at any point during the tax year. This includes business accounts you may have control or hold signatory authority, so similarly to the form 8938 including business accounts could push you over the filing threshold.

When to File:              
The filing deadline for submitting your FinCEN (FBAR) report to the Department of the Treasury is currently 30 June following the tax year.

This is due to be changed to fall in line with the filing of income tax returns (including extensions) starting from the 2016 tax year.

What to Report:          
The FBAR must report specific information relating to your non-US accounts, including maximum account values and specific ownership.

Penalties:                    
Non-wilful failure to complete an FBAR can result in penalties of up to $10,000. If the IRS determines your non-compliance as wilful non-disclosure you can be fined up to $100,000 or 50% of the account balances. Criminal penalties may also apply.

If you have any further questions regarding your filing obligations in relation to non-US businesses please contact us and we can offer personalised advice on your individual situation.

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Diana Hoare - Anderson Hoare