Foreign Asset Reporting and Taxation Overview

• Author: Adam Poutasse and Aliah Molczan
• Pages: 40-41

40 FAMILY ADVOCATE www.shopaba.org

Foreign Asset Reporting and

Taxation Overview

By ADAM POUTASSE AND ALIAH MOLCZAN

include a mark-to-market component unless the taxpayer

chooses to opt out and, thus, become subject to the taxation

rules like those of owning a U.S. investment. is election is

led annually with the individual’s income tax returns on

Form 8621.

Holding these assets overseas or bringing the funds back

to the United States typically does not change the U.S. tax

impact to the individual.

Foreign Partnerships

Foreign partnerships will report the U.S. partner’s respective

income to the U.S. individual so the individual can include it

on his or her U.S. income tax return. While the partnership

may not have a direct U.S. ling obligation, the U.S.

individual must disclose this information by ling Form

8865, Return of U.S. Persons with Respect to Certain Foreign

Partnerships, with his or her individual income tax returns.

e assets held overseas or brought back to the United

States are reported with the annual income tax returns. e

location of the funds should not have a U.S. tax impact.

Foreign Corporations

In general, a foreign corporation is only subject to U.S. tax

on income when income is earned in the United States or

As the world has become more global, more

clients of all types hold assets outside of the

United States. e following summarizes

some important tax-reporting and disclo-

sure requirements and where to nd those

assets in the new documentation.

Foreign Assets: Taxation of Individuals

U.S. citizens and green card holders are subject to tax on

worldwide income. at means any income, whether earned

overseas or in the United States, is subject to U.S. taxation.

Assets and their tax attributes should be reported annually;

therefore, repatriation of those assets should not trigger any

additional liability.

Ownership in foreign corporate stock creates a U.S. tax

liability in the same way as ownership in U.S. corporate

stock. If the foreign corporation pays dividends, the dividend

income is included with all income of the individual. Gains

on foreign stock sales are also treated with the same capital

gain treatment as in the United States. Disclosure of that

stock ownership is referenced below.

Individuals holding an interest in a foreign mutual fund

or holding company may be subject to the rules of passive

foreign investment companies (PFICs). PFIC taxation can

Published in Family Advocate, Volume 43, Number 2, Fall 2020. © 2020 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof

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