Offshore and out of mind: Reporting foreign assets and gifts

In our globalized economy, it is increasingly common for U.S. taxpayers to have foreign activities and investments. Many of these taxpayers, however, may not realize that they are required to report certain information about their foreign assets and activities (including foreign accounts and interests in foreign business entities), as well as information about certain foreign gifts received. The rules can be confusing and complicated. Indeed, a U.S. taxpayer who has no income from a foreign asset nonetheless may be required to report the asset — perhaps multiple times. Even a U.S. taxpayer who is not required to file a federal income tax return may be subject to certain reporting requirements regarding foreign assets. Failure to comply with information reporting requirements can result in significant civil and criminal penalties.

This article provides an overview of the federal tax reporting requirements for foreign assets and foreign gifts and outlines alternatives for resolving prior noncompliance. These requirements apply generally to U.S. persons, including U.S. citizens (regardless of whether they reside in the United States), as well as U.S. resident aliens.¹ Special rules may apply to individuals residing in U.S. territories and possessions (e.g., Puerto Rico, American Samoa, Guam, the U.S. Virgin Islands, and the Northern Mariana Islands). Additionally, assets located in U.S. territories and possessions may be treated as foreign assets for certain reporting purposes and not for others. Given the complexity of the rules, tax professionals should communicate with clients to help them determine whether a specific reporting requirement applies.

Foreign accounts and other foreign financial assets: FBAR and Form 8938

A person owning foreign financial accounts and certain other foreign financial assets may be required to file Treasury Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (commonly referred to as an FBAR); IRS Form 8938, Statement of Specified Foreign Financial Assets; or both. The obligations are imposed by separate statutory regimes with different legislative purposes and definitions. Although there can be significant overlap, the Form 8938 requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR, nor does the FBAR requirement replace or otherwise affect a taxpayer’s obligation to file Form 8938.

FBARs are filed with FinCEN, a bureau of Treasury. U.S. persons must file an FBAR if they have a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country if the aggregate value of all of their foreign financial accounts exceeds $10,000 at any time during the calendar year.² FBARs are due on April 15 in the year following the calendar year reported. Filers are allowed an automatic extension to Oct. 15 and do not need to specifically request an extension from FinCEN.

For FBAR purposes, U.S. territories and possessions are treated as part of the United States.³ Thus, an account located in a U.S. territory or possession does not need to be reported on an FBAR. However, residents of U.S. territories and possessions are required to comply with the FBAR reporting requirements.

Form 8938, on the other hand, is filed with the IRS and included with the taxpayer’s federal income tax return. This requirement, sometimes referred to as FATCA reporting after Sec. 6038D’s addition to the Code in 2010 by the Foreign Account Tax Compliance Act (FATCA),⁴ also involves foreign assets, but with different information and a different reporting threshold. Generally, a “specified person” (U.S. persons and certain nonresident aliens) must file Form 8938 if they have an interest in “specified foreign financial assets” with a value greater than the applicable reporting threshold described below.⁵ If, however, the specified person is not required to file a U.S. income tax return for the year, they do not have to file Form 8938, even if the value of their specified foreign financial assets exceeds the applicable reporting threshold.⁶

Specified foreign financial assets are defined broadly and include any financial account maintained by a foreign financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty that is a non-U.S. person, and any interest in a foreign entity (including interests in foreign partnerships).⁷

A specified person has an interest in a specified foreign financial asset if any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the asset are or would be required to be reported, included, or otherwise reflected on the person’s tax return.⁸ For individual taxpayers, the applicable reporting threshold depends upon the taxpayer’s filing status and whether the taxpayer lives in the United States. The general threshold is an aggregate value of all specified foreign financial assets exceeding $50,000 on the last day of the tax year or $75,000 at any time during the tax year.⁹ For married taxpayers filing jointly and living in the United States, it is an aggregate value of specified foreign financial assets in which either of them has an interest of more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.¹⁰ For most specified individuals living abroad, the threshold is $200,000 on the last day of the tax year or $300,000 at any time during the tax year (for married specified individuals filing jointly, the amounts are $400,000 and $600,000, respectively). Form 8938 should be attached to a taxpayer’s annual income tax return and filed by the due date (including extensions) for that return.

An account maintained by a financial institution organized under the laws of a U.S. territory or possession must be reported on Form 8938.¹¹ Residents of Puerto Rico and American Samoa are subject to Form 8938 reporting requirements. ¹² However, residents of Guam, the U.S. Virgin Islands, and the Northern Mariana Islands are not required to file Form 8938.¹³

Taxpayers are not required to report on an FBAR or Form 8938 foreign real estate, precious metals, and personal property (e.g., art, antiques, jewelry, cars, and other collectibles) held directly. Currently, foreign accounts holding virtual currency are not reportable on an FBAR unless the account holds other assets that are reportable. However, this is likely to change, as FinCEN has indicated that it intends to propose rules that would include virtual currency as a type of reportable account.¹⁴ There is no clear guidance indicating whether virtual currency and other digital assets are reportable on Form 8938 and, if so, under what circumstances. Taxpayers are, however, required to indicate on their annual income tax return whether they engaged in certain digital asset transactions during the tax year.¹⁵

Interests in foreign business entities

U. S. persons are required to report certain information about foreign business entities in which they own substantial interests. Whether a business entity is treated as a foreign business entity is generally based upon the jurisdiction in which the entity was organized.¹⁶ Generally, an entity organized in a U.S. territory or possession is treated as a foreign entity, though special rules may apply in certain circumstances.¹⁷ Additionally, special rules may apply to residents of U.S. territories and possessions who own interests in foreign business entities.¹⁸

The specific reporting required varies depending upon whether the foreign entity at issue is treated as a corporation, partnership, or disregarded entity for U. S. federal income tax purposes. Certain foreign business entities are treated as per se corporations for U.S. tax purposes.¹⁹ If a foreign entity is not a per se corporation and it has not otherwise elected its tax classification, it is treated as (1) an association taxable as a corporation if all members have limited liability; (2) a partnership if it has two or more members and at least one member does not have limited liability; and (3) a disregarded entity if it has a single owner that does not have limited liability.²⁰

The relevant reporting forms, discussed below, generally should be attached to the U.S. personfs federal income tax return and filed by the due date (including extensions) of that return. Taxpayers and their advisers should be aware that constructive ownership rules may apply to cause a taxpayer to meet the ownership threshold, triggering reporting in certain cases.

Foreign corporations

Shareholders, officers, and directors of foreign corporations: Form 5471: If a U.S. person is a shareholder, officer, or director in a foreign corporation, they may be required to file Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. Five categories of U.S. persons are required to file Form 5471. Whether a U.S. person falls into one of these categories generally depends upon whether the U.S. person is treated as a U.S. shareholder with respect to the foreign corporation and whether the foreign corporation would be treated as a controlled foreign corporation (CFC) or a Sec. 965 specified foreign corporation (SFC).

A U.S. shareholder for these purposes is a U.S. person that owns (directly, indirectly, or constructively) 10% or more of the total combined voting power or value of shares of all classes of a foreign corporation’s stock.²¹ A CFC is any foreign corporation if more than 50% of the total combined voting power or value of shares of all classes of stock of the corporation is owned by U.S. shareholders on any day during the foreign corporation’s tax year.²² A U.S. shareholder of a CFC is required to include in gross income on a current basis their pro rata share of certain income earned by the CFC, regardless of whether they receive a distribution. An SFC is a CFC or any foreign corporation (unless the foreign corporation would be treated as a passive foreign investment company (PFIC), discussed below) with respect to which one or more domestic corporations is a U.S. shareholder.²³

Below is a general overview of the specific categories of Form 5471 filers.

• Category 1: A person who was a U.S. shareholder of an SFC at any time during the SFC’s tax year ending with or within the U.S. shareholder¡¯s tax year and who owned stock on the last day in that year in which the foreign corporation was an SFC.
• Category 2: A U.S. person who is an officer or director of a foreign corporation in which a U.S. person has acquired (in one or more transactions): (1) 10% stock ownership (by vote or value) with respect to the foreign corporation, or (2) an additional 10% or more of the outstanding stock (by vote or value) of the foreign corporation.²⁴
• Category 3: This category includes:
  • A U.S. person who acquires stock in a foreign corporation that, when added to any stock owned on the date of acquisition, meets the 10% ownership threshold (by vote or value) with respect to the foreign corporation.²⁵
  • A U.S. person who acquires stock that, without regard to stock already owned on the date of acquisition, meets the 10% ownership threshold (by vote or value) with respect to the foreign corporation.²⁶
  • A person who is treated as a U.S. shareholder of a captive insurance company under Sec. 953(c) with respect to a foreign corporation.²⁷
  • A person who becomes a U.S. person while meeting the 10% ownership threshold (by vote or value) with respect to the foreign corporation.²⁸
  • A U.S. person who disposes of sufficient stock in the foreign corporation to reduce their interest to less than the 10% ownership threshold.²⁹
  • A U.S person who owns at least 10% of the corporation (by vote or value) when the corporation is reorganized.³⁰
• Category 4: A U.S. person who had control (i.e., ownership of stock possessing either more than 50% of the total combined voting power or value of shares of all classes of stock) of a foreign corporation during the annual accounting period of the foreign corporation.³¹
• Category 5: A U.S. person who was a U.S. shareholder that owned stock in a foreign corporation that was a CFC at any time during the foreign corporation¡¯s tax year ending with or within the U.S. shareholder¡¯s tax year, and who owned that stock on the last day in that year in which the foreign corporation was a CFC.³²

Passive foreign investment companies: Form 8621: A U.S. person with a direct or indirect interest in a PFIC may be required to file Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. A foreign corporation is a PFIC if it meets either a passive income test or a passive asset test.³³ A foreign mutual fund is a common example of a PFIC. U. S. persons that own PFIC interests may be subject to additional tax and interest charges with respect to PFIC earnings and distributions. There is no threshold ownership requirement with respect to the PFIC rules, and thus a U. S. person can be subject to the PFIC rules even if their ownership interest in the PFIC is very small. However, to the extent that a foreign corporation is both a PFIC and a CFC, a U.S. investor that is a U.S. shareholder of the foreign corporation is generally only subject to the CFC rules with respect to their interest in the foreign corporation.³⁴

A U.S. investor in a PFIC is subject to one of three alternative taxing regimes generally at the investor’s election: (1) the ¡°excess distribution¡± regime (the default regime); (2) the “qualified electing fund” (QEF) regime; or (3) the “mark-to-market” regime. The specific information required on Form 8621 varies depending upon which PFIC taxing regime applies. Generally, a U.S. investor is required to file a Form 8621 if they: (1) receive certain direct or indirect distributions from a PFIC; (2) recognize a gain on a direct or indirect disposition of PFIC stock; (3) are making certain elections with respect to the PFIC, including a QEF or mark-to-market election; (4) are reporting information with respect to a QEF or mark-tomarket election; or (5) are required to file an annual report with respect to a PFIC.³⁵

Foreign partnerships: Form 8865: U.S. persons must file Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, if they own an interest in a foreign partnership exceeding certain thresholds or engage in certain transactions with a foreign partnership. Form 8865 must be filed if the U.S. person controlled the foreign partnership at any time during the partnership¡¯s tax year, or if the U.S. person owned at least a 10% interest in the foreign partnership at any time during the partnership’s tax year while the partnership was controlled by U.S. persons each owning at least a 10% interest.³⁶ “Control” is generally defined as ownership of more than 50% of the capital or profits, or an interest to which more than 50% of the deductions or losses are allocated.

Additionally, Form 8865 must be filed if the U.S. person contributed property during their tax year in exchange for an interest in the partnership if the person either (1) owned directly or constructively at least a 10% interest in the foreign partnership immediately after the contribution, or (2) the value of the property contributed (when added to the value of any other property contributed to the partnership by such person, or any related person, during the 12-month period ending on the date of the transfer) exceeds $100,000.³⁷ Form 8865 also must be filed where the U.S. person makes certain acquisitions or dispositions with respect to a foreign partnership or their proportional interest in the foreign partnership changes substantially.³⁸

Foreign disregarded entities: Form 8858: A U.S. person that owns a foreign disregarded entity is required to file Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs).³⁹ Form 8858 reports certain information about the foreign disregarded entity, including information regarding the entity’s income, losses, earnings and profits, and income taxes paid.

Interests in foreign trusts and receipt of foreign gifts

U. S. persons that have interests in foreign trusts or have received foreign gifts may be required to report certain information on Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Form 3520 is generally due on the 15th day of the fourth month following the end of the U.S. person’s tax year for income tax purposes (i.e., April 15 for individuals). If a U.S. person is granted an extension of time to file their federal income tax return, the due date for filing Form 3520 is the 15th day of the 10th month following the end of the U.S. person’s tax year (i. e., Oct. 15). Unlike many of the other reporting forms discussed above, Form 3520 is not attached to the U.S. person’s federal income tax return and is filed to a separate address.

Foreign trusts: Forms 3520/3520-A

(Editor’s note: Shortly after this article was published, the IRS issued proposed regulations under Secs. 6039F and 6048 that provide guidance on information reporting of transactions with foreign trusts and the receipt of large foreign gifts (REG-124850-08)).

Form 3520 filing requirements relating to trusts apply only with respect to foreign trusts. A foreign trust is defined as any trust that is not a U.S. trust. A trust is a U.S. trust if: (1) a court within the United States (not including U.S. territories or possessions) is able to exercise primary supervision over its administration; and (2) one or more U.S. persons have the authority to control all substantial decisions of the trust.⁴⁰ The jurisdiction in which the trust was organized is irrelevant for purposes of determining whether a trust is foreign.

Generally, Form 3520 must be filed when a U.S. person: (1) creates a foreign trust (whether or not the trust has U.S. beneficiaries); (2) transfers any money or property to a foreign trust, including a transfer by reason of death; (3) receives any distribution from a foreign trust, receives the uncompensated use of property of a foreign trust, or receives a loan from a foreign trust; or (4) is treated as the U.S owner of a foreign trust under the so-called grantor trust rules.⁴¹

Additionally, if a U.S. person is treated as the U.S. owner of a foreign trust under the grantor trust rules, they are responsible for ensuring that the trust both files an annual return on Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner, and furnishes the required annual statements to its U.S. owners and beneficiaries.⁴² Information about the trust, its U.S. beneficiaries, and any U.S. person who is treated as an owner of any portion of the trust must be reported on Form 3520-A. Importantly, the due date for Form 3520-A differs from the due date for Form 3520. Form 3520-A generally must be filed by the 15th day of the third month after the end of the trust’s tax year (i.e., March 15th if the trust has a calendar tax year), unless the trust submits a timely request for an automatic six-month extension.

Receipt of foreign gifts: Form 3520

Generally, gifts are not subject to U.S. federal income tax if the transfer proceeds from the donor’s “detached and disinterested generosity … out of affection, respect, admiration, charity or like impulses.”⁴³ A gift is subject to U.S. gift tax when made by a foreign donor (who would pay the tax) only if it is a gift of tangible personal property physically situated in the United States.⁴⁴ However, even if a gift does not give rise to U.S. federal income tax or gift tax liability, if a U. S. person receives gifts from a foreign person, the U.S. person may be required to report such gifts.

More specifically, if the value of the aggregate foreign gifts received by a U.S. person during any tax year exceeds a certain threshold, the U.S. person is required to report certain information on such foreign gifts on Form 3520.⁴⁵ For this purpose, a “foreign gift” is any amount received from a foreign person that the recipient treats as a gift or bequest.⁴⁶ Thus, foreign gifts could include gifts of cash or personal property (such as cars, art, or furniture), as well as gifts of residential real property. In addition, foreign gifts could include payments made by the foreign person on behalf of the U.S. person.⁴⁷ Certain transfers for medical or educational expenses, however, are not required to be reported on Form 3520.

With respect to the threshold, a U.S. person must report the receipt of gifts from a foreign individual or foreign estate if the aggregate amount of gifts from that foreign individual or foreign estate exceeds $100,000 during the tax year.⁴⁸ Form 3520 further requires that the U.S. person separately identify each gift in excess of $5,000 by providing the date of the gift, a description of the property received, and the fair market value (FMV) of the property received.⁴⁹

In addition, the U.S. person must report the receipt of purported gifts from foreign corporations and foreign partnerships if the aggregate amount of purported gifts from all such entities exceeds a certain threshold ($18,567 for tax years beginning in 2023) during the tax year.⁵⁰ With respect to each such purported gift, the U.S. person must provide the following information on Form 3520: (1) the date of the gift; (2) the name of the foreign donor; (3) the address of the foreign donor; (4) the tax identification number of the foreign donor (if any); (5) whether the foreign donor is a corporation or a partnership for U.S. tax purposes; (6) a description of the property received; and (7) the property’s FMV.⁵¹

Resolving prior noncompliance

If a taxpayer has failed to file accurate prior-year information returns reporting their foreign assets and the receipt of foreign gifts, there are several options for coming into compliance, depending upon the facts and the extent of the taxpayer’s noncompliance. In order to use any of the options below, the taxpayer must not be under a civil examination or criminal investigation by the IRS. In addition, the taxpayer must not have already been contacted by the IRS about prior-year noncompliance.

• The delinquent international information return⁵² and delinquent FBAR submission procedures⁵³ may be appropriate if the taxpayer failed to file international information returns or FBARs but does not need to file delinquent or amended tax returns to report and pay additional tax or owe tax on any unreported income. Delinquent international information returns should be attached to an amended return and filed according to the applicable instructions for the amended return. Taxpayers may attach a reasonablecause statement to each delinquent information return filed for which reasonable cause is being asserted in order to request abatement of penalties. Delinquent FBARs should be submitted electronically and should include a statement as to the reason for the late filing. These procedures are relatively simple and do not require extensive disclosure beyond the submission of the relevant returns and FBARs, but they may not resolve all prior-year issues, depending on a taxpayer’s specific facts.
• The streamlined filing compliance procedures⁵⁴ may be appropriate where the taxpayer’s failure to report and to pay all tax was due to nonwillful conduct (i.e., conduct that is due to negligence, inadvertence, or mistake, or conduct that is the result of a good-faith misunderstanding of the law’s requirements). The procedures and eligibility requirements differ somewhat depending upon whether the taxpayer resides in the United States. Generally, the streamlined filing process involves filing delinquent tax returns for the last three years and delinquent FBARs for the last six years, full payment of tax and interest, and filing of a statement explaining the taxpayer’s eligibility for the program. In certain cases where a taxpayer has recently resided in the United States, a penalty may be imposed.
• The voluntary disclosure program (VDP)⁵⁵ may be appropriate where noncompliance may be viewed by the IRS as the result of willful conduct. Willful conduct generally includes the voluntary, intentional violation of a known duty. However, in recent years, the IRS has applied (and some courts have endorsed) a lower standard of willfulness that includes recklessness or even “willful blindness” (i. e., intentionally ignoring or failing to inquire about one’s legal obligations).⁵⁶ The VDP process is lengthy, requires disclosure of a significant amount of taxpayer information, and generally involves the imposition of penalties (though usually reduced from penalties the taxpayer might otherwise face). The main benefit is that the IRS is unlikely to pursue a criminal tax case against a taxpayer who makes a full, timely, and truthful disclosure. A disclosure will not be timely if the IRS has received information from a third party alerting it to the taxpayer’s noncompliance or if the Service has acquired information directly related to the specific liability of the taxpayer from criminal enforcement actions (such as a search warrant or a grand jury subpoena). Following the disclosure, the taxpayer must comply with U.S. law for all tax periods going forward and file returns according to standard filing procedures, or otherwise risk the revocation of the IRS’s acceptance of the taxpayer into the program and possible criminal prosecution.

A taxpayer will occasionally attempt a “quiet disclosure” by reporting a previously unreported asset and the related income on an amended or delinquent tax return and/or FBAR, but not through a formal disclosure program. In some instances, the taxpayer will not attempt to correct prior-year filings but will correct their reporting on a going-forward basis. Filing a quiet disclosure does not provide any protection with respect to civil and criminal penalties. Additionally, as the IRS devotes additional resources to enforcement and technological updates, it is increasingly likely that correcting on a going-forward basis will alert the IRS to prior-year noncompliance. Thus, submitting a disclosure through a formal disclosure program is generally preferable.

Importance of acting promptly

The IRS is better able than ever to detect reporting noncompliance, thanks to technological improvements and required reporting by foreign financial institutions about their U.S. customers. Armed with these tools and information, as well as additional funding following the passage of the Inflation Reduction Act in 2022,⁵⁷ the IRS can be expected to increase enforcement efforts in this area, particularly with respect to high-net-worth taxpayers. Taxpayers should work closely with their tax advisers to ensure that they are properly complying with all tax and reporting obligations, and to take any necessary steps to address prior noncompliance promptly.

Foonotes

¹Sec. 7701(a)(30).

²31 U.S.C. §5314; 31 C.F.R. §1010.350(a).

³31 U.S.C. §5312(a)(6).

⁴Foreign Account Tax Compliance Act, P.L. 111-147.

⁵Sec. 6038D.

⁶Regs. Sec. 1.6038D-2(a)(7)(i).

⁷Sec. 6038D(b)(1). A person is not required to report a specified foreign financial asset on Form 8938 if the person reports the asset on at least one of the following forms timely filed with the IRS for the tax year: (1) Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts (in the case of a specified person that is the beneficiary of a foreign trust); (2) Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations; (3) Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund; (4) Form 8865, Return of U.S. Persons With Respect to Certain Partnerships; or (5) any other form specifically identified by Treasury in regulations or other guidance (Regs. Sec. 1.6038D-7(a)(1)). The person must also report on Form 8938 the filing of the form on which the asset is reported.

⁸Regs. Sec. 1.6038D-2(b)(1).

⁹Regs. Sec. 1.6038D-2(a)(1).

¹⁰Regs. Sec. 1.6038D-2(a)(2).

¹¹Regs. Sec. 1.6038D-3(a)(2). See also Sec. 7701(a)(9).

¹²Regs. Sec. 1.6038D-1(a)(2). Residents of these jurisdictions generally are subject to U.S. income taxation and have a related income tax return filing requirement to the extent they have non–territory-source income or income from amounts paid for services performed as an employee of the United States or any agency thereof. See T.D. 9806, 81 Fed. Reg. 95459, 95463 (Dec. 28, 2016).

¹³Regs. Sec. 1.6038D-1(a)(2). These are “mirror code jurisdictions,” such that their income tax laws generally are identical to the Internal Revenue Code. Residents of these jurisdictions have no income tax obligation or related filing obligation with the United States, provided, generally, that they properly report income and pay their income tax liability to the tax administration of their respective U.S. territory. See T.D. 9806, 81 Fed. Reg. 95459, 95463 (Dec. 28, 2016).

¹⁴FinCEN Notice 2020-2.

¹⁵2023 Form 1040, U.S. Individual Income Tax Return, requiring taxpayers to check a box indicating whether at any time during 2023 they (1) received (as a reward, award, or payment for property or services) or (2) sold, exchanged, gifted, or otherwise disposed of a digital asset (or a financial interest in a digital asset).

¹⁶See Sec. 7701(a)(30).

¹⁷See Secs. 7701(a)(9) and (30).

¹⁸See, e.g., Sec. 957(c) (containing special rules regarding the definition of “U.S. person” for residents of U.S. territories and possessions with interests in corporations organized in U.S. territories and possessions).

¹⁹Regs. Sec. 301.7701-2(b)(8).

²⁰Regs. Sec. 301.7701-3(b)(2)(i).

²¹Secs. 951(b) and 958.

²²Sec. 957(a).

²³Sec. 965(e).

²⁴Sec. 6046(a)(1)(A) and Regs. Sec. 1.6046-1(a)(2)(i)(a).

²⁵Sec. 6046(a)(1)(B)(i) and Regs. Sec. 1.6046-1(c)(1)(i).

²⁶Sec. 6046(a)(1)(B)(ii) and Regs. Sec. 1.6046-1(c)(1)(ii)(a).

²⁷Sec. 6046(a)(1)(C) and Regs. Sec. 1.6046-1(c)(1)(iii).

²⁸Sec. 6046(a)(1)(D) and Regs. Sec. 1.6046-1(c)(3).

²⁹Regs. Sec. 1.6046-1(c)(1)(ii)(c).

³⁰Regs. Sec. 1.6046-1(c)(1)(ii)(b).

³¹Sec. 6038(a).

³²Sec. 6038(a)(4).

³³Sec. 1297(a).

³⁴Sec. 1297(d)(1).

³⁵Regs. Secs. 1.1291-9, 1.1291-10, 1.1295-1, 1.1295-3, 1.1296-1, 1.1298-1, 1.1297-3, and 1.1298-3, and Temp. Regs. Sec. 1.1294-1T.

³⁶Secs. 6038(a)(1), (a)(5), and (e)(3).

³⁷Secs. 6038B(a)(1)(B) and (b)(1).

³⁸Sec. 6046A.

³⁹The IRS requires this filing under the authority of Secs. 6011, 6012, 6031, and 6038, as well as the underlying regulations.

⁴⁰Secs. 7701(a)(9), (a)(30)(e), and (a)(31); Regs. Sec. 301.7701-7.

⁴¹Sec. 6048.

⁴²Sec. 6048(b)(1).

⁴³Duberstein, 363 U.S. 278, 285 (1960).

⁴⁴Secs. 2501(a)(2) and 2511(a).

⁴⁵Sec. 6039F(a).

⁴⁶Sec. 6039F(b).

⁴⁷Regs. Sec. 25.2511-1(h)(3) (“the payment of money or the transfer of property to B in consideration of B’s promise to render a service to C is a gift to C”); see also Rev. Rul. 78-362 (parent made gifts when he made monthly payments on a mortgage incurred to purchase real estate in a joint and survivorship relationship with his two children).

⁴⁸Notice 97-34, §VI.B.1.

⁴⁸IRS Form 3520, Part IV, line 54 (2023).

⁵⁰Notice 97-34, §VI.B.2; see also Rev. Proc. 2022-38, §3.47.

⁵¹IRS Form 3520, Part IV, line 55 (2023).

⁵²IRS webpage, “Delinquent International Information Return Submission Procedures.”

⁵³IRS webpage, “Delinquent FBAR Submission Procedures.”

⁵⁴IRS webpage, “Streamlined Filing Compliance Procedures.”

⁵⁵IRS webpage, “IRS Criminal Investigation Voluntary Disclosure Practice.”

⁵⁶See, e.g., Williams, 489 Fed. App’x 655 (4th Cir. 2012); McBride, 908 F. Supp. 2d 1186 (D. Utah 2012).

⁵⁷Inflation Reduction Act of 2022, P.L. 117-169.

Contributor

Lauren M. Azebu, J.D., is a partner with Steptoe LLP in Washington, D.C. For more information about this article contact thetaxadviser@aicpa.org.