Form 8621 and Form 5471 are required even if the tax return is NOT!

cross-posted from the citizenshipsolutions blog


The Internal Revenue Code of the United States requires two things:

1. The calculation of taxes; and

2. The reporting of information.

The Internal Revenue Code of the United States is based on three basic principles:

1. A dislike of all things “foreign”. (If you see the word “foreign” a penalty is sure to follow.)

2. A hatred of all forms of non-U.S. “tax deferral”

3. An attempt to stop the “leakage” of “U.S. taxable assets” from the U.S. tax base. (Examples include the U.S. tax treatment of the “alien spouse”and the U.S. S. 877A “Exit Tax” that may be payable when one makes the decision to renounce U.S. citizenship).

“Forms” AKA “information returns” are for the purpose of forcing disclosure of information relevant to “foreignness”, “deferral” and “leakage”.

The above tweet references an earlier post describing many of the “forms” required to be filed by Americans abroad. The post also describes the significant penalties which can be potentially imposed for failure to file the forms.

For Americans abroad the information reporting requirements are extensive, burdensome and penalty laden. Normally (but not in all cases) the “forms” are filed as part of the tax return (1040 or 1040NR).


(Interestingly, Mr. FBAR has been used as a model for Russia which now has (for lack of a better term) the Russian FBAR.)

Many people do NOT understand that they may be required to file “information returns”, even though they may NOT meet the income thresholds to file a tax return!

Forms that may be required whether a “tax return” is required or not

Form 8621 – This form must be filed if an American living abroad owns more than the U.S. dollar equivalent of $25,000 of non-U.S. mutual funds. In order to discourage American citizens from investing their money in non-U.S. mutual funds, Congress imposes severe penalties for purchasing non-U.S. mutual funds. This includes the situation of a U.S. citizen living in Canada, who buys Canadian funds for retirement planning. Yes, sometimes “truth is stranger than fiction”. From a U.S. perspective, Canadian mutual funds are “Passive Foreign Investment Companies” or PFICs.

Information about Form 8621 is here. I strongly suggest that you read the PFIC regulations which make it clear that IRS Form 8621 is required, whether you have to file a tax return or not!

(d)Time and manner for filing. A United States person required under section 1298(f) and these regulations to file Form 8621 (or successor form) with respect to a PFIC must attach the form to its Federal income tax return (or information return, if applicable) for the taxable year to which the filing obligation relates on or before the due date (including extensions) for the filing of the return, or must separately file the form in accordance with the instructions for the form when the United States person is not required to file a Federal income tax return (or information return, if applicable) for the taxable year. In the case of any failure to report information that is required to be reported pursuant to section 1298(f) and these regulations, the time for assessment of tax will be extended pursuant to section 6501(c)(8).

The requirement to file Form 8621 irrespective of whether one is required to file a tax return is reinforced in the instructions for Form 8621 which remind Americans abroad that:

When and Where To File

Attach Form 8621 to the shareholder’s tax return (or, if applicable, partnership or exempt organization return) and file both by the due date, including extensions, of the return at the Internal Revenue Service Center where the tax return is required to be filed.

If you are not required to file an income tax return or other return for the tax year, file Form 8621 directly with the Internal Revenue Service Center, Ogden, UT 84201-0201.

Who could have known …

There are financial advisors who suggest that Americans abroad should NEVER own mutual funds that are local to them! In the Donald Trump era, one should “Buy American!” and NEVER “Commit personal finance abroad!”*

Form 5471 This form is required in many circumstances where a “U.S. Person” has an interest in a “foreign” (non-U.S.) corporation. The Specific reporting requirements are found in Internal Revenue Code Sections 6038 and 6046. (Pay special attention to the 6038 regulations.) In general, the reporting requirements are for the purpose of identifying “U.S. Persons” who:

– own at least 10 percent of a “non-U.S.” “controlled corporation”; which

– is earning certain kinds (including passive) of income; that

– is not subject to direct taxation by the U.S. Government.

The goal is to attribute the income of the “non-U.S. corporation” directly to the individual U.S. shareholder. This is referred to as the “Subpart F Income Regime” which begins with Internal Revenue Code Section 951.

The reporting requirements exist irrespective of whether one is otherwise required to file a U.S. tax return. (One might be required to file an income tax return (1040 or 1040NR) for the sole purpose of filing Form 5471.)

Are you the owner of a “foreign” corporation? Watch out for the attribution rules (you are deemed to own the shares) and for the possibility of “indirect ownership” (you own something that owns the corporation) …

Just a “heads up”. Watch out for the “attribution rules” in Internal Revenue Code S. 318. You may own more shares of that “foreign corporation” than you think you own!

A form required ONLY if you are otherwise required to file a tax return – Form 8938

Form 8938 is a key component of the FATCA legislation. It is mandated by Internal Revenue Code section 6038D. You are NOT required to file Form 8398 unless you are otherwise required to file a tax return. As of the date of the writing of this post (warning!! warning!! warning!!) the IRS explains that:

If you do not have to file an income tax return for the tax year, you do not need to file Form 8938, even if the value of your specified foreign assets is more than the appropriate reporting threshold.

Reporting early – When a Form may have to be filed before the tax return is due – Form 3520A

Form 3520A is the information return required for a “foreign trust”. Forms 3520 and 3520A appear to be required whether a tax return is otherwise required. Interestingly, Form 3520A is required by March 15 of each year (before the due date of the tax return!).

Form 3520 is a key component of the collection of International Information returns.

Who could have known?

How to avoid the forms …

It’s easy. Americans abroad can avoid the necessity of filing these forms (and potential penalties for failure to file these forms) by simply avoiding all the activities that the forms are required to reveal. Simply avoid committing any “form” (no pun intended) of “personal finance abroad”.

Perhaps that is the true purpose of the “forms”.

When in Rome, live as a homelander! To learn how, simply click here.

John Richardson

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