Tax Law ✦ International
Leaving the Country, or Bringing Money Into It, Has Tax Rules of Its Own.
Expatriation, foreign accounts and assets, foreign businesses and trusts, and the streamlined procedures for taxpayers who are behind. North Star Law Firm handles the legal analysis and the reporting for Colorado clients with cross-border lives, with international tax preparation done in-house by a CPA who did this work at national firms.
Overview
Where international tax reaches a Colorado taxpayer
U.S. citizens and residents are taxed on worldwide income and must report foreign accounts, entities, trusts, and gifts on a set of information returns whose penalties dwarf the tax involved. Giving up citizenship or a long-term green card triggers the exit tax of I.R.C. § 877A for covered expatriates. Colorado adds nothing to the reporting burden, but it taxes whatever ends up on the federal return at the flat rate. We advise on expatriation timing and structure, prepare the foreign information returns, run streamlined and voluntary disclosure filings for taxpayers who are behind, and handle the IRS penalty and examination work that international reporting attracts.
- Pre-expatriation planning to avoid or reduce covered expatriate status
- Form 8854 and the mark-to-market exit tax computation
- FBAR, Form 8938, and foreign entity and trust reporting (5471, 8865, 3520)
- Streamlined filing compliance procedures for non-willful non-filers
- IRS voluntary disclosure practice for willful cases
- International penalty abatement and reasonable-cause defense
- Foreign tax credit and treaty analysis
- Inbound planning for foreign nationals moving to Colorado
Reporting
The forms, the thresholds, and the penalties
| Form | Who files | Penalty for missing it |
|---|---|---|
| FBAR (FinCEN 114) | Anyone with foreign accounts totaling over $10,000 at any time in the year | Non-willful: inflation-adjusted per-report penalty; willful: up to 50% of the account balance |
| Form 8938 | Individuals with specified foreign financial assets over the threshold for their status | $10,000, plus continuation penalties up to $50,000 |
| Form 5471 | U.S. persons with interests in foreign corporations | $10,000 per form per year, plus continuation penalties |
| Form 3520 / 3520-A | Recipients of foreign gifts and inheritances over $100,000; owners and beneficiaries of foreign trusts | Up to 35% of the amount transferred; 5% of trust assets per year |
| Form 8854 | Expatriates (citizens and long-term residents) | $10,000, and failure to certify compliance makes you a covered expatriate |
The Attorney-CPA Difference
The disclosure decision is legal. The forms are accounting. Both are here.
Whether a non-filer’s history is willful or non-willful decides which program is available and what it costs, and that judgment has to be made under attorney-client privilege before a single form is filed. The forms themselves are demanding accounting work, and the firm’s CPA practiced international tax at the national firm level. That combination means the analysis and the preparation happen in one place, and the client never has to explain the facts twice.
- Willfulness analysis under privilege before any filing
- Streamlined and voluntary disclosure packages prepared in-house
- Information returns prepared by a CPA with national-firm international experience
- Exit tax modeled before the expatriation date is chosen
- Penalty defense when the IRS assesses first and asks later
Questions & Answers
Exit Tax & International questions, answered
Who is a covered expatriate?
A U.S. citizen who renounces, or a long-term green card holder who gives up residency, who meets any one of three tests: net worth of $2 million or more, average annual income tax liability above the inflation-adjusted threshold for the prior five years, or failure to certify five years of tax compliance on Form 8854. A covered expatriate is treated as having sold everything the day before expatriation and pays tax on the gain above the exclusion amount. Planning before the date can change the answer.
I have a foreign bank account. What do I have to file?
An FBAR (FinCEN Form 114) if the aggregate of your foreign accounts exceeded $10,000 at any point in the year, and Form 8938 with your return if your foreign financial assets exceed the thresholds for your filing status and residence. Foreign corporations, partnerships, trusts, and gifts each have their own forms (5471, 8865, 3520, 3520-A). The penalties for missing them are severe and are assessed automatically for some forms.
I haven’t been filing. Is there a way back in?
Yes. The streamlined filing compliance procedures let taxpayers whose failure was non-willful file three years of returns and six years of FBARs with a 5 percent penalty (domestic) or no penalty (foreign residents). Willful cases go through the IRS voluntary disclosure practice instead. The choice between them is a legal judgment about your own facts, and it needs to be made under privilege before anything is filed.
Does Colorado tax foreign income?
Colorado starts from federal taxable income, so foreign income that is on the federal return is taxed at the flat Colorado rate, and the foreign earned income exclusion flows through. Colorado has no separate foreign reporting forms; the compliance burden is federal.
Who handles the returns?
The firm’s CPA, Ashley Burdette, practiced international tax at two national accounting firms and holds Georgetown’s International Taxation Certificate. She prepares the returns and information forms; the attorney handles the legal analysis, the penalty exposure, and the disclosure decisions. Both sit in the same office.
Plan the tax before the transaction, not after.
A free consultation with an attorney-CPA who can draft the structure and run the numbers in the same meeting.