Tax Reporting of Foreign Direct Investment

October 26, 2016

This podcast takes on one of the most complex and potentially impactful aspects of tax reporting. Tim Speiss relates that with regard to off-shore investment tax reporting on U.S. tax returns – especially those with real estate, bank and investment account holding, there are enhanced disclosure requirements, which can even include submitting balance sheets. Further tax code changes regarding foreign direct investments are probable, IRS review remains rigorous and the likelihood of new disclosure requirements is high – all making timely compliance more difficult.


Dave Plaskow: Hello, and welcome to EisnerAmper’s podcast series, where we explore the business and accounting topics that matter most to you. In this episode, we’ll cover the complexities of tax reporting of foreign direct investment. With us today is Timothy Speiss. Tim is the Partner in Charge of EisnerAmper’s Personal Wealth Advisors Group and Vice President of EisnerAmper Wealth Planning. Tim, welcome, and thanks for being here.
Timothy Speiss: Thank you.

DP: It’s hard to read the business section and not find a story about increased governmental scrutiny of foreign direct investments. So why have the IRS and other enforcement bodies become so active recently with regard to tax reform?
TS: The reason is, and it’s a global issue – not just U.S. – is that it had become apparent to many governments including the IRS that, in the case of a U.S. person or a foreign person who’s required to file here in the states that they were not reporting all of their income. In many cases, because, quite frankly, they may not have been aware they had to file.
DP: Good.
TS: And then treasury began to try to calculate how much loss tax revenue was occurring because of the non-reporting, and that’s really what started it. I mean, there’s been foreign bank account forms forever, whereby if you’re a U.S. filer and you have an account over $10,000 that you have to do a simple disclosure form. But it’s a lot more pervasive than that now. We’re probably going to talk about this, but there’s now balance sheet disclosures. Many of these now are reported right on the U.S. individual income tax return.
DP: Okay.
TS: Some are reduced to also a separate filing or dual filing.
DP: It’s my understanding that investments in real estate, as well as bank and investment accounts, require taxpayers to provide significantly more disclosures when filing their tax returns. That’s even up to and including balance sheets. Is that the case?
DP: Okay.
TS: Under rules on your U.S. income tax return, if you own any kind of foreign investment or business asset – it generally has to be a financial asset – but you’re now required to disclose that – it’s form 8938 – and it goes right inside in a U.S. income tax return, and remember, it’s not just for a U.S.-based taxpayer who files a U.S. return, but also a foreign person who is subject to the U.S. reporting rules.
DP: Now are there any other burdens that this puts on filers and/or their advisors?
TS:Well, many taxpayers, because they’ve never been accustomed to having to do this, sure. There’s record keeping that’s involved. There’s having to keep track of investment statements or even valuations. What happens if you have a financial asset that’s not readily ascertainable as far as value? You know, there are accuracy-related penalties that could arise with this, so you really want to do your best to make sure that the values are correct. In so far also as listing bank account information, the name of an institution where, say, a cash account or an investment account might be held, the address.
TS: It’s very pervasive.
DP:What questions are you getting from clients regarding the tax reporting issues of foreign direct investments?
TS:First, how is it defined? Secondly, does it apply to me, says the client? So we would spend a fair amount of time just understanding it both as their advisor but also because we’re signing, preparing a U.S. income tax return. Those are really the threshold questions. You know, keep in mind, we’re not talking about disclosing personal assets—so if you had a second home that was not a financial asset. So you can see where this goes. It’s focused on income-producing investment assets under the view that, with just a proper amount of skepticism, may not have been reported in the past, the income they’re from. So, look what you’re able to do now – you can see the income get reported. Then there’s the balance sheet all on the U.S. 1040 that then shows the various accounts, federal ID numbers or identification numbers and so forth. It’s all right there.
DP: Do you foresee any additional reporting disclosures on the horizon?
TS:Yes. A matter of fact this year, specifically in June of 2016, there are additional proposed rules not effective yet. This is also happening on the corporate side. So as much focus as the governments have been on individual filings here in the states, it also carries over to corporate filers filing in the states – U.S. based – and also foreign corporations doing business here. So, in that regard, we believe it’s going to become a lot more transparent with a higher level of required disclosure.
DP:Is there anything, if at all, that filers can be doing now to be proactive ahead of tax code changes or the new compliance requirements?
TS:Far and away – and this is maybe more toward our corporate client relationships – is making sure that you have a good mechanism to obtain the information, understanding what needs to be reported, obtaining values, as we’ve talked about earlier, because without that information you’re not going to be able to execute a complete filing.
DP: Any final thoughts or words of wisdom on foreign direct investment?
TS: This is a global initiative. The U.S. is not the only country in the world that’s concerned about forgone revenue – tax revenue – because of misreporting. There are treaties now that had been incepted between the U.S., EU countries and others to come to agreements between the governments just on this point. It’s not going to go away. I think it’s going to become a lot more sophisticated as far as the information that’s requested, and a lot of information sharing amongst the governments.
DP: Well Tim, thanks for your expertise and insight on this issue.
TS:Thank you.
DP: And thank you for listening to the EisnerAmper podcast series. Visit for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.

About Timothy Speiss

Timothy Speiss is a Tax Partner in the Private Client Services Group and Vice President of EisnerAmper Wealth Planning LLC. He chairs our Asia Practice and is a member of the firm’s community service group, EisnerAmper Cares.