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Crucial International Tax Reporting Obligations for Asia-Based Business with U.S. Ties

An Asia-based business client with operations in the U.S. was slapped with a $70,000 penalty by the IRS for filing international tax reporting forms late. The business was working with an accountant who erroneously advised that, because the business did not owe any U.S. taxes, there would be no late filing penalty for the required Form 5471 and Form 5472.

As Singapore-based Hone Maxwell, LLP Associate Attorney Jared Garfield writes in a Storm Asia article titled “Profit and Laws: U.S. Tax Laws and Compliance Issues To Heed,” operating in a globalized world often means navigating the complexities of international tax laws. Asian businesses with U.S. financial connections must understand their U.S. tax and reporting obligations — or risk costly penalties, according to the article published Feb. 17, 2024.

There are several categories of “financial connections” that can trigger U.S. tax liability. They include operating a business in the U.S., either directly or through a subsidiary; earning income from U.S. assets; or owning a business as a U.S. citizen, a dual citizen or a green card holder.

Under the Foreign Account Tax Compliance Act (FATCA), the IRS is privy to U.S. financial connections overseas through required reporting by financial institutions. This makes it imperative that those in Asia — or any foreign country — who have these U.S. financial ties work with an international tax law attorney who is knowledgeable and experienced in U.S. tax reporting requirements.

While HMLLP attorneys were able to convince the IRS that the client should not be penalized for the accountant’s mistake, understanding the international tax reporting requirements and complying with them would have saved valuable time and stress.

Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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