How the IRS Treats Foreign Accounts

Many U.S. residents or citizens are interested in establishing offshore trust accounts to protect their assets. Those clients may wonder what position the Internal Revenue Service takes with regard to foreign structures, specifically foreign trusts.

It is common for a client to go through the required steps of trust formation, pick a trustee, and decide to form a foreign trust without them understanding how the IRS would treat the entity that was created.

Does The IRS Target Foreign Assets?

Typically, the IRS does not have an interest in where a person’s assets are located. They do not care if an asset is, for example, located in India or the United States. The IRS will recognize that U.S. domiciles, U.S. residents, citizens, green card holders, and others are a globally mobile group of people.

These people may have business ventures, privacy needs, family structures or investment parameters that lead to investing, holding property, and conducting business outside of the United States. It is important for clients to be in the mindset that the IRS is not concerned with where their assets are located. What the IRS is concerned about is that the assets are reported.

How To Report Foreign Assets to the IRS

A foreign bank account is reported to the IRS on a form 90-22. A foreign trust is reported on a form 3520. What this form does is let the IRS know that the trust was created, where it was held, that all of the income used to create the trust was reported, and that the accountholder will report any other change or significant alteration to the trust provisions or any additional funding that occurs. By filing the appropriate forms, people can help ensure compliance with IRS regulations and avoid becoming targeted for an audit.

Will I Be Audited If I Keep My Money In Foreign Accounts?

Some people have heard horror stories in the news related to foreign accounts. These stories are the exception, not the rule. The people who get in trouble are those that do not report their assets. People who follow the rules and are fully compliant typically do not have an issue. There is no connection between simply engaging in foreign activity and being audited.

Taxpayers who follow the rules are less likely to be targeted than those that attempt to hide something. The majority of taxpayers can create their foreign trusts or bank accounts, file the appropriate forms, and go about their merry business.

To get help with your Foreign Trust, contact Nagel Law buy visiting