If you are an American, you know its coming: Tax season! Most of you out there are saying to yourselves, “well I don’t make enough money to pay taxes” – but the truth of the matter is that whether you owe taxes or not you are obliged to file a return with the IRS regardless.
For those of you who are U.S. Citizens or residents and own a 10% or more of a company in Japan or any other foreign country you are also obligated to file Form 5471 also known as the IRS Foreign Corporation Tax Filing. This filing is in addition to Form 1040 – your individual income tax return. This law has been overlooked by many who do not know that they are required to report their foreign bank accounts and the assets that they hold. Since 2011 however the IRS has been more strictly enforcing this requirement. Sound fun?
Even if you have not been in compliance with this regulation, the IRS is aware that some U.S. taxpayers living abroad have failed to file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs) Fin Cen Form 114, in a timely fashion. As taxpayers have recently become aware of their filing obligations and are seeking to come into compliance with the law – many have been concerned about potential penalties that might apply. Luckily the IRS is announcing a new procedure for current non-residents including, but not limited to, dual citizens who have not filed U.S. income tax and information returns to file their delinquent returns.
The IRS will determine the level of compliance risk presented by the submission based on certain information provided on the returns filed, and based on certain additional information that will be required as part of the submission. Low risk will be predicated on simple returns with little or no U.S. tax due. Absent high risk factors, if the submitted returns and application show less than $1,500 in [US] tax due in each of the years, they will be treated as low risk. In general, the risk level will rise as the income and assets of the taxpayer rise, if there are indications of sophisticated tax planning or avoidance, or if there is material economic activity in the United States. Additional risk factors include any additional history of noncompliance with United States tax law and the amount and type of United States source income.
The upshot of all of this is that even if you don’t owe taxes, you could still be fined if you don’t file. If you do owe taxes and have not filed you could be charged a substantial fine. And filing can be a bit complicated. For this reason the IRS recommends that taxpayers should consult with a professional tax advisor to determine which option is the most appropriate given their facts and circumstance.
While enlisting the support of a qualified tax advisor might seem burdensome, becoming compliant with the IRS will likely involve a financial cost in any event. It is just part of the costs associated with the privilege of living abroad.
Fortunately for those overseas Americans who have not been filing and who fit within the IRS’s definition of low risk, this recently announced option could bring some relief.
In Nagoya you can consult with Yuji Suzuki USA Tax Office, run by Mr. Yuji Suzuki, who is registered with the U.S. Treasury department and has been an enrolled agent since 2003. Mr. Suzuki also can assist in helping you to establish a corporation or as a sole proprietor in Japan. He can help your business by consulting you on cash flow and creating a profit and loss balance sheet. If you are looking to expand your business he is also able to assist in helping you to obtain a bank loan. If you have a business problem he is a great resource and happy to help.
The Suzuki Tax office is located in The East End just opposite Ikeshita Station on the Higashiyama subway line. (1 min walk from exit )