The document provides an overview and update on international taxation rules for cross-border transactions. It discusses key concepts like controlled foreign corporations, foreign tax credits, FACTA requirements, and filing requirements for outbound and inbound international transactions. Failure to comply with foreign reporting rules can result in civil and in some cases criminal penalties. The presentation aims to help people understand and properly adhere to the complex IRS regulations for international tax compliance.

1. International Taxation Overview and UpdateCross Border Panel-CA Hispanic Chamber of CommerceAugust 13, 2014
Armando Ibarra Jr; ACI-Armando Ibarra Corp, APC
Fernando Carrillo; ACI-Armando Ibarra Corporation, APC

2. Disclosure
The advice in this communication is not intended to be used and cannot be used, by a client or any other person or entity for the purpose of (a) avoiding penalties that may be imposed on any taxpayer or (b) promoting, marketing or recommending to another party any matters addressed therein.
All information provided is of general nature and is not intended to address the circumstances of any particular entity or individual. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.
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3. Overview of Foreign Investment outsidethe US
U.S. Resident or U.S. Corporation is subject to U.S. tax on worldwide basis.
Foreign taxes paid may be used as a credit against US tax liability subject to many limitations.
One way to defer the income earned in foreign country is by investing through a foreign corporation.
U.S. Shareholder of foreign corporation generally is not subject to U.S. taxation on earnings of foreign corporation until distributed as a dividend.
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4. Controlled Foreign Corporation
General Rule
A Controlled Foreign Corporation (CFC) is a foreign corporation if more than 50% of the voting or value of its stock is owned by US Shareholders, directly or indirectly, or through constructive ownership rules, on any day during the tax year.
A U.S. taxpayer must include in gross income its pro-rata share of the CFC’s Subpart F income
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5. Foreign Tax Credit
Eliminates Double Taxation for Taxpayer
Must be:
Income Tax on Foreign Income
Pitfall (e.g., Social Security) any potential treaty?
Legally owed and paid
No Credit for Foreign Taxes on Excluded Income
Tax Treaty Income; Example Article 4 with Mexico
Foreign Earned Income Exclusion or Deduction
No double dipping
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6. Foreign Tax Credit-cont.
Itemized Deduction or Tax Credit (IRS Form 1116)
No rule for either way
Can compute both ways?
If it does not qualify for FTC; then deduction possible?
Carryover/Carryback: Yes for FTC and No for deduction
Must Treat All Foreign Income Taxes the same way
Deduction or Credit
Can change election within 10 years
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7. FACTA-in a nutshell
Foreign Account Tax Compliance Act
A US law to enforce tax compliance by US Persons with financial assets and accounts outside the US
Why now?
US Treasury Needs you to fill a US $17 trillion debt
More transparency
Reporting of US Accounts:
Foreign Financial Institutions (FFIs) to IRS or in case of IGA M1 to local tax authorities or,
Through Non Financial Foreign Entities (NFFE) who report to the Banks and other FIs.
Impose a 30% withholding on US source payments to parties that fail to comply
Effective July 1, 2014
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8. Filing Requirements -Outbound
Reporting Foreign Transactions
Form 5471 -U.S. persons who become officers or directors of a foreign corporation or U.S. persons who control a foreign corporation
Form 8938 -Foreign Financial Assets
Form 8865 -U.S. persons who control foreign partnerships
BSA-FBAR-Foreign bank account reporting
Form 8854 –Losing U.S. Citizenship or long-term resident status
Form 2555-Income Exclusion for U.S. taxpayer living abroad 8

9. Filing Requirements -Inbound
Reporting Foreign Transactions
Form 5472-Domestic Corporation that have a 25% foreign shareholder (e.g., U.S. person)
Form 3520-Large gifts received by U.S. persons from a foreign person
Form 3520-A -A distribution received by U.S. persons from foreign trusts
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10. Overview of Foreign Filing Requirements
Failure to comply with these foreign reporting requirements may subject the grantor, taxpayer or fiduciary to possible civil penalties, and in some cases, if the failure to file is intentional, criminal penalties.
It is highly recommend that the most update advice and information be adhered to in complying with the IRS foreign filing requirements 10

11. Contacts:
Armando Ibarra Jr., CPA
Armando Ibarra Corporation
371 E Street
Chula Vista, CA 91910
619-422-1348
Fernando Carrillo, CPA
Armando Ibarra Corporation
371 E Street
Chula Vista, CA 91910
619-422-1348
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