United States citizens and resident taxpayers with foreign financial assets and accounts, interests in foreign entities or gifts from foreign estates or trusts are subject to strict reporting rule requiring them to report those assets and interest on a variety of tax forms, to be filed together with and separately from their annual U.S. federal income tax returns. Enforcement of their international filing and reporting obligations is secured by the extensive exchange of information system put in place through the recently enacted FACTA rules, which make sure that U.S. taxpayer’s financial accounts held outside of the United States are automatically disclosed to the U.S. taxing authorities. Failure to report foreign financial assets and interests in foreign entities is severly sanctioned.
Foreign financial accounts are reported on form 8938 and FinCen 114 (so called foreign bank accounr report or FBAR). Interests in foreign corporations are reported through form 5471. Interests in foreign partnerships are reported through form 8865. Foreign gifts or inheritances are reported on form 3520. Foreign owned or controlled U.S. entities report information about their foreign owners and transactions with foreign parent of affiliates on form 5472.
Several programs are currently in effect in the United States to enable U.S. taxpayers who failed to properly comply with their international reporting obligations in the past, to go back in compliance with the U.S. tax system by filing past returns, minimizing or avoiding penalties in case they are able to show good faith or non-willfull failure to report.
In Italy, Italian resident taxpayers are required to report their foreign assets, held directly or indirectly through entities or trusts in which they possess an interest at least equal to 20% of the total value of the entity’s assets (under the so called “indirect” or “beneficial onwership” rule) on a special section of their Italian income tax return (section RW). Like in the United States, penalties for failure to report are extremely severe. Especially in case of assets held through trusts or other foreign entities, properly filling our the Italian section RW can be daunting.
Italy is running a voluntary disclosure program which faciliates the filing of delinquent returns while minimizing penalties.
In this area of law we provide full support, assistance and advice to clients in Italy and the United States with respect to U.S. and Italian international tax compliance and reporting matters.