Photo of Christi Lazo

On May 21, 2018, the IRS Large Business & International Division (“LB&I”) announced its fourth set of compliance campaigns.  The six new campaigns include one campaign centered on Forms 3520 and 3520-A compliance.  A Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, must be filed to report certain transactions regarding foreign trusts under section 6048 of the Internal Revenue Code, including:

  • Creation of a foreign trust by a U.S. person
  • Any transfer of money or property to a foreign trust, including by reason of death
  • Ownership of foreign trusts, including death of the U.S. owner of a foreign trust
  • Loans and distributions from foreign trusts
  • Gifts or bequests from foreign individuals or estates
  • Gifts from foreign corporations or partnerships

A Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner, must be filed annually by a foreign trust with a U.S. owner.

The other five new compliance campaigns focus on (1) withholding, depositing, and reporting requirements of withholding agents under Forms 1042 and 1042-S; (2) compliance with tax treaties providing for exemptions from U.S. income; (3) itemized deductions claimed on Form 1040-NR, the U.S. Nonresident Alien Income Tax Return; (4) tax credits claimed on Form 1040-NR; and (5) the capitalization of interest associated when the construction of real and certain personal property.  As in prior campaigns, in addition to conducting audits, education of taxpayers and practitioners will be an important aspect of most of these campaigns.

In this Ropes & Gray podcast, Gabby Hirz, counsel in the tax controversy group, is joined by Loretta Richard, a partner in the tax and benefits group and co-founder of the tax controversy group, and Christi Lazo, counsel in the private client group, to discuss another notable Tax Court decision, Lender Management LLC v. Commissioner of Internal Revenue. Lender Management considered whether a family office was operating a trade or business and could therefore deduct investment expenses as business expenses.

Congress has passed and President Trump has signed new tax reform legislation (the “Act”). Although the Act falls short of repealing the “death tax”, it doubles the amount an individual may transfer free of tax either by gift during lifetime or at death, rendering federal transfer taxes irrelevant for all but the wealthiest of Americans.

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