Transferring Funds Earned Overseas Into the United States

Hope someone might be able to answer this.

My Father who is American recently retired, but he spent 20 years working abroad in Brazil. Over his career he saved up a lot of money in Brazilian currency, purchased a Brazilian apartment, and stored the rest of the money in a foundation at a Brazilian bank. However, he has since returned to the United States and as he gets older, our family is seriously considering transferring all of his earnings from Brazil to the United States.

Can someone elaborate on what will happen if he tries to import his money? I believe he was taxed by the Brazilian Federal Government at the time. Does he also get taxed by the United States government? - would seem excessive.

I do not believe he reported any of this to the IRS as he was living in Brazil at the time and had not returned to the US until many years later. If he did not reported this to the IRS would that mean he has broken some laws?

What would be the easiest way to transfer the money and avoid getting harassed by the IRS?

[On a side note, unlike my Father, I am a dual citizen of the United States/Brazil and I would like to help him if I can, but I do not want to get involved if it sounds like he broke the law in some capacity]

He has already broken the IRS Tax code several times in addition to the last 4 or so years of failing to report foreign owned assets, a $10k fine for each year. He needs to hire a tax lawyer to work out the penalties they will asses and work out the returns he failed to file. This is not the the teach you how to break the law forum.

If I wanted to break the law I wouldn't be consulting a forum. However, from what you've said it sounds like the IRS will impose steep penalties on unreported income over 10-20 years. I don't know much about these types of situations, but how likely is it that the penalties are larger than whatever funds are leftover. For example, if Jack (made up name) earned 5 million over 10 years and only had $100,000 left over and then reported it to the IRS - would the fines actually be larger than the $100,000 Jack has left? Not to say anyone has earned 5 million dollars, but I'm just curious, because I'd hate to turn a bad situation into a worse situation accidentally.

Ultimately, if my father were to choose not to import the funds, and then die, would I be responsible for paying the IRS if he left me whatever he had left?

Your father's situation is far from unique. Thousands upon thousands of expatriates work internationally without filing U.S. tax returns, often because they're not even aware that it's required. In most cases even if they filed a tax return there would be no tax liability to the U.S.

What your father needs to do is consult a tax professional who specializes in expatriate tax issues. That professional will help your father compile documentation of his expatriate status, identify what tax documents need to be prepared and filed, determine what your father's tax liability is likely to be, and file FBAR forms for his foreign bank account. While it is possible that the IRS would assess interest and penalties, the IRS has a history of being relatively forgiving when expatriates voluntarily approach it with an attempt to correct a past omission. Only after your father has a full sense of what he may owe to the IRS, will he be in a reasonable position to assess his options.

That's correct. Between the foreign income exclusion on IRS Form 2555 and the foreign tax credit available for any income taxes paid to Brazil, your father may owe nothing. Failure to file or failure to pay penalties are assessed on any balance due. If there is no balance due, there's no penalty but he does need to file the returns. Once he consults a qualified tax professional (an enrolled agent or a qualified CPA) he will know the situation that will apply to him. It is better not to ignore this but address it head on so there's no pall of fear hanging over his head. It is very likely not to be as bad as he things, and not close to being as bad suggested earlier in this thread by an unknowledgable commenter.

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Quoting Bubba Jimmy

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That's correct. Between the foreign income exclusion on IRS Form 2555 and the foreign tax credit available for any income taxes paid to Brazil, your father may owe nothing. Failure to file or failure to pay penalties are assessed on any balance due. If there is no balance due, there's no penalty but he does need to file the returns. Once he consults a qualified tax professional (an enrolled agent or a qualified CPA) he will know the situation that will apply to him. It is better not to ignore this but address it head on so there's no pall of fear hanging over his head. It is very likely not to be as bad as he things, and not close to being as bad suggested earlier in this thread by an unknowledgable commenter.

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That is correct in terms of regular tax, but there are extremely severe penalties for the failure to report foreign assets, particularly bank accounts.

However, there is an amnesty program in place to help people voluntarily come forward and comply. I know of one case specifically, where the taxpayer could have been subject to 120k in penalties, but in the end, only had to pay 12k through that program. The OP's father needs a tax professional who is experienced in that arena, whether they are simply a tax professional, an EA or a CPA. Many tax attorneys are experienced in that program as well. I would actually start with a tax attorney as if they don't handle that work, they would likely be able to refer you to someone who does.

There is no tax imposed on bringing the cash into the U.S. If the funds are directly electronically transferred from his bank in Brazil to his bank in the U.S. there won’t even be any reporting requirements. If he brings back the money by cash or check, however, he may need to file FinCen Form 105. There are penalties for failure to file the form when required. See the U.S. Customs page regarding cash and negotiable instruments brought into U.S. for more information. So it isn’t bringing the money back that will pose any tax problems for him.

As the others have indicated, what may be a problem for him is that he failed to file income tax returns to report what he earned while in Brazil and that he failed to report his control of foreign financial assets. The details of his situation matter a great deal for that, of course.

For more details, I suggest you read IRS publication 56 which explains most of the rules that he would need to know about the taxation of his foreign earnings.

There are potentially two forms he may needed to have filed with respect to his ownership or control of foreign financial assets. The first is the FinCen Report 114, which is the Foreign Bank and Financial Accounts Report (FBAR) requirement that has gotten lots of press in the last year or two. You’ll find more information about that on the IRS FBAR page. See also the IRS page on what to do about filing delinquent FBAR forms. The second possible form he may need to have filed is Form 8938. See the IRS Form 8938 FAQS for more information on that. There is also a handy IRS chart comparing the FBAR and Form 8938 requirements. Finally, when filing the income tax returns there are questions about control of foreign financial assets that must be completed.

I agree he would likely benefit from consulting a tax professional who has experience with the tax issues that apply to U.S. persons who have foreign income and foreign assets. Tax professionals are tax attorneys, tax CPAs, and enrolled agents. Those three types of professionals are subject to the rules of practice under Treasury Circular 230 and are permitted to represent taxpayers before the IRS without limitation. The key here is ensuring that whomever you pick has experience with these issues, lots of tax pros only have experience with domestic tax issues and aren't well prepared to deal with these issues that relate to foreign income and asset reporting. The penalties for failure to file the FBAR can be very expensive, but with proper representation and help from a tax professional he may be able to avoid that or at least keep the penalties from getting out of control.

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Quoting Taxing Matters

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There is no tax imposed on bringing the cash into the U.S. If the funds are directly electronically transferred from his bank in Brazil to his bank in the U.S. there won’t even be any reporting requirements. If he brings back the money by cash or check, however, he may need to file FinCen Form 105. There are penalties for failure to file the form when required. See the U.S. Customs page regarding cash and negotiable instruments brought into U.S. for more information. So it isn’t bringing the money back that will pose any tax problems for him.

As the others have indicated, what may be a problem for him is that he failed to file income tax returns to report what he earned while in Brazil and that he failed to report his control of foreign financial assets. The details of his situation matter a great deal for that, of course.

For more details, I suggest you read IRS publication 56 which explains most of the rules that he would need to know about the taxation of his foreign earnings.

There are potentially two forms he may needed to have filed with respect to his ownership or control of foreign financial assets. The first is the FinCen Report 114, which is the Foreign Bank and Financial Accounts Report (FBAR) requirement that has gotten lots of press in the last year or two. You’ll find more information about that on the IRS FBAR page. See also the IRS page on what to do about filing delinquent FBAR forms. The second possible form he may need to have filed is Form 8938. See the IRS Form 8938 FAQS for more information on that. There is also a handy IRS chart comparing the FBAR and Form 8938 requirements. Finally, when filing the income tax returns there are questions about control of foreign financial assets that must be completed.

I agree he would likely benefit from consulting a tax professional who has experience with the tax issues that apply to U.S. persons who have foreign income and foreign assets. Tax professionals are tax attorneys, tax CPAs, and enrolled agents. Those three types of professionals are subject to the rules of practice under Treasury Circular 230 and are permitted to represent taxpayers before the IRS without limitation. The key here is ensuring that whomever you pick has experience with these issues, lots of tax pros only have experience with domestic tax issues and aren't well prepared to deal with these issues that relate to foreign income and asset reporting. The penalties for failure to file the FBAR can be very expensive, but with proper representation and help from a tax professional he may be able to avoid that or at least keep the penalties from getting out of control.

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I cannot emphasize the bolded enough.

I disagree in one respect. There should be a tax lawyer on board through the entire process. It is possible to find tax lawyers that are CPAs'.

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Quoting Disagreeable

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I disagree in one respect. There should be a tax lawyer on board through the entire process. It is possible to find tax lawyers that are CPAs'.

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There is is no need to necessarily have a tax lawyer who is also a CPA. I refer clients to CPAs for return prep when they need it (it’s less expensive than if I do them) and the CPAs then work with me on any difficult tax issues that may come up in preparing returns. If the concern is the need for the attorney client privilege to apply, it will apply to professionals like CPAs that the attorney retains to provide assistance in advising the client and resolving the legal issues that they have. This is significant when, for example, possible criminal issues may exist (either the client was involved in criminal activity that generated the taxable income or the client engaged in tax evasion or other tax crimes).

In this situation, depending on the exact facts, a well experienced CPA or EA may do just as well as an attorney on the return filing and FBAR/Form 8938 issues. It may not be necessary to have an attorney involved at all for that. If the father has been advised he’s under criminal investigation by the IRS or there is something else that indicates criminal activity, then absolutely a tax attorney should be the professional contacted. If later on it appears that there will be a controversy with the IRS that might go to litigation, then a tax attorney should be consulted there, too.

But so far, I’m not seeing anything that suggests that a tax attorney is a must in this situation. And I say that as a tax attorney myself, so it’s not like I’m trying to push business to my profession. :D A tax attorney may be a good idea if the issues turn out to be legally complex, but again so far there is no indication of that in the facts we have so far.

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Quoting Taxing Matters

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There is is no need to necessarily have a tax lawyer who is also a CPA. I refer clients to CPAs for return prep when they need it (it’s less expensive than if I do them) and the CPAs then work with me on any difficult tax issues that may come up in preparing returns. If the concern is the need for the attorney client privilege to apply, it will apply to professionals like CPAs that the attorney retains to provide assistance in advising the client and resolving the legal issues that they have. This is significant when, for example, possible criminal issues may exist (either the client was involved in criminal activity that generated the taxable income or the client engaged in tax evasion or other tax crimes).

In this situation, depending on the exact facts, a well experienced CPA or EA may do just as well as an attorney on the return filing and FBAR/Form 8938 issues. It may not be necessary to have an attorney involved at all for that. If the father has been advised he’s under criminal investigation by the IRS or there is something else that indicates criminal activity, then absolutely a tax attorney should be the professional contacted. If later on it appears that there will be a controversy with the IRS that might go to litigation, then a tax attorney should be consulted there, too.

But so far, I’m not seeing anything that suggests that a tax attorney is a must in this situation. And I say that as a tax attorney myself, so it’s not like I’m trying to push business to my profession. :D A tax attorney may be a good idea if the issues turn out to be legally complex, but again so far there is no indication of that in the facts we have so far.

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There is a specific CPA firm that our firm refers clients to who have messes like these, and we do so because they have someone on board who specializes in this area. She is not a tax attorney (although the firm has a couple), but she is specialized. I know that some tax attorneys in the area also refer clients to her, because I found her through a tax attorney I know. She is a CPA, but she is not a specialist in this area because she is a CPA. She is a specialist because she opted to focus her continuing ed in this area.

We opt not to handle clients who have foreign asset reporting requirements because we would not have enough of that type of client to justify the cost of someone specializing.