Preparing international compliance forms which end up part of a U.S. federal tax return involves avoiding a multitude of potential errors. While some mistakes result in a simple recalculation of the tax liability (e.g., GILTI), others can trigger significant penalties and/or an IRS audit. Knowing the most common tax-filing oversights is critical to prevent mistakes and the serious headache that results in IRS scrutiny that can lead to an assessment of interest and penalties. Outlined here are some of the more common errors that can occur when preparing tax returns that taxpayers and tax preparers should be aware of.
- Understand your client’s international tax structure. Often your clients are aware of their business dealings in foreign locations but may not have the detailed understanding of the specific legal entity form, etc. which greatly impacts the U.S. tax impact. Continue to ask questions until you fully understand the structure.
- Same as last year (SALY). This approach, while being able to file returns quickly as you review your growing list of returns to get out the door, often leads to oversights and other errors which cause problems in the long run.
- Incomplete filings. Often you understand that your client has an operation in Germany, for example. However, if a complete understanding of the ownership structure and detailed transaction isn’t fully understood, the incorrect tax return filing category can be chosen. This leads to incomplete forms filed as not all the required schedules are included with the tax return.
- Missed planning opportunities. During the stress and chaos of tax compliance season there isn’t time to slow down and review your client’s international operations and legal entity structure to determine whether tax efficient planning opportunities exist. For example, check-the-box planning or transfer pricing which could lower your client’s overall global effective tax rate.
U.S. federal tax returns with international filings (Form 5471, 5472, 8865, 8621, etc.) are complex and great care should be taken to ensure proper review of the details facts and operational objectives each year are completed. McGuire Sponsel’s international tax compliance team can assist you with U.S. federal compliance preparation and review associated with international operations of your clients.
If you have any questions about our team or any global business or compliance issue, do not hesitate to reach out.
Jason Rauhe, CPA is a Principal in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including transfer pricing, and the firm’s compliance expertise.
Rauhe previously served as Director of International Tax at a Top 100 CPA Firm, where he was responsible for the firm’s international tax division and major industry alliance networks.