Foreign Trust Reporting & Compliance

All U.S. citizens and some foreign persons are required to file income taxes each year. This includes citizens and residents of the U.S., domestic partnerships, domestic corporations, any estate other than a foreign estate, and certain trusts.

The IRS Code contains the stipulations for when an individual or entity is required to file a U.S. federal income tax return, which for most U.S. persons is Form 1040. Foreign persons are usually obligated to file Form 1040NR each year to report their fixed determinable and periodic income from U.S. sources and income tied to a U.S. trade or business for the year.

A foreign nongrantor trust is considered a foreign individual and will need to file Form 1040NR each year to report its U.S. income. Foreign grantor trusts must report certain information from certain U.S. nexus and any U.S. person who keeps certain connections with foreign trusts during the year such as ownership of a foreign grantor trust, transfer of property to a foreign trust, and receipt of property from a foreign trust.

The person preparing the income tax return has varying requirements that depend on the residence and classification of the trust. Preparers should consult with an attorney for advice before the residence and classification is determined.

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