Little Known Reporting Requirement may surprise many U.S. Persons (including U.S. Beneficiaries of Foreign Trusts) with Interests in Foreign Businesses

Little Known Reporting Requirement may surprise many U.S. Persons (including U.S. Beneficiaries of Foreign Trusts) with Interests in Foreign Businesses

by Robert Gonzales

While my initial inclination was that this fairly unknown Form BE-10 (a non-tax filing obligation) was somewhat limited to certain U.S. persons with interests in foreign businesses, I quickly learned that it could have broader application.

A person who fails to file a required Form BE-10 may be subject to civil penalties and, if found to have willfully failed to file a required Form BE-10, may be subject to criminal penalties. An officer, director, employee, or agent of an entity who knowingly participates in a willful failure to file may also be subject to criminal penalties. The original deadline for filing the BE-10 was May 29, 2015, but was extended for new filers until June 30, 2015. Based on recent correspondence with BEA staff, there will be no fines or penalties as long as the BE-10 forms are filed as soon as possible. Unfortunately, it is unclear how long this “as soon as possible” window of opportunity will last.

As background, the Form BE-10 (Benchmark Survey of U.S. Direct Investment Abroad) is the most comprehensive survey of U.S. direct investment abroad administered by the Bureau of Economic Analysis (BEA). The benchmark survey is conducted once every 5 years (in lieu of the BE-11 annual survey). The most recent BE-10 survey covers the fiscal year ending in 2014. As opposed to surveys in the past, a response is required from U.S. persons subject to the reporting requirements of the BE-10, whether or not they are contacted by BEA.

The 2014 Form BE-10 must be filed by any U.S. person that had (direct or indirect) ownership or control of at least 10% of the voting stock of a foreign business enterprise. One area that may be overlooked is that trustees, beneficiaries and settlors of both U.S. and foreign trusts may have a BE-10 reporting obligation if such trust owns reportable interests in non-U.S. business enterprises. A trust, either U.S. or foreign, is a person, but is not a business enterprise. The trust is treated as an “intermediary” for purposes of Form BE-10 reporting.

For reporting purposes, the beneficiary(ies) of the trust, is (are) considered to be the owner(s) for purposes of determining the existence of direct investment, except in two cases: (1) if there is, or may be, a reversionary interest, and (2) if a corporation or other organization creates a trust designating its shareholders or members as beneficiaries. In these two cases, the creator(s) of the trust is (are) deemed to be the owner(s) of the investments of the trust (or succeeding trusts where the presently existing trust has evolved out of a prior trust), for the purposes of determining the existence and reporting of direct investment.

As Form BE-10 was not highly publicized outside of certain legal and accounting circles, many practitioners or industry executives are unaware or unfamiliar with the filing requirements and risk of penalties. That said, clients, as well as wealth management professionals should consider whether the BE-10 filing obligations apply to them with respect to their foreign holdings “as soon as possible.”

Additional information is available on the BEA’s website:

Mr. Gonzales is a tax partner that provides tax and advisory services to high net worth individuals and families, closely held businesses, private equity and venture capital funds, domestic and foreign trusts, and trust companies.

Robert Gonzales, CPA
Linn Thurber LLP
3555 Timmons Lane, Suite 800
Houston, TX 77027
713.600-1452 direct
713.961.1600 main