New IRS Regulations Impacting International Assignees and Foreign Trusts  

On May 7, 2024, the US Treasury and the Internal Revenue Service (IRS) unveiled proposed regulations designed to provide clarity and guidance on the reporting of transactions involving foreign trusts and the receipt of substantial foreign gifts. Additionally, these regulations aim to amend existing rules concerning foreign trusts with US beneficiaries.   

This article explores the essential elements of these proposed regulations and their implications for international assignees.  

Why These Regulations Matter   

International assignees often engage with foreign retirement or savings plans, which the US classifies as foreign trusts. This classification subjects them to stringent reporting requirements, significantly increasing their administrative burden and US tax compliance costs. Furthermore, assignees frequently receive gifts or bequests from abroad—particularly from family—which are reportable when they exceed $100,000 in total. Non-compliance with these requirements can lead to severe penalties.  

Key Features of the Proposed Regulations   

The relief offered in Revenue Procedure 2020-17 is expanded upon by the proposed regulations. They offer substantial reporting exemptions, especially for “treaty tie-breaker” or “dual resident” taxpayers, who may be spared from some information reporting requirements under the new regulations.  

Specific Provisions in the Proposed Regulations  

• Foreign Gifts: The reporting threshold for foreign gifts will be increased for inflation, starting with $100,000.  
• Relief from Reporting Certain Foreign Trusts: Expansion of qualifying foreign trusts’ exemptions from reporting requirements, with additional thresholds and limits, especially for tax-favored foreign retirement trusts and non-retirement trusts.  
• Changes for Unemployed Contributors: Under some circumstances, adjustments permit donations from unemployed people.  
• Adjustments for Inflation: Various contribution and value restrictions are now subject to inflation indexing, raising the thresholds to more reasonable levels in light of recent economic developments.  

Need Help with Foreign Trust Reporting? We Are Here to Help!   

The proposed IRS regulations provide much-needed relief and clarification for US assignees involved with foreign trusts, potentially reducing the compliance burden and associated costs. By understanding and utilizing these new rules, assignees can better navigate their tax responsibilities and avoid penalties.

The IRS continues to adapt its policies to reflect the realities of global financial activities better, offering clearer pathways for compliance and reporting. 

For detailed information and guidance, refer to reliable expat tax service providers such as Greenback Expat Tax Services. Do you have questions about the process or the next steps? Contact us, and one of our Customer Champions will happily address all your concerns.