What are the U.S. Classification and Reporting of Obligations for Australian entities?

Ben Ball is an Australian resident entrepreneur.  He has structured his business through an Australian discretionary trust, five proprietary limited companies, and one limited liability partnership that are all owed by the corporate trustee of the discretionary trust.

He is also the one of two directors of the corporate trustee, its sole shareholder and the sole appointor of the trust.

The discretionary trust is a grantor trust and the 5 proprietary limited companies are controlled foreign corporations.  One of the companies owns a number of passive foreign investment companies.

In addition to filing form 1040 Mr Ball needs to file forms 3520 and 3520-A for the discretionary trust, and forms 5471, 5472 and 8621 for the companies, and form 8865 for the partnership and attach those to his U.S. income tax return.

Failure to file these forms can result in the following penalties:

  • Form 3520 – The greater of $10,000, 35% of the gross value of property transferred to the trust for failure to report the creation of the trust, 35% of the gross distributions by the trust for the failure to report the distributions, or 5% of the value of trusts assets owned by U.S. persons under the grantor trust rules.
  • Form 3520 – $10,000 or 5% of the value of the trusts assets as owned by U.S. persons at the end of the year.
  • Form 5471 – $10,000 to $50,000 per year.
  • Form 5472 – $25,000 per year.
  • Form 8621 –
  • Form 8865 – $10,000 to $50,000 per year.

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