Overview of US & Brazil Double Taxation and IRS Reporting (2024)

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US Taxation of Brazil Income and Asset Reporting

The United States has entered into several tax treaties with different countries across the globe — unfortunately, Brazil is not one of them. While there are many US taxpayers who are originally from Braziland/or still maintain offshore accounts, assets & investments, and/or generate income from Brazil — since there is no tax treaty between the United States and Brazil, it can make it unnecessarily difficult when it comes to analyzing how various income generated from Brazil is taxed in the United States. When there is a tax treaty in place it helps to limit and minimize the taxation of certain income between the respective countries. Some treaties reduce the tax rates, eliminate tax on certain types of income such as Business Income, Capital Gains, and Real Estate — and/or restrict how pension income can be taxed. When there is no tax treaty in place the US government generally relies on basic US tax law principles in evaluating how foreign income should be taxed. Let’s review the US Taxation of Brazil income and IRS Offshore Disclosure Rules.

Brazil/USIncome Tax Treaty

Since there is no Tax Treaty between the United States and Brazil, the default position is that a taxpayer who is a US person such as a US Citizen, Legal Permanent Resident, or Foreign National who meets the Substantial Presence Test is taxed worldwide. With Brazil, this would also include income that is being generated in Brazil and may be considered tax-free under the tax rules of Brazil.

Worldwide Income

The idea behind the Worldwide Income tax model is the concept that a person is subject to tax on the income of the country they are a citizen of, whether or not they reside in the country — and whether or not the income they generate is sourced in that country. In other words, a taxpayer is forced to pay tax simply for the benefit of being a citizen of that country. The United States is one of only two countries that practices this type of tax system. Take for example a US Taxpayer who lives abroad. If the US Citizen abroad resides in a foreign country and earns all of their money from foreign sources, is it really fair for the United States to have the power to tax that individual — upwards of 37% — simply because they have US Citizen status? Making matters worse, is that even though it is referred to as Citizenship-based taxation, in fact, it refers to US persons and not just US citizens – which is why foreign nationals who are considered US residents can get swept up into the definition of CBT. But, if a taxpayer has paid taxes overseas on foreign income then they can usually claim a foreign tax credit. Likewise, if the taxpayer resides overseas sufficient to meet either the bonafide residence test or physical presence test, then they should qualify for the foreign earned income exclusion –– which allows them to exclude upwards of 108,000 of annual income from US tax liability — along with a housing exclusion –– and married couples can each claim FEIE.

International Tax Forms Reporting

Each year, US taxpayers who have foreign investments, accounts, pension plans, and life insurance policies may be required to report the values of their overseas assets — along with any income generated from them — to the Internal Revenue Service.When a taxpayer misses an international information reporting return deadline, it may lead the IRS to issue fines and penalties. Oftentimes these international penalties can be avoided or abated through one of the offshore voluntary disclosure programs — or other IRS amnesty procedures. It is important to note that not all foreign account filing forms have the same deadlines and due dates — and the process for seeking an extension will vary depending on the type of form. Let’s look at six important facts about foreign account filing deadlines.

FBAR Due Date and Extension

The FBAR is used to report foreign bank and financial accounts to the US Government. The Form is due on April 15, but is currently on automatic extension. Therefore, if you did not file the FBAR (FinCEN Form 114) by April 15, you still have until October to file it. And, you do not have to file an extension form such as Form 4868 or 7004 to obtain the FBAR extension — because the extension is automatically granted.

Form 8938 Due Date and Extension

Form 8938 is used to report foreign assets to the IRS in accordance with FATCA (Foreign Account Tax Compliance Act). It is similar (but not identical) to the FBAR. Form 8938 is filed with your tax return and is due when your tax return is due. If you are an individual filing a Form 1040, then the form 8938 would be due in April along with your 1040 tax return — but if you extend the time to file your tax return, then your Form 8938 will go on extension as well.

Form 3520 Due Date and Extension

Form 3520 is used to report foreign gifts and foreign trust information. The due date for Form 3520 is generally April 15, but taxpayers can obtain an extension to file Form 3520 by filing an extension to file their tax return for that year. Similar to Form 8938, there is no specific Form 3520 extension form required beyond requesting an extension of the underlying tax return.

Form 3520-A Due Date and Extension

Form 3520-A is used to report US ownership of a Foreign Trust. Unlike Form 3520, Form 3520–A is usually due in March and not April. In addition, the rules for filing an extension for Form 3520-A are different as well (subject to the substitute filing rules). In order to extend the due date to file Form 3520-A, the taxpayer must file a separate Form 7004 extension form.

Form 5471 Due Date and Extension

Form 5471 is used to report the ownership of certain foreign corporations. The filing date is the same as when a person’s tax return is due — and if the taxpayer files an extension for the underlying tax return, Form 5471 will go on extension as well. In recent years, Form 5471 has become infinitely more complex — so taxpayers should be cognizant of the different filing requirements and plan accordingly.

Missed Prior Year’s Foreign Account Reporting Deadlines?

If a taxpayer has not properly reported their foreign accounts, assets, or investments in prior years, they may want to wait before filing these documents for the current year. That is because Taxpayers should try to avoid making a quiet disclosure (which may result in significant fines and penalties). To do that, Taxpayers should submit to one of the offshore disclosure programs. Taxpayers may also want to consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in international tax matters before submitting to the IRS to get an understanding of the different requirements.

Golding & Golding: International Tax Lawyers Worldwide

Our FBAR Lawyer teamspecializes exclusively in international tax, specifically IRS offshore disclosure.

Contact our firm todayfor assistance.

As a seasoned expert in international taxation and offshore disclosure, I bring a wealth of knowledge and hands-on experience to shed light on the intricacies of US taxation of Brazil income and asset reporting. Having navigated the complex landscape of tax treaties, worldwide income models, and international tax forms reporting, I am well-equipped to guide you through the nuances of this intricate subject.

Let's delve into the key concepts highlighted in the article:

Overview of US & Brazil Double Tax Treaty:
- Unfortunately, there is no tax treaty between the United States and Brazil. Tax treaties play a crucial role in minimizing taxation on certain income between countries by reducing tax rates, eliminating taxes on specific types of income, and regulating how certain income, such as business income, capital gains, and real estate, is taxed.
US Taxation of Brazil Income and Asset Reporting:
- In the absence of a tax treaty, the default position is that a US taxpayer, including US citizens, legal permanent residents, or foreign nationals meeting the Substantial Presence Test, is taxed worldwide. This includes income generated in Brazil, which may be tax-free under Brazil's tax rules.
Worldwide Income:
- The Worldwide Income tax model dictates that a person is subject to tax in the country of citizenship, irrespective of residence or the source of income. The United States practices this model, which can lead to taxation of US citizens living abroad, even if they earn all their income from foreign sources.
International Tax Forms Reporting:
- US taxpayers with foreign investments, accounts, pension plans, and life insurance policies are required to report the values of these assets and any generated income annually to the Internal Revenue Service (IRS).
FBAR Due Date and Extension:
- The FBAR (FinCEN Form 114) is used to report foreign bank and financial accounts. It is due on April 15, with an automatic extension until October. No additional extension form is required.
Form 8938 Due Date and Extension:
- Form 8938 reports foreign assets to the IRS under FATCA and is filed with the tax return. Its due date aligns with the tax return due date, and it also goes on extension if the taxpayer extends their tax return filing.
Form 3520, Form 3520-A, and Form 5471 Due Dates and Extensions:
- These forms are used to report foreign gifts, foreign trust information, and ownership of certain foreign corporations, respectively. Each has its own due date and extension process, which taxpayers must adhere to.
Missed Prior Year’s Foreign Account Reporting Deadlines:
- Taxpayers who failed to report foreign accounts in prior years should avoid making quiet disclosures. Instead, they should consider submitting to one of the offshore disclosure programs to avoid significant fines and penalties.

In conclusion, understanding the complexities of US taxation regarding Brazil income requires careful consideration of tax treaties, worldwide income models, and adherence to specific international tax forms reporting deadlines and procedures. For personalized assistance, individuals may benefit from consulting with experts specializing in international tax matters, such as Golding & Golding's FBAR Lawyer team.