Specializing Exclusively in IRS Offshore/Voluntary Disclosure Matters Worldwide
Golding & Golding, Attorneys at Law
Irvine, California 92620
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Golding & Golding, Attorneys at Law Overview
Golding & Golding, Attorneys at Law is a premier tax law firm that specializes exclusively in IRS Offshore & Voluntary Disclosure. Located in Irvine, California, the firm has helped thousands of client clients nationwide and worldwide in more than 80 different countries.Practice areas/services include IRS VDP, SDOP and SFOP, delinquent taxes, offshore penalty abatement, expatriation and U.S. exit tax preparation, Form 3520 penalty avoidance and removal, and related matters. The firm offers a 5-questions analysis, reduced-fee initial consultations, and flat-fee structures.
Partners Sean M. Golding and Jenny M. Golding have decades of combined legal experience with extensive knowledge, and Mr. Golding is a Board-Certified Tax Law Specialist Attorney. They learn each client's unique situation and work to guide each one through tax and legal processes designed to resolve their tax and offshore liabilities and concerns.
Year this Office was Established: 2000
Golding & Golding, Attorneys at Law Areas of Law
Additional Areas of Law: IRS Voluntary Disclosure; International Tax Law; IRS Offshore Compliance; Offshore Tax Disclosure; Exit Tax & Expatriation.
Lawyers
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Mrs. Jenny Kay Golding
Lawyer International Law, Tax |
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Mr. Sean M. Golding (Board Certified Tax Specialist)
Lawyer International Law, Tax |
Golding & Golding, Attorneys at Law Affiliations
- Board-Certified Tax Law Specialist
- California Bar Association
- New York Bar Association
- U.S. Tax Court
More Information on Golding & Golding, Attorneys at Law
IRS Domestic Income Disclosure ProgramOffshore Voluntary Disclosure OVDP Lawyers
Streamlined Domestic Offshore Procedures (SDOP)
Streamlined Foreign Offshore Procedures (SDOP)
Reasonable Cause & Delinquency Procedures
Board-Certified Tax Law Specialist
Tax Law Case Results
Articles Published by Golding & Golding, Attorneys at Law
What If You File Form 3520 Late: Form 3520 Penalties
While the FBAR is the most common type of international information reporting form that US persons with foreign accounts may have to file, there are several other types of IRS foreign tax forms that US persons may have to file as well -- and Form 3520 is a good place to start. Form 3520 is one of the most common international reporting forms besides the FBAR. It is an international reporting form that requires US persons to report certain foreign gift and trust transactions, including: • Receiving a large gift from a foreign individual or entity, • Receiving a trust distribution from a foreign trust, • Maintaining ownership of a foreign trust, and • other various transactions with a foreign trust Let's walk through the basics of Form 3520, along with the code sections that authorize the IRS reporting requirements.
Read ArticleFBAR Penalties: If You Don't File, Will You Be Penalized?
What Happens If You Do Not File FBAR (FinCEN 114)? While there are many different international information reporting forms a US Taxpayer may have to file each year in order to report their foreign accounts, assets, investments, and income -- the FBAR (aka FinCEN Form 114) is the most notorious. Up until early 2023, the IRS was in the habit of issuing penalties against noncompliant Taxpayers at $10,000 per account, per year – which could spell disaster for taxpayers who had several unreported accounts over many years. Then, in 2023, the Supreme Court in the case of Bittner put a stop to the IRS' penalty madness and limited non-willful FBAR penalties to $10,000 per year (the $10,000 adjusts for inflation). So, what happens now when a Taxpayer misses prior year FBAR filings and wants to go back to file FBARs for previous years?
Read ArticleInternational Tax Evasion: What is it and How is it Enforced?
In recent years, there has been a significant uptick in the U.S. government's enforcement of international criminal tax violations. New technological advances -- coupled with the globalization of the U.S. economy -- have made it significantly easier for US Taxpayers to move assets offshore in an attempt to artificially reduce their tax liability. This may include: -Opening foreign accounts using local identification and not confirming US Person status, -Purposefully selecting Foreign Financial Institutions (FFI) that do not report for FATCA, -Misidentifying US Person status to the foreign bank, and/or Intentionally failing to report foreign income in hopes that the IRS does not find out. Depending on the facts and circumstances of the noncompliance, it may lead the IRS Special Agents to pursue a criminal tax investigation against the Taxpayer. Let's look at five (5) examples of international criminal tax investigations.
Read ArticleWhat is Foreign Bank Account Reporting (FBAR)
When it comes to getting into international tax compliance with the IRS for previously undisclosed foreign accounts, assets, investments, and income -- one of the most common types of unreported overseas holdings are still foreign bank and financial accounts. Foreign accounts come in all different shapes and sizes, depending on what type of account it is and which country the account is maintained. Whether it is a current account in the United Kingdom, an NRO/NRE account in India, or an investment account in Taiwan -- foreign bank and financial accounts must be reported each year to the US government in any year that the taxpayer exceeds the threshold requirements for reporting.
Read ArticleWhat is an Accuracy-Related Penalty from the IRS?
While there are many different types of penalties that can be imposed by the Internal Revenue Service against Taxpayers for failure to file tax returns and/or inaccurate filing/reporting, the accuracy-related penalty for underpayment in accordance with section 26 U.S.C. 6662 is one of the more common. The IRS can issue a 20% penalty for the portion of the underpayment if it finds Taxpayer was in violation of the code section. And, depending on the total value of the underpayment, this could result in significant fines and penalties. Let’s take a brief look at the code section itself and what taxpayers can do to try to avoid, reduce, and/or abate penalties.
Read ArticleExtended Time to Assess Form 3520, 3520A & 5471 Penalty
(Original Article Dated 2/26) When it comes to international tax and reporting, the general rule is that the Internal Revenue Service has three years to audit a Taxpayer. On the international tax front, the three (3) year rule is expanded to six (6) years in any situation in which there is more than $5,000 of gross income attributable to specified foreign financial assets -- such as a FATCA asset. Worse yet, is that the statute of limitation for assessment and collection may not even begin to run in a situation in which a taxpayer had a requirement to report certain transfers, such as foreign gifts, but failed to file the forms. Just as when a Taxpayer fails to file a tax return –– which leads to the tax return statute of limitations remaining open indefinitely – if a foreign reporting form is not filed, the statute to audit (and penalize) may also remain open as well.
Read Article5 Streamlined Offshore Account Errors to Avoid 2023
Back in 2019, we first authored a very popular article about some of the more common offshore account compliance procedure mistakes we were finding when Taxpayers approached us because they had their application rejected by the IRS -- or they were unhappy with their current representation. Fast forward to 2023, and the Streamlined Procedures have become pretty popular. Unfortunately, we are now finding that not only are the same mistakes happening, but new avoidable mistakes are happening as well. Let’s take a look at five more common streamlined mistakes you should try to avoid:
Read ArticleWhy Was My Streamlined Submission Rejected by the IRS?
Ever since we published our first Streamlined Procedures FAQ guide several years ago, we have been warning U.S. Taxpayers about the potential risks of having a streamlined submission rejected. There are many reasons a streamlined submission may be rejected. It could be that the Taxpayer was willful, the certification statement was poorly written, or the Taxpayer did not fully participate in the disclosure. As we enter into 2023, Taxpayers have been approaching us with new reasons why they have been rejected, so we thought an article update was in order. Let’s take a look at three (3) new reasons we have been seeing an uptick in rejections.
Read ArticleNew 2023 Changes to Non-Willful FBAR Penalties, What's Next
2023 will go down in the tax record books as a banner year for taxpayers across the globe who have unreported foreign accounts and facing FBAR penalties. That is because the Supreme Court issued a ruling in February of 2023, limiting civil non-willful FBAR penalties -- the most common type of foreign bank account penalty -- to a $10,000 per year penalty. Prior to this ruling, the IRS seemingly had carte blanche to issue penalties upwards of $10,000 per account per year-- typically not to exceed the 50% willfulness threshold (the $10,000 adjusts for inflation each year). As a result of this new Supreme Court ruling, even if a taxpayer failed to report millions of dollars in their foreign accounts, as long as they are non-willful, the IRS will be limited to issuing a $10,000 per year penalty if they were found to be non-willful..
Read ArticleBadges of Fraud: What Are They? What do they Mean?
Each year, the Internal Revenue Service investigates various tax violations against taxpayers in both the civil and criminal arenas. In general, most tax violations are civil in nature. That means, that while taxpayers may become subject to extensive fines and penalties, they are limited to civil penalties without the fear of incarceration. When it comes to fraud, the US government may be able to pursue both civil and criminal violations against the taxpayer. Likewise, to determine whether or not a person may have committed fraud the IRS has to look at different factors to evaluate the taxpayer’s behavior. That is referred to as the Badges of Fraud. Let’s look at some of the common indicators of fraud.
Read ArticleGILTI High-Tax Exception: How to Exclude Foreign Income
GILTI refers to Global Intangible Low-Taxed Income. Unfortunately, the definition is much more complicated than it would appear from the term itself. In general, US taxpayers who have ownership of a Controlled Foreign Corporation (CFC) and earn money overseas may have to pay tax on some of the foreign income – despite the fact that that income has not been distributed yet.
Read ArticleIRS 30-Day Letter vs 90-Day Letter: Tax Audits & Penalties
The Internal Revenue Service has hundreds of different letters and notices that it may send to a taxpayer depending on the taxpayer’s specific situation. For example, a taxpayer may have been in an examination and the IRS Agent believes there should be changes to the tax return, which may result in proposed examination changes – and issues a 30-day notice. Likewise, a taxpayer may have been through the IRS Independent Office of Appeals and was not successful – leading to a 90-day Notice of Deficiency Letter (aka NOD Letter). Alternatively, if the taxpayer receives an international penalty, they may receive a CP-15 Notice, which provides the Taxpayer 30 days to respond. Let’s walk through the basics of these different types of IRS letters:
Read ArticleNRA Withholding: Non-Resident Alien US Taxes
When a person is considered a Non-Resident Alien for US tax purposes, they are taxed differently than US persons such as US Citizens, Lawful Permanent Residents, and Foreign Nationals who meet the Substantial Presence Test. When a person is an NRA, they are taxed only on their US-sourced income and not on their worldwide income. Still, this can come as a big shock and surprise for some foreign nationals to learn that certain investments they have made in the United States are taxable by the United States -- even though they are neither a US citizen nor Lawful Permanent Resident. Let’s take a look at some of the basics:
Read ArticleWhat is Collection Due Process Hearing (CDP)
When a person has had a tax or penalty assessed against them by the Internal Revenue Service, there are a few different options they will have along the way to try to reduce or abate their liability. While one of the most common types of action is an appeal at the IRS Independent Office of Appeals -- sometimes a more effective procedure is requesting a Collection Due Process Hearing on Form 12153. The Collection Due Process Hearing can be a great opportunity for taxpayers to get before the Settlement Officer (SO) to present their case to a person with authority to try to eliminate the liability. Let’s go through some of the basics of a Collection Due Process Hearing:
Read ArticleWhat to Do If I Missed the October 15 FBAR Deadline
FBAR refers to foreign bank and financial account reporting. Certain US persons who have ownership or signature authority over foreign accounts, assets, and investments may have an annual FBAR reporting requirement on FinCEN Form 114. Technically, the FBAR is not an IRS form but it’s rather a FinCEN form – – with FinCEN referring to the Financial Crimes Enforcement Network. Despite the unfortunate name of the form and organization, the majority of missed FBAR filings are not criminal in nature, but rather civil matters. When a person missed the October 15 FBAR deadline (The FBAR is on automatic extension from April to October), there are a few different options available to them that they should consider before going off and filing the missed FBAR. Let’s look at what you should do if you missed the 10/15 FBAR filing deadline.
Read ArticleIRS Form 8858 (Disregarded Entity Reporting)
One of the lesser known but equally important International Information Reporting Forms is IRS Form 8858. Technically, IRS form 8858 refers to Information Return of U.S. Persons with Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs). In a common situation, a person will have a foreign entity that has been disregarded. As a result, the person may avoid having to file Form 5471, but still, file information reporting similar to the more complicated form 5471 -- in order to detail certain transactions and other information about the company.
Read ArticleThe Dual-Status Taxpayer Explained (3 Key Facts)
When a person first moves to the United States and becomes a US Resident or is in their final year of being a US resident and gives up their US status, it is often referred to as a dual-status tax year – – and the person is referred to as a dual-status alien. The tax rules are a bit different for dual-status aliens, in the sense that they are not taxed on their worldwide income for the entire year, since they are not considered a US person for the entire year. Depending on their source of income, this may have a significant impact on their tax liability for the year. Let’s go through some of the basics:
Read ArticleWhat To Do If You Missed the FBAR Deadline for Filing
The FBAR refers to Foreign Bank and Financial Account Reporting. Taxpayers with Foreign Financial Accounts may have an annual FBAR Filing Requirement – which requires them to file a FinCEN Form 114 each year. The FBAR includes more than just bank accounts. It includes investment accounts, stock accounts, pooled funds, foreign pensions, and even certain foreign life insurance policies. If a person fails to file the FBAR by the FBAR Filing Deadline (4/15, but on automatic extension until 10/15) all hope is not lost. The IRS offers various IRS offshore amnesty tax programs such as VDP (Voluntary Disclosure Program); SFCP (Streamlined Filing Compliance Procedures) and DFSP (Delinquent FBAR Submission Procedures) to assist Taxpayers with compliance. Let’s take a brief look at what you should do if you missed the FBAR Filing Deadline:
Read ArticleA Caution Against Willful Streamlined Submissions to the IRS
In the recent case of "MJ" ("F" & "J" as Executors on behalf of Mrs. MJ’s Estate) Taxpayers brought a case against the US government regarding a previous finding of willfulness by the IRS against the taxpayer. It is a very complicated scenario in which the taxpayer (and elderly widow) had submitted to the streamline procedures after her husband has passed and was audited by an inexperienced agent after her submission was complete. As a result of the audit, the taxpayer was found to be willful -- and ended up having to pay a much higher penalty than she would have had to pay under the Streamlined Filing Compliance Procedures’ Title 26 Miscellaneous Offshore Penalty. The taxpayer brought a case against the government claiming two main causes of action: Breach of Contract and Exaction. Both arguments were rejected by the court – – let’s take a look why the Court rejected the claims:
Read ArticleForeign Trust Form 3520/3520-A Filing Obligation (example)
One of the most complicated aspects of international tax and information reporting under the US Tax Code is for foreign trusts. That is because different countries treat trusts within their own borders differently than they may be treated for US tax purposes.
Read ArticleWhat is 'Financial Interest’ in a Foreign Financial Account
When a US person has a financial interest in a foreign financial account, such as a foreign bank account, foreign investment account, foreign mutual fund account/portfolio, or foreign pension account, they may have various international information reporting requirements under the US tax code. In order to determine whether or not a person has a reporting requirement, it is important to understand some of the key phrases used in matters involving foreign accounts compliance. Two of the key phrases are financial interest and foreign financial account. Let’s take a brief look at these two definitions.
Read ArticleNotice 2022-36: IRS International Penalty Waiver
Recently, towards the tail-end of August 2022, the Internal Revenue Service released Notice 2022–36, which is a notice designed to reduce and eliminate certain penalties on tax returns and international information returns that were filed according to the guidelines provided in the notice -- for tax years 2019 and 2020. This is a welcome relief for taxpayers who may have filed – or will be filing -- the tax returns for these tax years and before 9.30.2022. While some common international reporting forms are included in the Notice (such as Forms 5471 and 3520). Other common international information reporting forms such as the FBAR or Form 8938 (FATCA) are not included.
Read ArticleGrantor Trust Tax Rules (Internal Revenue Code)
The grantor trust rules are very complex. The main tax rules surrounding Grantor Trusts can be found in the Internal Revenue Code (IRC), sections 671-678 – with section 679 used for foreign grantor trusts. In general, grantor trusts are not reported separately from their owner. In other words, with a grantor trust, the owner of the trust reports the trust income (and deductions) as part of their personal tax return (as compared to a non-grantor trust which is separate and distinct from the owners, with its own tax ID). While the grantor trust rules are complicated -- let’s review the basics of a grantor trust.
Read ArticleAre FBAR Penalties Applied Per Year or Per Account?
As Golding & Golding has written about extensively over the past several years, the Internal Revenue Penalty machine is in a state of disarray when it comes to assessing FBAR penalties for non-willful violations. There are two main positions that the IRS can take: the Internal Revenue Service can take the position that non-willful FBAR Violations are assessed per year (so the maximum penalty is $10,000 – adjusted for inflation) or the IRS can determine that a violation is per account, per year, and then the IRS can issue multiple penalties based on the number of accounts (without regard for the fact that all the accounts are reported annually on a single FBAR Form (aka FinCEN For 114).
Read ArticleInternational Wire Transfer Audit, FATCA & FBAR
Each year, millions of US taxpayers transfer money in and out of the United States. Oftentimes, this is accomplished by an international wire transfer, wherein the US person transfers money to a foreign person. Alternatively, the foreign person may transfer money to a US person. In the former situation, one common pitfall to be cognizant of is when a US person transfers money to a foreign account of which they are an owner. This is because now the Foreign Financial Institution may be required to report the information to the US government in accordance with FATCA (Foreign Account Tax Compliance Act). Let’s take a brief look at how this may work:
Read ArticleReceived an IRS CP3219 Notice? How to Respond
There are many different types of notices and letters that a taxpayer may receive from the Internal Revenue Service, for various different tax and penalty issues. Once the taxpayer receives a Notice of Deficiency letter a.k.a. CP3219 or NOD Letter, it alerts the taxpayer that they are in the end-game stage with the IRS and that the taxpayer has a limited amount of time in order to take action and file a petition with the US Tax Court. There are very strict deadlines when it comes to filing a petition with the US tax court, so tax taxpayers should take heed of the timing requirements. Let’s go through the basics of a Notice of Deficiency.
Read ArticleFederal Tax Crimes Case Basics (5 Key Facts)
Each year, the Internal Revenue Service pursues a few thousand criminal tax cases on a variety of different issues. Unlike civil tax violations, a federal tax crime may result in significant fines and penalties as well as possible incarceration. Some of the more common types of federal tax crimes include tax fraud, tax evasion, and making false statements. But, not all tax violations result in criminal prosecution -- even if the Internal Revenue Service believes that they have the right to pursue a criminal tax case based on the findings of their investigation. Let’s go through five important facts about federal tax crime cases.
Read ArticleCan a Streamlined Procedure Submission Be Rejected by the IRS?
As far back as our original 2016/2017 Streamlined Procedure FAQs, we have been warning taxpayers about the potentials of having a Streamlined Filing Compliance Procedure denied or rejected. The Streamlined Filing Compliance Procedures are used by US Persons who have unreported foreign accounts, assets, investments, and income that they want to report to the IRS and FinCEN. There are two versions of the programs: Streamlined Domestic Offshore Procedures (SDOP) and Streamlined Foreign Offshore Procedures (SFOP). The two programs are very common and have helped many taxpayers across the globe safely get into offshore tax compliance. Most Taxpayers have a high likelihood of success, presuming they make an accurate and full submission. Let's review the basics of how to avoid a denial of an IRS Streamlined Procedure Submission.
Read ArticleIRS Penalty Abatement (How to Remove)
When the Internal Revenue Service assesses penalties against a taxpayer, the Taxpayer still has options available to try to remove or at least minimize the penalties. The technical term that the IRS uses is the term abatement. In other words, taxpayers have an opportunity to abate the penalties that the Internal Revenue Service issued for failure-to-file timely and/or accurate tax returns and other international information reporting forms. Penalty abatement can be a complex undertaking, so let’s go through five important facts about IRS penalty abatement.
Read ArticleIRS Tax Penalties: Understanding the Basics
When a US taxpayer fails to either timely pay a tax liability to the IRS and/or fails to report certain forms timely, they could become subject to various different IRS penalties. There are many different types of IRS penalties that can be assessed -- depending on the violation. For example, if a taxpayer files a tax return late, they may become subject to late filing penalties. Likewise, if a taxpayer fails to pay the amount of taxes due timely, they may become subject to late payment penalties as well. There are also other penalties for underreporting income or failing to report various international information reporting forms timely and accurately. Let’s look at five facts about IRS tax penalties --
Read ArticleFATCA Reporting & Form 8938 Filing Requirements
FATCA refers to the Foreign Account Tax Compliance Act. For nearly the past 10 years, the US government has entered into reciprocal FATCA Agreements or IGAs (Intergovernmental Agreements) with over 110 different foreign countries, resulting in more than 300,000 Foreign Financial Institutions (FFIs) agreeing to report US account holder information to the government -- so that the US government can track taxpayers’ foreign income, accounts, and assets. While FATCA still has many kinks to work out, the Internal Revenue Service has significantly ramped up enforcement. Let’s look at five (5) important facts on how FATCA reporting and Form 8938 impact Taxpayers.
Read ArticleSurviving an Cryptocurrency IRS Tax Audit (The Basics)
With the price of cryptocurrency having recently dropped significantly –– this oftentimes results in taxpayers selling their crypto to either minimize their losses or possibly cash out whatever gains they have remaining. In the past few years, the Internal Revenue Service and the US government have also significantly increased enforcement of cryptocurrency-related transactions. The number of audits is on the rise -- and taxpayers should be aware of the potential ramifications of being notified that they are under a cryptocurrency tax audit by the Internal Revenue Service. Let’s look at five helpful tips to consider in case you find yourself on the receiving end of an examination notice.
Read ArticleIRS Retires Form 3520 Non-Compliance Campaign
Each year, the Internal Revenue Service has a list of enforcement priorities for matters involving international tax and reporting. For the past several years, the IRS has been focusing on Form 3520 (Foreign Gifts and Trusts) and form 3520 –A (Foreign Trusts Owned by a US Person). Depending on the value of the gift from a foreign person and/or the size of the foreign trust, the number of penalties that could be issued can reach into six-and-seven figures. Recently, the Internal Revenue Service updated its page of retired compliance programs to include the Forms 3520/3520–A Non-Compliance campaign. While this does not mean that the IRS is stopping enforcement of Forms 3520/3520-A, it does mean that the compliance campaign is no longer active.
Read ArticleWho Should File an FBAR (An Introduction)
The FBAR refers to Foreign Bank and Financial Account Reporting (aka FinCEN Form 114). The FBAR form has been around for more than 50 years -- and while technically is not a tax form, the Internal Revenue Service is tasked with enforcement – and not something they take lightly Two of the most common concerns when it comes to the FBAR, is who is required to file the form and what happens if you do not file the FBAR timely. Unfortunately, the IRS has been taking taxpayers to task for their failure to comply with FinCEN Form 114, so let's look at these two important questions,
Read ArticleWhen Should Taxpayers File an Appeal With the IRS?
After a taxpayer has been assessed IRS penalties or additional taxes due by the Internal Revenue Service, their first opportunity to dispute the amount due is by submitting a protest letter regarding the taxes and penalties. If the protest letter is unsuccessful, then the taxpayer then can file an appeal with the IRS Office of Appeals in order to have an independent third party evaluate the circumstances and determine whether or not the penalties were just.
Read ArticleHow Do Criminal Tax Fraud Investigations Begin?
While there are many different types of tax infractions that a US Person Taxpayer may violate, Tax Fraud is one of the more common types of tax violations. That is because a person may be subject to both civil and criminal tax fraud. In addition, unlike tax evasion which typically requires an affirmative act such as filing a false tax return, the same threshold is not required for all types of criminal tax fraud. Essentially, if a person has the intent to defraud and commits the fraudulent act (or failure to act) then the IRS will have the ability to pursue a criminal tax fraud investigation, which may culminate with an indictment and prosecution. Let’s go to the basics of a criminal tax fraud investigation.
Read ArticleForeign Trust Reporting and Tax Requirements
When it comes to the Internal Revenue Service’s international tax compliance requirements, the taxation and reporting of Foreign Trusts are some of the most complex rules. That is because the idea of a “trust,” can vary by jurisdiction – so the definition of a trust in one country is not the same as the definition of a trust in another country. Complicating the taxation and reporting even further is the fact that oftentimes the United States Tax Code is not well equipped to inure these foreign trusts into the US tax system. Let’s look at some of the very basics of Foreign Trust Reporting and the Tax Requirements surrounding them.
Read ArticleIRS Alter Ego, Successor Liability & Tax Fraud
Oftentimes, with a taxpayer believing that they may be subject to an IRS investigation or lawsuit, their knee-jerk reaction is to simply take whatever assets they have in place it into a separate entity (or to another person) to avoid the IRS for example seeking to seize their assets. Of course, it is not that simple, and there are various legal mechanisms that creditors can use in order to enforce liability against this type of situation. The general phrase that applies is the “alter ego doctrine,” which refers to the idea that a separate entity is so entwined with the individual as to simply be an alter ego -- and not truly a separate entity. Other terms you will find in this area of tax law and general business/corporate law is Piercing the Corporate Veil, Fraudulent Transfers, and Successor Liability.
Read ArticleHow to Respond to Form 3520 CP15 Notice (2023)
RECEIVED A FORM 3520, CP-15 PENALTY NOTICE? For several years now, the Internal Revenue Service has been significantly increasing enforcement of international information reporting penalties — and especially Form 3520 penalties for reporting foreign trusts and gifts. It is a bit peculiar that the IRS wants to take Taxpayers to task for 3520 gift/inheritance issues — because oftentimes the reason for having to file the form is simply because a US person with foreign national parents may have gifted the US person money or other gifts that may come by way of inheritance.
Read ArticleThe IRS Letter 1058 (LT11 Notice) Explained
The IRS has many different types of Letters it sends out to Taxpayers to place them on notice that they have an outstanding tax liability or assessed penalty -- for example, CP504; CP518, and CP15. Regarding the IRS Letter 1058, after sending one or more multiple notices – such as a CP503 or CP504 letter to the Taxpayer – and not receiving a response or resolution to the amounts due, the Internal Revenue Service may next send a Letter 1058 or LT11 Notice – which refers to the intent to seize property or rights to property. This is a more serious letter because it is no longer just a potential threat. Rather, the result of not taking action may result in an actual Notice of Federal Tax Lien (NFTL) or Levy to be issued against your account or wages.
Read ArticleReporting of Foreign Retirement Plan Accounts to the IRS
The Internal Revenue Service requires taxpayers who have ownership of various foreign financial accounts, assets, and investments to report these accounts each year on a myriad of different international information reporting forms. The foreign retirement plan is one of the types of foreign accounts that is reportable. Since various different foreign countries have different types of retirement plans, It can get a bit confusing when determining which form has to be filed -- and when.
Read ArticleIRS Abatement of Penalties (Removal) Summarized
Whether it is because the Internal Revenue Service is understaffed -- or simply needs funding -- the IRS has been issuing more extensive penalties than they have in years past. This is especially true in situations in which a person has an international information reporting requirement such as the FBAR, Form 8938, Form 5471, or Form 3520/3520-A.
Read ArticleTypes of IRS Tax Penalties Explained
When it comes to the Internal Revenue Service, US Taxpayers who are out of compliance for not properly filing the necessary tax and reporting forms may become subject to a myriad of different IRS penalties. While some of the more common penalties such as the failure-to-file and failure-to-pay penalties are relatively well-known, other penalties such as failing to report foreign accounts, assets, and investments on the FBAR and Form 8938 are less well-known. These types of international reporting penalties have become a key enforcement priority for the Internal Revenue Service. To try to avoid these penalties, we wanted to provide a brief summary of some of the more common penalties to be aware of so that you can try to avoid getting stuck in the IRS crosshairs.
Read ArticleDid You File FBAR & Federal Tax Return in 2022?
When it comes to being in IRS Tax Compliance, two of the most common types of forms that international taxpayers have to file are the annual tax return on Form 1040 and the Foreign Bank And Financial Account Reporting Form on FinCEN Form 114. The tax return is due in April -- although taxpayers can file an extension to push the filing date -- not the payment date – to October (and sometimes even December). In addition, taxpayers who reside abroad automatically receive a two-month extension to file. The FBAR is currently on an automatic extension to October which means taxpayers do not have to file a separate extension form on either IRS form 4868 or 7004 to qualify for the extension. Let’s take a brief look at the basics of when a taxpayer is required to file both forms:
Read ArticleIRS CP518 Notice for Missing Tax Return Summarized
In recent years, due in part to Covid and in part to the reduced staffing at the Internal Revenue Service, more documents and filings have fallen through the IRS cracks than in years past. Well this is understandable, it can become very unfair for the taxpayer who was diligent and timely filed their tax returns, information returns and/or other documents -- only to receive a notice from that they are out of compliance. One of the more common types of notices as of late is the CP518 notice. This is the type of notice that an individual taxpayer receives when the IRS does not have a record of a tax return being filed (which does NOT mean it was actually filed late). Let’s go through the basics of this type of notice:
Read ArticleIRS CP504 Notice for Final Balance Due
The Internal Revenue Service (IRS) has many different types of notices they send Taxpayers, depending on the status of their tax situation. For example, a taxpayer may receive a CP504 notice (aka Final Notice - Balance Due) in a situation in which the taxpayer has unpaid taxes -- but has not made payment. But, CP504 notices are not limited to only tax matters - when a US Person has been assessed a penalty for missed international reporting forms - such as 3520, 5471 or 8938 - receives a CP15 notice and has not paid the penalty, that may lead to an eventual CP504 notice as well. What makes the CP504 notice dangerous is that it is the precursor to a Notice of Federal Tax Lien (NFTL) or notice of intent to levy. Let’s go through the basics:
Read ArticleThe IRS Passport Revocation Process Explained (IRC 7345)
When a person has a delinquent tax debt liability, the Internal Revenue Service has various mechanisms available to them to try to enforce compliance with the tax debt. Some of the more common ways the IRS may seek to enforce a tax liability is by initiating a Notice of Federal Tax Lien (NTFL), a Federal Tax Levy –– and/or even a seizure of assets and property in a more serious situation. One of the newer weapons in the US government arsenal to enforce the collection of tax debts is the ability to either deny or revoke a US passport due to a seriously delinquent tax debt. Let’s go through the basics of what is considered a seriously delinquent tax debt – and what does not qualify for passport revocation or denial purposes.
Read ArticleDo Tax Treaties Make Income Exempt From Taxation?
The United States has entered into several international bilateral double-taxation treaties with foreign countries in order to minimize issues involving double taxation and related issues. While there is a model tax treaty that serves as a skeleton for the individual tax treaties, each international tax treaty is a bit different. And, some tax treaties may exempt some forms of income and not others – for example, many tax treaties will exempt Social Security income from tax in the country of residence -- and instead limit taxation to the country of source. In addition, some income may be exempt or avoided for one or more years depending on the type and category of income – such as science and research. Let’s look at some examples of income being (possibly) exempt in one country to the agreement, by way of a tax treaty.
Read ArticleNew FBAR Reference Guide Issued (10 Key Facts)
With there being so much confusion surrounding foreign bank and account reporting aka FBAR aka FinCEN Form 114 – and with the current tax season in full swing – it is nice to see the Internal Revenue Service has published a new 2022 reference guide for taxpayers who may have to report foreign bank and financial accounts to the US Government. The publication is IRS publication 5569 and it provides details and clarification about the reporting requirements for US persons who may have foreign accounts, assets, and investments -- such as bank accounts, stock accounts, mutual funds, pensions, and life insurance. While the publication is relatively detailed, we wanted to summarize 10 important facts about the publication to assist you with FBAR reporting.
Read ArticleNew IRS FBAR Fact Sheet Release 2022: 5 Points
The FBAR refers to Foreign Bank and Financial Account Reporting and is filed on FinCEN Form 114. While FinCEN refers to the Financial Crimes Enforcement Network – the IRS (Internal Revenue Service) is tasked with enforcement of the FBAR.
Read ArticleU.S. Taxation of UK SIPP (Self-Invested Personal Pension)
There are many different types of foreign pension plans offered in countries across the globe. One of the most common types of personal retirement schemes for U.S. Persons who worked and/or invested overseas is a SIPP -- Self-Invested Personal Pension.
Read ArticleSyndicated Conservation Easement Scrutinized by IRS
Each year, the Internal Revenue Service publishes a dirty dozen list of potential tax scams that are on the IRS’s radar. For the past few years, one of the key enforcement priorities involves syndicated conservation easement transactions – – both in the United States and abroad. The Internal Revenue Service does not believe that these types of easement transactions are legitimate -- and therefore has been enforcing compliance and issuing penalties against taxpayers they believe they have significantly (and inappropriately) reduced their U.S. tax liability by participating in syndicated conservation easement transactions. Here is a brief introduction about what these types of charitable easements are and what to be wary of.
Read ArticleFDAP Income Withholding Agent (IRS) Rules Explained
FDAP refers to Fixed, Determinable, Annual, and periodic. It is the type of income that is typically passive income that is generated from a nonresident alien in the United States. Unless the income is otherwise exempt, when a nonresident alien earns FDAP – there is a 30% withholding required. Depending on whether there are any exceptions, exclusions, or limitations – along with whether the nonresident alien resides overseas and may make a treaty election will impact the tax rules. Withholding agents are required to withhold 30% of the income -- and the failure to do so may result in the withholding agent becoming liable to the US government for taxes due.
Read ArticleIRS Tax Shelter Penalties Explained
When it comes to domestic and international tax violations, IRS Tax Shelter penalties have become a key enforcement priority. With a tax shelter, the Internal Revenue Service believes that the taxpayer may not be using completely kosher methods when it comes to minimizing or eliminating their income tax liability. There are different types of tax shelters that are considered reportable transactions -- which are reported on IRS Form 8886. Form 8886 refers to reportable transactions and includes Listed Transactions; Loss Transactions and Confidential Transactions. One recent type of reportable transaction that has been in the news lately is the syndicated conservation easement transactions -- both domestic and overseas easements. If the IRS believes that a tax shelter violation has occurred, the Taxpayer may get assessed with significant fines and penalties. Let’s take a brief look at tax shelter penalties.
Read ArticleFBAR (Reporting Foreign Bank & Financial Accounts) - 5 Facts
The FBAR is probably the most common of the International Information Reporting Forms that US persons with foreign accounts may have to file. In any year that a US Person (more than just individuals) has an annual aggregate total (not individual account values) that exceeds $10,000 on any day of the year – they may have to file the FBAR (aka FinCEN Form 114). The FBAR is not the most difficult of the international reporting forms, but it tends to carry the most serious penalty when the due date for filing is missed. We have authored hundreds of articles online detailing the intricacies and complexities of FBAR – but here are 5 key introductory facts for Taxpayers who may be filing their first FBAR (or just have some basic questions).
Read ArticleForm 8300 to Report Cash Payments Over $10,000
Almost everybody likes to get in paid in cash, right? Cash doesn’t bounce and does not carry any transaction fees as with credit cards or other electronic payments. The problem with cash is that if your trade or business receives a cash payment(s) – the IRS/FinCEN want to know about it.
Read ArticleIRS Federal Tax Lien (NFTL): 26 U.S.C. 6321
When a Taxpayer has an outstanding IRS tax liability that they have not paid (or have not entered into an installment agreement) the IRS is empowered to use collection means to enforce the liability. With international tax law, this is common when an International Information Reporting Penalty is assessed against the taxpayer, such as a Form 3520 penalty). In order for a Federal Tax Lien to arise, the Internal Revenue Service must meet the requirements of Internal Revenue Code section 6321 et seq. – which involves a “Lien of Taxes.” Let’s go through the basics of how a Notice of Federal Tax Lien arises under the Internal Revenue Code.
Read ArticleIRS Effectively Connected Income Explained
When a Non-Resident Alien (NRA) earns income from the United States, they are taxable on that income – unless the income is excluded from U.S. tax, and not all US-sourced income is taxable to Non-Resident Aliens. In general, US-sourced income for Non-Resident Aliens can be broken down into two main categories: ECI (Effectively Connected Income) and FDAP (Fixed, Determinable, Annual, Periodical Income. The focus of this summary is on the former (ECI). Taxpayers tend to prefer their U.S. income to be ECI vs FDAP because then the Taxpayer can take deductions – which are not otherwise available for FDAP income (which is typically withheld at 30%).
Read ArticleWhat is Tax Evasion (The Federal Crime Explained)
When it comes to Tax Violations, they can range from the relatively benign (inadvertently missed some income or reporting) to more serious violations such as Tax Fraud – and even Tax Evasion (which is a Federal Crime). In most situations, when Taxpayers file inaccurate tax returns (or missed filing) it is civil in nature. But, in some circumstances when a Taxpayer files an intentionally inaccurate tax return that either excludes income or artificially enhances deductions and expenses that do not exist – it may reach the level of Tax Evasion under 26 USC 7201. Tax Evasion is a Federal Crime and can lead to significant fines and penalties – including incarceration.
Read ArticleCanada-U.S. Cross-Border Retirement Under the Tax Treaty
Canada and the United States have entered into several tax treaties, including a double-taxation treaty agreement -- which has been amended/revised several times. When it comes to Pension Plans and Social Security, the Canadian United States Tax Treaty operates a bit differently than some of the other tax treaties. While the overall impact may be the same, there are different – – more specific – – rules involving pension plans and Social Security. The U.S. has relaxed some of the requirements for Canadian Pension Plans in the U.S., such as eliminating the rules involving Canadian pension plan annual election requirement of IRS Form 8891 as well as excluding certain registered plans (RRSP and RRIF) from Form 3520/3520-A reporting (see Rev. Proc 2014-55). Let’s go through the basics of how pension plans and Social Security are taxed.
Read ArticleUK-U.S. Cross-Border Retirement Under The Tax Treaty
When an individual is considered a US person for tax purposes and they have a retirement pension overseas in the United Kingdom, the tax implications from a US standpoint can be complex. Each country has its own set of rules and regulations -- in addition to the fact that there is an international income tax treaty between the United States and the UK (as well as a totalization agreement). Depending on the status of the foreign pension, there may be different tax positions a person can take to minimize and eliminate tax liability. Let's s go over the basics of the general rules involving how a cross-border retirement or pension plan in the United Kingdom is taxed in the United States (or vice-versa) as Public Pension; Private Pension, and Social Security.
Read ArticleHow to Escape IRS Form 8938 Filing Requirements
As far as international information reporting goes, Form 8938 is one of the newer (and less complicated) IRS forms. The Form was introduced about 10-years ago and was developed in accordance with FATCA – which is the Foreign Account Tax Compliance Act. Similar to the FBAR, Form 8938 is used to report the values of certain specified foreign financial assets to the US government, such as foreign bank accounts, investment accounts, life insurance policies, and cross-border pension plans. While the form is required in many situations in which taxpayers have foreign assets and accounts to disclose -- there are some exceptions to the filing and other exclusions, so that they do not have to file the form in that year. Let’s take a look at the basics:
Read ArticleU.S. - India Cross-Border Retirement Under the Tax Treaty
There are many US persons who have earned retirement and pension plan income from India and are (understandably) unsure how the United States taxes the India retirement and pension income. The United States and India have entered into a double-taxation tax treaty agreement and the tax treaty provides information regarding how pension and retirement income is taxed.
Read ArticleFailure to File Foreign Trust Returns (3520/3520-A Penalty)
As far as IRS international information reporting is concerned, one of the most complicated aspects of foreign disclosures involves the reporting of foreign trusts on Forms 3520 and 3520-A. Unlike other forms such as the FBAR or Form 8938, there are several requirements necessary to properly complete forms 3520 and 3520-A "substantially correct" to avoid penalties. Complicating the matter further is that in recent years, the Internal Revenue Service has been wielding its penalty sword at taxpayers who failed to properly report their foreign trusts -- and penalties can be substantial -- upwards of 35% value. Moreover, in the recent appellate case of US vs. Wilson, the court confirmed that double penalties for a single owner of a foreign trust are a very real possibility.
Read ArticleIRS "Closer Connection" Exception Explained
When it comes to U.S. person status, there are three (3) main categories of individuals who are considered U.S. Persons for tax purposes -- and therefore subject to US tax on their worldwide income – along with the IRS global disclosure requirements on international reporting forms such as FBAR and FATCA.
Read ArticleNew IRS Form 14457 Voluntary Disclosure Practice Update
In 2022, the Internal Revenue Service updated the IRS Form 14457 Voluntary Disclosure Preclearance application form -- otherwise known as Form 14457, Voluntary Disclosure Practice Preclearance Request and Application. The purpose of this form is to create a standardized preclearance letter that all taxpayers submit in order to seek acceptance into the IRS Voluntary Disclosure Program – not to be confused with the Streamline Procedures or Delinquency Procedures, which do not offer a preclearance opportunity.
Read ArticleThe Foreign Earned Income Exclusion (FEIE, IRS Form 2555)
The United States follows a worldwide income tax system. This means that US person individuals are required to report their worldwide income to the Internal Revenue Service each year on Form 1040. When a US person resides abroad and has “earned income,” they may qualify to exclude upwards of ~$108,000 of earned income from their tax return – and joint filers can each claim the exclusion. In addition, Taxpayers may also qualify to have a portion of their housing expenses excluded under the foreign housing exclusion. Let’s walk through the basics of the Foreign Earned Income Exclusion:
Read ArticleCourt FBAR Penalty Recalculation Exceeded Authority (APA)
For the past several years, FBAR (Foreign Bank and Financial Account Form Reporting) aka FinCEN Form 114 has been a key enforcement compliance priority for the Internal Revenue Service; District and Appellate Courts, and Department of Justice. There have been several different court cases that have come down the pipeline involving FBAR violations -- and one of the most recent cases is the case of US v. Schwarzbaum. This case has several moving parts associated with it, including an order requiring the defendant to repatriate foreign money to the United States (currently stayed pending Appeal) –– but this summary focuses on the recalculation issues that went up on Appeal and were recently ruled upon. The Court of Appeals ruled that the District Court overstepped its boundaries when recalculating the FBAR penalty instead of just setting it aside for recalculation by the IRS. Let’s take a brief look at what happened in Schwarzbaum.
Read ArticleFBAR Basics: Introduction to FinCEN Form 114
When it comes to foreign bank and financial account reporting, the FBAR (aka FinCEN Form 114) is one of the most popular forms that is required by US persons with overseas funds. Since the FBAR is not technically an IRS tax form or IRS international reporting form – it is a FinCEN Form “114” – the logistics of preparing the form and submitting the form can be complicated. This is especially true in light of the fact that the FBAR was previously submitted on paper form "TD-90" -- but it is now submitted electronically. In addition, the date for filing changed back in 2016 – and now coincides with the tax filing due date. In order to avoid late FBAR filing problems, here are a few important basics to keep in mind when preparing the FBAR:
Read ArticleForeign Earned Income Exclusion vs Foreign Tax Credit
When it comes to international tax, the United States follows a worldwide income tax model – – which means that the United States taxes US persons (not just US Citizens) on their worldwide income. Therefore, if a US Citizen earns income from a foreign country –– even if they are already taxed in that foreign country on the income –– the United States still requires that income be included on the US tax return, and subject to US tax as well.
Read ArticleForm 8621 Exception (25K/50K) Regulation vs Instructions
When it comes to US Taxpayers who have foreign investments that qualify as Passive Foreign Investment Companies (PFIC) –– such as foreign mutual funds – filing the FBAR and Form 8938 is usually just the tip of the iceberg. Oftentimes, lurking behind the corner is a much more complicated international information reporting form known as IRS Form 8621. What makes Form 8621 so complicated is that in the tax years that the taxpayer has an "Excess Distribution," there is a very detailed and complicated analysis and computation that must take place in order to satisfy the Internal Revenue Service that the correct amount of tax has been paid. The question then becomes, is there an exception to filing form 8621?
Read Article2022 FBAR Filing Deadline for 2021 FinCEN 114
The FBAR refers to Foreign Bank and Financial Accounts Reporting (aka FinCEN Form 114). The form is one of the essential international information reporting forms used to disclose overseas accounts, assets, and investments to the US Government. Since 2013, the FBAR has been filed electronically -- and it is filed annually on the FinCEN (Financial Crimes Enforcement Network) website when the threshold for filing is met. While the FBAR can be a bit overwhelming, the form is less complicated than other international reporting forms such as Form 3520, 3520-A, 5471, and 8865. An important question is – when is the FBAR due date for filing?
Read Article(New) Offshore Voluntary Disclosure Options 2022
The Offshore Voluntary Disclosure Programs are used by US Taxpayers in the US and abroad who are subject to US Tax (US Citizens, Lawful Permanent Residents, and Foreign Nationals subject to the Substantial Presence Test) and have undisclosed foreign accounts, assets, investments, and/or income. While the formalized OVDP (Offshore Voluntary Disclosure Program) was discontinued in 2018, the Internal Revenue Service still provides many options to assist Taxpayers with compliance for unreported FBAR (Foreign Bank and Financial Accounts); FATCA (Foreign Account Tax Compliance Act); Form 3520, 3520-A, 5471 and more. Let’s review some of the offshore voluntary disclosure options:
Read ArticleIRS Form 14457 (2022): Preclearance Letter
When the Internal Revenue Service closed the Offshore Voluntary Disclosure Program (OVDP) in September 2018, it was unclear what changes -- if any -- would be made to the traditional voluntary disclosure program (VDP) for matters involving international tax and offshore compliance disclosures. Later that same year -- and over the past 2 years -- the new traditional voluntary disclosure practice has started to take shape, with one key difference now being the requirement that Taxpayers complete a standardized Preclearance Letter on IRS Form 14457. While the Form 14457 was previously used as part of OVDP -- it did not serve as a pre-clearance letter. Here are a few tips about New Form 14457:
Read ArticleAvoidable IRS Streamlined Foreign Offshore Filing Mistakes
No matter how simple the Streamlined Foreign Offshore Procedures (SFOP) may appear, the procedures are one of the more complicated offshore disclosure program options. The submission process may seem "easy," because unlike most of the other offshore compliance programs, there is no Title 26 Miscellaneous Offshore Penalty for undisclosed overseas accounts, assets, or investments. And, since there is no penalty computation, many taxpayers and tax professionals believe it is a simple program – – but that is not the case. Each year, our International Tax Law Specialist Team is approached by applicants and attorneys across the globe who are unsure why they were rejected from the SFOP program. There are several reasons why a person may be rejected from the program – – let’s go through five common mistakes.
Read ArticleCommon IRS Streamlined Domestic Offshore Filing Mistakes
When it comes to The Streamlined Domestic Offshore Procedures (SDOP), even “simple” streamlined disclosures can be much more complicated than meets the eye. Over the past 8-9 years, since the stand-alone program has been in existence, our (Board-Certified) international tax law specialist team has handled thousands of offshore disclosure cases. Each year we publish a summary of the more common mistakes involving offshore disclosure in general – and more specifically, the streamlined procedures. This summary will focus on common errors Taxpayers, Attorneys, and Accountants make when submitting a Streamlined Domestic Offshore Procedure to the IRS.
Read ArticleShould You Disclose Foreign Assets to IRS in 2022: 4 Facts
Each year, it seems like the Internal Revenue Service makes international information reporting of foreign assets, accounts, and investments more difficult and complicated than it was in prior years. There are many different types of foreign assets that a US person may have to report to the IRs or FinCEN in order to satisfy the annual disclosure requirements. Some of the more common international reporting forms you may have heard about are the FBAR (FinCEN Form 114) and FATCA (Form 8938) – but there are several other international reporting forms that taxpayers may have to file -- depending on what category and value of foreign assets they have. A common question we receive is why should a taxpayer disclose foreign assets to the IRS? Here are four common reasons for filing:
Read ArticleFBAR Filing Requirements (2023): Who Must File
FBAR FILING REQUIREMENTS: Each year, US taxpayers who have foreign bank and financial accounts overseas may have to file the annual FBAR aka FinCEN Form 114. In recent months, the Internal Revenue Service updated its FBAR publication and developed a Practice Unit to assist taxpayers and IRS agents with understanding the complexities of the FBAR. There are many components to filing an accurate FBAR and the IRS continues to pursue penalties against taxpayers who are non-compliant. For the purposes of this article, we will focus on who needs to file the FBAR.
Read ArticleForeign Retirement Account International Reporting to IRS
There are many US persons across the globe who are subject to US tax and reporting -- and have foreign retirement accounts subject to several US international information reporting requirements. Even if the US person is not making any contributions to the foreign retirement account or receiving any distributions, they are still subject to the international information reporting rules on foreign retirement accounts. Reporting may be required on one or several forms depending on the type of pension, the type of assets underlying the pension – – and the value of the pension. Let’s take a brief look at five of the most common IRS forms a US person may have to file in order to report their for overseas retirement accounts to the US Government:
Read ArticleOVDP Lawyers: Offshore Tax Disclosure Tips (New) 2022
Even though the Internal Revenue Service closed the Offshore Voluntary Disclosure Program (OVDP/OVDI) in September 2018, they also expanded the traditional voluntary disclosure program (VDP) on matters involving international tax and offshore reporting compliance. The updated version of the voluntary disclosure program is different than OVDP, but the intended goal is the same – which is to bring a taxpayer safely into compliance by proactively coming forward and making a disclosure to the Internal Revenue Service before the IRS finds them first and significantly increases the chances of criminal investigation and penalties. Here are 5 tips about New VDP:
Read ArticleLetter 6291 from the IRS: A Soft Letter Relating to Form 8938 FACTA
When a US Taxpayer has foreign accounts, assets, and investments -- they may be required to report the information to the Internal Revenue Service on various different International Information Reporting Forms. One of the most common forms is IRS Letter 6291. This form is a soft letter from the IRS regarding issues with Form 8938 FATCA Reporting (Foreign Account Tax Compliance Act). While the IRS Letter is not a Notice of Audit -- it puts the Taxpayer notice that a Foreign Financial Institution has reported information to the IRS which differs from what the Taxpayer included with their tax return. Let’s go through the basics:
Read ArticleIRS Form 5471 New Categories of Filers Explained
When it comes to having to report foreign corporations to the US government on International Reporting Form 5471, one of the most complicated aspects of the form is just determining who is required to file. There are five (5) different categories of filers and some of these categories were recently expanded and/or broken down further into subsections (categories one and five). When determining whether or not a person falls into one of the categories, it is important to have a baseline understanding of who the IRS is seeking to require to report under each particular category. Let's introduce the different categories of filers.
Read ArticleIs IRS Form 8938 a Replacement or Substitute for FBAR?
Two of the most common types of international information reporting forms are the FBAR (Foreign Bank and Financial Account Reporting form FinCEN Form 114) and Form 8938, the latter which was introduced in accordance with FATCA (Foreign Account Tax Compliance Act). Oftentimes, when a US person has to report foreign accounts, assets, or investments these two forms are the two primary forms they have to file. While the Form 8938 is part of a tax return – the FBAR is filed separately and electronically only on the FinCEN website. A common question we receive is whether form 8938 serves as a replacement or substitute for the FBAR? The answer is no, and in some years a Taxpayer may have to file both forms to report their foreign money. Let's look at three examples in which a US Person would have to report foreign accounts and assets on both the FBAR and Form 8938.
Read ArticleLimitations on Benefits Provisions: IRS Tax Treaties
The United States has entered into many different tax treaties with foreign countries across the globe. Some tax treaties may have more beneficial treatment of certain income than other treaties. And, until loopholes get discovered and closed by the IRS (as with the recent Malta Treaty and CAA), the tax implications of relying on one treaty vs another treaty may result in a tax windfall. To avoid this artificial outcome, Tax Treaties are equipped with LOB or Limitation on Benefits provisions. The Limitation on Benefits provisions serves to avoid certain treaty shopping and triangular 3-treaty tax schemes. Let’s look at the basics of the Limitation on Benefits Provisions.
Read ArticlePermanent Establishment (PE) Explained: International Tax
When it comes to international tax, one of the more complicated aspects involves the tax rules for US businesses operating abroad -- and the US tax implications of having a permanent establishment. The permanent establishment is a legal term and usually a key part of a US Tax Treaty. When a US Person has created a permanent establishment, they may become subject to taxes abroad on income that may not be otherwise taxable in the foreign country when a treaty is in place and there is no PE. Oftentimes, the US Person may actually inadvertently create a permanent establishment abroad when they had no intention of doing so. Let’s look at the basics of a permanent establishment:
Read ArticleCan You Challenge FBAR Penalty Violations?
Yes, when a US person is assessed FBAR penalties (Foreign Bank and Financial Account) for non-compliance with FinCEN Form 114 reporting requirements they have the opportunity to challenge the FBAR penalties. Where the confusion lies, is that unlike a tax violation in which a Taxpayer can take the matter to Tax Court if they are unsuccessful in dealing directly with the IRS -- FBAR penalties cannot be challenged in Tax Court. Rather, a Taxpayer has to deal directly with the Internal Revenue Service, appeal the matter, or take the matter to federal court in order to litigate against the US Government. Let's go through some of the basics of how an FBAR penalty challenge takes shape:
Read ArticleIRS Warns Malta Pension Plan Participants (New) 2022
Each year, the Internal Revenue Service selects 12 various tax schemes that US citizens and residents should be aware of, because the IRS will further scrutinize these transactions to determine whether or not they are kosher. If the IRS disagrees with the tax positions put forward by Taxpayer, it may result in fines and penalties. Some recent examples include conservation easements and the Maltese Pension Plan. In the beginning of December 2021, the IRS confirmed that it does not support the position that a Maltese Personal Pension Plan qualifies as a pension plan under the United States/Malta tax treaty. A CAA (Competent Authority Arrangement) was also entered into between the US and Malta on the specific issue of how these pension plans should be treated under articles 17 and 18 of the United States and Malta Tax Treaty. Let's take a quick look:
Read ArticleSingle Foreign Trust Owner/Beneficiary & Multiple 3520 Penalties
The recent Court of Appeals case (2nd Cir) of US v. Wilson, provides good insight into just how lopsided and unfair Form 3520 Foreign Trust penalties can be. While the District Court ruling limited the penalties allowable against Wilson, the Appellate Court vacated the District Court's ruling and found that not only can the trust owner be penalized as the sole beneficiary -- but he can also be penalized as the owner of the foreign trust as well -- for the same trust and set of transactions. Therefore, a single-owner/beneficiary of a foreign trust may become liable for multiple penalties.
Read ArticleFBAR Litigation: How to Litigate Federal FBAR Penalties
One of the most unfair aspects of foreign account compliance is the fact that taxpayers are limited in how they can dispute a penalty that was issued for noncompliance with foreign bank and financial account reporting on the annual FBAR. The reason why the mechanism to dispute the penalty is so unfair to US Person foreign account holders is that because the FBAR (technically FinCEN Form 114) is not a tax form, and the penalty is not a tax violation -- the taxpayer does not have the same opportunities to litigate the matter in Tax Court as they would for a tax violation. Oftentimes, taking a matter to Tax Court can be a preferred method, because the taxpayer is not first required to pay the debt before initiating a Tax Court case.
Read ArticleFBAR Penalty Rulings Diverge in Boyd & Bittner
Up until recently, the Boyd case in the 9th circuit represented the trend that many District Courts across the nation were following on matters involving non-willful FBAR penalties. In Boyd, the 9th circuit held that on the issue of non-willful FBAR penalties -- the penalty would be limited to a "per form" penalty and not a "per account" penalty. Therefore, if a non-willful taxpayer had one missed FBAR with 15 accounts on it, they would only get assessed a single penalty for the form -- and not a penalty for each account violation. Then, at the tail-end of 2021, the appellate court in Bittner (5th circuit) reversed and remanded the case back to the District Court (which had originally ruled that penalties were limited to “Per Form”) and held that the penalties could actually be issued per account, per form. This means that depending on which circuit the taxpayer is in, it can significantly impact the outcome of a non-willful FBAR case.
Read ArticleWhat Is GILTI (Global Intangible Low-Taxed Income)
GILTI was introduced in conjunction with the Tax Cuts and Jobs Act (TCJA). Unfortunately, the laws were rushed – and it led to much confusion surrounding what is GILTI (Global Intangible Low-Taxed Income) and how taxpayers are required to include GILTI as part of their tax return. What makes this type of income very complicated, is that technically it is not limited to just “intangible low-taxed income “— along with the fact that the income is taxed even if the US person has not repatriated any of the earnings back to the United States. It is similar in concept to Subpart F income -- but an entirely different category of foreign income.
Read ArticleIs There An Expatriate Inheritance Tax or Gift Tax?
In general, when a US Person formally expatriates from the United States, they either relinquish their Green Card (Long-Term Lawful Permanent Resident Status) or renounce their US Citizenship. The key issue in determining whether or not an expatriate gift or bequest to a US person may be subject to US Tax, is if the expatriate qualifies as a Covered Expatriate. When a US Person Expatriate qualifies as a covered expatriate, there may be additional taxes after expatriation on the gift/bequest -- which are payable by the recipient of the gift or inheritance.
Read ArticleDoes Voluntary Disclosure Protect Against IRS Criminal Prosecution?
The Voluntary Disclosure Practice Program has been around for many years -- and it is specifically designed to help Taxpayers with getting into IRS tax and reporting compliance -- especially in matters involving offshore accounts, assets, investments and income. One of the main purposes of the program is to assist Taxpayers with avoiding criminal prosecution. And, while the IRS reserves the right to criminally prosecute Taxpayers, they rarely if ever do -- so as long as the Taxpayer makes a full disclosure. Let’s go through some of the basics of Voluntary Disclosure under the revised version of the program for offshore assts:
Read ArticleIRS Certification of Non-Willfulness Statement Length SDOP/SFOP
When a Taxpayer wants to submit to either the Streamlined Domestic Offshore Procedures (SDOP) or Streamlined Foreign Offshore Procedures (SFOP), the key ingredient requires for the submission is the IRS Certification of Non-Willfulness -- which is submitted on either Form 14654 (SDOP) or 14653 (SFOP). The Certification Form is very important for Taxpayers to ensure they have the best opportunity for approval and submission into the IRS program. Unfortunately, there are many “Self-Proclaimed Experts” who flub the form because they simply do not understand the process and believe the IRS wants to see a 20-page dissertation. Let’s review the basics:
Read ArticleCFC Income Recognition Category Tax Rules
Controlled Foreign Corporation (CFC) income tax rules are complicated. With the introduction of the Tax Cuts and Jobs Act (TCJA) came with it a modification and expansion of the controlled foreign corporation rules involving what type of income is taxable. Unfortunately, as a result of the updated income tax rules, many US Taxpayers who are shareholders of controlled foreign corporations -- have become subject to US tax on foreign income which has not yet been repatriated to the United States -- beyond just Subpart F Income. The following is a brief introduction to some of the more common types of foreign income that a controlled foreign corporation may become subject to as a result of GILTI and DFI (Deferred Foreign Income).
Read ArticleU.S. Tax on Non-Residents Selling U.S. Real Property
FIRPTA refers to The Foreign Investment In Real Property Tax Act -- and oftentimes comes as a big surprise to Nonresident Aliens who own US real property and are planning to sell or dispose of the property. Under most circumstances, a nonresident alien is not subject to U.S. tax on capital gains. There are some exceptions involving business property and US real estate. To ensure that nonresident aliens pay tax on the sale of US real estate though (as well as other real property transactions), FIRPTA was developed and designed to withhold a certain amount of the sale price -- which is then (temporarily) deposited to the US government for tax purposes. This then necessitates the nonresident to file a U.S. tax return to both show the capital gain -- as well as pay any necessary tax or collect a refund.
Read ArticleU.S. Person & Nonresident Alien Joint Tax Return Rules
When a U.S. Citizen, Lawful Permanent Resident or Foreign National who meets the Substantial Presence Test marries a nonresident alien (NRA), there are certain tax implications to be aware of. That is because oftentimes the spouses will file together (MFJ) in order to reduce the overall tax rate -- not realizing, that with a joint tax return the nonresident alien would also have to include their income on the tax return as well -- and possibly foreign assets and accounts. As a result, depending on how much income the nonresident alien spouse has -- it may significantly increase the overall tax liability. Let's review the tax implication basics of what happens when a US Person marries a non resident alien and files a joint tax return.
Read ArticleInternal Revenue Service Criminal Investigation Procedure
Each year, the Internal Revenue Service pursues several thousand criminal tax investigations against Taxpayers who may have criminally violated US tax law. It is important to note that not all tax violations result in a criminal investigation. And, like all criminal investigations, the Internal Revenue Service must compile sufficient evidence necessary to recommend prosecution -- and if the matter is prosecuted, the government must prove the case Beyond a Reasonable Doubt. Common types of tax crimes include tax evasion, tax fraud and providing false statements to the Internal Revenue Service or other government agency about tax-related matters. With each IRS Criminal Investigation, there is a certain path that the Internal Revenue Service must follow when recommending (or declining) pursuing a case for possible prosecution. Lets' review the Internal Revenue Service Criminal Investigation Process:
Read ArticleNon-U.S. Citizen Criminal Foreign Account Prosecution Risk
Unfortunately, when it comes to international tax law, many tax attorneys seek out fear-mongering tactics in order to needlessly scare unsuspecting non-U.S. Citizen Immigrants about the potential criminal catastrophes of being out of compliance for undisclosed foreign accounts and income -- which rarely occur. In general, Non U.S. Citizens are at no greater risk of criminal prosecution for undisclosed foreign accounts and income than other US Person. In fact, whether or not a person is a U.S. citizen or noncitizen does not typically impact whether or not the Internal Revenue Service will refer the matter out for criminal enforcement of foreign account noncompliance. When it comes to foreign account noncompliance, most of the time the noncompliance with foreign account reporting and disclosure is a civil matter that does not have criminal tax implications.
Read ArticleIRC Section 6039F Requirements, Penalties & Defenses
When it comes to international information reporting compliance, the Internal Revenue Service has become laser-focused (and very aggressive) on matters involving Internal Revenue Code section 6039F compliance. Section 6039F refers to the notice of large gifts received from foreign persons. It requires US persons who received certain large gifts from foreign persons (including trusts and entities) to file an annual IRS Form 3520 in any year they meet the threshold requirement. When a US Person does not timely filed the form, they may become subject to significant fines and penalties which can reach 25% value of the gift. Considering many US person students and recent transplants receive foreign gifts for items that may not qualify as medical, tuition or tuition equivalent -- when the form is not filed it can lead to very substantial IRC 6039F penalties.
Read ArticleIRC Section 6038 Requirements, Penalties & Defenses
When it comes to international information reporting to the IRS, some of the most important Internal Revenue Code sections involve sections 6038: 6038A, 6038C and 6038D. The reason why these code sections are so important, is because it provides the framework as to what US taxpayers have to do in order to comply with various international information reporting requirements such as Form 5471, Form 5472 and Form 8938. In recent years, the IRS has significantly increased compliance enforcement. And, when these requirements are not met, Taxpayers may become subject to fines and penalties in accordance with the particular code section violation. If the Taxpayer is able to prove reasonable cause then oftentimes they can avoid penalties -- although the Internal Revenue Service is making it harder on Taxpayers to prove reasonable cause. Let's review some of the basics of Internal Revenue Code section 6038.
Read ArticleIRS Throwback Rule for Foreign Trust DNI/UNI Income
When it comes to the international tax rules involving foreign trusts, it is safe to say that the Internal Revenue Service is not a big fan of trusts located overseas. The main reason why, is because the IRS is concerned that Taxpayers improperly use these trusts to either shelter income that should otherwise be taxable -- or to assign income to taxpayers in a lower tax bracket -- in which the IRS is missing out on taxes it believes are due. DNI refers to Distributable Net Income, which the trust can then deduct so that the income is not taxed at the trust level -- but rather the beneficiary level. The problem becomes when the DNI is not distributed timely so that it becomes UNI and the throwback rule takes effect.
Read ArticleBrazilian Mutual Funds & U.S. Tax Implications
It is not uncommon for U.S. Persons to have financial investments in Brazil -- especially if the person is considered a Dual-Citizen of the US and Brazil -- or a Lawful Permanent Resident of the United States but still a citizen of Brazil. While there are many common types of investments that Taxpayers in Brazil may have -- such as Usufructs -- Mutual Funds and other equity funds are some of the most common. Oftentimes, taxpayers will hold these investments at institutions such as Vanguard, HSBC and iShares. The importance of foeign mutual funds under US Tax Law is most often an issue when a e US Person with foreign mutual funds is taxed -- including Brazilian mutual funds. It is important to note, that there is no international income tax treaty between the United States and Brazil. Let's go through the basics of the US tax implications of Brazilian Mutual Funds.
Read ArticleFBAR Civil Penalties Inflation Adjustment 2021
The FBAR refers to annual Foreign Bank and Financial Account Reporting on FinCEN Form 114. Even though the verbiage within the actual statute does not specifically update each year, the penalty amounts "adjust for inflation." This is not unique to the FBAR -- and it is very common for various different types of penalties that the Internal Revenue Service may issue. Therefore, when it comes to FBAR Penalties -- depending on what year a Taxpayer gets hits with FBAR penalties, will impact the amount of penalties the taxpayer may be subject to; it impacts both civil non-willful FBAR and willful penalties. Let's take a look at the different increases and adjustments for inflation for Civil FBAR penalties in 2021.
Read ArticleU.S. Estate & Gift Tax Treaties
When it comes to the different tax treaties that the United States has entered into, oftentimes Taxpayers presume that it only applies to income tax -- but this is incorrect. In fact, the United States has entered into multiple different types of tax treaties, including estate and gift tax treaties with different countries across the globe.
Read ArticleAre Nonresident 401k Withdrawals Taxed in the U.S.?
When a nonresident previously worked in the United states -- and accrued pension by way of a 401K -- a common concern becomes how will the United States tax the distributions or withdrawals of the income. While the United States can tax the income pursuant to the Internal Revenue Code (30%), depending on whether or not the nonresident resides in a treaty country -- and if so, the benefits afforded under the treaty -- will help determine whether or not the 30% withholding tax can be reduced or eliminated.
Read ArticleStreamlined Filing Compliance Procedures (New) 2022
For US persons who are non-willful, but have not properly reported their overseas accounts, assets, investments and income in prior years -- they may be eligible to submit to the Streamlined Filing Compliance Procedures (SFCP). The streamlined procedures are a great opportunity for noncompliant taxpayers to safely get into offshore tax compliance with the Internal Revenue Service for either a much lower 5% title 26 penalty -- or complete penalty waiver, the depending on whether or not they qualify for the Streamlined Foreign Offshore Procedures or Streamlined Domestic Offshore Procedures. Let's go through the eligibility requirements for the streamlined filing compliance procedures:
Read ArticleIRS Non-Residency Requirement for Streamlined Foreign Offshore
When it comes to submitting to the different streamlined filing compliance procedure programs, the Streamlined Foreign Offshore Procedures is the preferred program -- since there is no penalty attached to the previous offshore noncompliance. The problem is that in order to qualify for the Streamlined Foreign Offshore Procedures (SFOP) a person has to qualify as either not residing within the United States for 330-days in one of the past tax years -- or not meeting this Substantial Presence Test (SPT). The difference depends on whether the person's status is that of a Lawful Permanent Resident (LPR)/U.S. Citizen or Non-U.S. Citizen Non-Permanent Resident. The IRS is very strict when it comes to the non-residency requirement --
Read ArticleU.S. & Canada Tax Treaty: IRS Overview
While the United States has entered into many different international income tax treaties with countries across the globe, the US and Canada tax treaty is one of the more complicated. That is because the US and Canadian Tax Treaty has gone through several versions/revisions since it's initial inception over 50-years ago. This tax treaty in particular, is very comprehensive on matters involving pension income, dividends, real estate income, etc. We have provided a brief introductory article for taxpayers to get a general understanding of how the US and Canadian Tax Treaty may impact them when it comes time to file tax returns. Let's go through some of the basics of the United States and Canadian Agreement
Read ArticleU.S. & Korea Tax Treaty: IRS Overview
The United States Government has entered into several international income tax treaties with over 50 different countries, including the Republic of Korea. While international tax treaties are oftentimes similar on how they treat certain types of income –- they are not identical. And, due to the number of US Persons and/or Korean Residents who have income generated through the United states and/or Korea -- it is important that Taxpayers who seek to use the tax treaty, have a basic understanding of some of the key points to the treaty. We have authored several detailed guides to assist taxpayers across the globe, but we wanted to provide a brief introductory article so that taxpayers can get a general idea of the basics:
Read ArticleForm 5471 Penalties for Late Filing 2022
When it comes to international information reporting penalties issued by the Internal Revenue Service for non-filing or late-filing of forms, the Form 5471 (in addition to Form 3520/3520-A) are some of the most common. Technically, the Form 5471 is referred to as an Information Return of U.S. Persons with Respect To Certain Foreign Corporations. What makes this form very complicated, is that there are various categories of filers who may be required to file the form -- and depending on which category of file the Taxpayer is -- they may have to file several schedules each year.
Read ArticleDo Expats File FBAR or FATCA Form 8938?
When an individual is categorized as a US person for tax purposes, there are certain tax implications -- even if the US Person resides overseas. For example, if the Expat has Foreign Bank or Financial Accounts, Assets or Investments located abroad -- they may be required to disclose their overseas financial information each year on an annual FBAR (FinCEN Form 114) and/or FATCA Form 8938 -- along with various other international information reporting forms, depending on the category of assets the Expat owns. Some expats are under the common misconception that simply by residing outside of the United States, they are not required to file tax or reporting forms with the US Government -- but that is unfortunately incorrect. Two of the most common international reporting forms are the FBAR and Form 8938.
Read ArticleWho Needs to Report Offshore Assets to the IRS
Each year, US Persons are required to report offshore assets to the Internal Revenue Service when the value of their overseas assets meets the reporting threshold. Depending on the type of asset, there may be one or several disclosure requirements each year on a variety of different international information reporting forms. Focusing specifically on individuals, there are three (3) main categories of individuals who need to report offshore assets to the IRS each year in order to remain in tax and reporting compliance.
Read ArticleIRS Form 3520 Penalties (How to Fight)
In recent years, the Internal Revenue Service has significantly increased enforcement of Form 3520 Penalties. The form is primarily used by US persons to report the receipt of a large gift from a foreign person -- or to report the recept of a trust distribution from a foreign trust to a US Person. Despite the fact that most Taxpayers who do not timely report this form have no unreported income -- and have essentially received the gift from a foreign relative (aka gift from nonresident alien mom) -- the US Person can (and oftentimes does) get hit with significant fines and penalties for late filing -- which typically clock-in at 25% value of the gift, when the gift is more than five months late (5% per month for a total of 25%). Let’s go through the basics:
Read ArticleFighting Late-Filed Form 3520 Penalties (New) 2022
As far as international information reporting goes, one of the most unfair penalty types that the Internal Revenue Service issues against unsuspecting Taxpayers is a Form 3520 penalty. The Form 3520 is an international reporting form used to report foreign gifts and foreign trust distributions from foreign persons to a US Person. It is important to note, that even gifts received from a foreign relative are reportable to the IRS on this form. The threshold for having to file the form varies depending on whether it is a gift from an individual, entity or foreign trust distribution. In recent years, there has been a surge of form 3520 penalty notices -- with the IRS taking a hardline on enforcement. Taxpayers are put on notice of a penalty by way of receiving a CP15 notice. Here are some important facts to know about the new Form 3520 Penalty enforcement tactics:
Read ArticleFBAR Automatic Extension Due Date
The FBAR refers to annual Foreign Bank and Financial Account Reporting on FinCEN Form 114. FinCEN refers to the Financial Crimes and Enforcement Network. And, while the FBAR is a FinCEN Form -- most of the time it has nothing to do with criminal enforcement. As far as FBAR foreign bank account reporting goes, the FBAR is not necessarily the most complicated of the internationals forms (as opposed to form 5471 for example), but making sure the form is filed timely and accurately is very important. That is because the Internal Revenue Service has been known to issue extensive fines and penalties against Taxpayers who are not in compliance. Thus, a very important issue is just knowing when the FBAR form is due -- so that you can be sure to file the form timely.
Read ArticleOffshore Asset Disclosure Tax & Reporting
When it comes to international tax compliance for US Persons, one of the more complicated aspects involves disclosing offshore assets to the IRS. It is important to note that when dealing with the Internal Revenue Service, the term offshore does not necessarily involve anything seedy or any specific tax haven in particular. Rather, the IRS uses terms like international, offshore, overseas and foreign interchangeably. When it comes to disclosing offshore assets on any one of the different IRS international information reporting forms -- there are two main aspects to consider. There is the tax filing requirement and the reporting disclosure requirements. Let’s take a look at offshore asset disclosure tax and reporting requirements:
Read ArticleTax Evasion, Fraud & Failure to File a Return Crimes
Just because a Taxpayer may have run afoul of the tax code does not mean they have committed a tax crime -- oftentimes, the violation is civil in nature. When it does come to tax crime violations, some are more common than others, and not all tax crimes are treated the same. For example, when a Taxpayer is prosecuted and convicted, some violations wills result in significantly more fines and penalties than other tax crime convictions. Three of the most common tax crimes, include: Tax Evasion (7201); False Returns and Statements (7206) and Failure to File a Return (7203). These are tax crimes -- although failure to file a return and tax fraud can also be a civil violation. Let’s review the basics of the statutes for tax crimes involving these three (3) common tax crimes:
Read ArticleStreamlined Procedure Filing Summary Tax Guide
In the realm of international tax law, the Streamlined Procedures (SFCP) refer to the IRS Streamlined Filing Compliance Procedures – which includes the Streamlined Domestic Offshore Procedures (SDOP) and Streamlined Foreign Offshore Procedures (SFOP). The streamlined procedures are used to report delinquent foreign accounts, assets, investments and/or income to the IRS. The Streamlined Procedures are much more complicated than first meets the eye -- and there are many twists and turns that Taxpayers must be aware of. Here are few key facts about the Streamlined Procedures:
Read ArticleStreamlined FBAR Offshore Reporting & Disclosure
When Taxpayers are out of compliance for not properly reporting their foreign bank and financial accounts to the Internal Revenue Service and FinCEN, they may qualify for the Streamlined Offshore Procedures (aka SDOP or SFOP) -- in order to safely get into offshoe tax and reporting compliance. While the FBAR is only one of the key components to the streamlined filing compliance procedures (Domestic or Offshore), it is not the only requirement. Still, since FBAR penalties are generally the worst of the bunch -- let’s take a look at some of the basics of Streamlined FBAR Filing.
Read ArticleCertification of Non-Willfulness for IRS Streamlined Filing Compliance Procedures
When it comes to submitting to the IRS Streamlined Filing Compliance Procedures (Domestic Offshore or Foreign Offshore) for unreported overseas accounts, assets, investements and/or income -- the most important part of the submission is the certification of non-willfulness. For the Streamlined Domestic Offshore Procedures (SDOP) -- the certification is submitted on Form 14654 and for the Foreign Offshore Procedures (SFOP) -- Taxpayers use Form 14653. While there is no exact way to prepare the form that works the same for everybody, our international tax lawyers wanted to provide a few tips to assist you on preparing the certification of non-willfulness.
Read ArticleHow to Challenge an IRS Audit or Examination
It is not uncommon for a US taxpayer who is subject to an Internal Revenue Service audit or examination to want to challenge the outcome of the audit. In some instances, the IRS agent or examiner may have made a mistake -- or exceeded their authority. Even if the agent did not make a mistake or exceed their authority, sometimes reasonable minds disagree on what penalties should be due -- and if the same set of facts are presented to an Appeals Officer or Settlement Officer -- the outcome may be different. Therefore, when a Taxpayer believes that the outcome of the audit for examination was improper (or just not fair) -- they may want to consider challenging the audit.
Read ArticleFBAR Quiet Disclosure Risk Factors (New 2023)
Over the past several years, the Internal Revenue Service has significantly increased enforcement of foreign accounts compliance and timely filing of international information reporting forms. Some of the common forms you may be familiar with include the FBAR, FATCA (Form 8938), and Form 3520 (Foreign Gifts and Trusts). When a person fails to file these forms timely, they may become subject to fines and penalties. And in general, the fines and penalties tend to severely outweigh the noncompliance. This, in turn, causes many rational people to sometimes consider questionable disclosure strategies to get into compliance and avoid the IRS penalty machine. One method that some Taxpayers may consider is a quiet disclosure.
Read ArticleSection 962 Election for GILTI (Global Intangible Low-Taxed Income)
The introduction of GILTI (Global Intangible Low-Taxed Income) under the TCJA brought with it significant tax implications for US shareholders of Controlled Foreign Corporations. For a domestic corporate shareholder, they are able to take a 50% deduction -- along with utilizing upwards of 80% of foreign tax credits paid by the foreign corporation. So, at the end of day -- the domestic corporate shareholder may not suffer any actual GILTI tax consequence. The tax implications for individuals is much worse, because individuals cannot take the 50% deduction or claim foreign tax credits paid by the foreign CFC -- unless they make a section 962 election. The finalized regulations do allow for this type of election for individuals, so it is important that individuals have a baseline understanding of what a Section 962 Election is.
Read ArticleHow to Calculate IRS Title 26 SDOP 5% Penalty
Calculating the Streamlined Domestic Offshore Procedures, Title 26 5% Penalty with our 6-Step Guide: SDOP refers to the Streamlined Domestic Offshore Procedures. As part of the submission requirements for US Taxpayers, they are required to submit a 5% penalty in lieu of all the other potential international information reporting penalties that may attach to the noncompliance -- such as FBAR, FATCA and more. Several years ago, our international tax lawyers developed a 6-step guide for Taxpayers to get a basic understanding on how to prepare the SDOP Penalty Computation. While the 5% computation can become much more complicated than meets the eye, we wanted to provide you a condensed version of our 6-step guide to assist you -- in case you are considering submitting the program on your own.
Read ArticleQuick Guide to Streamlined Domestic & Foreign Offshore 2021
Quick Guide to Streamlined Domestic & Foreign Offshore 2021: When it comes to non-willful offshore disclosures to the IRS (Internal Revenue Service) for unreported foreign accounts, assets, investments and income -- the two most common programs at the time of this article are the Streamlined Domestic Offshore Procedures (SDOP) and the Streamlined Foreign Offshore Procedures (SFOP). Both internationa/offshore tax programs refer to unreported foreign money -- the difference in the titles refers to the country of residence of the Taxpayers (SDOP is for non-foreign residents; SFOP for foreign residents). Our international tax lawyers specialize in the Streamlined Procedures; we have authored hundreds articles on streamlined and offshore disclosure issues -- but this will be a quick guide to the basics of the Streamlined Domestic and Foreign Offshore Procedures.
Read ArticleJune 15 Tax Deadline for Expats Passed You By?
Each year, Taxpayers who are considered U.S. Person taxpayers are required to file U.S. Tax Returns when they meet the threshold requirements for filing in that year. Typically, the tax filing due date for Taxpayers residing in the United States is April 15th. But, if the Taxpayer resides outside of the United States, then they generally get two (2) additional months to file their tax return -- which is then not due to be filed until June 15th.
Read ArticleHow to Avoid Late Filed FBAR Penalties
The Internal Revenue Service and FinCEN have significantly increased enforcement of FBAR Penalties (Foreign Bank and Financial Account aka FinCEN Form 114) against late filers of foreign account disclosures worldwide. While US Courts have made it more difficult for the IRS to issue multiple violations of non-willful penalties in the same year, they have also made it easier for the U.S. government to prove willfulness -- simply by showing the taxpayer may have acted with reckless disregard or willful blindness. Still, if the Taxpayer is non-willful, the taxpayer may be able to avoid (or minimize) FBAR Penalties. Here are three (3) common ways a taxpayer may be able to avoid penalties for late filing foreign account disclosures:
Read ArticleHow Long Does an IRS Audit Take to Complete?
When a Taxpayer is knee-deep in the middle of an IRS audit, it feels like it can take forever to complete. In reality, most examinations handled by the Internal Revenue Service resolve within three to nine months. Of course, there are many different factors to take into consideration -- which may impact the length of time for an IRS audit to complete. Let's review some of the key factors to consider involving Internal Revenue Service examinations.
Read ArticleLegal Resident for Tax Purposes
LEGAL RESIDENT FOR TAX PURPOSES: Oftentimes, non-U.S. citizens are surprised to learn that even though they are not considered a U.S. Citizen, they are still considered a Legal Resident for US Tax Purposes. The three (3) main categories for individuals who are considered US persons are: U.S. Citizens, Lawful Permanent Residents, (Green Card Holder) and Foreign Nationals who meet the Substantial Presence Test (SPT) -- but do not qualify for the closer connection exception or other exceptions/exclusions. Let's go through the basics of who is a legal resident for tax purposes.
Read ArticleIRS Criminal Investigation: How They Find You
ARE YOU AT RISK FOR AN IRS CRIMINAL INVESTIGATION: Oftentimes, when a Taxpayer has violated the Internal Revenue Code, they automatically assume they have committed a tax crime. In fact, most IRS violations are not criminal -- and do not result in an IRS criminal investigation. Still, each year the Internal Revenue Service investigates and refers for prosecution a few thousand taxpayers who they believe committed a tax crime. While most of the time, it is impossible to know if you are under investigation, there are some ways to tell whether or not you are at risk for an IRS crimina investigation and/or if you are already under investigation. Let’s review some of the common tactics the Internal Revenue Service will use when pursuing a criminal investigation.
Read ArticleIRS Audit Triggers 2021: 5 Important Tips
When it comes to the IRS and audits, one of the most common question Tax Attorneys receive -- is what a Taxpayer can do to avoid an audit. While most Tax Audits are not scary or nefarious -- they can be time-consuming. Generally, there are certain behaviors or mistakes that Taxpayers make that can trigger an IRS audit. Thus, for Taxpayers to know what they can do to avoid an IRS audit (at least minimize the chance), they need to be aware of what the IRS Audit Triggers are -- and try and steer clear of them. While sometimes, a Taxpayer is just unlucky and their Tax Return was in the wrong place at the wrong time -- here are five common IRS audit triggers:
Read ArticleSubstantial Presence Test Calculation (SPT)
The Substantial Presence Test is a sneaky way for the US government to require Foreign Nationals to pay U.S. tax on their worldwide income -- along with having to report their foreign assets and accounts to the IRS and FinCEN. While most people presume only U.S. citizens and possibly lawful permanent residents are subject to U.S. tax and reporting on their worldwide income and assets -- there is a third category of individual who may also be subject to these rules. The category is limited to Foreign Nationals who meet the Substantial Presence Test -- and do not qualify for one of the SPT exceptions or exclusions.
Read ArticleForeign Bank Account Reporting 101: An Introduction
In recent years, the Internal Revenue Service (IRS) has significantly increased enforcement of foreign account compliance. As you get further and further into the complexities of foreign bank account reporting -- it can get very complicated. But, not every US person who has to report their foreign bank accounts has a complex situation. Sometimes, the situation is relatively simple and straightforward. Let's go through the very basics of the who, what, when, why, and how to fix past noncompliance (for individuals):
Read ArticleThe Section 83(b) Election Rule Explained (with Example)
SECTION 83(b) Election 2021: An IRC Section 83(b) election is used to help taxpayers minimize taxes on certain transfers which may be restricted at the time of transfer -- and therefore have not yet vested. The idea behind the Internal Revenue Code (IRC) Section 83(b) election is that a person pays tax on the Fair Market Value (FMV) of the Restricted Units at the time of transfer -- instead of at the time of vesting.
Read ArticleTax Crime Statute of Limitations: What are They?
Oftentimes, when a person runs afoul of tax law, they immediately become concerned that they committed a tax crime – but this is usually not the case. Most violations in tax law are considered civil in nature, which means there is no potential loss of freedom. But, the US Government does pursue some Taxpayers for tax crimes. Even then, the amount of time the Government has to go after the Taxpayers is limited by the Tax Crime Statute of Limitations. Let’s review the basics of how the Criminal Tax Statutes of Limitations work.
Read ArticleForm 8865 (2023): Foreign Partnerships with US Persons
While there are many different types of international information reporting forms that a US Taxpayer with foreign assets may be required to file, one of the most common is Form 8865. Technically, the Form 8865 is a Return of U.S. Persons With Respect to Certain Foreign Partnerships. The failure to timely file a Form 8865 may result in significant fines and penalties – but these penalties can oftentimes be avoided or abated with offshore disclosure (International Tax Amnesty) and/or reasonable cause. Let's review the basis of IRS Form 8865:
Read ArticleDelinquent Form 5471 Penalty Abatement
In recent years, the Internal Revenue Service has significantly increased the enforcement of international information reporting matters. One common form of noncompliance involves Taxpayers who did not timely file form 5471. IRS Form 5471 is used to report an interest or ownership in a foreign corporation. What makes the reporting so difficult, is that there are five categories of filers (and subcategories of filers) and just determining if a Taxpayer falls into one of the five categories can be very complicated.
Read ArticleFlora Rule & FBAR: Is Full Payment Required?
When it comes to FBAR enforcement, Taxpayers get the raw-end of the stick. On the one hand, the FBAR it Is not actually a tax, so the Taxpayer does not get the opportunity to dispute the penalty in Tax Court. In addition, the IRS takes the position that in order to challenge the US Government in Federal Court, the Taxpayer must first fully pay the FBAR penalty deficiency before being able to file a lawsuit. Recently, a Taxpayer challenged the IRS’ position in the Court of Federal claims -- and was victorious. Let’s review the basics of what the Court said with respect to Flora and FBAR penalty disputes in Federal Court.
Read ArticleStatute of Limitations for Federal Tax Matters
The Statute of Limitations for Federal Tax Matters may vary depending on the violation. When it comes to violating a tax statute of the Internal Revenue Code, the Internal Revenue Service is (usually) limited in the amount of time they have to enforce the violation. Generally, the IRS has three years to pursue a Taxpayer by way of an audit or examination -- but the amount of time may be extended depending on the specific facts and circumstances of noncompliance -- along with the type of violation. Let’s go through the basics of the statute of limitations for federal tax cases.
Read ArticleIs Singapore CPF Taxed in U.S. : FBAR & FATCA
The Singapore CPF is one of the more complicated international Pension/Social Security schemes that US persons with CPF have to deal with from a US tax and reporting standpoint. That is because there is no tax treaty between the United States and Singapore, and the IRS has already issued memoranda in previous years explaining their position (which is in direct contrast to how the CPF would work in Singapore). Let's review the basics of the Singapore CPF, US Tax and Reporting.
Read ArticleFBAR Requirements: (New) 2021
There are many FBAR requirements to consider when filing. The FBAR is used to report Foreign Bank and Financial Accounts to FinCEN -- although penalties are enforced by the IRS. The requirements will vary depending on when the form is being filed, the number of accounts -- and even the type of accounts. It is important to note that the FBAR requirements include more than just bank accounts; items such as Foreign Life Insurance, Overseas Pension and Offshore Investment Accounts may also be required.
Read ArticleU.S. Taxation of Citizens Living Abroad: IRS Reporting
One of the most complicated aspects of being a U.S. Citizen is sometimes just trying to figure out how the United states taxes U.S. citizens on their income. The US follows a Citizen-Based Taxation (CBT) matrix for individuals. This means that U.S. citizens are taxed on all of the income they earn worldwide. In addition, U.S. citizens are required to report their offshore accounts, assets and investments to the US government on a myriad of different international information reporting forms. Let's go through the basics of how the tax rules work for U.S. citizens:
Read ArticleFBAR Penalties (New): International Reporting 2021 Update
In recent years, the Internal Revenue Service has significantly increased the assessment and enforcement of FBAR Penalties. FBAR refers to Foreign Bank and Financial Accounts (aka FinCEN Form 114). In 2021 alone, there have already been several different court rulings on FBAR penalties -- although they disagree on how offshore fines should be issued and applied in both the non-willful and willful arenas. Let’s take a look at FBAR Penalties in general:
Read ArticleWhat Is an Expatriate, Expatriation & Exit Tax
When U.S. citizens and certain Lawful Permanent Residents who are considered Long-Term Lawful Permanent Residents want to relinquish their permanent resident status (Green Card) or renounce their US citizenship, there are various requirements they have to fulfill with immigration (USCIS) and the IRS. Some of the more common terms a person will come across when they are conducting their research on leaving the US for good, is expatriate, expatriation and exit tax. Let's take a brief look at the differences between these three important terms
Read ArticleFBAR Audit: IRS Noncompliance Process & Triggers
In recent years, the IRS has significantly increased the enforcement the FBAR related matters, including the initiation of FBAR audits and examinations. There are many different ways in which a person may become subject to an FBAR Audit.
Read ArticleFBAR Penalty Per Form or Per Violation?
When it comes to determining whether Courts will enforce non-willful FBAR penalties on a per violation basis or whether they will reduce the penalties to a per form FBAR Penalty -- the Courts are all over the board. In other words, while some Courts will uphold the IRS' finding that the FBAR penalties should be issued per violation (so if a person did not report 5 accounts in a single year -- the IRS can issue a penalty for each violation), other courts have determined that a per violation non-willful FBAR penalty is overkill. Let's take a look at the difference between FBAR Penalty Per Form or Per Violation.
Read ArticleIRS Discretion to Mitigate FBAR Penalties
When it comes to international information reporting, one of the most common forms is the FBAR. The FBAR refers to foreign bank and financial account reporting. when a US person with foreign accounts fails to report the FBAR -- or reports it incomplete -- it may result in significant fines and penalties. even though the penalties can be harsh, it is important to note that IRS personnel (typically agents and examiners) have discretion to reduce or eliminate the penalty. Let's review the basics of FBAR Penalty Mitigation.
Read ArticleDefense of FBAR Penalties: How to Defend Against Them
When it comes to the FBAR Filing (Foreign Bank and Financial Account Reporting) aka FinCEN Form 114, the IRS has significantly increased the enforcement of fines and penalties for noncompliance. And, while oftentimes the Internal Revenue Service will issue the maximum FBAR Penalty allowable under Law (based on the different categories of willful vs non-willful), Taxpayers worldwide can still find success in defending against FBAR Penalties. Let's look at a few common considerations when it involves defending against FBAR penalties:
Read ArticleDelinquency vs Streamlined vs Voluntary Disclosure (VDP)
With the Internal Revenue Service (IRS) taking a heavy hand on matters involving taxpayer noncompliance of international tax and offshore reporting -- it is important to stay in compliance with the IRS filing and reporting rules. If you are not already in offshore compliance, you may consider entering into one of the available offshore amnesty programs. The three main offshore programs include the Streamline Procedures, Delinquent Return Submission Procedures, and VDP (voluntary disclosure program). Let's take a brief look at the different programs:
Read ArticleForm 3520 Exemption & Foreign Trust Penalty Relief
Form 3520 Exemption & Penalty Relief: The IRS forms 3520 and 3520-A are used to report certain transactions with foreign trusts, as well as to report the receipt of large gifts from a foreign individual or foreign entity. in 2020, The IRS released a Revenue Procedure 2020-17 that is designed to provide certain exemptions and relief for reporting form 3520/3520-A in certain situations involving foreign trusts. Let's take a look at Form 3520 Exemption & Penalty Relief
Read ArticleDelinquent FBAR, 3520, 8938, 5471 & 8865 Offshore Filing
In recent years, the IRS has significantly increased enforcement of foreign accounts compliance and asset disclosure. The main forms the IRS seeks to enforce compliance include the FBAR (FinCEN Form 114), Form 3520 (Foreign Gifts & Trusts), Form 3520-A (Foreign Trusts), Form 5471 (Foreign Corporations) and Form 8865 (Foreign Partnerships). The failure to file the forms timely may result in fines and penalties. These penalties may be avoided or abated with voluntary disclosure/offshore tax amnesty.
Read ArticleForm 5471 (2021): Important IRS Reporting Tips
IRS Form 5471 refers to the reporting of foreign corporations to the U.S. government. Recently, the IRS expanded the reporting requirements, and introduced a new Category 1-filer. The Internal Revenue Service strictly enforces compliance with Form 5471 -- which may also include GILTI (Global Intangible Low-Taxed Income), Controlled Foreign Corporations (CFCs), Subpart F and other complicated tax filings. If you missed the filing of Form 5471, the IRS has developed various tax amnesty programs to help you safely get into compliance for prior years. Let's review the basics of Form 5471:
Read ArticleForm 8938 (2021): Important IRS Reporting Tips
Form 8938 is required by US taxpayers who meet the threshold filing requirements for reporting certain specified foreign financial assets. The form is very similar to the FBAR, but these two forms are not mutually exclusive from one another -- a taxpayer may be required to file either form, or both forms in the same tax year. The failure to timely file form 8938 may lead to fines and penalties, but these penalties may be avoided or abated with offshore tax amnesty. Let's review some of the basics of form 8938:
Read ArticleForm 3520 (2021): Important IRS Reporting Tips
The form 3520 is filed each year by certain individuals who have a relationship to a foreign trust and/or otherwise receive a large gift from a foreign person -- individual or entity -- that exceeds the threshold amount for reporting. The reason why it is so important to file this form timely -- or to submit it late with a reasonable cause statement detailing the noncompliance -- is because the penalties for non-filing can be excessively high. The IRS has begun issuing 'automatic assessed' penalties for non compliance with form 3520. With large foreign gifts, the penalty typically comes out to 25% value of the foreign gift. Let's review some of the basics of form 3520:
Read Article2021 Foreign Bank Account Reporting (FBAR) to IRS
In 2021, the IRS will continue to increase enforcement of foreign account reporting. Therefore, it is important to stay in compliance -- or get into offshore tax compliance if you are not in compliance already. When it comes to foreign bank account reporting and the IRS, one of the most important forms for reporting is called the FBAR (FinCEN Form 114). The FBAR refers to foreign bank and financial account reporting. Let's review some of the important basics about the FBAR for the year ahead.
Read Article1040NR vs 1040 Tax Return: Resident & Non-Resident
1040NR vs 1040 Tax Return: The two primary types of tax returns that an individual person has to file in the United States is the IRS Form 1040 and the 1040NR. The Form 1040 is filed by US persons, which includes: US citizens, Legal Permanent Residents, and Foreign Nationals who meet the substantial presence test. The form 1040 NR is for non-US persons, or US persons who qualify for either the closer connection exception to substantial presence or the tie breaker treaty position rule.
Read ArticleIRS Silent Disclosures Unsafe: 5 Reasons Why
Over the past several years, the Internal Revenue Service has significantly increased enforcement of foreign accounts compliance and timely filing of international information reporting forms. Some of the common forms you may be familiar with include the FBAR, FATCA (Form 8938), and Form 3520 (Foreign Gifts and Trusts). When a person fails to file these forms timely, they may become subject to fines and penalties. And in general, the fines and penalties tend to severely outweigh the noncompliance. This, in turn, causes many rational people to sometimes consider questionable disclosure strategies to get into compliance and avoid the IRS penalty machine. One method that some Taxpayers may consider is a quiet disclosure.
Read ArticleFDAP Income vs ECI: What’s the Difference?
FDAP Income vs ECI: When a nonresident alien earns U.S. sourced income, there are generally two types of income – FDAP or ECI. FDAP refers to Fixed, Determinable, Annual and Periodic, while ECI refers to Effectively Connected Income. The tax ramifications for these two types of income differ extensively.
Read ArticleTax Planning for Foreigners Investing in U.S. Real Estate
When a foreign person (nonresident) wants to invest in U.S. Real Estate, they should be aware of a few common unforeseen tax consequences. Even though the foreign person is not a US resident and not subject to tax on their worldwide income, US real estate earnings is an exception to the general tax and sourcing rule. Let’s review the basics of Tax planning for Foreigners Investing in US Real Estate.
Read ArticleIRM (Internal Revenue Manual): What Is It?
The IRM is the Internal Revenue Manual. The main purpose of the IRM is to assist IRS employees such as examiners and agents with understanding the procedures for various tax related matters. It can also assist taxpayers and tax professionals in getting a general idea of how the IRS procedures may work in a particular situation -- but it is important to remember that it is not law, and not all agents and examiners follow the guidelines as strictly as other IRS agent and examiners do.
Read ArticleThe Offshore Tax Haven Rules Explained
Oftentimes, when a person wants to relocate away from the United States for a new place to reside, one of the key motivating factors is for tax benefits. Generally, low tax jurisdictions are considered offshore tax havens -- but that does not mean they are illegal. If it is an individual relocation abroad, then depending on whether the person will also be expatriating or otherwise relinquishing their US person status will impact any benefit they may receive by relocating to one of the offshore tax havens. Otherwise, if it is a business that is moving overseas, then the company should consider available tax strategies, including a corporate inversion.
Read ArticleIRS Exchange Rates: Foreign Income, FBAR & 8938
IRS Exchange Rates: Foreign Income & FBAR: When it comes to foreign income and US tax returns, it can get pretty complicated. Taxpayers must include foreign income on their US tax return. But first, the taxpayer must translate the foreign income into US dollars – and there are multiple exchange rates to select from. Each year, the IRS publishes an average exchange rate. Taxpayers do not have to use that specific exchange rate if they do not want to, and instead may use the Treasury Department exchange rate (published quarterly) or any other acceptable exchange rate.
Read ArticleFBAR Voluntary Disclosure 2021
FBAR Voluntary Disclosure: When a US person has unreported foreign bank and financial accounts that should have been disclosed on the annual FBAR statement they may consider various offshore tax amnesty programs to get into IRS compliance. Generally, the term FBAR voluntary disclosure refers to the different offshore programs available to Taxpayers to get into FBAR compliance for prior years. More specifically, the term may refer to the actual voluntary disclosure program (VDP) which was expanded in 2018 at the close of OVDP (Offshore Voluntary Disclosure Program).
Read ArticleWhat's Happens When an IRS Audit Ends?
While it can be a relief for a taxpayer to know that their audit or examination has ended, sometimes this is just the beginning. A taxpayer has several options available to them when the IRS audit ends and they receive a form 4549. Some of the options are very time-sensitive, so it is important that the taxpayer responds to the IRS in a timely matter.
Read ArticleForeign-Owned Sale of U.S. Real Property Sale (FIRPTA)
Foreign-Owned of US Property Sale & FIRPTA: When a person is in nonresident alien, the US tax rules are applied differently. A nonresident alien is considered someone who is neither a legal permanent resident nor foreign national who meets the substantial presence test. One key tax component of being an NRA is that the nonresident alien is generally not subject to US tax on domestic capital gains. There is one key exception to this rule, being that the sale of certain US property interests is taxable. FIRPTA was created to help enforce this rule.
Read ArticleNon-Resident Alien U.S. Rental Income: IRS Compliance
Recently, in 2020 the IRS launched a new tax enforcement campaign directed at compliance for nonresident aliens who own U.S. property and collect rental income from that property. In a common scenario, a foreign national nonresident alien (NRA) may own one or several properties with no mortgage in the United States. They are collecting a significant amount of rent, but not paying any tax. Oftentimes, it is because the foreign seller believes that since they reside outside of the United States the income is considered foreign sourced income and not taxable in the US to a non-resident -- or they are simply are unaware of the rule (or believe they won't get caught).
Read ArticlePer Se Corporation List: Entity Classification & 301.7701
Entity Classification & 301.7701-2(b)(8): The Per Se Corporation List refers to certain corporations that are classified as "Per Se" corporations under US Tax law. The Internal Revenue Service has developed various international information reporting forms that require US persons with an interest in, or ownership over a foreign Corporation to report the corporation to the US government. When a foreign corporation is considered a Per Se Corporation, the rules are much more complicated and the taxpayer options are more limited.
Read ArticleCovered vs Non-Covered Expatriate: What’s the Difference for Tax Liability?
When a person expatriates from the United States, one of the quintessential issues that affects tax liability is whether or not that person is considered a covered expatriate or a non-covered expatriate. If a person is considered a covered expatriate, they may be required to pay exit tax on certain unrealized gains, along with tax on deemed distributions.
Read ArticleForm 5472 (2021): Foreign-Owned U.S. Business
Form 5472 is an IRS International Information Reporting Form. It is required to be filed by certain foreign-owners of U.S. businesses, including U.S. disregarded entities -- when certain reportable transactions occur. The failure to file the form timely may result in offshore fines and penalties. Form 5472 Penalties may be reduced, minimized, or abated with reasonable cause.
Read ArticleCovered Expatriate: What Is It?
When certain Legal Permanent Residents (Long-Term Residents) and U.S. Citizens may be subject to an exit tax at the time of expatriation. Not all expatriates are "covered expatriates," and not all covered expatriates will owe the U.S. Government "Exit Tax." The IRS has various exception, exclusions, and limitations that can help limit (or even eliminate) exit tax.
Read ArticleExpatriation and Exit Tax: How to Expatriate in 2021
When U.S. Citizens (Birth or Naturalization) and Long-Term Lawful Residents (Legal Permanent Resident for 8 of the last 15 years) want to leave the U.S., they will expatriate. If the expatriate is considered a covered expatriate, they must perform a mark-to-market computation on unrealized capital gain, along with the a deemed distribution to determine if they may be subject to U.S. exit tax.
Read ArticleUndisclosed Foreign Bank Accounts & IRS Reporting
The IRS (Internal Revenue Service) and FinCEN (Financial Crimes Enforcement Network) have been actively enforcing offshore reporting and foreign accounts compliance. Courts have enforced both non-willful and willful penalties, and the DOJ has recently pursued criminal FBAR & FATCA investigation more than in prior years. If you have Undisclosed Foreign Bank Accounts, it is important to get compliant.
Read ArticleForeign Inheritance Taxes Explained
There are very complex U.S. Tax and Reporting rules for U.S. Persons who receive gifts from a Foreign Person or Person. The threshold requirements will vary based on whether the foreign person giving the gift is an individual or entity. IRS Form 3520 is main form used to report foreign gifts and/or inheritance.
Read ArticleFBAR Amnesty 2021: Which Program Is Right for Me?
Over the past 5-10 years, the IRS has greatly increased the enforcement of foreign bank and financial account reporting. Non-compliance with FBAR & FATCA may result in significant offshore fines and penalties. Even if a Taxpayer is non-compliant in prior or current years, the IRS has developed various FBAR Amnesty Programs to assist filers worldwide.
Read ArticleForm 3520 Foreign Pension: RRSP, RRIF & More
When a U.S. Person Taxpayer has a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF), they will have an IRS International Reporting Requirement in the U.S. This will generally include FBAR (Foreign Bank and Financial Account Reporting) aka FinCEN Form 114, and FATCA Form 8938 (Foreign Account Tax Compliance Act). While the IRS exempts the RRSP and RRIF from Form 3520 reporting, not all foreign pensions are excluded.
Read ArticleExpatriation: Step-Up Basis at Exit Tax
At the time of Expatriation, a U.S. person Citizen or Long-Term Resident may be considered a covered expatriate and therefore subject to the exit tax calculation. If the person has certain property that they acquired prior to becoming a U.S. person, they may qualify for a step-up basis of the property at the time of expatriation -- which serves to limit the gain.
Read ArticleInternational IRS Tax Investigations: Civil & Criminal
In recent years, the Internal Revenue Service has vigorously pursued taxpayers with foreign compliance issues. This will typically include unreported offshore income, assets, investments and accounts. Just because a person has unreported foreign money does not mean they will be audited or investigated, but since the penalties for non-compliance can be severe -- it is important to be compliant with all IRS International Information Reporting requirements.
Read ArticleIRS Audits: Foreign Account or Asset Disclosure
When a person is under IRS Audit or Examination and they have undisclosed Foreign Accounts, Assets, Investments, and/or income they are put into a tough situation. The IRS has significantly increased offshore and foreign money disclosure enforcement -- and the penalties can be bad. It is important to not make any intentional misrepresentations or omissions to the IRS.
Read ArticleEstate FBAR & Inheriting Foreign Accounts & Assets
The United States Government requires all U.S. Persons with foreign accounts, assets, income and investments to report timely. When a person passes away, the reporting can be complex due to inheritance and estate related issues. The failure to comply with FBAR, FATCA and other reporting may result in offshore fines and penalties.
Read ArticleUnreported Foreign Accounts (What You Should Know)
Unreported Foreign Accounts: U.S. persons with unreported foreign accounts have several IRS offshore international reporting requirements. The IRS requires certain U.S. bank account holders to comply with annual offshore reporting requirements for foreign bank accounts, assets & investments. The overseas account information is reported annually on various international reporting forms, such as FBAR (FinCEN Form 114) and FATCA (Foreign Account Tax Compliance Act). The Internal Revenue Service has significantly increased the enforcement of offshore reporting. The failure to timely and accurately report foreign bank accounts may result in fines and penalties, but the IRS has developed various offshore voluntary disclosure (amnesty) Programs. Let's look at a few common examples of unreported foreign accounts:
Read ArticleForeign Rental Property Depreciation & IRS Income
When a U.S. person taxpayer has foreign rental property income, they must report the income similar to how U.S. property rental income is reported on Schedule E. But, Taxpayer can also take the same types of deductions and expenses that are available to a U.S. property. In addition, Taxpayer can depreciate the foreign rental property as well.
Read ArticleUnreported Foreign Income (New 2023)
The United States has one of the most complicated tax systems in the world. Unlike almost every other country across the globe, the United States follows a worldwide tax model. Therefore, if you are considered a US person for income tax purposes then you are required to report your worldwide income to the IRS. Even if you are a US person who resides overseas and earned all their money from foreign sources outside of the United States, you still have to report all the income on your US tax return. Making matters more confusing, is that although worldwide income is founded in Citizenship-Based Taxation, the term Citizenship-Based Taxation is a misnomer because it is not limited to just U.S. citizens. Rather it includes US Citizens, Lawful Permanent Residents, and Foreign Nationals who meet the Substantial Presence Test.
Read ArticleWhat Is Expatriation for Citizens & Long-Term Residents
When a person expatriates, they relinquish their U.S. status. This includes U.S. Citizens and Legal Permanent Residents. Certain Citizens and Long-Term Legal Permanent Residents may become deemed covered expatriates and subject to an exit tax at expatriation. Proper exit tax planning may minimize or eliminate exit tax.
Read ArticleWhich Foreign Accounts are Reported to IRS
Which Foreign Accounts are Reported to IRS: International and offshore account reporting includes more than bank accounts. All different types of investment accounts, mutual funds, stocks and securities and certain life insurance policies are also reportable. There are many different international information reporting forms that may be required, and the failure to file the forms may result in penalties/
Read ArticleForeign Investment Accounts U.S. Tax & Reporting
Foreign Investment Accounts U.S. Tax & Reporting: International and offshore account reporting includes more than bank accounts. All different types of investment accounts, mutual funds, stocks, securities and certain life insurance policies are also reportable. There are many different international information reporting forms that may be required, and the failure to file the forms may result in offshore penalties.
Read Article(New) Foreign Trust Exemptions & Penalty Relief: 3520 and 3520-A
(New) Foreign Trust Exemptions & Penalty Relief: 3520 and 3520-A (Rev. Proc. 2020-17): The Internal Revenue Service has exempted the reporting of certain foreign trusts on Form 3520/3520-A. The Trust may still be reportable (if applicable) on FBAR and Form 8938 (FATCA). In addition, the IRS included Penalty Relief procedure provisions for persons who have already been penalized for incomplete or un-filed foreign trust reporting.
Read ArticleIs It Tax Evasion or Tax Avoidance?
While Tax Avoidance is the legal minimizing or "avoidance" of tax liability, tax evasion is criminal. If the IRS or other U.S. Government agency can prove tax evasion, it may result in significant fines and penalties, include imprisonment. The stakes are even higher when offshore and international money, FBAR & FATCA is involved.
Read ArticleTax Evasion: Is It Always a Felony Criminal Offense?
Is Tax Evasion Always a Felony Criminal Offense? Tax Evasion is a serious violation. When a Taxpayer commits Tax Evasion, they have violated a criminal statute and may be found guilty of a crime. In accordance with 26 USC 7201, it may result in being "fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.”
Read ArticleU.S. Taxation of UK Pension Plans: FBAR & FATCA
US Taxation of UK Pension Plans: FBAR & FATCA. The United States has very complex taxation rules regarding the tax treatment of UK pension plans under US Tax Law. The treaty laws impact the taxation of UK pension plan contributions, growth and distributions. In addition, the UK Pension Plan is reportable on the FBAR & FATCA Form 8938. It may also be reportable on Form 3520 and Form 8621.
Read ArticleGreen Card Abandonment & U.S. Tax Traps: How to Prepare
Green Card Abandonment & U.S. Tax Traps: How to Prepare - When a Legal Permanent Resident (Green Card Holder) is ready to abandon their Permanent Resident Status, there are various Tax Traps to be aware of. A person may abandon their Green Card and inadvertently become a covered expatriate subject to Exit Tax. This may be avoided with proper tax planning.
Read ArticleForeign Pension 402 (b) Employment Trust
Foreign Pension 402 (B) Employment Trust: Foreign Pension reporting and IRC 402 are interrelated. Foreign pension plans would not qualify as social security, and therefore fall under the employment trust rules of 401, 402, and 501. Most foreign pensions plans would not meet the 401 requirements to be qualified. Therefore, they fall under IRC 402(b) as non-exempt, which make them subject to tax, without the benefit of tax-deferral treatment for similarly situated U.S. pensions, such as the 401(k) -- although a tax treaty may modify the outcome
Read ArticlePre-Immigration Tax Planning (2020)
Pre-Immigration Tax Planning: When a foreign person decides they want to become a U.S. person, their tax situation will change greatly. The U.S. utilizes a Worldwide Income tax model. This means the IRS will require the Taxpayer to include U.S and Foreign Income on the tax returns. In addition, worldwide reporting will be required for foreign accounts, assets, and investments.
Read ArticleExit Tax Planning 2020: Implications of Expatriation
Exit tax planning is necessary for U.S. citizens and certain legal permanent residents who are considered Long term residents (LTR) because they have been legal permanent residents for 8 of the last 15 years. When these two categories of individuals exit the United States tax system, they may be subject to exit tax if they are considered covered expatriates. With exit tax planning, a person may be able to minimize or eliminate their exit tax.
Read ArticleIRS CP15 Notice of Penalty
When it comes to IRS penalty notices, one of the worst penalty notices a taxpayer can receive is a Form CP15 notice. Oftentimes, these penalties will involve international gifts, trusts, and entities abroad. There’s only a limited time to respond to the notice, so it is important to speak and experienced tax professional if you receive one of these notices.
Read ArticleVoluntary Disclosure Tax Amnesty - Taxpayer Programs
Voluntary Disclosure Tax Amnesty is used when a person is out of compliance for tax-related matters with a government organization. Oftentimes, it will involve the Internal Revenue Service and issues involving domestic or offshore income, account, assets, and investments. Since the IRS can terminate the programs at anytime, and the penalties continue to increase – these are important considerations for people considering voluntary disclosure tax amnesty.
Read Article2021 Reasonable Cause vs Streamlined
Reasonable Cause vs Streamlined: When a person has unreported offshore accounts, assets, investments, and/or income -- and is non-willful -- they have two main options for offshore compliance: a) Reasonable Cause and b) Streamlined Procedures. Reasonable Cause is not limited to offshore accounts, while the streamlined procedures is requires offshore non-compliance.
Read ArticleResponding to an IRS Notice for Foreign Account, Asset & Trust Penalties
When Responding to an IRS Notice for foreign Account, Asset & Trust Penalties, timeliness is crucial. If the Taxpayer does not respond timely to the IRS penalty notice, it may result in fines and penalties. And, once the penalties are issued, it is a complex process to try to abate an already issued offshore penalty, than it is to try and dispute the penalty before it is assessed and enforced.
Read ArticleU.S. Citizen Abroad and Never Filed a Tax Return
U.S. Citizen Abroad and Never Filed a Tax Return: When a person is a U.S. Citizen who resides abroad and never filed a tax return, they may be subject to U.S. Tax, Interest, Fines, and Penalties. The reason is because even if a U.S. citizen resides overseas, they are still subject to U.S. tax rules under CBT (Citizen-Based Taxation). But the IRS has developed various amnesty programs to assist citizens abroad get safely into compliance.
Read ArticleAccidental Americans U.S. Tax, FBAR & FATCA
Accidental Americans U.S. Tax, FBAR & FATCA: An Accidental American is a person who discovers that they are a U.S. person, and now subject to U.S. Tax, FBAR and FATCA requirements. Commonly, a person will reside overseas, and either be applying for a passport, or receive a FATCA Letter from the Bank. Since the Accidental American’s mom was a U.S. citizen, they are now deemed an “Accidental American.”
Read ArticleIRS Form 8840 (2022)
Form 8840 (Closer Connection Exception to SPT): Form 8840 is an exception to an exception. Generally, a non-U.S. Citizen and non-Legal Permanent Resident is not subject to tax on their worldwide income. If the foreign national meets the substantial presence test, they can still be taxes as a U.S. Citizen or Legal Permanent Resident – unless they meet the closer connection exception.
Read ArticleForm 14653 Certification: (New) 2021
The form 14653 is an IRS form filed in support of a streamlined application to SFOP, which is for non-US residents. Technically, it is referred to as:Certification by US Person Residing Outside of the United States for Streamlined Foreign Offshore Procedures. The IRS Form 14653 is filed under penalty of perjury -- and is the key component to submitting a non-willful application for the disclosure of previously unreported foreign and offshore accounts, assets, income and investments for foreign residents.
Read ArticleReporting Foreign Trusts (3520-A): IRS Requirements
Reporting Foreign Trusts (3520-A): IRS Requirements for reporting foreign trusts can be very complicated. That is because the IRS has significant reporting responsibilities for the trustee, grantor and/or beneficiary on forms 3520-A and 3520. As with several other international reporting forms, the failure to timely report these IRS forms may result in significant fines and penalties.
Read ArticleThe New IRS VDP Preclearance Letter Explained
The Voluntary Disclosure Preclearance Letter is now a requirement under the new updated voluntary disclosure program. The form is not very detailed. But, the IRS Form 14457 does require the taxpayer to submit personal information to the Internal Revenue Service, along with introductory information about the offshore accounts, assets and/or income.
Read ArticleForm 3520 Instructions (How to Report Gifts)
Form 3520 Instructions (How to Report Gifts): The IRS Tax Form 3520 Instructions are very dense and complicated. This is primarily due to the fact that the Form 3520 instructions have to account for reporting of foreign gifts and inheritances (relatively straight-forward) as well as trust reporting (more complex). And, when it comes to foreign gifts, for many filers it is just a "one-off" vs. annual filing
Read ArticleForeign Asset Reporting 2020 (How to Report to IRS)
Foreign Asset Reporting 2020 (How to Report Foreign Assets): A common question we receive, is how to report foreign assets. The IRS has increased enforcement of offshore assets, accounts and investments. Depending on the type of foreign assets at issue, the filer may have significant (and multiple) offshore reporting requirements.
Read ArticleIRS Form 8938 Instructions (How to Report)
Form 8938 Instructions (How to Report): IRS Tax Form 8938 Instructions involve the reporting of Specified Foreign Financial Assets to the IRS in accordance with FATCA (Foreign Account Tax Compliance Act). The instructions cover important aspects of Form 8938 filing, including the Form 8938 threshold, Filing Requirements, and Penalty (Reasonable Cause and Abatement).
Read ArticleFBAR Bitcoin Reporting (FinCEN 114 Cryptocurrency)
FBAR Bitcoin Reporting (FinCEN 114 Cryptocurrency): There is much confusion surrounding FBAR Bitcoin & Cryptocurrency Reporting. The reason why it gets so confusing, is because there are just too many chefs in the kitchen. On the one hand, you have FinCEN – the organization responsible for creating the FBAR. On the other hand, you have the IRS – the organization responsible for enforcing the FBAR. In addition, it is unclear how these organizations specifically treat Bitcoin/Cryptocurrency for offshore reporting purposes at the current time.
Read ArticleFATCA Bitcoin Reporting
FATCA Bitcoin (Form 8938 & Cryptocurrency): In recent years, the IRS and U.S. government have taken an aggressive position when it comes to offshore reporting of foreign accounts, assets, investments, and income.
Read ArticleIRS Streamlined Offshore Program Closing in 2020?
IRS Streamlined Offshore Program Closing in 2020? The IRS Streamlined Filing Compliance Procedures, aka “Streamlined Offshore Program” was launched in 2014 as an alternative to OVDP. In 2018, OVDP ended, and there are rumblings (from the IRS themselves) that the Streamlined Offshore Program will be closing soon as well.
Read ArticleForm 5471 Instructions
The IRS Form 5471 Instructions are published by the Internal Revenue Service each year, with annual revisions & updates to reflect changes to IRS Form 5471. The Instructions to Form 5471 can be complicated, so we will summarize the basics.
Read ArticleProvident Funds (U.S. Tax & Reporting Rules)
Provident Funds (employment-based) are foreign retirement funds (also referred to as a Pension Funds), similar to retirement plans in the U.S. Unless there is a tax treaty with a particular country, or ruling excluding the accrued income as taxable, the general rule is the that a provident fund does not receive tax deferred treatment.
Read ArticleNon-Willfulness & FBAR Per Occurrence Penalty
Non-Willfulness & FBAR Per Occurrence Penalty: FBAR Non-Willful Penalty Per Occurrence: It is important to note that even though non-willful penalties for FBAR violations tend to be less harsh than their willful counterpart, the IRS has authority to issue a per occurrence, per account penalty.
Read ArticleHow to Verify that My FBAR Filing Was Processed?
How to Verify that my FBAR Filing was Processed? With FBAR penalty enforcement add an all-time high, it is important the US persons with foreign accounts and assets properly and timely file an FBAR. One common question receive is how just someone verify that the FBAR filing was processed.
Read ArticleFBAR Statute of Limitations (How Far Back)
FBAR Statute of Limitations (How Far Back): The FBAR (FinCEN Form 114) statute of limitations operates differently than other statutes. That is because even though the FBAR is enforced through the IRS, it is not a tax, and it is handled under Title 31 of the U.S.C, not title 26.
Read ArticleWhat is FIRPTA (and When is it Required)
FIRPTA Certificate: Certification of Non-Foreign Status - FIRPTA is the Foreign Investment in Real Property Act and Form 8288. It was developed to ensure that foreign sellers of U.S. property be subject to U.S. tax on the sale. Key components including: Certification of Non-Foreign Status (Certificate), Affidavit and Withholding.
Read ArticleFBAR Instructions: How to Report Foreign Bank Accounts
FBAR Instructions: The IRS and FinCEN FBAR Instructions tend to be dense and ambiguous. The FBAR is Foreign Bank and Financial Account Reporting Form (aka FinCEN Form 114). The Form can be complicated, so we have developed a 10-Step Guide to assist you with filing the FBAR.
Read ArticleWillful FBAR Penalty
The Willful FBAR Penalty is one of the harshest penalties available to the IRS for the non-reporting of offshore & foreign accounts, assets, and investments. Willful does not require deliberateness, and may include “Reckless Disregard,” or “Willful Blindness.”
Read ArticleNon-Willful FBAR Penalty
The Non-Willful FBAR Penalty involves penalties that the IRS can issue for incomplete, delinquent, late or unfiled FBAR Form FinCEN form 114 reports. FBAR Non-willfulness penalties can be dangerous, with a recent court sustaining a “per account, per year” non-willful FBAR Penalty.
Read ArticleSubpart F Income (CFC & Anti-Deferral)
Subpart F Income (CFC & Anti-Deferral): Subpart F Income is a particular type of income generated from a foreign corporation with U.S. shareholders that qualify as a CFC (Controlled Foreign Corporation). IRC Sections 952 and 957.
Read ArticleForeign Accounts Compliance (FBAR & FATCA)
Foreign Accounts Compliance (FBAR & FATCA): Offshore enforcement is a major priority for the U.S. government, including the Internal Revenue Service (IRS), Financial Crimes Enforcement Network (FinCEN) and Department of Justice (DOJ).
Read ArticleInternational Tax Attorney & Lawyers: 2021
An international tax attorney is an attorney who specializes in handling International, offshore and foreign tax-related matters. Within international tax law, experienced attorneys will also specialize in specific niche areas that require an attorney’s full attention.
Read ArticleFBAR for Deceased Person: Individual & Estate Liability
FBAR for Deceased Person: Individual & Estate Liability: Deceased Individuals and IRS FBAR Penalties: Recently, courts have found that the executor and estates of deceased taxpayer individuals may not escape FBAR penalties just because the person against who FBAR penalties were issued has passed away.
Read ArticleDelinquent FBAR Submission Procedures (New) 2022
Delinquent FBAR Submission Procedures: IRM 4.26.16.4.11: U.S. persons with foreign accounts generally have to file an FBAR (aka FinCEN Form 114). When a person has unfiled FBAR reports, they may be subject to fines and penalties. We will summarize how to Submit Delinquent FBARS under the Delinquent FBAR Submission Procedures.
Read ArticleFBAR Penalty Appeals: IRM 8.11.6.4.1
The FBAR Penalty Appeals process is complex. Once the IRS issues penalties for FBAR (post-assessment) the process to appeal the FBAR penalty is more complicated than if it is dealt with in the pre-assessment stage. We will summarize the process.
Read ArticleIRS Voluntary Disclosure Program (New) Practice 2022
IRS Voluntary Disclosure Program 2021: The newly updated IRS Voluntary Disclosure Program gives taxpayers an opportunity to safely disclose their offshore accounts, assets, income, and investments to the Internal Revenue Service (IRS).
Read ArticleStreamlined Certification Form 14653 & 14654: Penalty of Perjury
Streamlined Certification Form 14653 & 14654: Penalty of Perjury: When a person applies to the Streamlined Filing Compliance Procedures, they are required to complete a certification form. The IRS certification form requires the applicant to sign under penalty of perjury – which is a very serious declaration.
Read ArticleAttorney-Client Privilege Tax Return Preparation
Attorney-Client Privilege Tax Return Preparation & Streamlined Offshore Procedures: Clients who submit to the IRS Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures benefit greatly from using a firm that handles their entire submission in-house, to protect their confidentiality & the attorney-client privilege.
Read ArticleFBAR Reporting: A Simple Guide to FinCEN 114
The IRS requires certain U.S. Persons to file an annual FBAR (Foreign Bank and Financial Account Reporting aka FinCEN 114) each year to meet their FBAR Reporting obligations. The failure to file may result in excessive fines and penalties.
Read ArticleForm 8854 (Expatriation)
Form 8854 (Expatriation): Expatriation from the U.S. is the process of relinquishing a Green-Card (Legal Permanent Resident) or renouncing citizenship. In addition to giving up U.S. status (which is an immigration related exercise, usually involving form I-407), there are also potential tax issues with expatriation.
Read ArticleCovered Expatriate: Renouncing U.S. Citizenship
Covered Expatriate (Renouncing U.S. Citizenship): When a person is considering expatriating from the United States, one important aspect of the analysis is to determine if the person will be deemed a “Covered Expatriate.” If a person is a covered expatriate, they may be subject to an IRS Exit Tax.
Read ArticleDelinquent International Information Return Submission Procedures
Delinquent International Information Return Submission Procedures Delinquent International Information Return Submission Procedures: For some applicants who have unreported offshore and foreign assets, they may be able to qualify for an IRS Penalty Waiver and legally avoid any penalty for prior year noncompliance.
Read ArticleOffshore & Voluntary Disclosure: How to Apply
When a person has undisclosed foreign or offshore accounts, assets, investments, and/or income, one of the safest methods for getting into IRS offshore compliance is through IRS offshore disclosure.
Read ArticleIRS & the Civil Tax Fraud Penalty IRM 25.1.6
IRS & the Civil Tax Fraud Penalty IRM 25.1.6: Civil Tax Fraud is a serious tax violation. The IRS can enforce the Tax Fraud either through Civil Tax Fraud Penalties, or by referring the matter to the IRS Special Agents for an investigation, and possible referral to the DOJ for criminal prosecution.
Read ArticleFBAR - 5 Facts Everyone Should Know
FBAR: The FBAR is an acronym for Foreign Bank Account Reporting aka Reporting of Foreign Bank and Financial Account Form. Technically, it is referred to as FinCEN Form 114.
Read ArticleRelief Procedures for Certain Former Citizens 2020
IRS Relief Procedures for Certain Former Citizens: In September of 2019, the IRS introduced a new IRS Expat Amnesty Program designed to limit tax liability for certain former (and soon-to-be former) U.S. citizens, and make expatriation that much "easier."
Read ArticleIRS Form 3520: 5 Quick Facts about Foreign Gifts
Form 3520 is a form required by certain U.S. Persons in any year that the U.S. Person receives a gift from a foreign person individual, foreign corporation and/or foreign trust that meets the threshold requirements for reporting. Here are 5 quick facts about Form 3520.
Read ArticleEnrolled Agent (EA) vs. Certified Public Accountant (CPA)
An Enrolled Agent is the highest credential awarded by the IRS. It requires completion of a 3-part comprehensive exam, and 72-hours of annual continuing education (CE), every 3-years. The exam is not as well-known as other credentials, because it is very difficult to pass, and requires comprehensive tax knowledge.
Read ArticleCommon Mistakes Individuals Make with FATCA
The Form 8938 is a very common IRS form for taxpayers with foreign specified foreign financial assets to have to file each year (as part of their 1040). The form coincides with “FATCA” reporting, and while mistakes are common, they are usually not fatal -- and can be fixed.
Read ArticleIRS Form 5471 Mistakes
Form 5471 is a very difficult international tax and reporting form. It requires a complex understanding of U.S. tax and bookkeeping concepts. The IRS estimate nearly 30-hours to complete the form. While mistakes are common (and usually not fatal), they can oftentimes be avoided.
Read Article2021 IRS Streamlined Program
The 2019 IRS Streamlined Program, which is used to report offshore accounts, assets, investments, and income (FATCA & FBAR) may be coming to an end. The following summary is designed to explain to you the basics, to help you determine if you are eligible for the IRS Streamlined Procedures.
Read ArticleU.S. & U.K. Tax Treaty
The U.S./U.K. Tax Treaty is one of the more complex tax treaties, especially for U.K. Citizens who reside in the United States. We will summarize a few of the main areas of concern.
Read ArticleU.S. & Australia Tax Treaty
The U.S. and Australia have entered into a detailed and comprehensive tax treaty. We explore some of the more common articles of the treaty, as they impact a resident of the U.S. earning income from the Australia
Read ArticleU.S. & India Tax Treaty
The U.S. & India Tax Treaty is very complicated. We summarize some of the more common aspects of the treaty to assist you with properly categorizing income, and understanding reporting accounts, assets, and investments.
Read ArticleFBAR Mistakes (and How to Fix Them)
FBAR Mistakes: The FBAR is the report of Foreign Bank and Financial Account Reporting form. It is also known as FinCEN Form 114. FBAR Mistakes are common, and despite what you may read online -- FBAR Mistakes are not the end of the world.
Read ArticleFinCEN Form 114 (FBAR)
FinCEN Form 114 (FBAR): FinCEN is the Financial Crimes Enforcement Network. Form 114 is otherwise known as the FBAR (Foreign Bank Account Reporting) aka Foreign Bank and Financial Account Reporting Form -- which is filed annually.
Read ArticleBoard Certified Tax Lawyer Specialist - What Is It?
One of the best ways to vet out a tax attorney, is to determine whether the attorney has met the rigorous education, experience, and reference requirements needed to become designated as a Board-Certified Tax Law Specialist.
Read ArticleGreen Card Holders Report Foreign Accounts & Assets to the IRS
A Green Card Holder (aka Legal Permanent Resident) is subject to both U.S. Tax and Offshore & Foreign Reporting requirements for income and assets located around the world.
Read ArticleDo Green Card Holders Pay U.S. Income Tax?
When a person has a green card aka legal permanent resident status, they are subject to U.S. tax just as if they were a U.S. citizen. We explain the basic IRS tax rules for green card holders.
Read ArticleFBAR Violations (2021): Are You Under IRS Investigation
FBAR Violations: In recent years, the IRS has increased enforcement of the FBAR Violations. The FBAR is used to report Foreign Bank Account and Financial Account Reporting. If the Internal Revenue Service determines a person committed a willful or non-willful FBAR violation, the penalties can be staggeringly high.
Read ArticleIndia IRS Streamlined Disclosure Procedures
For U.S. Persons with Indian Assets, Investments, Income and Accounts that have not been reported to the IRS may consider submitting to the IRS Streamlined Filing Compliance Procedures, such as Streamlined Domestic or Streamlined Foreign Procedures.
Read ArticleFATCA India
FATCA India FATCA India refers to the Foreign Account Tax Compliance Act as it relates to India. Due to the fact that there are many complicated tax issues involving India and United States, it is important that Indian Citizens, residents and NRI have a basic understanding of how FATCA India works.
Read ArticleDomestic Voluntary Disclosure IRS: (New) 2021
A Domestic Voluntary Disclosure to the Internal Revenue Service, is used to report previously undisclosed domestic income to the IRS, and minimize the chance of a criminal tax investigation.
Read ArticleFBAR Lawyers (When do you need One?)
FBAR Lawyers or FBAR Tax Lawyers represent clients to avoid, reduce, mitigate, and minimize Foreign Bank and Financial Account Penalties, involving IRS offshore and foreign assets, accounts & investments.
Read ArticleFATCA Letter 2023 (New)
With all the news these days involving FBAR (Foreign Bank and Financial Account Reporting) and the recent Supreme Court ruling on civil non-willful FBAR penalties, it is easy to forget that the FBAR (FinCEN Form 114) is not the only international information reporting requirement for US Taxpayers with foreign accounts and assets. There is another form that is equally as important – especially with the change in penalty scheme for the FBAR, referred to as FATCA Form 8938. In fact, penalties for FATCA may even overshadow non-willful civil FBAR penalties -- due to the potential ‘continuing failure to file penalty’. With more than 110 countries and several hundred thousand Foreign Financial Institutions (FFIs) actively reporting taxpayers to the US Government, there is a chance that you may become the recipient of a FATCA letter. Let’s take a brief look at what you can do after receiving a FATCA Letter.
Read ArticleIRS Offshore Tax Amnesty (2019)
If you have foreign or offshore money (Income, Assets, Accounts or Investments) that you did not properly report to the IRS, you may be able to safely get into IRS Offshore Compliance using various IRS Offshore Tax Amnesty procedures.
Read ArticleKovel Ageement
Hiring a Tax Attorney as opposed to a CPA or Enrolled Agent can be a benefit in any situation in which you would benefit from the Attorney-Client privilege, which provides confidentiality between the Attorney and Client -- not all situations require a Tax Attorney
Read ArticleTax Evasion
IRS Tax Evasion is the intentional/willful violation of IRS tax laws requiring taxpayers to honestly file their annual tax returns and report their foreign accounts. We will provide a brief summary, along with 3 examples of potential tax evasion.
Read ArticleIRS Tax Rules of Canadian Investments (Basic Guide)
It is very common for a Canadian person with U.S. status to have several Canadian investments, such as an RRSP (Registered Retirement Savings Plan), RRIF (Registered Retirement Income Fund), TFSA (Tax Free Savings Account), Canadian Foreign Mutual Funds, and/or Professional Corporations. While these may escape tax under Canadian law, the U.S. tax laws may require the tax and reporting for some of these investments.
Read ArticleControlled Foreign Corporation
Controlled Foreign Corporation: A controlled foreign corporation (CFC) is a specific type of foreign corporation which may have significant tax consequences under U.S. Tax Law – even though it is a “Foreign Corporation" which is not otherwise subject to U.S. Tax.
Read ArticleU.S. Tax on Australian Superannuation Funds - Is a Super Taxed?
U.S. Tax on Australian Superannuation: If you are a U.S. person with a U.S. Tax & Reporting requirement and have ownership of an Australian Superannuation Fund, you may be subject to both taxation and reporting of the Superannuation Fund. The U.S. Tax on Australian Superannuation is a very complex analysis.
Read ArticleUpdated Voluntary Disclosure Practice
The IRS recently released a memo detailing the changes to Offshore and Domestic Voluntary Disclosure. Learn how the changes impact your submission and what your rights are under the program.
Read ArticleFATCA Compliance & Self-Incrimination
Recently, several foreign financial institutions are trying to shift the blame of the institution’s non-compliance with FATCA onto their customers– which can cause serious problems for U.S. taxpayers.
Read ArticleForeign Inheritance U.S. Tax Rules
The foreign inheritance U.S. Tax Rules are usually not as complicated as might be expected. In many situations, the beneficiary does not have a U.S. Tax obligation (but may have a reporting requirement).
Read ArticleFBAR Real Estate Explained
While direct ownership of foreign real estate is not required to be reported on the FBAR, other forms of foreign real estate may be required to be included on the FBAR, if it is held in an investment account, such as an REIT, ETF or Mutual Fund.
Read ArticleFBAR Pension Accounts (Reporting Foreign Pension to the IRS)
Even though the FBAR is used primarily to report Foreign Bank Accounts, other accounts are also included on the FBAR, and this includes Foreign Pension Accounts.
Read ArticleExamples of Voluntary Disclosure to the IRS 2019
Voluntary Disclosure to the IRS is the process of using approved IRS methods for disclosing previously unreported U.S. and Foreign/Offshore income, assets, accounts and investments (also known as IRS Tax Amnesty).
Read ArticleFATCA (Foreign Account Tax Compliance Act)
FATCA is the Foreign Account Tax Compliance Act. It is an act designed to promote international reporting transparency and reduce Offshore & Foreign Tax Fraud.
Read ArticleForm 5471 (2020)
Form 5471: IRS Form 5471 is an Information Return of U.S. Persons With Respect To Certain Foreign Corporations. It is an annual reporting requirement for some U.S. Taxpayers. The failure to file the form may result in IRS Fines and Penalties, although IRS Amnesty/Voluntary Disclosure may reduce or eliminate the penalty.
Read ArticleFBAR Filing Rules Explained
FBAR FILING REQUIREMENTS: Each year, US taxpayers who have foreign bank and financial accounts overseas may have to file the annual FBAR aka FinCEN Form 114. In recent months, the Internal Revenue Service updated its FBAR publication and developed a Practice Unit to assist taxpayers and IRS agents with understanding the complexities of the FBAR. There are many components to filing an accurate FBAR and the IRS continues to pursue penalties against taxpayers who are non-compliant. For the purposes of this article, we will focus on who needs to file the FBAR.
Read ArticleIRS Voluntary Disclosure vs. Streamlined Offshore Disclosure (2018)
When you are deciding which of the IRS Disclosure Programs you want to submit to, it is important to understand the different options. Typically, it boils down to IRS Voluntary Disclosure and Streamlined Offshore Disclosure.
Read ArticleIRS Voluntary Disclosure
Until the IRS updates the IRS Voluntary Disclosure Practice Procedures, the current Internal Revenue Manual (September 2018) Voluntary Disclosure Practice is the alternate to the now discontinued OVDP.
Read ArticleStreamlined Filing Compliance Procedures: (New) 2023
Streamlined Filing Compliance Procedures: The IRS Streamlined Filing Compliance Procedures (SFCP) are a form of IRS Tax Amnesty. SFCP are a cost-effective and safe method for people who have not previously reported or disclosed their foreign assets, accounts, investments, or income to the IRS in previous years to get into compliance.
Read ArticleWhat is a Quiet Disclosure (FBAR & FATCA)
Over the past several years, the Internal Revenue Service has significantly increased enforcement of foreign accounts compliance and timely filing of international information reporting forms. Some of the common forms you may be familiar with include the FBAR, FATCA (Form 8938), and Form 3520 (Foreign Gifts and Trusts). When a person fails to file these forms timely, they may become subject to fines and penalties. And in general, the fines and penalties tend to severely outweigh the noncompliance. This, in turn, causes many rational people to sometimes consider questionable disclosure strategies to get into compliance and avoid the IRS penalty machine. One method that some Taxpayers may consider is a quiet disclosure.
Read ArticleForeign Life Insurance Taxation 2020
The IRS and FinCEN require the owners of Foreign Life Insurance Policies to disclose the policy information each year and include income the policy generates. While there may be penalties for not properly disclosing the information, the IRS provides various Amnesty Programs to safely get into compliance.
Read ArticlePFIC (Passive Foreign Investment Company)
PFIC A PFIC is Passive Foreign Investment Company. The IRS penalizes PFICs (unless certain elections are made) by requiring owners of the PFIC to pay increased tax rate on earnings such as Capital Gains and Dividends.
Read ArticleForm 5471 Penalties 2019
IRS Form 5471 is required by certain categories of filers who have ownership or interest in a foreign corporation. The IRS has the right to issue penalties against any individual who fails to file the form. You may reduce the penalties through one of the IRS Amnesty Programs and/or a Reasonable Cause Statement.
Read ArticleWhat are Foreign Bank Account Penalties?
What are Foreign Bank Account Penalties?: FBAR Penalty Enforcement is at an all-time high. If a person does not timely file their annual FBAR with FinCEN in the current year, they may be subject to FBAR Penalties -- but the penalties may be reduced or even eliminated through reasonable cause or IRS international tax amnesty.
Read ArticleForm 8938 Penalties (New) 2022
Form 8938 is an IRS International Reporting Form used to disclose overseas accounts, assets, investments, and income to the IRS (Internal Revenue Service). Technically, it is referred to as the Statement of Specified Foreign Financial Assets. Form 8938 was developed in conjunction with FATCA (Foreign Account Tax Compliance Act) -- as a result of FATCA, hundreds of thousands of Foreign Financial Institutions across the globe report US Persons with Foreign Accounts to the US Government. The failure-to-file Form 8938 may result in an initial penalty -- along with an ongoing continuing failure to file penalty.
Read ArticleForm 3520 Penalties
Form 3520 Penalties Form 3520 Penalties: IRS Form 3520 is a very important international tax form. Even though a U.S. Person is not taxed on the receipt of a foreign gift, a person is still required to report the gift when the gift meets certain threshold requirements.
Read ArticleIRS Tax Evasion & Examples
IRS Tax Evasion is a serious tax crime. If the IRS believes you acted Fraudulently or Evaded Tax, the IRS can issue extensive fines and penalties against you, as well as launch a criminal investigation.
Read ArticleForeign Financial Asset Reporting 2019
IRS Form 8938 is a very important form. It requires you to properly disclose information about your foreign assets and income. If you do not file the form timely, the IRS has the right to issue severe fines and penalties against you.
Read ArticleHow to Report Foreign Income (2019 Tax Return)
How to Report Foreign Income on the 2019 Tax Return: U.S. Taxpayers (including U.S. Citizens and U.S. Persons) are required to include their worldwide income to their U.S. tax return., including reporting foreign accounts, investments, and assets.
Read ArticleOVDP vs. Streamlined
The IRS Offshore Voluntary Disclosure Programs (OVDP and Streamlined Filing Compliance Procedures) are safe and cost-effective methods for a non-compliant person to get into compliance, and avoid even bigger IRS fines, penalties and headaches in the future.
Read ArticleQuiet Disclosure or Streamlined (Update)
Over the past several years, the Internal Revenue Service has significantly increased enforcement of foreign accounts compliance and timely filing of international information reporting forms. Some of the common forms you may be familiar with include the FBAR, FATCA (Form 8938), and Form 3520 (Foreign Gifts and Trusts). When a person fails to file these forms timely, they may become subject to fines and penalties. And in general, the fines and penalties tend to severely outweigh the noncompliance. This, in turn, causes many rational people to sometimes consider questionable disclosure strategies to get into compliance and avoid the IRS penalty machine. One method that some Taxpayers may consider is a quiet disclosure.
Read ArticleOVDP Ends on September 28, 2019 – U.S. Offshore Tax Amnesty
There are various different IRS Offshore Tax Amnesty Programs that can safely assist you with getting into IRS Offshore Compliance before it is too late. Depending on your specific facts and circumstances, you may qualify for a reduced penalty -- or penalty waiver.
Read ArticleStreamlined Domestic Offshore Procedures (New) 2023
Streamlined Domestic Offshore Procedures: The IRS Streamlined Domestic Offshore Procedures (SDOP) are a cost-effective way to bring yourself into IRS offshore compliance, with minimal penalties as opposed to the traditional OVDP (Offshore Voluntary Disclosure Program).
Read ArticleForm 8938 (2020)
Form 8938 is a very important form. It requires the disclosure of certain Specified Foreign Financial Assets. The failure to file the form may result in significant IRS fines and penalties.
Read ArticleStreamlined Foreign Offshore Procedures: (New) 2022
Streamlined Foreign Offshore Procedures: The IRS Streamlined Foreign Offshore Procedures (SFOP) are a program designed to bring certain individuals with undisclosed foreign income, investments, assets or accounts into IRS Offshore Compliance without issuing any penalties against the taxpayer.
Read ArticleOVDP Willfulness: What does it Mean?
OVDP Willfulness: In determining whether you should enter the traditional Offshore Voluntary Disclosure Program (OVDP) or the newly implemented IRS Streamlined Filing Compliance Procedures, one of the most important determinations to make is whether you believe your actions were willful or non-willful. the first step in determining which IRS Offshore Tax Amnesty Program you should pursue.
Read ArticleFBAR vs. 8938 (New) 2022 Comparison
Two of the most common international information reporting forms are the FBAR (Foreign Bank and Financial Account Reporting aka FinCEN Form 114) and Form 8938 (FATCA aka Foreign Account Tax Compliance Act). Our international tax lawyers compare the FBAR vs 8938. In general, the FBAR (Report of Foreign Bank and Financial Account Form) and Form 8938 (Specified Foreign Financial Assets) are very important IRS international reporting forms for people with foreign accounts and/or assets. The Internal Revenue Service has made foreign account and asset reporting a key enforcement priority, and the penalties associated with these two forms can be severe.
Read ArticleIRS Tax Amnesty Programs
IRS Tax Amnesty Programs: The IRS Tax Amnesty Programs are designed to help individuals and others safely get into tax compliance without the fear of excessively high fines and penalties being issued against them by the IRS. There are multiple different types of IRS tax amnesty programs, with the key issues between them being whether the applicant was willful or non-willful, and/or whether a person is seeking to report offshore income, domestic income -- or both.
Read ArticleFBAR Penalties: Late & Incomplete FBAR Penalty
FBAR Penalties FBAR Penalties can be tough. This is primarily because the IRS has made offshore and foreign bank account penalties a key enforcement priority .
Read ArticleIRS Voluntary Disclosure
IRS Voluntary Disclosure is a U.S. Government program designed to bring non-compliant individuals, businesses, and trusts that have not properly disclosed foreign and offshore accounts, investments, income, assets, real estate, pension and life insurance policies (amongst others) safely into compliance.
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