Category: English Articles

One area of concern for U.S. Persons (generally those who meet the substantial presence test, Green Card holders, and U.S. Citizens) that has recently received a lot of attention, is the requirement to declare worldwide income, file U.S. income tax returns and the requirement to file various information Forms, including the Foreign Bank Account Reports (“FBAR”).

Those who have failed to file the required forms or report the required income have some options to become compliant. However, during a joint Internal Revenue Service, Criminal Investigation Division, and Department of Justice speaker panel at the 33rd Annual Miami International Tax Conference, the government has indicated that they are starting to closely scrutinize those who claim ignorance of these rules in light of all the publicity this topic has received over the last several year. Based on their comments, it appears that we may be approaching a point where the ignorance defense may be harder and harder to believe.

Further, based on repeated comments about the transient nature of the current compliance programs, in light of the foreign reporting requirements pursuant to the Foreign Account Tax Compliance Act (“FATCA”) and the Global Reporting Standard (a/k/a “Global FATCA”) it appears that the government may be considering the termination of these programs, without warning, in the no too distant future.

Thus, if you have been remiss in my your compliance with your reporting requirements, you should not delay consulting with an attorney to discuss your options.

Disclaimer: This Article is meant to provide general information only and is not intended to be used as legal advice.

We are often asked why lawyers are so expensive and many times it is very difficult to fully explain the level of service you can expect when you hire an attorney. However, Sam Glover, in his article, posted on lawyerist.com, does a very fine job of detailing the level of service you can expect when you engage an attorney.

The most important takeaway from the article, in my mind, is that you will be able to sleep at night, knowing that your interest are protected, when you place your trust in me and my firm.

If a non-domiciliary, non US-Person dies while owning US property (such as real estate), such property is generally subject to US estate taxation. So too, for example, will a German citizen and resident be subject to US Estate taxes if he invests in a US Vacation Home and then dies.

In the United States, the decedent is subject to Estate Taxes, which is different than German Law, where the beneficiary is subject to taxation. The decedent is allowed to receive a US Unified Credit amount of $5.25 Mio (Inflation Adjusted each year). However, this Unified Credit is applied in a ratio that places US Assets in Relation to worldwide assets.

For example, is the decedent owns $3 Million US Assets and $5 Million in German Assets, he will receive 3/8^th of the Unified Credit against his US Assets, or just under $2 Mio. All US assets that exceed this amount are estate taxable in the United States.

In addition, the decedent’s beneficiaries would be subject to estate taxes in Germany as well. However, they would receive credit for the estate taxes paid in the US on the assets they receive.

Disclaimer: This Article is meant to provide general information only and is not intended to be used as legal advice.

Effective July 1, 2014, the Internal Revenue Service created a new streamlined program for US Persons to become compliant with their income tax filing and Foreign Bank Account Reporting (FBAR) obligations. This Program is an alternative to the Offshore Voluntary Disclosure Program. We had previously discussed the program intended for Taxpayers residing outside the United States. In this Article we will explore the alternative for those Taxpayers residing within the United States.

This program applies to US citizens or green card holders who, in any one of the last three years, spent less than 330 days living outside the United States and or who had an “abode” in the US.

The main inquiry with this program is again the question of whether a person acted wilfully in failing to declare the foreign income or failing to file the FBARs. This is a legal determination that must be made by a tax-attorney, possibly in consultation with a criminal law attorney. Non-wilfulness is again defined by the IRS as negligence, inadvertence or mistake or conduct that is the result of a good faith misunderstanding of the law.

If a Taxpayer meets this standard and otherwise qualifies for the program, the taxpayer must file an affidavit stating that he acted in a non-willful manner, file tax returns for the last three years, file FBARs for the last six years, and pay the resulting taxes and interest. In addition, the Taxpayer must then pay a 5% penalty on all previously undisclosed foreign financial assets.

The resident streamlined program affidavit includes a waiver of all defenses. This raises the concern that the Taxpayer may not only waive the statute of limitations but also their Fifth Amendment right against self-incrimination. Since there is no assurance that the IRS will not attempt to open an investigation to make a case that the Taxpayer acted willfully after all and now has also perjured himself, the Taxpayer may be subject to prosecution at the government’s whim.

Disclaimer: This Article is meant to provide general information only and is not intended to be used as legal advice.

Effective July 1, 2014, the Internal Revenue Service created a new streamlined program for US Persons to become compliant with their income tax filing and Foreign Bank Account Reporting (FBAR) obligations. These Programs are an alternative to the Offshore Voluntary Disclosure Program and come in two flavors. The First is intended for Taxpayers residing outside the US and is discussed below. The other is intended for Taxpayers residing within the US and will be discussed in a later article.

Taxpayers Residing Outside the United States:

In most cases, this program applies to US citizens or green card holders who, in any one of the last three years, spent 330 days or more living outside the United States and who did not have an “abode” in the US.

The main inquiry that needs to be made is whether a person acted wilfully in failing to declare the foreign income or failing to file the FBARs. This is a legal determination that must be made by a tax-attorney, possibly in consultation with a criminal law attorney. Non-wilfulness is defined by the IRS as negligence, inadvertence or mistake or conduct that is the result of a good faith misunderstanding of the law.

If a Taxpayer meets this standard and otherwise qualifies for the program, the taxpayer must file an affidavit stating that he acted in a non-willful manner, file tax returns for the last three years, file FBARs for the last six years, and pay the resulting taxes and interest. No additional penalties will be assessed.

The main downside to participating in this program is that there is no assurance that the IRS will not attempt to open an investigation to make a case that the Taxpayer acted willfully after all and now has also perjured himself.

Disclaimer: This Article is meant to provide general information only and is not intended to be used as legal advice.

Those who wilfully fail to file the required foreign bank account reporting forms (FBARs) under the Bank Secrecy Act of 1970 and declare the income earned from those accounts on their income tax returns are being pressured from all sides to participate in the Offshore Voluntary Disclosure Program (OVDP).

On one hand, foreign banks are starting to freeze accounts of US account holders with the stipulation that the accounts can only be accessed once the account holder can prove that the owner is compliant with US tax laws.

On the other hand, the IRS is actively collecting information from banks through the requirements imposed by the Foreign Account Tax Compliance Act reporting requirements and through various other sources such as deals made by defendants and bank with the Department of Justice. Once the IRS starts investigating an account holder, this person cannot participate in the OVDP. Thus, it is a race against time to make sure that those hold-outs come clean before the IRS obtains their name from another source.

Nonetheless, the IRS still wants those who wilfully fail to file their FBARs and declare their income to participate in the OVDP. However, the Service has modified some of the conditions that would allow “offenders” to participate:

Those who hold accounts with banks and promoters on a “blacklist” will be subject to a penalty in the amount of 50% of the highest account balance held by those institutions in the last 8 years, instead of the customary 27.5%. Currently there are 10 institutions on the list but the Service has indicated that they will be expanding it at their discretion.

There is a glimmer of hope: The Service has loosened some of the requirements to participate in the streamlined program, which is designed for those who innocently fail to file the forms and report the income. The streamlined program will be explored in more detailed in a future article.

Disclaimer: This Article is meant to provide general information only and is not intended to be used as legal advice.

If a taxpayer has been a legal permanent resident of the United States in eight of the last 15 years, then such taxpayer must inquire if he is subject to the expatriation tax regimes upon relinquishment of their “Green Card.”

The main threshold amounts to being subjected to the expatriation tax regimes are (1) if such taxpayer had income tax liabilities in the last five years that exceeded an inflation adjusted sum ($155,000 in 2013)  or (2) if the worldwide assets of such taxpayer exceeded $2,000,000.00.

Many times taxpayers do not exceed the income tax or asset threshold that would lead them to being subject to the expatriation tax regimes but fail to satisfy the final requirement and thus become trapped in the intricacies of the expatriation tax regimes anyway:

The Internal Revenue Code requires that an expatriate provide a statement to the Internal Revenue Service on Form 8854 in the year that the expatriate terminates their residency. On this Form, the expatriate certifies that he has been in compliance with the Internal Revenue Code for the last 5 years. Failure to provide such a statement on Form 8854 in the year of termination of residency, leads to the expatriate being subjected to the expatriation tax regimes, regardless of whether he meets the threshold amounts discussed above.

The expatriation taxes, in the most simplistic terms, are calculated as follows:

The expatriate is treated as if he had sold all of his assets at the fair market value on the day before he terminated his residency in the US. Any gain that exceeds an inflation adjusted exemption ($663,000 in 2013) is then subject to taxation in the year of termination of US residency.

Please Note: Even if an expatriate exceed the threshold amounts outlined above, there are many planning opportunities to minimize the impact of the expatriation tax regimes, especially if the spouse remains a US-Resident.

Disclaimer: This Article is meant to provide general information only and is not intended to be used as legal advice.

The current climate of increased enforcement of foreign bank account reporting and the increased complexity of complying with various information reporting under United States Laws has resulted in many people inquiring into relinquishing their Permanent Residence (“Green”) card. Such a move requires not only that proper immigration laws are followed by also requires proper tax planning to minimize the potential impact of the expatriation tax regimes.

The threshold question of whether the expatriation regimes applies is a determination of (1) whether a person is a lawful permanent resident and (2) whether such lawful permanent resident is a long term resident.

A person is a lawful permanent resident if such person has a status of being lawfully accorded the privilege of residing permanently in the United States as an immigrant (such as through a “green card”) in accordance with the immigration laws and such status has not been revoked or administratively or judicially determined to have been abandoned. Thus, even if someone has remained outside the United States in excess of the allowable period and thereby jeopardized their green card, this person is still considered a permanent resident for tax purposes because the status has not been revoked and not yet been administratively or judicially determined to have been abandoned.

A person is a long-term resident, and thus subject to the second part of the analysis, if this person is a lawful permanent resident (defined above) of the United States in the last eight taxable years of the fifteen taxable years. However, there may be some tax planning opportunities, especially related to tax treaties that can be used to avoid a person being considered a long-term resident.

Disclaimer: This Article is intended to be used solely for general information purposes and is not intended as legal advice.

The sale of a home, owned by a person who is not an income tax resident of the United States is relatively painless. It is important to remember, though, that the sale of US Real Property is generally taxable in the United States and thus, the seller generally is required to file an income tax return to declare the sale, even if no gains are achieved.

To motivate foreign sellers to file the appropriate tax returns and to pay applicable taxes, Congress passed the Foreign Investment in Real Property Tax Act (FIRPTA) in 1980 which requires that the buyer or his agent withhold and remit to the Internal Revenue Service 10% of the sales price. This can come as a nasty surprise at closing, to an unwary seller.

Once the FIRPTA tax has been withheld, the seller of the real estate will need to file an income tax return to claim the withheld amounts as a prepayment against the taxes that are calculated based upon the actual gains achieved during the sale. Usually, the withheld amounts exceed the actual taxes due because it is a percentage of the sales price and not based on the gain. Thus, a seller should see if they qualify for one of the exceptions to withholding or apply for a withholding certificate.

Disclaimer: This Article is Intended as general information and not as legal advice as every situation is unique and requires detailed analysis.

If a taxpayer becomes a US Resident Alien for tax purposes because he holds a green card or has remained in the United States in excess of 182 days in any one year, then he ordinarily becomes subject to US taxation on his worldwide income.

If the taxpayer is a resident of a nation that has an income tax treaty between such nation and the United States, (for example: Germany), then this taxpayer can, given the right circumstances, make use of tie-breaker rules generally found in Article 4 of the income tax treaty to avoid being classified as a US resident for income tax purposes.

To make use of the tie-breaker rules, a taxpayer must take affirmative steps to informing the Internal Revenue Service that he is relying on an income tax treaty and thus should not be considered a US Resident for tax calculation purposes. This is done via a non-resident income tax return, Form 1040NR, with an attached Form 8833, Treaty Based Disclosure.

It is important to remember that this treaty based relief results in tax being calculated as if this taxpayer was a non-resident of the United States. It does not, however,  relieve the taxpayer of other filing obligations such as various information returns and the filing of foreign bank account reporting forms. 

Another important aspect is that claiming Tie-Breaker benefits, while holding a green card may jeopardize the green card because taking a position that one is a tax non-resident may be inconsistent with the requirements of continued green card ownership. Thus, it is imperative to consult competent immigration counsel to coordinate the filing of any non-resident returns in this case.

Disclaimer: This Article is for general information purposes only and is not intended as legal advice. All situations are unique. Thus before taking any action, you should consult with legal counsel on the applicability of the above to your circumstances.