international tax lawyers

IRS Prioritizes Combating Offshore Tax Cheating | Offshore Tax Lawyer

On March 20, 2018, the IRS announced that offshore tax cheating – i.e. hiding money and other assets in unreported foreign accounts – remains on the IRS “Dirty Dozen” tax scams for the year 2018.

Offshore Tax Cheating: What is the “Dirty Dozen” List?

The IRS uses the “Dirty Dozen” list to describe various scams that a taxpayer may encounter and which form the focus of the IRS enforcement efforts. Some of these schemes peak during the tax filing season.

Illegal scams can lead to significant penalties and even possible criminal prosecution. The IRS Criminal Investigation Division works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

What is Offshore Tax Cheating?

In its most basic form, offshore tax cheating is a long-running scheme that uses foreign accounts to hide money in order to avoid paying US taxes. The taxpayers then use debit cards, credit cards or wire transfers to access the hidden accounts. More complex schemes include the usage of foreign corporations, foreign trusts, employee-leasing schemes, private annuities, insurance plans and other third-parties to conceal the real US owner of foreign accounts.

The most modern offshore tax cheating scheme has involved cryptocurrencies traded overseas and exchanged into a foreign currency by using an offshore account. The IRS has already begun addressing tax evasion based on virtual currencies, but we have not yet seen a fully-developed IRS enforcement in this area.

Offshore Tax Cheating is the Long-Standing Focus of the IRS

The IRS warns that taxpayers should be wary of these schemes, especially given the continuing focus on this issue by the IRS and the Justice Department.

In fact, since mid-2000s, offshore tax cheating has been one of the primary targets of the IRS. The IRS already conducted thousands of offshore-related civil audits that resulted in the payment of tens of millions of dollars in unpaid taxes. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

Every investigation yields important information that is used to learn about noncompliance patterns and commence other investigations. Some of these investigations may focus on bankers and financial advisors who helped set up a scheme that led to offshore tax cheating.

Offshore Voluntary Disclosure as a Way to Settle Prior Tax Noncompliance

If a taxpayer participated in scheme that the IRS may characterize as offshore tax cheating, he should consider doing a voluntary disclosure as soon as possible. It is very likely that the IRS will consider tax noncompliance associated with such a scheme as willful. Hence, the Offshore Voluntary Disclosure Program (“OVDP”) may be the primary choice for such taxpayers.

In fact, according to the IRS, more than 56,400 disclosures were made through various versions of OVDP since 2009. The IRS collected more than $11.1 billion from the OVDP during that time period.

Additionally, more than 65,000 taxpayers who claimed that they were non-willful in their prior tax noncompliance participated in the Streamlined Compliance Procedures. As I stated above, however, a taxpayer should be very careful about participating in the Streamlined Compliance Procedures if he participated in a scheme that the IRS may classify as offshore tax cheating.

OVDP Will Close on September 28, 2018

Taxpayers who wish to participate in the OVDP should consult Sherayzen Law Office as soon possible. The IRS recently announced that the OVDP will close on September 28, 2018.

Contact Sherayzen Law Office if You Wish to do an Offshore Voluntary Disclosure That Involves a Scheme Classified as Offshore Tax Cheating

If you participated in a scheme that the IRS may classify as offshore tax cheating, you should contact Sherayzen Law Office to explore your voluntary disclosure options as soon as possible.

Sherayzen Law Office is a leading international tax law firm that specializes in offshore voluntary disclosures, including OVDP and Streamlined Compliance Procedures. We have helped hundreds of US taxpayers around the world to bring their US tax affairs into full compliance with US tax laws, and We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

Uruguay-US Social Security Agreement Sent to Congress | Tax Lawyer

On March 19, 2018, President Trump sent the Uruguay-US Social Security Agreement to the US Senate. This is an important step toward the final ratification of the treaty that promises to benefit the citizens of both countries.

Uruguay-US Social Security Agreement: What is a Social Security Agreement?

A Social Security Agreement (also called a Totalization Agreement) is essentially a treaty between two countries that eliminates the burden of dual social security taxation for individuals and businesses who operate in both countries.

Typically, the potential for this type of double-taxation arises when a worker from country A works in Country B, but he is covered under the social security systems in both countries. In such situations, without a Social Security Agreement, the worker will have to pay social security taxes to both countries on the same earnings. A Social Security Agreement, on the other hand, allows the worker (and employers) to pay social security taxes only in one country identified in the treaty.

Social Security Agreements are authorized by Section 233 of the Social Security Act. Right now, only 26 Totalization Agreements are in force between the United States and another country: Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, South Korea, Spain, Sweden, Switzerland and the United Kingdom. Uruguay may become the 27th country to have a Social Security Agreement with the United States.

Uruguay-US Social Security Agreement: Recent History

The Uruguay-US Social Security Agreement has had a very favorable history so far. In fact, it may set the record for the fastest treaty ever negotiated by Uruguay. The countries first agreed to pursue a Social Security Agreement between them in May 2014, when the then Uruguayan president Jose Mujica was in Washington.

Amazingly, already in May of 2015, after just two rounds of talks held over a six-month period, the countries finished the negotiations of the Uruguay-US Social Security Agreement. Typically, it takes anywhere between two to three years to negotiate a Totalization Agreement.

On January 10, 2017, the Uruguay-US Social Security Agreement was signed in Montevideo. The United States was represented by its ambassador Mr. Kelly Kinderling. Uruguay was represented by its Foreign Minister Jose Luis Cancela and Labor and its Social Security Minister Ernesto Murro.

On October 3, 2017, the Uruguayan Senate approved the pending Uruguay-US Social Security Agreement, thereby completing the first part of the necessary ratification process. By sending the treaty to Congress for the required 60-day review period, President Trump started the US ratification process.

Uruguay-US Social Security Agreement: Benefits

According to Uruguay, the Uruguay-US Social Security Agreement will benefit some 60,000 Uruguayans working in the United States and up to 6,000 Americans living in Uruguay. The primary benefit is that the workers of both countries will be able to count the working years spent in both countries to be obtain eligibility for their home-country retirement, disability and survivor benefits.

Additionally, the Agreement will exempt US citizens sent by US-owned companies to work in Uruguay for five years or less from paying the Uruguayan social security taxes. Similarly, Uruguayan citizens sent to work temporarily in the United States by Uruguayan-owned companies will not need to pay social security taxes to the US government. Thus, employers in both countries will pay social security taxes only to their employees’ home countries.

Additionally, both countries hope that the Uruguay-US Social Security Agreement will boost trade between the countries. Currently, more than 200 American firms operate in Uruguay (mostly in the service sector).

Sherayzen Law Office will continue to monitor future developments with respect to this highly-beneficial treaty.

OECD Harmful Tax Practices & FDII | International Tax Law Firm

The Organization for Economic Co-operation and Development (“OECD”) has detailed base erosion and profit-shifting (“BEPS”) rules. Among these rules are the OECD rules for countering harmful tax practices (“OECD Harmful Tax Practices Rules”). The 2017 Tax Cuts and Jobs Act introduced a new tax concept in the US Internal Revenue Code – foreign-derived intangible income (“FDII”). FDII has become a hot topic in international tax law, especially with respect to whether FDII constitutes a violation of the OECD Harmful Tax Practices Rules.

OECD Harmful Tax Practices Rules and Preferential Tax Regimes

The OECD Harmful Tax Practices Rules require that a preferential tax regime of any OECD nation satisfies the “substantial activities requirement”. In particular, the Intellectual Property income regimes must incorporate the “nexus approach” that limits the entitlement to the preferential tax regime based on the amount of the qualifying research and development costs incurred.

European Position: FDII May Violate OECD Harmful Tax Practices Rules

The Europeans started questioning the FDII’s compliance with the OECD Harmful Tax Practices Rules almost immediately. The main reason for their concern is that the FDII regime does not adopt the nexus approach while allowing US corporations to deduct 37.5% of their deemed intangible income generated abroad by the usage of the US Intellectual Property. The end-result of the FDII rules is the reduction of the effective tax rate on the FDII to a bit over 13%.

The Europeans question whether this result and the FDII rules in general are in conformity with BEPS’ minimum standards and the EU blacklist criteria.

US Position: FDII Does Not Violate OECD Harmful Tax Practices

The Department of the Treasury officials adopted a position exactly opposite to the Europeans (which is not surprising at all). The United States believes that the FDII rules only superficially resemble harmful tax practices, but, in reality, they are very different from traditional preferential tax regimes.

The United States urges the Europeans to consider the FDII tax regime in the context of the overall tax reform that is intended to equalize minimum tax rate that applies to foreign activities of a US corporation regardless of whether the income is earned directly by the US corporation or through it subsidiary (which would be classified as a CFC).

In other words, the FDII rules have a different purpose and effect when one looks at the broader context. They are designed to take away a tax incentive to transfer IP out of the United States into a low-tax foreign subsidiary . Therefore, according to the Department of the Treasury, the FDII tax regime will not create any harm that the OECD Harmful Tax Practices Rules were designed to prevent.

FDII Compliance With the OECD Harmful Tax Practices Rules Will Continue to Be in Dispute

The FDII rules’ compliance with the OECD Harmful Tax Practices Rules will continue to be a matter of debate and conflict between the United States and the EU countries. Additionally, there are very strong objections from the Europeans to the FDII rules from the WTO perspective. This conflict will likely grow into a formal legal dispute between the two economic giants.

Sherayzen Law Office will continue to follow this new dispute between the EU and the United States.

Sherayzen Law Office Ltd | US International Tax Law Firm

Sherayzen Law Office PLLC hereby gives notice that, as of January 1, 2018, its official owner is Sherayzen Law Office, Ltd (“Sherayzen Law Office Ltd”). Sherayzen Law Office Ltd will continue to utilize “Sherayzen Law Office” as its trade name. Furthermore, Sherayzen Law Office Ltd will continue to maintain the disregarded entity (for tax purposes) Sherayzen Law Office PLLC for an indefinite period of time.

This means that Sherayzen Law Office Ltd is the official name of our international tax law firm as of January 1, 2018. Sherayzen Law Office Ltd has assumed all assets, liabilities, rights and duties of Sherayzen Law Office PLLC as of January 1, 2018.

The change in the corporate structure of Sherayzen Law Office occurred for marketing purposes. “PLLC” is a highly specified form of doing business which is not recognized outside of the United States, whereas “Ltd” is a very common form of doing business worldwide.

Sherayzen Law Office Ltd is an international tax law firm owned by attorney Eugene Sherayzen, Esq., who specializes in US international tax law. In particular, Mr. Sherayzen is a leading expert in the area of offshore voluntary disclosures (IRS Offshore Voluntary Disclosure Program (“OVDP”), Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures, Delinquent International Information Return Submission Procedures, Delinquent FBAR Submission Procedures, Reasonable Cause Disclosures, et cetera), FATCA compliance (including Form 8938, W8-BEN-E, et cetera), FBAR compliance, international tax compliance (including information returns for the ownership of a foreign business – Forms 5471, 8865, 8858, 926, et cetera), foreign trust US tax compliance (Forms 3520 and 3520-A), foreign inheritance reporting, foreign gift reporting, PFIC compliance (Form 8621), international tax planning and others.

Additionally, Sherayzen Law Office Ltd is helping its clients with domestic tax compliance, IRS audits, appeals to the IRS Office of Appeals and tax litigation.

Sherayzen Law Office Ltd operates worldwide. In fact, since 2005, Sherayzen Law Office has helped hundreds clients from close to 70 countries from every continent: Australia, North America (Canada, Mexico and the United States), South America (Argentina, Brazil, Chile and Colombia), including Central American countries like Barbados, Belize, Costa Rica, Nicaragua and Panama, Africa (Ethiopia, Ivory Coast, Nigeria), the Middle East region of Asia (Egypt, Iraq, Iran, Israel, Kuwait, Lebanon, United Emirates and so on), Southeast Asian countries (China, India, Thailand, et cetera), Far Eastern region of Asia (Japan) and the great majority of European countries (Western, Eastern, Northern and Southern Europe) including Great Britain and Ireland as well as Russia.

Contact Us Today to Schedule Your Confidential Consultation!

South Korean Inheritance Leads to Criminal Sentence for FBAR Violations

On January 25, 2018, a South Korean citizen and a US Permanent Resident, Mr. Hyong Kwon Kim, was sentenced to prison for filing false tax returns and willful FBAR violations; additionally, he had to pay over $14 million in FBAR willful civil penalties. I already discussed Mr. Kim’s guilty plea and the main facts of his case in an earlier article last year, but I would like to come back to another aspect of this case: South Korean inheritance. In particular, I would like to trace how a South Korean inheritance led to Mr. Kim’s guilty plea and a criminal sentence for FBAR violations.

From South Korean Inheritance to Swiss Account FBAR Violations

According to the US Department of Justice (“DOJ”), Mr. Kim became a US permanent resident in 1998. The DOJ describes him as a sophisticated business executive who ran family businesses with operations in the United States and internationally.

At some point after he became a US tax resident, Mr. Kim inherited tens of millions of dollars from his family in South Korea. Instead of properly reporting his South Korean inheritance (which would not have been subject to US taxation at that time), he decided to hide it in foreign accounts. You can find the details of his efforts to hide his accounts in this article.

In the end, despite his ingenuous efforts, the IRS was able to identify Mr. Kim as a willfully noncompliant taxpayer who deliberately failed to file FBARs and filed false income tax returns for the years 1999 through 2010. As a result of his willful FBAR and income tax noncompliance and as part of Mr. Kim’s guilty plea, U.S. District Court Judge Brinkema sentenced Mr. Kim to six months to prison, imposed a fine of $100,000 and ordered him to pay $243,542 in restitution to the IRS. Moreover, Mr. Kim already paid $14 million in willful FBAR penalties.

In other words, as a result of his actions, Mr. Kim lost the majority of his South Korean inheritance and all earnings on that inheritance in addition to going to be jail.

Failure to Report South Korean Inheritance Was the First Step that Led to Criminal FBAR Violations

While, undoubtedly, the entire history of willful failures to file FBARs and report foreign income on tax returns is the primary cause of Mr. Kim’s imprisonment in 2018, it is important to understand that his noncompliance was only possible because Mr. Kim did not properly report his South Korean inheritance.

In other words, had Mr. Kim disclosed on Form 3520 that he had received an inheritance from South Korea in the last 1990s, he would not have been tempted to hide his inheritance from the IRS. In fact, the disclosure of his South Korean inheritance, would have made it impossible for him to hide his foreign assets in Swiss banks afterwards.

Primary Lesson from Mr. Kim’s South Korean Inheritance Case

This is an important lesson from this case that many observers and tax attorneys have missed – Mr. Kim’s noncompliance began with failure to report South Korean inheritance, not from the failure to file FBARs and foreign income (even though, he was sentenced and penalized for the latter two activities).

In fact, a very high number of my offshore voluntary disclosure clients came from a similar background – they received an inheritance from a foreign country (and it could be any foreign country: Australia, Canada, China Colombia, France, Germany, Italy, Russia, South Korea, Thailand, et cetera) and they failed to report the foreign inheritance first (usually, due to lack of knowledge about proper reporting of foreign inheritance). This failure to report foreign inheritance later led to significant US tax noncompliance that could have only been corrected through a voluntary disclosure.

Starting in 2013-2014, I have also seen the steady rise in the “reverse discovery” inheritance cases – i.e. clients would receive a foreign inheritance and would come to me to discuss on how to best disclose it. Then, as a result of my due diligence checklist, we would uncover prior FBAR or other tax noncompliance with respect to other foreign assets my clients had prior to their foreign inheritance.

Contact Sherayzen Law Office for Proper Reporting of Your Foreign Inheritance

If you received a foreign inheritance, you should contact Sherayzen Law Office for professional help. Sherayzen Law Office is an international tax law firm that specializes in US tax reporting of a foreign inheritance. We can Help You!

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