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2018 Tax Filing Season | International Tax Lawyer News

On January 4, 2018, the IRS announced that the 2018 tax filing season for the tax year 2017 will commence on January 29, 2018. This date was chosen by the IRS to make sure its software incorporates the full impact of the Tax Cuts and Jobs Act of 2017 on the 2017 tax returns.

2018 Tax Filing Season: EITC and ACTC Refunds

Despite the fact that the 2018 tax filing season will begin on January 29, the IRS warned that taxpayers who will claim Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) will not receive their refunds until at least February 27, 2018.

2018 Tax Filing Season: Processing of Paper Tax Returns

Also, it is important to note that the processing of paper returns will begin only in mid-February, because the system updates will continue until that time. The IRS, however, will begin accepting both, electronic and paper tax returns, on January 29, 2018.

This is very important for taxpayers who file US international information returns, such as Forms 926, 5471, 8621, 8865, 8938, et cetera. A lot of these returns are voluminous and cannot be e-filed due to tax software limitations; hence, they must be filed on paper.

2018 Tax Filing Season: Deadline on April 17, 2018

The filing deadline to submit 2017 tax returns will be on Tuesday, April 17, 2018. Usually, the deadline would be on April 15, but, in 2018, April 15 falls on a Sunday and April 16 is a legal holiday in the District of Columbia (Emancipation Day). Under the tax law, legal holidays in the District of Columbia affect the filing deadline for federal tax returns; hence, the filing deadline moved by one more day to April 17, 2018.

US taxpayers who have to file international information returns should keep in mind that there are two categories of such returns: information reports which are filed with their 2017 tax returns and the information reports which are filed (or e-filed) separately from the 2017 tax returns. Forms 926, 5471, 8621, 8865, 8938 and other similar information returns must be filed with the original US tax returns.

On he other hand, FBARs (FinCEN Form 114) and Form 3520 should be filed separately from the taxpayers’ tax returns. The deadline for this category of returns, however, is the same as the deadline for the 2017 tax returns – April 17, 2018 (unless an extension is filed).

Contact Sherayzen Law Office for Help with Your US International Tax Compliance During this 2018 Tax Filing Season

If you have foreign income and/or foreign assets, or if you received a foreign gift or inheritance, you should contact Sherayzen Law Office for professional help in determining your US tax compliance obligations and the preparation of the required US international information returns.

Contact Us Today to Schedule Your Confidential Consultation!

IRS International No Rule List Updated | International Tax Lawyer News

On January 2, 2018, the IRS issued Rev. Proc. 2018-7 (2018-1 IRB 271) to update its existing international No Rule list. I will quickly overview what the No Rule List is and provide a copy of Sections 3 and 4 of the No Rule List.

What is an International No Rule List?

It may be surprising to many taxpayers to learn, but the IRS does not rule on all matters within its jurisdiction. The IRS may provide a Private Letter Ruling, Determination Letters and Opinion Letters with respect to most, but not all areas of the Internal Revenue Code.

The areas for which the IRS will not issue a letter ruling or a determination letter are grouped under a single term “No Rule List”.

Rev. Proc. 2018-7 and the International No Rule List

Rev. Proc. 2018-7 supersedes Rev. Proc. 2017-7 and updates all international tax matters under the IRS jurisdiction for which the IRS will not answer a taxpayer’s inquiry. Rev. Proc. 2018-7 is directly relevant to 26 CFR 601.201 (which deals with rulings and determination letters).

The chief change introduced by Rev. Proc. 2018-7 to the No Rule List is a new section 4.01(26), which deals with IRC Section 1059A. Additionally, Rev. Proc. 2018-7 renumbered the rest of the relevant sections and cross references due to the addition of a new section.

No Rule List: Section 3 List Versus Section 4 List

The No Rule List differentiates between two types of situations which are organized under Section 3 and Section 4 of Rev. Proc. 2018-7. Section 3 lists the areas of the IRC in which letter rulings and determination letters will not be issued under any circumstances.

Section 4, however, lists the areas of the IRC in which a ruling will not ordinarily be issued unless there are unique and compelling reasons that justify issuing a letter ruling or a determination letter.

Despite the existence of the No Rule List, the IRS may still provide a general information letter in response to inquiries in areas on either list. On the other hand, just because an IRC section or an item is not listed on the No Rule List does not automatically mean that the IRS will answer a taxpayer’s inquiry. Rev. Proc. 2018-7 specifically states that the IRS may “decline to rule on an individual case for reasons peculiar to that case, and such decision will not be announced in the Internal Revenue Bulletin”.

International No Rule List and Section 4 International Tax Interpretation Requests

As it was mentioned above, a taxpayer may still request a letter ruling or a determination letter for any of the Section 4 items of the No Rule List. If he decides to do so, he should contact (by telephone or in writing) the Office of Associate Chief Counsel (International) (“the Office”) prior to making such a request and discuss with the Office the unique and compelling reasons that the taxpayer believes justify issuing such letter ruling or determination letter. While not required, a written submission is encouraged since it will enable the Office personnel to arrive more quickly at an understanding of the unique facts of each case. A taxpayer who contacts the Office by telephone may be requested to provide a written submission.

International No Rule List Section 3

I am copying here Section 3 of the Rev. Proc. 2018-7 which describes the areas in which ruling or determination Letters will no be issued under any circumstances:

“.01 Specific Questions and Problems

(1) Section 861. – Income from Sources Within the United States. – A method for determining the source of a pension payment to a nonresident alien individual from a trust under a defined benefit plan that is qualified under § 401(a) if the proposed method is inconsistent with §§ 4.01, 4.02, and 4.03 of Rev. Proc. 2004–37, 2004–1 C.B. 1099.

(2) Section 862. – Income from Sources Without the United States. – A method for determining the source of a pension payment to a nonresident alien individual from a trust under a defined benefit plan that is qualified under § 401(a) if the proposed method is inconsistent with §§ 4.01, 4.02, and 4.03 of Rev. Proc. 2004–37, 2004–1 C.B. 1099.

(3) Section 871(g). – Special Rules for Original Issue Discount. – Whether a debt instrument having original issue discount within the meaning of § 1273 is not an original issue discount obligation within the meaning of § 871(g)(1)(B)(i) when the instrument is payable 183 days or less from the date of original issue (without regard to the period held by the taxpayer).

(4) Section 894. – Income Affected by Treaty. – Whether a person that is a resident of a foreign country and derives income from the United States is entitled to benefits under the United States income tax treaty with that foreign country pursuant to the limitation on benefits article. However, the Service may rule regarding the legal interpretation of a particular provision within the relevant limitation on benefits article.

(5) Section 954. – Foreign Base Company Income. – The effective rate of tax that a foreign country will impose on income.

(6) Section 954. – Foreign Base Company Income. – Whether the facts and circumstances evince that a controlled foreign corporation makes a substantial contribution through the activities of its employees to the manufacture, production, or construction of the personal property sold within the meaning of § 1.954–3(a)(4)(iv).

(7) Section 7701(b). – Definition of Resident Alien and Nonresident Alien. – Whether an alien individual is a nonresident of the United States, including whether the individual has met the requirements of the substantial presence test or exceptions to the substantial presence test. However, the Service may rule regarding the legal interpretation of a particular provision of § 7701(b) or the regulations thereunder.

.02 General Areas.

(1) The prospective application of the estate tax to the property or the estate of a living person, except that rulings may be issued on any international issues in a ruling request accepted pursuant to § 5.06 of Rev. Proc. 2018–1, in this Bulletin.

(2) Whether reasonable cause exists under Subtitle F (Procedure and Administration) of the Code.

(3) Whether a proposed transaction would subject a taxpayer to criminal penalties.

(4) Any area where the ruling request does not comply with the requirements of Rev. Proc. 2018–1.

(5) Any area where the same issue is the subject of the taxpayer’s pending request for competent authority assistance under a United States tax treaty.

(6) A ‘comfort’ ruling will not be issued with respect to an issue that is clearly and adequately addressed by statute, regulations, decisions of a court, tax treaties, revenue rulings, or revenue procedures absent extraordinary circumstances (e.g., a request for a ruling required by a governmental regulatory authority in order to effectuate the transaction).

(7) Any frivolous issue, as that term is defined in § 6.10 of Rev. Proc. 2018–1.”

International No Rule List Section 4

I am copying here Section 4 of the International No Rule List which describes the areas in which ruling or determination Letters will not ordinarily be issued:

“.01 Specific Questions and Problems

(1) Section 367(a). – Transfers of Property from the United States. – Whether an oil or gas working interest is transferred from the United States for use in the active conduct of a trade or business for purposes of § 367(a)(3); and whether any other property is so transferred, where the determination requires extensive factual inquiry.

(2) Section 367(a). – Transfers of Property from the United States. – Whether a transferred corporation subject to a gain recognition agreement under § 1.367(a)–8 has disposed of substantially all of its assets.

(3) Section 367(b). – Other Transfers. – Whether and the extent to which regulations under § 367(b) apply to an exchange involving foreign corporations, unless the ruling request presents a significant legal issue or subchapter C rulings are requested in the context of the exchange.

(4) Section 864. – Definitions and Special Rules. – Whether a taxpayer is engaged in a trade or business within the United States, and whether income is effectively connected with the conduct of a trade or business within the United States; whether an instrument is a security as defined in § 1.864–2(c)(2); whether a taxpayer effects transactions in the United States in stocks or securities under § 1.864 –2(c)(2); whether an instrument or item is a commodity as defined in § 1.864 –2(d)(3); and for purposes of § 1.864–2(d)(1) and (2), whether a commodity is of a kind customarily dealt in on an organized commodity exchange, and whether a transaction is of a kind customarily consummated at such place.

(5) Section 871. – Tax on Nonresident Alien Individuals. – Whether a payment constitutes portfolio interest under § 871(h); whether an obligation qualifies for any of the components of portfolio interest such as being in registered form; and whether the income earned on contracts that do not qualify as annuities or life insurance contracts because of the limitations imposed by § 72(s) and § 7702(a) is portfolio interest as defined in § 871(h).

(6) Section 881. – Tax on Income of Foreign Corporations Not Connected with United States Business. – Whether the income earned on contracts that do not qualify as annuities or life insurance contracts because of the limitations imposed by § 72(s) and § 7702(a) is portfolio interest as defined in § 881(c).

(7) Section 892. – Income of Foreign Governments and of International Organizations. – Whether income derived by foreign governments and international organizations from sources within the United States is excluded from gross income and exempt from taxation and any underlying issue related to that determination.

(8) Section 893. – Compensation of Employees of Foreign Governments and International Organizations. – Whether wages, fees, or salary of an employee of a foreign government or of an international organization received as compensation for official services to such government or international organization is excluded from gross income and exempt from taxation and any underlying issue related to that determination.

(9) Section 894. – Income Affected by Treaty. – Whether the income received by an individual in respect of services rendered to a foreign government or a political subdivision or a local authority thereof is exempt from federal income tax or withholding under any of the United States income tax treaties which contain provisions applicable to such individuals.

(10) Section 894. – Income Affected by Treaty. – Whether a taxpayer has a permanent establishment in the United States for purposes of any United States income tax treaty and whether income is attributable to a permanent establishment in the United States.

(11) Section 894. – Income Affected by Treaty. – Whether certain persons will be considered liable to tax under the laws of a foreign country for purposes of determining if such persons are residents within the meaning of any United States income tax treaty. But see Rev. Rul. 2000–59, 2000–2 C.B. 593.

(12) Section 894. – Income Affected by Treaty. – Whether the income received by a nonresident alien student or trainee for services performed for a university or other educational institution is exempt from federal income tax or withholding under any of the United States income tax treaties which contain provisions applicable to such nonresident alien students or trainees.

(13) Section 894. – Income Affected by Treaty. – Whether the income received by a nonresident alien performing research or teaching as personal services for a university, hospital or other research institution is exempt from federal income tax or withholding under any of the United States income tax treaties which contain provisions applicable to such nonresident alien teachers or researchers.

(14) Section 894. – Income Affected by Treaty. – Whether a foreign recipient of payments made by a United States person is ineligible to receive the benefits of a United States tax treaty under the principles of Rev. Rul. 89–110, 1989–2 C.B. 275.

(15) Section 894. – Income Affected by Treaty. – Whether a recipient of payments is or has been a resident of a country for purposes of any United States tax treaty. Pursuant to § 1.884 –5(f), however, the Service may rule whether a corporation representing that it is a resident of a country is a qualified resident thereof for purposes of § 884.

(16) Section 894. – Income Affected by Treaty. – Whether an entity is treated as fiscally transparent by a foreign jurisdiction for purposes of § 894(c) and the regulations thereunder.

(17) Section 901. – Taxes of Foreign Countries and of Possessions of United States. – Whether a foreign levy meets the requirements of a creditable tax under § 901.

(18) Section 901. – Taxes of Foreign Countries and of Possessions of United States. – Whether a person claiming a credit has established, based on all of the relevant facts and circumstances, the amount (if any) paid by a dual capacity taxpayer under a qualifying levy that is not paid in exchange for a specific economic benefit. See § 1.901–2A(c)(2).

(19) Section 903. – Credit for Taxes in Lieu of Income, Etc., Taxes. – Whether a foreign levy meets the requirements of a creditable tax under § 903.

(20) Sections 954(d), 993(c). – Manufactured Product. – Whether a product is manufactured or produced for purposes of § 954(d) and § 993(c).

(21) Section 937. – Definition of Bona Fide Resident. – Whether an individual is a bona fide resident of American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, or the U.S. Virgin Islands. However, the Service may rule regarding the legal interpretation of a particular provision of § 937(a) or the regulations thereunder.

(22) Section 956. – Investment of Earnings in United States Property. – Whether a pledge of the stock of a controlled foreign corporation is an indirect pledge of the assets of that corporation. See § 1.956–2(c)(2).

(23) Section 985. – Functional Currency. – Whether a currency is the functional currency of a qualified business unit.

(24) Section 989(a). – Qualified Business Unit. – Whether a unit of the taxpayer’s trade or business is a qualified business unit.

(25) Section 1058. – Transfers of Securities Under Certain Agreements. – Whether the amount of any payment described in § 1058(b)(2) or the amount of any other payment made in connection with a transfer of securities described in § 1058 is from sources within or without the United States; the character of such amounts; and whether the amounts constitute a particular kind of income for purposes of any United States income tax treaty.

(26) Section 1059A. – Limitation on taxpayer’s basis or inventory cost in property imported from related persons. – Whether a taxpayer’s cost or inventory basis in property imported from a foreign affiliate will not be limited by § 1059A due to differences between customs valuation and tax valuation.

(27) Sections 1471, 1472, 1473, and 1474. – Taxes to Enforce Reporting on Certain Foreign Accounts. – Whether a taxpayer, withholding agent, or intermediary has properly applied the requirements of chapter 4 of the Internal Revenue Code (sections 1471 through 1474, also known as “FATCA”) or of an applicable intergovernmental agreement to implement FATCA.

(28) Section 1503(d). – Dual Consolidated Loss. – Whether the income tax laws of a foreign country would deny any opportunity for the foreign use of a dual consolidated loss in the year in which the dual consolidated loss is incurred under § 1.1503(d)–3(e)(1); whether no possibility of foreign use exists under § 1.1503(d)–6(c)(1); whether an event presumptively constitutes a triggering event under § 1.1503(d)–6(e)(1)(i)–(ix); whether the presumption of a triggering event is rebutted under § 1.1503(d)–6(e)(2); and whether a domestic use agreement terminates under § 1.1503(d)–6(j)(1). The Service will also not ordinarily rule on the corresponding provisions of prior regulations under § 1503(d).

(29) Section 2501. – Imposition of Tax. – Whether a partnership interest is intangible property for purposes of § 2501(a)(2) (dealing with transfers of intangible property by a nonresident not a citizen of the United States).

(30) Section 7701. – Definitions. – Whether an estate or trust is a foreign estate or trust for federal income tax purposes.

(31) Section 7701. – Definitions. – Whether an intermediate entity is a conduit entity under § 1.881–3(a)(4); whether a transaction is a financing transaction under § 1.881–3(a)(4)(ii); whether the participation of an intermediate entity in a financing arrangement is pursuant to a tax avoidance plan under § 1.881–3(b); whether an intermediate entity performs significant financing activities under § 1.881–3(b)(3)(ii); whether an unrelated intermediate entity would not have participated in a financing arrangement on substantially the same terms under § 1.881–3(c).

(32) Section 7874. – Expatriated Entities and Their Foreign Parents. – Whether, after the acquisition, the expanded affiliated group has substantial business activities in the foreign country in which, or under the law of which, the foreign entity is created or organized, when compared to the total business activities of the expanded affiliated group.

(33) Section 7874. – Expatriated Entities and Their Foreign Parents. – Whether a foreign corporation completes the direct or indirect acquisition of substantially all of the properties held directly or indirectly by a domestic corporation or substantially all of the properties constituting a trade or business of a domestic partnership.

.02 General Areas

(1) Whether a taxpayer has a business purpose for a transaction or arrangement.

(2) Whether a taxpayer uses a correct North American Industry Classification System (NAICS) code or Standard Industrial Classification (SIC) code.

(3) Any transaction or series of transactions that is designed to achieve a different tax consequence or classification under U.S. tax law (including tax treaties) and the tax law of a foreign country, where the results of that different tax consequence or classification are inconsistent with the purposes of U.S. tax law (including tax treaties).

(4)(a) Situations where a taxpayer or a related party is domiciled or organized in a foreign jurisdiction with which the United States does not have an effective mechanism for obtaining tax information with respect to civil tax examinations and criminal tax investigations, which would preclude the Service from obtaining information located in such jurisdiction that is relevant to the analysis or examination of the tax issues involved in the ruling request.

(b) The provisions of subsection 4.02(4)(a) above shall not apply if the taxpayer or affected related party (i) consents to the disclosure of all relevant information requested by the Service in processing the ruling request or in the course of an examination to verify the accuracy of the representations made and to otherwise analyze or examine the tax issues involved in the ruling request, and (ii) waives all claims to protection of bank or commercial secrecy laws in the foreign jurisdiction with respect to the information requested by the Service. In the event the taxpayer’s or related party’s consent to disclose relevant information or to waive protection of bank or commercial secrecy is determined by the Service to be ineffective or of no force and effect, then the Service may retroactively rescind any ruling rendered in reliance on such consent.

(5) The federal tax consequences of proposed federal, state, local, municipal, or foreign legislation.

(6)(a) Situations involving the interpretation of foreign law or foreign documents. The interpretation of a foreign law or foreign document means making a judgment about the import or effect of the foreign law or document that goes beyond its plain meaning.

(b) The Service, at its discretion, may consider rulings that involve the interpretation of foreign laws or foreign documents. In these cases, the Service may request information in addition to that listed in § 7.01(2) and (6) of Rev. Proc. 2018–1, including a discussion of the implications of any authority believed to interpret the foreign law or foreign document, such as pending legislation, treaties, court decisions, notices or administrative decisions.”

Indians working on H1 Visa Need to Pay US Taxes on Indian Income

US taxes on Indian income is one of the most important topics relevant to the everyday life of Indian-Americans and Indians who reside and work in the United States. In this article, I will focus on the issue of US taxes on Indian Income earned by H1 (mostly H1B) visa holders.

US Taxes on Indian Income and US Tax Residency

Whether an Indian working in the United States needs to pay US taxes on Indian income primarily depends on whether he is a US tax resident. There are three categories of US tax residents – US citizens, US Permanent Residents (i.e. green-card holders), and the individuals who satisfied the Substantial Presence Test.

Any person who is considered to be a US tax resident is required to report his worldwide income on his US tax return and pay US taxes on this income. Hence, if an Indian working in the United States on H1 visa has Indian-source income and he satisfied the Substantial Presence Test, he would be required to pay US taxes on his Indian income, not just income earned in the United States.

US Taxes on Indian Income: the Substantial Presence Test

The Substantial Presence Test is very important in US tax law because it affects millions of foreigners who reside in or visit the United States. The Substantial Presence Test basically states that any individual who is physically present in the United States for 183 days or more within the most recent three-year period is considered to be a US tax resident.

The 183 days are calculated as follows: all days spent in the current year + one-third of the days spent in the year immediately prior to the current year + one-sixth of the days spent in the year right before the prior year (in other words, the second year before the current year) “Current year” here means the year for which you are trying to figure out whether you were a tax resident.

Failure to Pay US Taxes on Indian Income May Result in IRS Penalties and Endangerment of Your Immigration Status

Any Indian who is a US tax resident and fails to pay US taxes on Indian income runs a great risk of the imposition of IRS penalties. If the failure to pay US taxes on Indian income is combined with the failure to file information returns, such as FBARs, then his legal situation in the United States becomes extremely precarious.

Not only are the IRS penalties extremely high (such a person may owe to the IRS more than the balance on your unreported accounts), including criminal penalties with potential jail time, but his immigration status may be endangered as a result of his US tax noncompliance.

Contact Sherayzen Law Office for Professional Help With Your Undisclosed Indian Income and Indian Foreign Accounts

Given these extreme risks, an Indian working in the United States on H1 visa should contact Sherayzen Law Office for professional legal and tax help as soon as possible.

We have helped numerous clients from India to reduce and even, in some cases, completely eliminate their IRS penalties and bring their US tax affairs into full compliance with US tax laws, thereby preserving their immigration status.

We can help you! Contact Us Today to Schedule Your Confidential Consultation!

IRS Uses Panama Papers to Identify Noncompliant Taxpayers

In April of 2016, the IRS acknowledged its participation in meetings with Joint International Tax Shelter Information and Collaboration network (“JITSIC”), International Monetary Fund (IMF) and World Bank to take advantage of the data about more than 200,000 offshore companies identified in the Panama Papers. At the same time, the IRS urged noncompliant U.S. taxpayers to come forward before the IRS finds them.

JITSIC and IMF/World Bank Meetings on Panama Papers

The JITSIC meeting regarding Panama Papers brought together senior tax officials from more than forty countries to discuss, per OECD, “opportunities for obtaining data, co-operation and information-sharing in light of the ‘Panama Papers’ revelations”. The IRS officials said they could not discuss who participated and what, specifically, was discussed. But in its statement to NBC News, the IRS described the meeting as “productive and timely” and said “governments around the world are working together cooperatively” to respond to the information released in the Panama Papers, with JITSIC setting itself up as a coordinator.

The following day, the IRS further discussed Panama Papers in gatherings that were part of the annual IMF and World Bank meetings.

After those meetings regarding Panama papers, bankers and finance ministers from the world’s twenty largest economies warned tax havens about their future efforts to punish governments that continue to hide billions of dollars in offshore accounts. The IRS also encouraged any U.S. citizens and companies that may have money in offshore accounts to do a voluntary disclosure with respect to these accounts.

Panama Papers Increase Pressure on IRS to Move Forward Against Cayman Islands, Singapore, Bermuda and Other Tax Shelters

According to media reports, the Panama papers may contain information on potentially thousands of U.S. citizens and firms that have at least an indirect connection to offshore accounts affiliated with Mossack Fonseca. The Panama papers, however, are not likely to contain any spectacular information with respect to U.S. taxpayers because these taxpayers mostly prefer to use Cayman Islands, Singapore and Bermuda.

Nevertheless, while the Panama papers might not be very informative about the U.S. citizens, these documents have increased the political pressure on the IRS to move forward against other tax shelters. Therefore, we should not be surprised if we see new bold IRS initiatives in Cayman Islands, Singapore and Bermuda.

This means that the U.S. taxpayers who have undisclosed foreign assets in Cayman Islands, Singapore and Bermuda should analyze their voluntary disclosure options before it is too late. After the IRS discovery, most (and, perhaps, all) of their voluntary disclosure options will be foreclosed due to IRS examinations.

Contact Sherayzen Law Office for Professional Help With Your Offshore Voluntary Disclosure

If you own, directly or indirectly (through a domestic or foreign corporation, LLC, partnership or trust) undisclosed foreign accounts, you should contact the professional legal team of Sherayzen Law Office as soon as possible. Our highly-experienced legal team is headed by one of the leading experts in U.S. international tax law, attorney Eugene Sherayzen. We will thoroughly review the facts of your case, analyze your current U.S. tax exposure and available voluntary disclosure options, prepare all of the necessary legal documents and tax forms and defend your case against the IRS until its completion. We have helped U.S. taxpayers around the world and we can help You!

Contact Us Today to Schedule Your Confidential Consultation!

SDOP Voluntary Disclosure Period and Tax Return Filing Deadline

A lot of tax professionals and taxpayers fail to recognize the vital connection between a tax return filing deadline (like April 18, 2016) and the determination of the SDOP Voluntary Disclosure Period. In this article, I will explain what the SDOP Voluntary Disclosure Period and how it is related to tax return filing deadlines.

SDOP Background

Streamlined Domestic Offshore Procedure exists in its current format since June 18, 2014, when the IRS announced the most dramatic changes to its Offshore Voluntary Disclosure Program (OVDP) since 2009 OVDP. In essence, SDOP is an alternative to OVDP and allows taxpayers to bring their tax affairs into full compliance with US tax laws in a simpler way with a lower penalty.

SDOP Voluntary Disclosure Period

One of the most important differences between SDOP and OVDP is the Voluntary Disclosure Period – i.e. how many tax years should the voluntary disclosure cover. While OVDP voluntary disclosure period covers the past eight years for FBARs and tax returns, SDOP voluntary disclosure period covers only six past years of FBARs and only three years of past tax returns.

Connection Between SDOP Voluntary Disclosure Period and the Tax Return Filing Deadline

There is an important connection between SDOP voluntary disclosure period and the Tax Return Filing Deadline. As it mentioned above, SDOP Voluntary Disclosure Period covers “past” three years of tax returns.

What does “past year” mean in this context? It means a year for which the U.S. tax return due date (or properly applied for extended due date) has passed. The connection between SDOP voluntary disclosure period and the tax return filing deadline now becomes clear.

Let’s illustrate it further with a hypothetical example. If SDOP is scheduled to be completed on April 1, 2016, the SDOP voluntary disclosure period will cover the most recent three years of U.S. tax returns for which the Tax Return filing Deadline has passed. As of April 1, 2016, the deadline for the 2015 tax return has not yet passed; this means that the SDOP voluntary disclosure period (for tax return purposes) will cover tax years 2012-2014.

If SDOP is scheduled to be completed on April 30, 2016 and the 2015 tax return was timely filed (if not and no extension was filed, the taxpayer will likely be disqualified from participating in SDOP), then the SDOP voluntary disclosure period will shift to the tax years 2013-2015.

What if SDOP is completed on April 30, 2016, and an extension was filed for the 2015 tax return? In this case, the SDOP voluntary disclosure period will remain limited to 2012-2014 tax years.

SDOP Voluntary Disclosure Period’s Relationship to Tax Filing Deadline Offers Planning Opportunities

This relationship between SDOP voluntary disclosure period and the tax filing deadline offers plenty of planning opportunities for SDOP disclosures which are completed around the tax filing deadline because it allows the taxpayer’s attorney (who is doing SDOP on behalf of his client) exercise a certain degree of control over which years will be included in the SDOP voluntary disclosure period.

For example, if a taxpayer has a large tax liability in the tax year 2012 if the return is amended and a small tax liability in the tax year 2015, then the taxpayer’s attorney will likely choose to prepare and file timely 2015 tax return. On the other hand, there are situations where the taxpayer would like to include tax year 2012 in the SDOP voluntary disclosure period (for example, if there is a large foreign capital loss), then the taxpayer’s attorney would opt for filing an extension for the 2015 tax return.

It is important to emphasize that a decision with respect to SDOP voluntary disclosure period should always rest with an international tax attorney who is handling the SDOP disclosure. There may be complex reasons for excluding and including years within SDOP voluntary disclosure period and only an experienced tax professional should make these decisions.

Contact Sherayzen Law Office for Professional Help with Your Voluntary Disclosure

Offshore Voluntary Disclosures with respect to unreported foreign income and foreign assets can be extraordinarily complex, especially in light of draconian IRS penalties that U.S. taxpayers often face. This is why these matters should always be handled by an experienced international tax attorney.

Sherayzen Law Office is one of the most experienced international tax laws firms, especially when it comes to offshore voluntary disclosures. We have helped clients around the world to participate in every major voluntary disclosure program, including 2009 OVDP, 2011 OVDI, 2012 OVDP, 2014 OVDP, Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures and other related voluntary disclosure options. Not only did we help our clients to go through these complex legal procedures and prepared all of their tax forms (including those related to foreign business ownership, trust ownership and PFICs), but we also saved our clients millions in potential penalties and tax liabilities!

We can help You! Contact Us Today to Schedule Your Confidential Consultation!