Posts

Specified Domestic Entity: Formed or Availed Of | FATCA Lawyer & Attorney

/0 Comments/in , /by

We are continuing our series of articles on the Specified Domestic Entity definition. In previous articles, I already explained what entities are considered to be domestic and what kind of foreign assets are included in the Specified Foreign Financial Assets. In this article, I would like to introduce the key part of the definition of a Specified Domestic Entity: formed or availed of.

Due to the fact that there is a significant difference in treatment of trusts versus business entities (partnerships and corporations), I will analyze these two types of entities separately. In this article, I will focus solely on introducing the concept of Formed or Availed Of as it applies to partnerships and corporations.

Formed or Availed Of: Context

It is first useful the remember the context in which the clause “Formed or Availed Of” arises.  Treas. Reg. §1.6038D-6(a) defines a Specified Domestic Entity as “a domestic corporation, a domestic partnership, or a trust described in 26 U.S.C. §7701(a)(30)(E), if such corporation, partnership, or trust is formed or availed of for purposes of holding, directly or indirectly, specified foreign financial assets” (italics added).

Thus, the concept of “formed or availed of” is the key part to the definition of a Specified Domestic Entity.

Formed or Availed Of: Main Legal Test

It may seem to a person unfamiliar with Form 8938 that Formed or Availed Of concept implies some sort of a factual finding of intent. This first impression is not correct.

On the contrary, Formed or Availed Of concept has nothing in common with the actual intent of the parties who formed the business entity. Rather, the IRS established a very specific legal test to determine if a business entity is formed or availed of for purposes holding specified foreign financial assets.

The Formed or Availed Of Test is in reality a combination of two legal tests found in Treas. Reg. §1.6038D-6(b). An entity is considered to be formed or availed of for purposes of holding specified foreign financial assets if: (1) the corporation or the partnership is closely held (the “Closely-Held Test”), AND (2) the corporation or the partnership meets the Passive Income or Passive Assets threshold requirement (the “Passive Test”). See Treas. Reg. §1.6038D-6(b). Please, note that both tests need to be satisfied in order for a business entity to be considered as formed or availed of for purposes of holding specified foreign financial assets.

In future articles, I will explore the Closely-Held Test and the Passive Test in more detail.

Contact Sherayzen Law Office for Professional Help Concerning US International Tax Compliance Requirements for Owners of US and Foreign Businesses

If you are an owner of a foreign business or a US domestic business which owns assets overseas, contact Sherayzen Law Office for professional help concerning relevant US tax compliance requirements. We have helped US business owners around the world, and We can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

Specified Domestic Entity: Domestic Entity | FATCA Lawyer & Attorney

/0 Comments/in , /by

This is the second article from the series of articles concerning the definition of a Specified Domestic Entity. Today, I will explore what business entities are considered to be “Domestic”.

Specified Domestic Entity Background Information

Specified Domestic Entity is a new category of FATCA Form 8938 filers. Under FATCA, Form 8938 has to be filed with a US taxpayer’s tax return in order to report his Specified Foreign Financial Assets (“SFFA”). Prior to tax year 2016, Form 8938 was applicable only to individual US taxpayers. Starting tax year 2016, however, Specified Domestic Entities are required to file Form 8938 as long as the total value of their SFFA meets the filing threshold.

Definition of a Domestic Entity for the Purposes of FATCA Form 8938

For the purposes of FATCA Form 8938, whether a corporation or a partnership is considered “domestic” is determined under the general definition found in 26 U.S.C. §7701(a)(4): “the term ‘domestic’ when applied to a corporation or partnership means created or organized in the United States or under the law of the United States or of any State unless, in the case of a partnership, the Secretary provides otherwise by regulations.” Thus, while the definition of a domestic corporation is fairly straightforward, it is not always the case with respect to domestic partnerships.

It should also be remembered that an LLC is never taxed as an LLC under the US tax law. Rather, LLC can be taxed either as a partnership or a corporation; it can also be treated as a disregarded entity if there is only one owner of the LLC and the LLC never elected to be taxed as a corporation.

A trust is considered to be a “domestic trust” if it meets the 26 U.S.C. §7701(a)(30)(E). The tests under this section of the Internal Revenue Code (IRC) can be fairly complex and may require additional analysis (see this article for further analysis).

Contact Sherayzen Law Office for Professional Help With FATCA Form 8938

If you need help with the FATCA Form 8938 compliance (including the definition of a Specified Domestic Entity), contact Sherayzen Law Office for professional help. Our experienced international tax team, headed by international tax attorney Eugene Sherayzen, Esq., will thoroughly analyze your case, determine whether you need to file Form 8938 and any other US international information returns, and prepare these forms for you. We can also help you with the voluntary disclosure of any of your offshore assets if you did not timely comply with your US tax obligations with respect to these assets.

Contact Us Today to Schedule Your Confidential Consultation!

Ireland-Kazakhstan Tax Treaty Ratified | International Tax Lawyer News

/0 Comments/in , /by

On December 29, 2017, the President of Kazakhstan Nazarbayev signed the law for the ratification of the Ireland-Kazakhstan Tax Treaty for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income.

History of the Ireland-Kazakhstan Tax Treaty

The Ireland-Kazakhstan Tax Treaty was originally signed in Astana on April 26, 2017. Ireland already ratified the treaty through Statutory Instrument 479 on November 10, 2017. By ratifying the treaty on December 29, 2017, Kazakhstan completed the process for the treaty ratification on the part of Kazakhstan.

The Ireland-Kazakhstan Tax Treaty will enter into force once the ratification instruments are exchanged. The provisions of the Treaty will apply from January 1 of the year following its entry into force. The Treaty is the first tax treaty between Ireland and Kazakhstan.

Taxes Covered by the Ireland-Kazakhstan Tax Treaty

The Ireland-Kazakhstan Tax Treaty will apply to the following taxes. With respect to Ireland, the Treaty will apply to the income tax, the universal social charge, the corporation tax and the capital gains tax. For Kazakhstan, it will apply to the corporate income tax and the individual income tax. Identical or substantially similar taxes imposed by either state after the Treaty was signed are also covered by the Treaty.

Main Provisions of the Ireland-Kazakhstan Tax Treaty

Here is an overview of the most important provisions. Obviously, this is a very general description for educational purposes only, and it cannot be relied upon as a legal advice; you should contact a licensed attorney in Ireland or Kazakhstan for legal advice.

Article 4 of the Ireland-Kazakhstan Tax Treaty defines the meaning of the term “resident”. It should be noted that the Treaty applies only to Irish and Kazakh residents (see Article 2 of the Treaty).

Article 5 defines the term Permanent Establishment.

Article 6 states that income from the “immovable” property (i.e. real estate) is subject to taxation in a country where it is located. This includes business real estate. This provision, of course, does not exempt the owner of the real estate from the obligation to also pay taxes in his home country.

Article 7 deals with business profits. It states that “the profits of an enterprise of a Contracting State shall be taxable only in that Contracting State unless that enterprise carries on business in the other Contracting State through a permanent establishment situated therein.” In the latter case, “the profits of the enterprise may be taxed in the other Contracting State but only so much of them as is attributable to that permanent establishment.”

Article 8 states that “profits of an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that Contracting State.”

Article 9 deals with Associated Enterprises.

Article 10 establishes the maximum tax rates for dividends. In general, dividends should be taxed at a maximum rate of 5% if the beneficial owner is a company (other than a partnership) that directly holds at least 25 percent of the capital of the payer company; in all other cases, the tax rate should be no more than 15%.

Articles 11 and 12 establish the maximum tax withholding rate of 10% for interest and royalties respectively.

Articles 13 – 22, 24 and 25 deal with capital gains, employment income, director fees and certain special cases.

Article 23 establishes the usage of foreign tax credit to eliminate double-taxation under the Treaty.

Information Exchange and Tax Enforcement under the Ireland-Kazakhstan Tax Treaty

The Ireland-Kazakhstan Tax Treaty contains fairly strong provisions on the information exchange and tax enforcement. Article 26 provides for exchange of relevant tax information described in the Treaty. Article 27 obligates the signatory states to lend assistance for the purposes of collection of taxes.

Information Exchange under the Ireland-Kazakhstan Tax Treaty and FATCA Compliance

Article 26 of the Ireland-Kazakhstan Tax Treaty could be dangerous to US citizens who are also either Kazakh residents or citizens. The reason for it is FATCA which would obligate Ireland to turn over the information it receives under the Treaty directly to the IRS in cases where this information concerns noncompliant US tax residents. This may lead to an IRS investigation and the imposition of FBAR and other penalties on these US taxpayers.

Contact Sherayzen Law Office if You Have Unreported Foreign Accounts in Ireland or Kazakhstan

If you have undisclosed foreign accounts and/or foreign income in Ireland and Kazakhstan, contact Sherayzen Law Office as soon as possible. Our firm specializes in offshore voluntary disclosures and has helped hundreds of US taxpayers to deal with this issue. We can help You!

Contact Us Today for Your Confidential Consultation!

H1B Holder FATCA Requirements

/0 Comments/in , /by

There is a confusion in general public about the H1B holder FATCA requirements. The key concept that lies at the heart of the U.S. tax obligations of an H1B holder is tax residency (which is very different from the definition of a U.S. permanent resident in immigration law). In this article, I will discuss the concept of tax residency and the H1B Holder FATCA requirements.

H1B Holder FATCA Requirements: H1B Visa

H1B visa is a non-immigrant visa that allows U.S. companies to hire foreign workers to work in the United States. These workers have to be working in occupations that require theoretical or technical expertise in specialized fields such as in architecture, engineering, mathematics, science and medicine.

H1B Holder FATCA Requirements: FATCA

The Foreign Account Tax Compliance Act (FATCA) was signed into law in the year 2010. This law was passed by U.S. Congress with the specific purpose of combating tax noncompliance of U.S. taxpayers with undeclared offshore accounts. Today, FATCA is one of the most influential tax information exchange regimes in the world; through a huge network of bilateral treaties, the IRS managed to implement FATCA in the great majority of the countries.

FATCA consists of basically two parts. First, it obligates foreign financial institutions to turn over to the IRS certain information regarding foreign accounts owned by U.S. persons as well as certain information regarding the U.S. owners themselves. The H1B Holder FATCA information is also required to be turned over to the IRS.

The second part of FATCA imposes a new reporting requirement, IRS Form 8938, which must be filed with a U.S. tax return. Form 8938 requires U.S. taxpayers to disclose specified foreign assets to the IRS. “Specified Foreign Assets” includes various class assets, including foreign financial accounts.

H1B Holder FATCA Requirements: Tax Residency and FATCA Requirements

The key to understanding H1B holder FATCA requirements is the determination of whether an H1B holder is a tax resident of the United States. In order for an H1B holder to be classified as a U.S. tax resident, he must pass the “substantial presence test”. The substantial presence test determines the tax residency of a person based on the number of days this individual was physically in the United States.

If the substantial presence test is satisfied, the H1B holder is considered to be a tax resident of the United States. As a U.S. tax resident, the H1B holder FATCA requirements will be the same as those of any other U.S. tax resident, including U.S. citizens and U.S. permanent residents.

This means that, under FATCA, foreign banks should disclose to the IRS all of the foreign financial accounts owned directly, indirectly or constructively by the H1B holder. At the same time, the H1B holder FATCA obligations extend to filing Form 8938 for all of the required specified foreign assets, including foreign financial accounts, foreign stocks and other securities, foreign bonds, foreign derivatives and ownership of foreign businesses (unless such ownership is reported on another IRS form; in this case, Form 8938 should indicate the form on which such foreign business ownership is disclosed), and other assets.

H1B Holder FATCA Requirements: Late Disclosure

What if H1B holder FATCA obligations were not timely satisfied (i.e. Forms 8938 should have been filed, but they never were) and the H1B holder just found out about it? If an H1B holder did not file Forms 8938 timely, he may be subject to Form 8938 penalties. Moreover, in most such cases, such an H1B holder is likely to have failed to comply with other important U.S. international tax requirements such as FBAR and worldwide income reporting. The combination of FATCA, FBAR, income reporting and other penalties may create a huge tax liability that may even exceed the total value of the H1B holder’s foreign assets.

In such cases, the H1B holder should contact an international tax attorney experienced in offshore voluntary disclosures as soon as possible. Various offshore voluntary disclosure options offer varying rates of reduced penalties, sometimes even with the possibility of eliminating all penalties. However, time is of the essence – if foreign banks report the H1B holder’s foreign assets as part of their FATCA compliance and the IRS commences its investigation of the H1B holder FATCA noncompliance, then all of the voluntary disclosure options may automatically close.

Contact Sherayzen Law Office for Legal Help with H1B Holder FATCA Compliance

If you work in the United States on H1B visa, have foreign assets which are required to be disclosed under FATCA and have not done so, you should contact Sherayzen Law Office as soon as possible. Sherayzen Law Office is an experienced international tax law firm that specializes in FATCA compliance for U.S. taxpayers, including voluntary disclosures for H1B holders.

Contact Us Today to Schedule Your Confidential Consultation!

What is a FATCA Letter?

/0 Comments/in , /by

Over eight million U.S. taxpayers are expected to receive FATCA letters from their foreign banks. The first reaction of most taxpayers is to ask: “What is a FATCA letter?” The next question is: “What should I do if I receive(d) a FATCA Letter?” This article intends to answer both questions.

The FATCA Letter

A FATCA Letter is a communication from your foreign bank to you in order to obtain the information that the foreign bank is required to disclose to the IRS under the Foreign Account Tax Compliance Act (FATCA). The basic purpose of a FATCA Letter is to confirm whether you are a U.S. person. Once this information is confirmed, your foreign bank will disclose to the IRS all of the FATCA-required information, including the account numbers and balances of your foreign account.

Your FATCA Letter will usually arrive with the enclosed Forms W-9 and W-8BEN. Form W-9 usually pertains to U.S. citizens, while the Form W-8BEN is usually reserved for nonresident aliens (for U.S. tax purposes).

What Should I Do if I Received a FATCA Letter and I Have Not Reported My Foreign Accounts to the IRS?

Now that you know what a FATCA Letter is, it is important to consider what you should do when you receive one from your foreign bank.

The first thing is to understand what not to do – you should NOT ignore a FATCA Letter. You now know what a FATCA Letter is and you understand that it is used by the bank to comply with FATCA. Hence, if you ignore your FATCA Letter, the bank must do something to explain to the IRS why it could not comply with its reporting obligations. This “something” is likely to get you in trouble, because not only can your bank close your bank account (depending on the FATCA treaty), but your foreign bank will also report you as a “recalcitrant” taxpayer to the IRS together with the account number and the balance. This will likely lead to a later IRS examination which may prevent you from doing any type of a voluntary disclosure and subject you to draconian FBAR penalties.

Rather, with the understanding of the FATCA Letter, your plan of action should be as follows:

1. Understand the deadline by which you should respond to your FATCA letter and see if you have sufficient time to contact an international tax law firm (such as Sherayzen Law Office) prior to the deadline. If you do not have enough time, contact the bank and ask them for more time due to your need to seek legal advice – 30 to 45 days is usually considered reasonable.

However, try to avoid sending any information to the bank if possible without going through step #2 first. I have seen on the internet suggestions from some attorneys to immediately send to the bank Form W-9 before you consult an attorney; usually, such haste is premature and ill-advised. You need to know your legal position first.

2. Schedule a consultation with an international tax law firm immediately after you receive your FATCA Letter – Sherayzen Law Office would naturally be the best choice as the firm that specializes in dealing with FATCA letters.

3. Prepare as many documents and bank records as you can prior to the consultation. Now that you know about the FATCA Letter, you understand that it will involve your entire tax situation. Ask Attorney Eugene Sherayzen for a list of items needed to be supplied prior to the consultation.

4. Go through with the consultation. The consultation is not going to focus just on the FATCA Letter and how it impacts your case; rather, the majority of the consultation will be centered around the discussion of your legal position, your current tax reporting requirements and your voluntary disclosure options.

5. Retain an international tax law firm to do your voluntary disclosure. Again, my suggestion is to retain Sherayzen Law Office, because this is a firm that specializes in the voluntary disclosures and international tax compliance involving FATCA, FBAR, foreign trusts, foreign inheritance, foreign business ownership, and other IRS requirements that may be applicable to you.