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Sherayzen Law Office Successfully Completes October 2018 Tax Season

Sherayzen Law Office, Ltd., successfully ended yet another tax season. The October 2018 tax season presented formidable challenges not only due to the diversity of the issues involved, but also the sheer volume of deadlines that needed to be completed between September 16 and October 15, 2018.

Let’s analyze the October 2018 tax season in more detail.

October 2018 Tax Season: Diversity of Tax Forms

During this October 2018 tax season, the tax team of Sherayzen Law Office had to deal with highly diverse tax issues – as usual. Our team is very well-versed in foreign income reporting and US international information returns such as: FBAR and FATCA Form 8938, business tax forms (926, 5471, 8858 and 8865), foreign trust forms (3520 and 3520-A), foreign gifts & inheritance reporting (Form 3520 and other relevant forms), PFICs and others. All of these forms needed to be completed for the October 2018 tax season.

However, there was something very new this time – Section 965 Transition Tax. As a result of the 2017 tax reform, US owners of certain foreign corporations were forced to recognize as income the accumulated E&P of their foreign corporations at their ownership percentage. The Section 965 tax compliance added a significant burden to the October 2018 tax season.

October 2018 Tax Season: High Volume of Deadlines & High Diversity of Assets

Between September 16 and October 15, 2018, Sherayzen Law Office completed over 70 deadlines for its clients. As part of these deadlines, we filed about 50 FBARs and a similar number of Forms 8938, about two dozens of Forms 5471/5472 and a smaller number of Forms 8865, about a dozen of Forms 3520 and over 200 Forms 8621.

Numerous forms were filed to report foreign rental income as well as foreign dividend and interest income. The vast majority of the filed tax returns included Foreign Tax Credit calculations.

October 2018 Tax Season: Diversity of Countries

The reported assets belonged to a wide variety of countries. During the October 2018 Tax Season, Sherayzen Law Office reported assets from virtually all main areas of the world. The majority of assets were reported from the European (particularly: France, Germany, Italy and the United Kingdom) and Asian countries (especially, China, India and Thailand); a smaller number of assets reported for Canada and Latin America. The deadlines for most of our New Zealand and all of our Australian clients were completed prior to September 15.

Lebanon and Egypt stood out among the Middle Eastern clients.

Sherayzen Law Office is a Leader in US International Tax Compliance

Sherayzen Law Office is committed to helping our clients to properly comply with their US international tax requirements. Our highly knowledge and higher experienced tax team has successfully helped hundreds of clients around the world with their US tax compliance issues, including offshore voluntary disclosures of foreign assets and foreign income. Our successful October 2018 tax season is just another proof of our commitment to our clients!

Contact Us Today to Schedule Your Confidential Consultation!

IMF Wants “Modern” Croatian Real Estate Tax | Tax Lawyer News

On January 16, 2018, the International Monetary Fund (“IMF”) released its 2017 Article IV consultation notes with respect to Croatia. Among its recommendations is the introduction of a modern Croatian Real Estate Tax.

Croatian Real Estate Tax: IMF assessment of Croatian Economy

The IMF began on the positive note stating that, in 2017, Croatia continued its third year of positive economic growth, mostly supported by tourism, private consumption, trade partner growth and improved confidence. The IMF also noted that the fiscal consolidation was progressing at a much faster pace than originally anticipated with Croatia leaving the European Union’s Excessive Deficit Procedure in June of 2017. The international organization made other positive comments, particularly stressing that Croatia was overcoming its Agrokor crisis.

Then, the IMF turned increasingly negative. It first noted that, while the balance risks has improved, it was not satisfied with the high level of Croatian public and external debt levels. Then, it stated that the full impact of the Agrokor restructuring is not yet known. The IMF was also unhappy about the pace of structural reforms since 2013 (when Croatia became a member of the EU), further stating that Croatia’s GDP per capita stood at about 60% of the EU average and Croatian business environment remained less favorable than that of its peers.

Finally, the IMF expressed its concerns over the fact that the output did not recover from its pre-recessing level and stated that, in the medium-term, the Croatia’s economic growth is expected to decelerate. Hence, the IMF emphasized that Croatia needed to do more to improve its economic prospects.

Croatian Real Estate Tax: IMF Recommendations

What precisely does Croatia need to do in the IMF opinion? Mainly reduction of public debt.

How does the IMF recommend that Croatia accomplish this task? The IMF made a number of proposals that can be consolidated into five courses of action. First, enhance the efficiency of public services by streamlining public services. Second, keep the wages low and reform the welfare state policies (here, it probably means either slashing the state benefits or privatizing them). Third, relaxing the labor regulations, particularly in the areas of hiring and temporary employment. Fourth, enhancement of legal and property rights. Finally, improvement of the structure of revenue and expenditure.

This last enigmatic phrase is the keyword for reducing the expenses and the introduction of new taxes. In particular, the IMF wants to see an introduction of a modern Croatian real estate tax.

What is a “Modern” Croatian Real Estate Tax According to IMF

The IMF defined a “modern” Croatian real estate tax as a “real estate tax that is based on objective criteria” and the one that “would be more equitable and would yield more revenue than the existing communal fees.” The idea is that “a modern more equitable property tax could allow for a reduction of less growth-friendly taxes.” In fact, the additional revenue derived from this tax “could compensate for a further reduction in the income tax burden, the parafiscal fees, or even VAT.”

It should be noted that the Croatian government already listened to the IMF and tried to impose a Croatian real property tax starting January of 2018, but the implementation of the law was suspended in light of strong public opposition.

Sherayzen Law Office will continue to monitor the situation.

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!

Tax Cuts & Jobs Act: 2018 Standard Deduction and Exemptions

The Tax Cuts and Jobs Act of 2017 made dramatic changes that affected pretty much every US taxpayer. This is the first article of the series of articles on the Act. I will start this series with the discussion of simple US domestic issues (such as 2018 standard deduction and personal exemptions), then gradually turn to more and more complex US domestic and international tax issues, and finish with the examination of the highly complex issues concerning E&P income recognition for US owners of foreign corporations and the new type of Subpart F income.

Today, I will focus on the 2018 standard deduction and exemptions.

Standard Deduction for the Tax Year 2017

Standard deduction is the amount of dollars by which you can reduce your adjusted gross income (“AGI”) in order to lower your taxable income and, hence, your federal income tax. The standard deduction is prescribed by Congress. If you use standard deduction, you cannot itemize your deductions (i.e. try to reduce your AGI by the amount of actual allowed itemized deductions) – you have to choose between these two options.

Standard deduction varies based on your filing status (there is an additional standard deductions of individuals over the age of 65 or who are blind).

For the tax year 2017, the standard deduction are as follows: $6,350 for single taxpayers and married couples filing separately, $12,700 for married couples filing a joint tax return and $9,350 for heads of household.

2018 Standard Deduction and Exemptions

Under the Tax Cuts and Jobs Act of 2017, the 2018 standard deduction will virtually double in size: $12,000 for single taxpayers and married couples filing separately, $24,000 for married couples filing a joint tax return and $18,000 for heads of household. All of these amounts will be indexed for inflation.

It is important to point out, however, that these increased standard deduction amounts will only last until 2025. Then, the standard deduction should revert to the old pre-2018 law.

Personal Exemptions & Impact of 2018 Standard Deduction

Personal exemption is an additional amount of dollars by which the Congress will allow you to reduce your AGI (already reduced by either standard deduction or itemized deductions). When IRC Section 151 was enacted in 1954, the idea behind a personal exemption was to exempt from taxation a certain minimal amount a person needs to survive at a subsistence level.

Personal exemption can be claimed for you and your qualified dependents; in case of joint tax returns, each spouse is granted a personal exemption. However, a personal exemption for a spouse can be claimed even if the spouses are filing separate tax returns, but certain requirements have to be met.

For the tax year 2017, the personal exemption amount is $4,050. The exemption is subject to a phase-out at a certain level of income.

The Tax Cuts and Jobs Act of 2017 repeals personal exemptions for the tax years 2018-2025. After 2025, the law reverts to the one that existed as of the tax year 2017. In other words, the increase in 2018 standard deduction will be at least partially offset by the elimination of 2018 personal exemption.

In some cases, where taxpayers claim many personal exemptions for their dependants, the elimination of personal exemptions may actually result in the increase in taxation (compared to the 2017 law) despite the increase of 2018 standard deduction. Of course, such an increase in taxation needs to take into account potential increase in child tax credit under the new law. Hence, in order to assess the full tax impact of the tax reform for large families, one needs to consider other factors in addition to just 2018 standard deduction.

El Salvador Tax Amnesty Program | International Tax Lawyer & Attorney

On October 10, 2017, the Salvadorian Congress enacted the Legislative Decree No. 804, “La Ley Transitoria para el Cumplimiento Voluntario de Obligaciones Tributarias y Aduaneras”. After noting the experience of the past El Salvador voluntary disclosure options, the Decree announced a three-month long El Salvador Tax Amnesty Program. Let’s briefly explore the main contours of this new El Salvador Tax Amnesty Program.

The Duration of El Salvador Tax Amnesty Program

The Decree specifies that the program will become effective on October 27, 2017 and it will end on January 27, 2018.

The Terms of El Salvador Tax Amnesty Program

El Salvador Tax Amnesty Program basically allows El Salvadorian taxpayers to voluntarily come forward, correctly declare their income and pay any undeclared or understated taxes. In return for doing so, all penalties, charges and interest will be waived by the tax authorities of El Salvador, la Dirección General de Impuestos Internos. This Salvadorian voluntary disclosure program compares very favorably with the IRS OVDP (which is not really an amnesty program and imposes a significant penalty for prior noncompliance).

The El Salvador Tax Amnesty Program is also very broad. The voluntary disclosure program is applicable to all taxpayers with outstanding tax liabilities that were due prior to October 27, 2017. The program covers understated taxes, undeclared taxes, withholding taxes, VAT, real estate transfer taxes and basically all other situations. The program is applicable to taxpayers irrespective of whether they ever filed their tax returns. El Salvador Tax Amnesty Program will even allow the taxpayers to simply pay their tax liability without any penalties, even if the income was already declared and taxes assessed.

Only a narrow category of taxpayers is not eligible to participate in El Salvador Tax Amnesty Program: the taxpayers already under a criminal investigation initiated by la Dirección General de Impuestos Internos and la Dirección General de Aduanas.

US Taxpayers May Participate in El Salvador Tax Amnesty Program and US Voluntary Disclosure at the Same Time

If you are a US taxpayer who has not declared his Salvadorian income in the United States and El Salvador, you may be eligible to participate in the voluntary disclosure programs of both countries at the same time.

It is important to remember, however, that these voluntary disclosures should be coordinated by your US and Salvadorian lawyers. The main reason for this coordination is a concern that an information disclosed under El Salvador Tax Amnesty Program may be automatically disclosed to the IRS by la Dirección General de Impuestos Internos, leading to an investigation that may prevent you from going through a voluntary disclosure in the United States.