International tax lawyer, FBAR lawyer, FATCA lawyer, FBAR tax lawyer, international tax attorney, international tax lawyers, international tax attorney Minneapolis, international tax attorney New York, international tax lawyer Minnesota

International Tax Attorney Beverly Hills LA California | Introduction

/in /by

Hello, and welcome to Sherayzen Law Office video blog. My name is Eugene Sherayzen and I’m an international Tax Attorney and owner of Sherayzen Law Office, Ltd.

Today, I am actually in Beverly Hills, LA and one of the reasons I came here is that I wanted to do a blog about why LA is such a good source of clients for my business.

As paradoxical as that sounds, if you think about it, LA in general, and Beverly Hills, in particular, has a lot of people who come from all over the world. People who are Spaniards, Russians, Chinese, Americans from other states, Indians – all kinds of people who come to LA.

A lot of them, when they come to the United States, to LA in particular, have assets. Now, LA is an expensive city and Beverly Hills is especially expensive. So, that means that the people who come here with assets (these are not small assets) unfortunately, may not know that they have to disclose them and because they don’t know that they have to disclose them, the end result of this is that they never disclose them until something happens, by accident or intention, they find out that they have not been in compliance with US Tax Reporting requirements for a long while, and then they have to do some type of voluntary disclosure and they come to me to do so. This is why LA is such a good source of clients for my business.

In the next videos, I will talk more about the offshore voluntary disclosures. Thank you for watching, until the next time.

International Tax Lawyers Dallas | Difference between US Domestic and US International Tax Law

/in /by

Let me give you one example which illustrates very well the difference between US Domestic Tax Law and US International Tax Law.

This comes actually, from sort of a combination of two cases in which I was involved. You have a situation where two clients come to a Business Lawyer and they say, “We want to start a company. We want to start a joint venture; we already have the Capital. We are working on our marketing plan; everything’s fine; we’re ready to start doing this.”

Let me actually draw this. This is a Domestic situation; you have a US Corp which has cash, just cash nothing else. This is year one. Let’s say this company was created in November. Year two, the company continues to have more than 50% of it’s assets as cash.

In this example, nothing happens; for US Tax Purposes, nothing really happens. It’s a Domestic Corp owned by two US Persons… let’s make it interesting; let’s make it 50/50. Fifty percent Foreign and fifty percent US. There’s a (Form) 5472 requirement, most likely if there are reportable transactions. Nothing really happens to the Entity itself.

Now we have a situation where it’s a Foreign Corporation; Fifty percent owned US and fifty percent Foreign Person. Same situation: first year, the company was founded in November, 100% cash; then we go into the second year, same situation, still more than 50% cash.

Here, (first year) nothing happens; here in the year two, this company becomes a PFIC (Passive Foreign Investment Company). What this means, unless an election is being made, (and there are various elections and we’re not going to get into detail) but let’s just discuss the Default method of PFIC calculations.

In this situation, there is a Dividend in year three; it will be subject to a long-term Capital Gains rate, 15 – 20 percent depending on the income level of your Client and possibly an ObamaCare Net Investment Tax of 3.8% on top of that.

Here, it’s going to be a completely different treatment; if there is a Distribution in year three, most likely, I would estimate about 40% will be treated as ordinary income and about 60% will be subject to a 39.6% tax.

This is US Domestic; this is US International. Just because it’s an International, all-of-a-sudden we raised our tax liability by about 20%. A Business Lawyer who thinks that this is the same… you can see what will happen once the Client files his tax returns.

It’s definitely something to be aware of. In these situations I was involved in, the Business Lawyer failed to advise about the difference. Unfortunately, once the PFIC stigma is attached; you cannot get rid of it. Once a PFIC, always a PFIC. You can get rid of it (not to get into too much detail) but it will require Redistribution of the Shares in essence.

That’s a very important illustration of how US International Tax Law may be different from US Domestic Law.

FATCA Tax Lawyer: Introduction to FATCA

/in /by

Hello, my name is Eugene Sherayzen and I’m an international tax attorney and owner of Sherayzen Law Office, Ltd.

Today, I would like to introduce to you one of the most feared pieces of US Tax Legislation that recently reshaped the entire legal landscape of International Tax Compliance. I’m talking about FATCA. Even an introduction to FATCA is an immensely complex topic, but I intend to simplify it as much as possible for you. Obviously, with every simplification, important details are likely to be left out. This is why this is an educational video and does not constitute legal advice.

FATCA stands for ‘Foreign Account Tax Compliance Act’. The US Congress enacted FATCA in the year 2010 to specifically target tax noncompliance of US Taxpayers with undisclosed foreign accounts. After a long preparatory period, FATCA was fully implemented in July of 2014.

The law and the accompanying regulations are complex and voluminous; but, for the purposes of this introduction, in essence, there are two parts of FATCA that apply to different persons at a different time.

The first part of FATCA lead to the creation of IRS Form 8938. Form 8938 obligates US Taxpayers to disclose various information with respect to what is called: Specified Foreign Assets, including foreign financial accounts.

Since 2011, as long as specific requirements are met, Form 8938 must be filed by US Taxpayers with their US Tax Returns. While Form 8938 is a very useful tax compliance instrument for the IRS, it is not the most important part of FATCA.

The second part of FATCA is the key part of this legislation because it introduces a radical new notion that foreign financial institutions, let’s call them FFIs, should be forced to report identifying information about their US Account Holders to the IRS. This is the most feared part of FATCA because the IRS no longer needs to find an undisclosed foreign account which is a process that requires a substantial investment of time and resources; rather now under FATCA, the FFIs themselves will report all of their foreign accounts owned by US Persons to the IRS and they will do this reporting to the IRS not only with respect to all new accounts but also with respect to older accounts or if we use a more technical term: pre existing accounts.

In essence, FATCA has turned all foreign financial institutions into IRS informants when it comes to foreign financial accounts held by US Persons. This means that the risk of the IRS discovery of an undisclosed foreign account of a US Person has increased exponentially and in many cases may now be almost a certainty.

The high risk of the IRS discovery of undisclosed foreign accounts makes any continued noncompliance by US Persons a reckless gamble, which becomes more and more dangerous with each passing day. This is why, if you have undisclosed foreign accounts, contact me as soon as possible.

For many years now, I’ve been helping US Taxpayers like you around the globe to bring your US Tax affairs into full compliance. I will thoroughly analyze the facts of your case, determine your current penalty exposure and advise you with respect to your voluntary disclosure options. Once you choose your voluntary disclosure path, my firm will prepare all the necessary legal documents and tax forms and I will negotiate the final settlement of your case with the IRS. So, call me now to schedule your initial consultation. Remember, contacting my firm is confidential.

FDAP Income: Introduction | US International Tax Lawyer & Attorney

/in /by

Let’s go to another chart. Remember when I said we were going to discuss a situation where a non-US person does not engage in US trade or business activities? In this case, we have to ask: Is this US-source income classified as FDAP income (fixed determinable, annual or periodic) FDAP income generally includes passive investment income: interest, dividends, rents, royalties, etc.; but, it may also include some active income like US-source salaries as well as US-sourced deeds from the sale of intangible properties. However, please remember that except US real estate, non-ECI capital gains from the sale of tangible property of a non-US person are generally exempt from US taxation.

This is why, for example, foreign persons who own stocks in the United States, when they sell them, they are not subject to US tax withholding. They are going to be paying taxes in their home countries on the capital gains but they are not going to be paying taxes in the United States.

If this indeed is an FDAP income, then we have to ask whether it is subject to a treaty exemption or to a special tax provision in the Internal Revenue Code, which would exempt this FDAP income from taxation. If it is subject to any of these exceptions, then this FDAP income will not be taxed in the United States. However, if it is not subject to any treaty exemption, then it would be taxed at 30% withholding rate on gross income. Or a treaty rate – here, treaties play a crucial role in lowering tax liability. That’s why it is very important that when you invest in the United States, when you engage in an inbound transaction, to invest in the right foreign jurisdiction; so you have to do some foreign treaty shopping.

Effectively Connected Income: Introduction | US International Tax Lawyer & Attorney

/in /by

Let’s suppose we find a US trade does exist. If it doesn’t, then we’ll talk about the FDAP a little bit later in the presentation.

If a non-US person engages in US trade or business activities, then the next question is: Is the income that he derives connected to these US trade or business activities, called ECI or Effectively Connected Income? Now, ECI is arguably the most important concept concerning inbound transactions. It may be the only source of income, per se, that is inbound, but ECI is such a central concept and a complex issue as well.

Basically, ECI includes three different types of income:

All active US-source income: One thing to keep in mind is the attraction rule; I give you an example here. A German corporation sells washing machines through a US office in the United States; in addition, it sells dryers directly to the distributors in the United States, but without any involvement of that US office. The sales are structured so that they are considered to be US-source income. For one reason or another, let’s say they signed a contract here in the United States. Even though the sale of dryers is not related to a US trade or business, because of the attraction rule, the income from both the washing machines and the dryers is considered to be the same. Obviously, this is all active-source income.

The second category: General passive US-source income – sales of capital assets and other passive income is considered to be ECI, if this income passes one of two tests: the Asset-Use test and the Business Activities test. I gave you the definition; but we wont have the time to go into more details on this. But, be aware that even passive US-source income may be considered ECI.

What I mentioned before: Certain foreign-sourced income may be considered ECI; generally speaking, in order for this to happen, the non-US person has to have an office or other permanent establishment here in the United States.

Only these three types of income which I have listed are related to this exception from the general rule that foreign-sourced income of a non-US person is non-taxable in the United States.

Let’s suppose that we indeed had ECI income. The next question is going to be: How is the income going to be taxed? There are special tax regimes that exist in the United States, for example, Branch taxes or BEAT, which is something that was introduced by the 2017 tax reform. If an ECI income falls under the special tax regime, it’s going to be taxed according to the special tax regime; however, if no special tax regime applies, the ECI is going to be taxed at US graduated rates, including, by the way that’s important to keep in mind, including capital gains tax rates.