FBAR PFIC Reporting | FBAR Tax Attorney

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FBAR PFIC Reporting is an important issue for U.S. shareholders of passive foreign investment companies (“PFICs”). I will now briefly explore the FBAR PFIC Reporting requirement and when it applies to U.S. shareholders of a PFIC.

FBAR PFIC Reporting: FBAR Background

FinCEN Form 114, the Report of Foreign Bank and Financial Accounts, commonly known as FBAR, originally came into existence as a result of the 1970 Bank Secrecy Act. FBAR is one of the main and arguably the most important international tax requirement in the IRS. The form must be filed by every U.S. tax resident who has foreign financial accounts the aggregate value of which exceeds $10,000 at any time during the calendar year. The aggregate value should be calculated based on all foreign bank and financial accounts in which this U.S. tax resident has financial interest or over which he has signatory or other authority.

Failure to file an FBAR may result in the imposition of draconian FBAR penalties, including criminal penalties in grave cases of willful noncompliance.

FBAR PFIC Reporting: PFIC Definition

PFIC (Passive Foreign Investment Company) is one of the most complex tax requirements of the U.S. tax system. In addition to the potentially tremendously burdensome tax compliance required for PFICs, PFICs may result in the imposition of a much higher income tax with PFIC interest on the PFIC tax.

The basic definition of a PFIC is any foreign corporation in which: “(1) 75 percent or more of the gross income of such corporation for the taxable year is passive income, or (2) the average percentage of assets (as determined in accordance with subsection (e)) held by such corporation during the taxable year which produce passive income or which are held for the production of passive income is at least 50 percent.” IRC Section 1297(a). While many types of companies may unexpectedly be classified as PFICs by the IRS, foreign mutual funds seem to be the most common trap for the unwary U.S. taxpayers.

If a U.S. taxpayer has PFICs, he/she is required to file a separate Form 8621 “Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund” for each PFIC.

FBAR PFIC Reporting: Three Potential FBAR Requirements

There are three most common situations when an FBAR should be filed for a PFIC, assuming the statutory aggregate threshold of $10,000 is satisfied. First, FBAR PFIC reporting is required if a PFIC is held in a financial account; in this case, FBAR PFIC reporting will occur for the account itself (which, in India especially, may correspond to the folio number of a PFIC in any case). For example, if a U.S. person has an Assurance Vie account in France that contains PFICs, he would have to report the Assurance Vie account on the FBAR, including the value of the PFICs.

Second, FBAR PFIC reporting is required if a PFIC shareholder has signature authority over foreign financial accounts owned by a PFIC. In this case, FBAR PFIC reporting will occur for these foreign financial accounts in Section IV of the FBAR.

Finally, the third most common situation where FBAR PFIC reporting is required is a scenario where a U.S. person owns more than 50% of a PFIC and this PFIC has foreign financial accounts. In such case, the U.S. person is assumed to have a financial interest in the foreign financial accounts of this PFIC and he needs to disclose these accounts on his FBAR.

FBAR PFIC Reporting: Filing Form 8621 does NOT Satisfy the FBAR Filing Requirement

It is important to emphasize that filing form 8621 for a PFIC does not relieve the filer from his FBAR obligations. Even if Form 8621 is filed, the filer must also file the FBAR.

Contact Sherayzen Law Office for Professional Help with FBAR PFIC Reporting

FBAR PFIC reporting can be extremely complex and it is very easy to make mistakes with respect to what needs to be disclosed and how. These mistakes, however, can be expensive to remedy and may result in imposition of various large penalties.

This is why, if you have PFICs that require FBAR and Form 8621 disclosure, you need to contact Sherayzen Law Office for professional help. Our team of experienced tax professionals will help you properly disclose your PFICs on your FBAR and report your PFIC income on your personal or business tax returns. If you have not complied with your FBAR PFIC reporting requirement in the past and wish to remedy this situation, Sherayzen Law Office will also help you with the voluntary disclosure of your FBARs and PFICs, including the preparation of all necessary tax forms and legal documents.

Contact Us Today to Schedule Your Confidential Consultation!

Seattle FATCA Lawyers

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There are two definitions of who qualifies to be Seattle FATCA lawyers. First, Seattle FATCA lawyers are lawyers who are work in Seattle and who specialize in helping U.S. taxpayers and/or foreign financial institutions with FATCA compliance.

The second type of international tax attorneys who can qualify as Seattle FATCA lawyers became possible as a result of the development of modern communication technologies. These are the lawyers who reside outside of Seattle (e.g. in Minneapolis) and help clients who live and work in Seattle, Washington. Sherayzen Law Office is a good example of such Seattle FATCA lawyers – the firm’s founder, Mr. Sherayzen resides in Minneapolis but provides FATCA-related services to his clients in Seattle.

The residence of Seattle FATCA lawyers does not matter due to the fact that FATCA is federal law and any international tax lawyer who is licensed to practice in any of the fifty states of the United States can help his clients wherever they reside. Modern technologies (such as Internet, email, video Skype conference, et cetera) allow a Minneapolis lawyer to provide at least the same quality of service in Seattle as other Seattle FATCA lawyers. The necessary documents are usually supplied via email, flash drives (or other similar digital storage devices) and regular mail.  If a document needs to contain an original signature (e.g. amended tax return), then it is sent to client either by email or mail, the client signs the document at his home without the need of going to the lawyer’s office then mails it back to his lawyer.

The quality that should really matter to clients who are looking for Seattle FATCA lawyers is that their lawyers have deep knowledge of FATCA, foreign accounts disclosure and the U.S. international tax law in general. The knowledge of U.S. international tax compliance obligations is especially important for Seattle FATCA lawyers, because FATCA is merely a part (though, a very important part) of a much larger set of U.S. international tax laws. All of these laws are related to each other and their interaction creates real tax consequences for U.S. taxpayers, including those who reside in Seattle. This is why it is important for Seattle FATCA lawyers to know the entire U.S. tax structure, not just FATCA itself.

Contact Sherayzen Law Office If You Are Looking for Seattle FATCA lawyers

If you are looking for Seattle FATCA lawyers, contact Sherayzen Law Office, Ltd., an international tax law firm that specializes in FATCA compliance, offshore voluntary disclosures and U.S. international tax compliance in general.

Contact Us Today to Schedule Your Confidential Consultation!

H1B Holder FATCA Requirements

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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!

I am Working in the US on L1 Visa and I have Foreign Accounts

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“I am working in US on L1 Visa and I have foreign accounts” – this is the phrase that I often hear from various callers. Usually, these persons know very little about their US tax obligations and are concerned about their US tax compliance. Let’s analyze this phrase – “I am working in US on L1 Visa and I have foreign accounts” – and see if we can draw some general conclusions about the US tax obligations of such individuals.

“I am working in US on L1 Visa and I have Foreign Accounts” – L1 Visa

L1 visa is a a non-immigrant work visa which allows international companies that operate in the United States and abroad to transfer certain classes of employees from its foreign divisions to the US division for up to seven years. Some of clients eventually end up moving to H-1B visa before applying for US permanent residency.

“I am working in US on L1 Visa and I have Foreign Accounts” – US Tax Residency

If a person is working in the United States on L1 visa, a natural question arises about that person’s tax obligations in the United States; more specifically, whether such a person should file For m 1040-NR (as a non-resident) or Form 1040 (as a US tax resident). Since an L1 Visa holder is not a US citizen or a US permanent resident, the key issue here is whether this person satisfies the Substantial Presence Test.

If the Substantial Presence Test is not satisfied, then Form 1040-NR should be filed for US-source income only. However, if the Substantial Presence Test is satisfied, then this individual should file Form 1040 as a US tax resident.

“I am working in US on L1 Visa and I have Foreign Accounts” – Income Tax Consequences of US Tax Residency

If a person becomes a US tax resident under the Substantial Presence Test, he is required to report and pay US taxes on his worldwide income. This is the case even if a person is here just on L1 visa and he is not a US permanent resident. Also, a whole set of US laws comes into effect with respect to this person’s foreign income which may dramatically alter his tax situation.

For example, if an L1 individual satisfies the Substantial Presence Test, his foreign tax-exempt income may suddenly become taxable in the United States. This often occurs with respect to various “building” or “construction” accounts which are present in many countries (for example, Colombia, France, Germany, United Kingdom, et cetera). Moreover, new complexity will be added with PFIC treatment of certain investments in foreign mutual funds.

“I am working in US on L1 Visa and I have Foreign Accounts” – Foreign Accounts

The last part of the phrase – “I am working in US on L1 Visa and I have Foreign Accounts” – is related to the ownership of foreign accounts. If the L1 visa holder satisfies the Substantial Presence Test, he is required to report these foreign accounts to the IRS (and perhaps in more than one way) if the relevant balance thresholds are satisfied. The most important forms for reporting foreign accounts are FinCEN Form 114 (FBAR) and IRS Form 8938. Other forms may also be applicable.

Undoubtedly, FBAR occupies the central place in foreign account reporting. This is the case not only because of the lower reporting thresholds, but also due to the draconian penalties that the IRS may impose for FBAR noncompliance.

“I am working in US on L1 Visa and I have Foreign Accounts” – A Dangerous Phrase that Requires Legal Help

Even from the very general description above, it becomes clear that this phrase – “I am working in US on L1 Visa and I have Foreign Accounts” – indicates a precarious legal situation that needs a detailed examination by an experienced international tax lawyer. The penalties for noncompliance are extraordinarily high making a professional analysis of this person’s situation almost obligatory.

Contact Sherayzen Law Office for Legal Help With Reporting of Your Foreign Accounts and Filing Delinquent Tax Forms

If this phrase – “I am working in US on L1 Visa and I have Foreign Accounts” – applies to your situation, contact Sherayzen Law Office for legal help. Sherayzen Law Office is a highly-experienced international tax law firm that has helped hundreds of US taxpayers around the world to bring their tax affairs into full compliance. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Mexican Fideicomiso is not a Foreign Trust | International Tax Attorney

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Mexican Fideicomiso is one of the most convenient ways for U.S. persons to purchase land in Mexico. Of course, one can purchase the land through a Mexican corporation, but such an arrangement will require additional tax planning and higher annual compliance costs, including potentially filing form 5471, Form 8938 and other forms. Therefore, most U.S. persons prefer to purchase land in Mexico through a Mexican Fideicomiso.

I am often asked a question about whether Mexican Fideicomiso should be considered a foreign trust for U.S. tax purposes. The answer to this questions is fairly straightforward, but it is important to point out a potential pitfall.

Main Rule: Mexican Fideicomiso is Not a Foreign Trust for U.S. Tax Purposes

The U.S. tax treatment of Mexican Fideicomiso was settled by the IRS in PLR 201245003 and, even more authoritatively, IRS Revenue Ruling 2013-14. In PLR 201245003 and Rev. Rul. 2013-14, the IRS decisively ruled that a Mexican Fideicomiso is not a foreign trust for U.S. tax purposes.

Main Rule Applies Only If a True Mexican Fideicomiso Relationship is Preserved

It is important to understand, however, that PLR 201245003 and Rev. Rul. 2013-14 apply only if the true Fideicomiso relationship is preserved. If this relationship is modified with other features and agreements, then the U.S. tax treatment of the new arrangement may actually change. For example, if the trustee of Mexican Fideicomiso suddenly acquires the ability to act independently and in complete disregard of the beneficiary’s instructions, the IRS may start treating this modified Mexican Fideicomiso as a foreign trust.

Contact Sherayzen Law Office for Help with Reporting of Your Foreign Assets and Foreign Income

If you have foreign assets or foreign income, you are facing a difficult challenge of trying to comply with the numerous complex U.S. tax requirements. It is very easy to make mistakes in this area; given the high penalties associated with noncompliance, the cost of remedying these mistakes may be high.

This is why you need the help of Sherayzen Law Office, an experienced international tax law firm that has helped hundreds of U.S. taxpayers around the globe to bring and maintain their tax affairs in full compliance with U.S. tax laws.

Contact Us Today to Schedule Your Confidential Consultation!