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!

2014 IRS OVDP Future is Uncertain Due to Recent TIGTA Report

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Recently, there have been signs that the IRS is pondering the future of its flagship Offshore Voluntary Disclosure Program (2014 IRS OVDP): does this means that there is a potential for the 2014 IRS OVDP to end soon?

TIGTA Report and 2014 IRS OVDP

The latest warning signal came on June 2, 2016. On that date, the Treasury Inspector General for Tax Administration (TIGTA) issued a report with six recommendations with respect to the current IRS Offshore Voluntary Disclosure Program (2014 IRS OVDP). The report contained the following enigmatic language: “Although the IRS agreed with the potential value of establishing one mailing address for taxpayer correspondence, this recommendation has been put on hold until a decision is made about the future status of the OVDP.” (Italics added) Furthermore, on page 15 of the report, the IRS again emphasizes the non-permanent nature of the 2014 IRS OVDP and refuses to commit additional resources to one of TIGTA’s recommendations.

2014 IRS OVDP Future is Uncertain

The language contained in TIGTA report should definitely be treated seriously. At the very least, we now have an official, though indirect confirmation that the IRS is thinking about modifying the 2014 IRS OVDP and potentially, the Streamlined Compliance procedures.

Is there a potential for the IRS to cancel the entire 2014 IRS OVDP? It is definitely possible; the IRS has always insisted that 2014 IRS OVDP exists simply as a voluntary IRS initiative that can be terminated at any point. Furthermore, there are signs of significant administrative issues with respect to the 2014 IRS OVDP with significant delays in case resolutions. The IRS budget constrains may simply no longer permit the IRS to sustain 2014 IRS OVDP, despite the funds that this program has brought to the U.S. Treasury.

It is also probable that the success of the Streamlined Compliance procedures, FATCA and the Swiss Bank Program may now allow the IRS to focus on prosecuting willful taxpayers, making the 2014 IRS OVDP superfluous. Of course, this would mean that non-compliant willful U.S. taxpayers would not have any official voluntary disclosure program that would accept them.  Drawing on the experience of prior periods of time between the voluntary disclosure programs, most likely, the absence of an OVDP is likely to force such taxpayers to either try to bury deeper their tax noncompliance or, if they wish to come forward, to negotiate with the IRS directly through the traditional voluntary disclosure program.  If the latter if the case, such a taxpayer will be negotiating with the IRS without any guarantees of a reduced penalty.

Another likely possibility is a significant modification of the terms of the 2014 IRS OVDP (which, itself is just a modification of the official 2012 OVDP). The change in terms could affect anything from penalty rates to procedural changes. For example, it is possible that, under the new program, the default penalty rate would rise to 50% from the current 27.5% and the high penalty rate would go above the current 50%.

U.S. Taxpayers with Undisclosed Foreign Accounts Should Consider 2014 IRS OVDP As Soon As Possible

The TIGTA Report and the great uncertainty surrounding the future of the current 2014 IRS OVDP program directly affect U.S. taxpayers with undisclosed foreign accounts. If 2014 IRS OVDP is significantly altered or even disappears entirely, U.S. taxpayers will lose one of the main voluntary disclosure venues and the only one opened to taxpayers who willfully violated U.S. tax laws.

This is why U.S. taxpayers with undeclared foreign accounts should consider their voluntary disclosure options, including participation in the 2014 IRS OVDP, as soon as possible. In order to properly initiate their voluntary disclosure process, these taxpayers should retain the services of an experienced international tax attorney.

Contact Sherayzen Law Office for Experienced and Professional Legal Help

If you have undeclared foreign accounts, please contact Sherayzen Law Office as soon as possible. Our experienced legal team of tax professionals will thoroughly analyze your case, determine your available offshore voluntary disclosure options, create your voluntary disclosure plan and implement it (including the preparation of all tax forms and legal documents).

Contact Us Today to Schedule Your Confidential Consultation!

Foreign Gift Requirements | Foreign Gift Tax Attorney

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Foreign Gift Requirements is one of the most important topics for U.S. taxpayers with foreign relatives. In this article, I would like to quickly overview foreign gift requirements for U.S. tax purposes.

Foreign Gift Requirements: What is a Foreign Gift?

Legally, the term “gift” means a definite, voluntary and gratuitous transfer of property from one individual to another. The transfer must be gratuitous (or, in legal terms “without consideration”) to the recipient; there should be no expectation of receiving services or monetary consideration in return.

A foreign gift, would mean a gift received by a U.S. person from a foreign person. A “foreign person” is defined as a nonresident alien individual or foreign corporation, partnership or estate.

General Foreign Gift Requirements to Make a Foreign Gift Effective

There are four general foreign gift requirements for a foreign gift to be legally effective. First, the donor must have a legal capacity to make a gift. Usually, this means that the donor must be of the majority age and have the mental capacity to understand that he is making a gift.

Second, there must be donative intent – i.e. the donor must actually intend to give a gift to the donee. It important to emphasize that a promise to make a gift in the future is not a gift, even if the promise is accompanied by a present transfer of the physical property in question.

The other side of the donative intent is that the donor does not expect to receive any compensation or consideration for the transfer of the gift. The intent can be established through conduct, statements and, most effectively, writings.

Third, a gift must be delivered to the donee; the delivery is complete when it is made directly to the donee or to the third part on the donee’s behalf (if a third party is involved, it may be a bit more complicated to effectuate the delivery). Delivery of a gift can be actual, symbolic, or implied through conduct; in general, the courts look for an affirmative act made by the donor.

Finally, the fourth requirement is the acceptance of the gift by the donee – i.e. the donee unconditionally and affirmatively agrees to take the gift without any coercion or undue influence. Most courts would generally presume that a gift is accepted as long as the gift is beneficial and the donee does not expressly reject the gift.

Foreign Gift Requirements: Form 3520

If a foreign gift was effectively made by a foreign person to a U.S. person, it may need to be reported to the IRS. The disclosure of a foreign gift is done using Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.

Form 3520 is an information return that needs to be filed with the IRS if, during a tax year, a U.S. taxpayer receives a foreign gift valued at more than $100,000 from a nonresident alien individual. Form 3520 also must be filed if a U.S. taxpayer receives a gift in excess of an annual threshold from a foreign entity (foreign corporation or a partnership). For the tax year 2015, such threshold was $15,601. Gifts from related parties should be combined.

There are also special rules concerning gifts received from what are called “covered expatriates”, which may result in an imposition of tax under IRC Section 2801. Also, an international tax attorney needs to review foreign gifts for potential re-characterization by the IRS. Gifts from foreign trusts are subject to different rules than gifts from foreign persons.

Penalties for Failure to Report Foreign Gifts on Form 3520

Failure to disclose a reportable foreign gift on Form 3520 may result in significant penalties. Under IRC Section 6039F, a monthly penalty of 5% of the value of the gift may be imposed; the penalty is capped at 25% of the total value of the gift. Additionally, penalties under IRC Section 6662(j) may be imposed for the undisclosed foreign financial asset understatement.

Contact Sherayzen Law Office for Professional Help with Your Foreign Gift Requirements

If you receive(d) a reportable foreign gift, you should contact Sherayzen Law Office for legal help. Our team of legal and tax professionals, headed by the highly-experienced international tax attorney, Mr. Sherayzen, has helped U.S. taxpayers around the world with their foreign gift issues (including helping foreign relatives with making gifts to their relatives in the United States). We can help You!

Contact Sherayzen Law Office Today to Schedule Your Confidential Consultation!

Undeclared Accounts in Singapore Are Under IRS Investigation | FBAR Attorney

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For several years now, Sherayzen Law Office has been warning U.S. taxpayers about the ever-increasing IRS interest in undeclared accounts in Singapore. On June 22, 2016, the IRS announced that UBS AG has complied with the IRS summons for bank records held in its Singapore office. This news come after repeated initiatives by the IRS to follow the money that was flowing out of what used to be secret Swiss bank accounts into the undeclared accounts in Singapore.

Facts Surrounding the IRS Summons Regarding UBS Undeclared Accounts in Singapore

The IRS served an administrative summons on UBS for records pertaining to accounts held by Ching-Ye “Henry” Hsiaw. According to the petition, the IRS needed the records in order to determine Hsiaw’s federal income tax liabilities for the years 2006 through 2011. Hsiaw transferred funds from a Switzerland-based account with UBS to the UBS Singapore branch in 2002, according to the declaration of a revenue agent filed at the same time as the petition. UBS refused to produce the records, and the United States filed its petition to enforce the summons.

“The Department of Justice and the IRS are committed to making sure that offshore tax evasion is detected and dealt with appropriately,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Tax Division. “One critical component of that effort is making sure that the IRS has all of the information it needs to audit taxpayers with offshore assets. In this case, we filed a petition to enforce a summons for offshore documents, but that’s only one of the tools we have available for gathering information. Taxpayers with offshore assets who underreported their income should come forward before we come looking for them.”

Lessons to be Learned from the Recent Summons of UBS Undeclared Accounts in Singapore

The recent IRS summons of UBS undeclared accounts in Singapore and the startling ease with which the IRS obtained the necessary information, confirm three earlier predictions that Sherayzen Law Office made after the announcing of the DOJ Program for Swiss Banks. First, the IRS takes a keen interest in the undeclared accounts in Singapore and it will not satisfy itself simply with destroying the Swiss bank secrecy laws with respect to U.S. taxpayers. The IRS is actively expanding its investigations beyond Switzerland and Singapore is definitely one of its top targets.

Second, the IRS will continue to utilize in its investigations the information that it obtained from the Swiss Bank Program, the IRS offshore voluntary disclosure programs and the IRS compliance procedures. The IRS has obtained mountains of information from these programs regarding not only the “favorite” countries for opening and maintaining undeclared accounts, but also the main patterns of U.S. tax noncompliance. In fact, the IRS now has evidence at its disposal to prosecute foreign banks far beyond Switzerland (a fact confirmed by recent criminal prosecutions of two Cayman Islands financial institutions). Hence, the undeclared accounts in Singapore and the foreign banks which are holding them are under increased IRS scrutiny today.

Finally, the implementation of FATCA combined with the two trends described above makes the discovery of undeclared accounts in Singapore (and most other countries) increasingly likely. Furthermore, it seems that the IRS also feels more and more confident to ask the courts for harsher penalties against noncomplying U.S. taxpayers.

What Should U.S. Taxpayers with Undeclared Accounts in Singapore Do?

U.S. taxpayers with undeclared accounts in Singapore now face a very unpleasant scenario where their discovery by the IRS can occur at any point with the imposition of draconian penalties and even potential prison time. Furthermore, it appears that such a discovery by the IRS is not only possible, but very likely.

Given the high probability of the discovery of their undeclared accounts in Singapore, the noncompliant U.S. taxpayers should retain as soon as possible an experienced international tax firm to explore their voluntary disclosure options. One of the best international tax law firms that provides these services is Sherayzen Law Office, Ltd.

Contact Sherayzen Law Office for Professional Help with Your Undeclared Accounts in Singapore

If you have undeclared accounts in Singapore (or any other country), you should immediately contact Sherayzen Law Office for professional help. Sherayzen Law Office is an international tax law firm that is highly experienced in offshore voluntary disclosures, including IRS Offshore Voluntary Disclosure Program and Streamlined Compliance Procedures (both Domestic and Foreign). You can rely on us with confidence that your case will be handled in an efficient, speedy and professional manner. We will strive for the best result for you!

Contact Us Today to Schedule Your Confidential Consultation!