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!

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!