SDOP Real Estate Penalty | Offshore Voluntary Disclosure Law Firm

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One of the most important considerations in an offshore voluntary disclosure is the type of assets that form the Penalty Base for the imposition of the Miscellaneous Offshore Penalty. In this article, I would like to explore the issue of whether there is such a thing as SDOP Real Estate Penalty.

SDOP Real Estate Penalty: Streamlined Domestic Offshore Procedures Background

Streamlined Domestic Offshore Procedures or SDOP is an offshore voluntary disclosure option that was announced by the IRS in June of 2014. With the recent termination of the OVDP (Offshore Voluntary Disclosure Program), SDOP has become the main voluntary disclosure vehicle for eligible taxpayers.

Under the terms of the SDOP, a taxpayer voluntarily discloses his prior noncompliance with US international tax laws, files FBARs for the past six years, amends tax returns for the past three years and certifies under the penalty of perjury that his prior noncompliance with US tax laws was non-willful. Moreover, the taxpayer must pay a 5% Miscellaneous Offshore Penalty that supplants all other penalty structures associated with FBAR and other US international information returns (such Form 5471, 8865, et cetera).

SDOP Real Estate Penalty: SDOP Penalty Base

The 5% Miscellaneous Offshore Penalty is imposed on the entire SDOP Penalty Base. The SDOP Penalty Base is formed by the inclusion all foreign financial assets undisclosed on US international information returns as well as income-noncompliant foreign financial assets. This includes without limitation all assets listed on FBARs and Forms 8938, 5471, 8858, 8865, 3520 (the foreign trust portion), 3520-A, et cetera.

Is there A SDOP Real Estate Penalty?

Now, armed with this understanding of the structure of the SDOP Penalty Base, we can answer the question of whether there is such a thing as SDOP Real Estate Penalty. Since the SDOP Penalty Base is formed by the inclusion of all foreign financial assets and real estate is not a foreign financial asset, we can conclude that there is no SDOP Real Estate Penalty on the real estate owned directly by a US taxpayer.

What about real property owned through a foreign business entity or a foreign trust? Unfortunately, it is here where we encounter the hidden SDOP Real Estate Penalty. If the foreign entity (or income from this foreign entity) was not properly disclosed on Form 8938 or any other relevant information return which is used to avoid the duplication of reporting of foreign business ownership (i.e. Form 5471, 8865, 8858, 3520 and 3520-A), then the SDOP Penalty Base will include the fair market value of the undisclosed foreign entity. In other words, the SDOP Real Estate Penalty may be imposed on the value of the entity that is holding the real estate, not real estate per se.

This is very worrying news to taxpayers who hold real estate through foreign entities. In virtually all Latin American countries, US taxpayers usually own real estate through a corporation. This means that they are exposed to the imposition of SDOP Miscellaneous Offshore Penalty on their personal real estate that is held through a foreign entity simply because it is a local custom to do so.

Contact Sherayzen Law Office for Professional Help With Your Offshore Voluntary Disclosure

If you have undisclosed foreign assets and/or foreign income, contact Sherayzen Law Office for professional help. Our legal team, led by an international tax attorney Eugene Sherayzen, is highly experienced in offshore voluntary disclosures of unreported offshore assets and income. Whether it is Indian mutual funds, Swiss Structured Products, a French Assurance Vie account, Polish lokatas, Australian Superannuation accounts, Canadian RRSPs, a Malaysian health insurance investment policy, a Singapore Central Provident Fund (CPF), an Italian Corporation, a British Limited Company, a Spanish rental property, a Panamanian Sociedad Anonima, a Kazakh foreign branch, a Jersey trust and many, many other varieties of foreign assets – we have done it all and successfully brought our clients in full compliance with the US international tax laws. We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

4th Quarter 2018 Underpayment and Overpayment Interest Rates

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On September 7, 2018, the IRS announced that the 4th Quarter 2018 underpayment and overpayment interest rates will not change from the 3rd Quarter of 2018.

This means that, the 4th quarter 2018 IRS underpayment and overpayment interest rates will be as follows:

  • five (5) percent for overpayments (four (4) percent in the case of a corporation)
  • five (5) percent for underpayments
  • seven (7) percent for large corporate underpayments; and
  • two and one-half (2.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the interest rates are determined on a quarterly basis. This means that the next change in the IRS underpayment and overpayment interest rates may occur only for the 1st Quarter of 2019. In fact, if the analysts are correct, it may very well happen in early 2019.

The 4th Quarter 2018 underpayment and overpayment interest rates are important for many reasons. Not only are these rates used to determine what the IRS will charge in case of an amended tax return (including an amended return made as part of an offshore voluntary disclosure), but they will also determine the interest rate for any adjustments made by the IRS during an audit.

Moreover, the IRS underpayment rates are used to calculate the interest charged on the PFIC (default IRC Section 1291) tax due on an excess distribution. It should be remembered that PFIC calculations de facto remain outside of the Statute of Limitations and PFIC interest can be charged on any PFIC gains made in 2018 but allocated to any prior year (all the way to 1988).

It is important to prevent some US tax accountants from falling into a common trap concerning distributions of accumulated income from a foreign trust. There is a myth that the interest rates on UNI tax is calculated based on the IRS underpayment and overpayment interest rates. This is incorrect – the Throwback Rule follows a separate method for calculating the interest on the UNI tax.

Sherayzen Law Office continues to track any changes IRS makes to its overpayment and underpayment interest rates.

Sherayzen Law Office Successfully Completes October 2018 Tax Season

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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!

October 15 2018 Deadline for FBARs and Tax Returns | US Tax Law Firm

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With just a week left before October 15 2018 deadline, it is important for US taxpayers to remember what they need to file with respect to their income tax obligations and information returns. I will concentrate today on four main requirements for US tax residents.

1. October 15 2018 Deadline for Federal Tax Returns and Most State Tax Returns

US taxpayers need to file their extended 2017 federal tax returns and most state tax returns by October 15, 2018. Some states (like Virginia) have a later filing deadline. In other words, US taxpayers need to disclose their worldwide income to the IRS by October 15 2018 deadline. The worldwide income includes all US-source income, foreign interest income, foreign dividend income, foreign trust distributions, PFIC income, et cetera.

2. October 15 2018 Deadline for Forms 5471, 8858, 8865, 8938 and Other International Information Returns Filed with US Tax Returns

In addition to their worldwide income, US taxpayers also may need to file numerous international information returns with their US tax returns. The primary three categories of these returns are: (a) returns concerning foreign business ownership (Forms 5471, 8858 and 8865); (b) PFIC Forms 8621 – this is really a hybrid form (i.e. it requires a mix of income tax and information reporting); and (c) Form 8938 concerning Specified Foreign Financial Assets. Other information returns may need to be filed by this deadline; I am only listing the most common ones.

3. October 15 2018 Deadline for FBARs

As a result of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, the due date of FinCEN Form 114, The Report of Foreign Bank and Financial Accounts (also known as “FBAR”) was adjusted (starting tax year 2016) to the tax return deadline. Similarly to tax returns, the deadline for FBAR filing can also be extended to October 15; in fact, under the current law, the FBAR extension is automatic. Hence, October 15 2018 deadline applies to all 2017 FBARs which have not been filed by April 15, 2018.

The importance of filing this form cannot be overstated. The FBAR penalties are truly draconian even if they are mitigated by the IRS rules. Moreover, an intentional failure to file the form by October 15 2018 may have severe repercussions to your offshore voluntary disclosure options.

4. October 15 2018 Deadline for Foreign Trust Beneficiaries and Grantors

October 15 2018 deadline is also very important to US beneficiaries and US grantors (including deemed owners) of a foreign trust – the extended Form 3520 is due on this date. Similarly to FBAR, while Form 3520 is not filed with your US tax return, it follows the same deadlines as your income tax return.

Unlike FBARs, however, Form 3520 does not receive an automatic extension independent of whether you extended your tax return. Rather, its April 15 deadline can only be extended if your US income tax return was also extended.

Sherayzen Law Office warns US taxpayers that a failure to file 2017 Form 3520 by October 15 2018 deadline may result in the imposition of high IRS penalties.

2018 Egyptian Tax Amnesty | International Tax Lawyer & Attorney

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Egyptian Law 174 of 2018 announced the 2018 Egyptian Tax Amnesty program that commenced on August 15, 2018. Egypt is no stranger to tax amnesties; in fact, the very first documented tax amnesty program in the world is believed to be the one announced by Ptolemy V Epiphanes in 197 B.C.

The 2018 Egyptian Tax Amnesty program is a continuation of the worldwide trend to fight tax noncompliance with amnesty programs. If they are structured well (such as the US OVDP) and combined with effective tax administration, these amnesty programs can be highly effective, generating large revenue streams for national governments. There are, however, numerous examples of failed amnesty programs (like the ones in Pakistan) due to either poor structuring or other factors. Let’s acquaint ourselves with the 2018 Egyptian Tax Amnesty program.

2018 Egyptian Tax Amnesty: Term

The 2018 Egyptian Tax Amnesty program will last a total 180 days starting August 15, 2018.

2018 Egyptian Tax Amnesty: Taxes and Penalties Covered

The 2018 Egyptian Tax Amnesty program will cover stamp duty, personal income tax, corporate income tax, general sales tax, and VAT liabilities that matured before August 15, 2018.

The interest and penalties on the outstanding tax liabilities related to the listed taxes will be reduced according to a fairly rigid schedule which benefits most taxpayers who go through the program within 90 days after the Program opens on August 15, 2018. These taxpayers can expect a whopping 90% reduction in penalties and interest!

If a taxpayer misses the 90-day deadline, but settles his outstanding tax debts within 45 days after the deadline, he will be entitled to a waiver of 70% of the tax debt and interest.

If a taxpayer misses both, the 90-day deadline and the 45-day deadline, but settles his outstanding tax debts within 45 days after the 70%-waiver deadline (i.e. 135 days after August 15, 2018), he can still benefit from a 50% reduction in tax penalties and interest.

US Tax Amnesty & 2018 Egyptian Tax Amnesty

US taxpayers who participate in the Egyptian Tax Amnesty should also consider pursuing a voluntary disclosure option in the United States with respect to their unreported Egyptian income and Egyptian assets. There is a risk that the information disclosed in the Egyptian Tax Amnesty may be turned over to the IRS, which may lead to an IRS investigation of undisclosed Egyptian assets and income for US tax purposes.

While the IRS Offshore Voluntary Disclosure Program closes on September 28, 2018, there is still a little time left to utilize this option. Additionally, US taxpayers should consider other relevant voluntary disclosure options, such as Streamlined Offshore Compliance Procedures.

Contact Sherayzen Law Office for Professional Help With Offshore Voluntary Disclosure of Egyptian Assets in the United States

If you have undisclosed Egyptian assets and/or Egyptian income, you should contact Sherayzen Law Office for professional help. We have helped hundreds of US taxpayers around the world to successfully settle their US tax noncompliance, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!