International Tax Attorney Minnesota Minneapolis

Saving Clause | International Tax Lawyer & Attorney Minneapolis

/in , /by

The Saving Clause is a provision that all US income tax treaties contain. In this brief essay, I will introduce the readers to the Saving Clause, its purpose and its effect.

Saving Clause vs. Savings Clause

The first thing to note is that the proper way to refer to this important tax treaty provision is “saving clause” and not “savings clause” (see, for example, 2016 US Model Income Tax Treaty, article 1(4)).  You will still see sometimes various article and even tax provisions (for example, §7852(d)(2)) incorrectly use “savings clause”.

Saving Clause: Effect on US Citizens

The Saving Clause provides that the United States may tax its citizens as if the tax treaty were not in effect. Here is a common example of the clause from the US-Spain tax treaty: “Notwithstanding any provision of the Convention except paragraph 4, a Contracting State may tax its residents (as determined under Article 4 (Residence)), and by reason of citizenship may tax its citizens, as if the Convention had not come into effect” (italics added).

In other words, the Saving Clause prevents US citizens who are classified as income tax residents of the treaty country from claiming a different tax treatment that would otherwise be available under the treaty to noncitizens who are residents of the treaty country. For example, a US citizen cannot claim an exemption from certain income otherwise exempt for a noncitizen who is a resident of a treaty country.

Saving Clause: Effect on US Residents

The impact of the Saving Clause on US residents is more complicated.  The Clause usually provides that the United States may tax its residents as determined by a treaty (usually in an Article 4) as if the treaty were not in effect.  Usually, these resident provisions would contain tie-breaker rules. This would mean that an individual who is a resident alien under §7701(b) but a resident of the treaty country under the treaty, then the saving clause cannot deny the individual any of the exemptions from US tax law or reductions in US tax that are provided by the treaty to residents of the treaty country. In such cases, the saving clause would have limited impact on residents.

If, however, a tax treaty does not contain the tie-breaker provisions in its definition of a tax resident (as some old treaties), then the impact of the Saving Clause may be tremendous and even dispositive. In this situation, the Saving Clause assures that an individual who is, at the same time, a resident alien under the Internal Revenue Code IRC) provisions and a resident of the treaty country under the treaty country’s laws will still be taxed as a US resident alien irrespective of the tax treaty.

Saving Clause: Worldwide Income Reporting and Foreign Asset Disclosure Requirements

The application of the Saving Clause may have tremendous impact on an individual’s US tax obligations.  First of all, I remind the readers that, absent treaty limitations, all US tax residents are taxed on their worldwide income. This is the rule irrespective of whether the income is earned, whether it is repatriated to the United States and whether it is subject to foreign tax withholding.

Moreover, US Persons may also be subject to multiple US information return reporting requirements, including FBAR, Form 8938, Form 5471, et cetera.  In this context, it is important to remember that the definition of a “US Person” is broader than the definition of a “resident” for income tax purposes. In other words, a person may be a nonresident for tax purposes due to a tax treaty provision, but he will still be a US Person for the purposes of filing an FBAR or another US information tax return.

Contact Sherayzen Law Office for Professional Help with Your US International Tax Compliance

If you are a US tax resident or a US person, you may be subject to highly complex US international tax requirements.  In order to ensure your full compliance with US international tax provisions, you should contact Sherayzen Law Office for professional help.

Since 2005, Sherayzen Law Office has helped hundreds of US taxpayers to resolve their prior US tax noncompliance and assure their continuous compliance with US international tax laws.  We have extensive experience with all major US tax compliance requirements such as: worldwide income tax compliance, FBAR, Form 926, Form 3520, Form 3520-A, Form 5471, Form 8621, Form 8865, FATCA Form 8938, et cetera. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Foreign Inheritance Tax Attorney Minneapolis | International Tax Lawyer Minnesota

/in , , /by

Receiving a foreign inheritance may open a litany of US international tax compliance obligations. Therefore, one of the first things you should do is to seek the help of an international tax attorney who specializes in foreign inheritance reporting.  If you reside in Minneapolis, Minnesota, you need to look for a Foreign Inheritance Tax Attorney Minneapolis. You will find that Sherayzen Law Office Ltd. is very likely to be the perfect fit for you.

Foreign Inheritance Tax Attorney Minneapolis: Why Foreign Inheritance is So Important to Your US international Tax Compliance

There are two main reasons why receiving a foreign inheritance may be a critical event for your US international tax compliance. First, receiving a foreign inheritance means that you have additional assets, income and transactions to report to the IRS.  The way that US international tax law works, it means that it is usually more than just one requirement is triggered. Rather, it may be a set of issues and reporting obligations that require an experienced international tax attorney to resolve them correctly. 

The multitude and complexity of issues can be fairly large: from the reporting of the foreign inheritance itself, income recognition, transfer of cash/assets to the United States to additional reporting requirements concerning newly acquired foreign assets and offshore voluntary disclosures involving prior noncompliance. You should keep in mind that noncompliance with these requirements may result in the assessment of high IRS penalties.

The second reason why a foreign inheritance is so important and so dangerous is the relative complacency with respect to and even complete nonrecognition of the potential US tax consequences of receiving a foreign inheritance with all of the multitude of issues to which I alluded above.  The problem is not just that many US taxpayers are completely ignorant of the fact that a foreign inheritance may require extensive US tax compliance. Even worse, many taxpayers erroneously but ardently believe that a foreign inheritance is something completely unrelated to the United States and should not have any US tax consequences. At best, they may focus on Form 3520 reporting while overlooking the complexity of the rest of the issues involved in receiving a foreign inheritance.

This is precisely why I highly recommend consulting an international tax lawyer with extensive experience in foreign inheritance US tax reporting, such as Sherayzen Law Office, if you have received or about to receive a foreign inheritance.

Foreign Inheritance Tax Attorney Minneapolis: International Tax Lawyer

I just mentioned that you need to seek the help of an international tax attorney rather than just a foreign inheritance tax attorney.  Why is that?

The answer is simple: a foreign inheritance attorney is first and foremost an international tax lawyer – i.e. a lawyer with profound knowledge of and extensive experience in US international tax law, particularly in the area of US international tax compliance. This means that a lawyer must be familiar with such common US international tax forms as Form 3520 (critically important for foreign inheritance reporting) and Form 8938.  He must also understand and be able to identify related US international tax compliance forms such as Forms 3520-A, 5471, 8858, 8865 cetera.  Of course, every US international tax lawyer must be very familiar with FinCEN Form 114 commonly known as FBAR.

In addition to these information returns, an international tax lawyer must be familiar with all types of foreign income reporting.  This requirement includes the knowledge of foreign rental income, PFIC compliance, GILTI income, capital gains concerning foreign real estate, et cetera.

Sherayzen Law Office is a highly experienced international tax law firm with respect to all of these income tax and information return requirements, including specifically all of the aforementioned forms.

Foreign Inheritance Tax Attorney Minneapolis: Tax Planning

It is highly prudent to engage in tax planning concerning a foreign inheritance. This is important not only for the purpose of limiting future tax burdens, but also to control future US tax compliance costs.  

Sherayzen Law Office has extensive experience in foreign inheritance US tax planning for its clients in Minneapolis and all over the world.  We also have a highly valuable experience of combining income tax planning with offshore voluntary disclosures.

Foreign Inheritance Tax Attorney Minneapolis: Offshore Voluntary Disclosures

Perhaps you learned late about your US international tax compliance requirements concerning foreign inheritance. In fact, this is a very common situation. In this case, you will find yourself in a very uncomfortable position of facing potentially multiple high IRS penalties for multiple violations of US international tax law.

For this reason, your foreign inheritance tax attorney must also have a profound understanding of the IRS voluntary disclosure options. In fact, in my experience, a discussion of a foreign inheritance often leads to the identification of past US international tax noncompliance and the immediate discussion of IRS offshore voluntary disclosure to remedy past noncompliance.

Offshore Voluntary Disclosures is a core area of our international tax practice at Sherayzen Law Office. We have helped hundreds of US taxpayers worldwide, including in Minneapolis, to bring their tax affairs into full compliance with US tax laws. This work included the preparation and filing of all kinds of offshore voluntary disclosures including: SDOP (Streamlined Domestic Offshore Procedures), SFOP (Streamlined Foreign Offshore Procedures), DFSP (Delinquent FBAR Submission Procedures), DIIRSP (Delinquent International Information Return Submission Procedures), et cetera.

Contact Sherayzen Law Office for Professional Foreign Inheritance Tax Help

Sherayzen Law Office is an international tax law firm that specializes in US international tax compliance, including foreign inheritance reporting.  We have helped numerous clients around the world with their foreign inheritance US tax compliance. We can help you! Hence, if you are looking for a Foreign Inheritance Tax Attorney Minneapolis, contact us now to schedule Your Confidential Consultation!

Closer Connection Exception | International Tax Lawyer & Attorney

/in , , /by

The Closer Connection Exception is a very important provision in US international tax law, because it provides a potential way for individuals who meet the Substantial Presence Test to still be treated as nonresident aliens for US income tax purposes. This article explores the Closer Connection Exception, its requirements and its implications for US and foreign taxpayers.

Understanding the Closer Connection Exception

The Closer Connection Exception is found in Internal Revenue Code (IRC) §7701(b)(3)(B) and is further elaborated in Treasury Regulation §301.7701(b)-2. This exception allows an individual who would otherwise be considered a US tax resident under the Substantial Presence Test to be treated as a nonresident alien for income tax purposes if he can demonstrate a “closer connection” to a foreign country.

Key Requirements for the Closer Connection Exception

IRC § 7701(b)(3)(B) and Treas. Reg. § 301.7701(b)-2(a) lay out the Closer Connection Exception eligibility criteria that an an individual must meet:

1.The individual must be present in the United States for fewer than 183 days in the current calendar year;

2.The individual must maintain a tax home in a foreign country during the year;

3.The individual must have a closer connection to that foreign country than to the United States; and

4. An individual must be an eligible individual.

Let’s explore each of these three requirements in detail.

Closer Connection Exception: The 183-Day Rule

The first requirement of the Closer Connection Exception is fairly straightforward: the individual must be present in the United States for fewer than 183 days in the current calendar year. This is a hard limit. Even one additional day of presence will disqualify an individual from claiming this exception.

It is important to emphasize that this 183-day threshold is different from the count of days used in the Substantial Presence Test, which includes a lookback period. For the Closer Connection Exception, only days of physical presence in the United States in the current year are considered. Treas. Reg. §301.7701(b)-2(a)(1).

Closer Connection Exception: Foreign Tax Home Requirement

The second requirement for the Closer Connection Exception is that the individual must maintain a tax home in a foreign country during the year.  IRC §911(d)(3) defines the concept of “tax home” as an individual’s principal place of business.  “If the individual has no regular or principal place of business because of the nature of the business, or because the individual is not engaged in carrying on any trade or business within the meaning of section 162(a), then the individual’s tax home is the individual’s regular place of abode in a real and substantial sense.” Treas. Reg. §301.7701(b)-2(c)(1).  This is obviously a very fact-dependent definition of tax home, which requires exploration of all relevant circumstances (such as the location of the individual’s permanent home, family and even personal belongings).

The individual’s foreign tax home must be in existence for the entire current year. It must also be located in the same foreign country for which the individual is claiming to have the closer connection. Treas. Reg. §301.7701(b)-2(c)(2).

Closer Connection Exception: Closer Connection to Foreign Country

The third and often most complex requirement of the Closer Connection Exception is demonstrating a closer connection to a foreign country than to the United States.  Treasury Regulations state that this requires establishing “that the individual has maintained more significant contacts with the foreign country than with the United States”. Treas. Reg. §301.7701(b)-2(d).  

This analysis of course requires a detailed exploration of all relevant facts and circumstances. Treas. Reg. § 301.7701(b)-2(d)(1) provide the following non-exclusive list of key factors that one must consider in determining whether a closer connection to a foreign country exists:

1.The location of the individual’s permanent home;

2.The location of the individual’s family;

3.The location of personal belongings;

4.The location of social, political, cultural, or religious organizations with which the individual has a relationship;

5.The location where the individual conducts routine personal banking activities;

6.The location where the individual conducts business activities;

7.The location of the jurisdiction in which the individual holds a driver’s license;

8.The location of the jurisdiction in which the individual votes;

9.The country of residence designated by the individual on his forms and documents; and

10. The types of official forms and documents filed by the individual, such as Form 1078 (Certificate of Alien Claiming Residence in the United States), Form W-8 (Certificate of Foreign Status) or Form W-9 (Payer’s Request for Taxpayer ldentification Number).

Regarding the first factor, individual’s permanent home, it does not matter whether a permanent home is a house, an apartment or a furnished room. It also does not matter whether the individual owns or rents his home. “It is material, however, that the dwelling be available at all times, continuously, and not solely for stays of short duration.” Treas. Reg. §301.7701(b)-2(d)(1).

Closer Connection Exception: Multiple Foreign Countries

A question arises in this context: what if an individual has connections not to just one, but  two foreign countries? Can an individual have a tax home in two or more countries?

Generally, an individual can have a closer connection to only one foreign country. However, it is possible to have a closer connection to two foreign countries in a single year if the individual moved their tax home during the year. In such cases, the individual can have a closer connection to each country for the part of the year they maintained a tax home in that country.

Treas. Reg. §301.7701(b)-2(e) lays out a detailed legal test in this case of multiple foreign country connections.  In order for an individual to be able to claim the Closer Connection Exception in cases of close contacts with more than one foreign country, this individual must satisfy the following conditions:

(1) The individual maintains a tax home beginning on the first day of the current year in one foreign country;

(2) The individual changes his or her tax home during the current year to a second foreign country;

(3) The individual continues to maintain his or her tax home in the second foreign country for the remainder of the current year;

(4) The individual has a closer connection to each foreign country than to the United States for the period during which the individual maintains a tax home in that foreign country; and

(5) The individual is subject to taxation as a resident pursuant to the internal laws of either foreign country for the entire year or subject to taxation as a resident in both foreign countries for the period during which the individual maintains a tax home in each foreign country.

Closer Connection Exception: Eligible Individual

As stated above, the final condition for the Exception is that an individual must be an eligible individual. Ineligible individuals include: (a) individuals who have applied for status as a lawful permanent resident of the United States (i.e., applied for a green card), and (b) individuals who have an application pending for adjustment of status. IRC §7701(b)(3)(C). 

Treas. Reg. §301.7701(b)-2(f) specifically sets forth the following list of actions which would make an individual ineligible to claim the Closer Connection Exception:

“Affirmative steps to change status to that of a permanent resident include, but are not limited to, the following—

(1) The filing of Immigration and Naturalization Form I-508 (Waiver of Immunities) by the alien;

(2) The filing of Immigration and Naturalization Form I-485 (Application for Status as Permanent Resident) by the alien;

(3) The filing of Immigration and Naturalization Form I-130 (Petition for Alien Relative) on behalf of the alien;

(4) The filing of Immigration and Naturalization Form I-140 (Petition for Prospective Immigrant Employee) on behalf of the alien;

(5) The filing of Department of Labor Form ETA-750 (Application for Alien Employment Certification) on behalf of the alien; or

(6) The filing of Department of State Form OF-230 (Application for Immigrant Visa and Alien Registration) by the alien.”

Closer Connection Exception: Form 8840

To claim the Closer Connection Exception, eligible individuals must file Form 8840, Closer Connection Exception Statement for Aliens, with the IRS. This form must be filed by the due date of the individual’s nonresident alien income tax return (Form 1040-NR), including extensions. Form 8840 requires detailed information about the individual’s presence in the United States, tax home, and factors demonstrating a closer connection to a foreign country. Failure to timely file this form may result in the individual being unable to claim the exception. Treas. Reg. §301.7701(b)-8(c).

Closer Connection Exception: Interaction with Tax Treaties

It’s important to note that the Closer Connection Exception is separate from any residency determinations under tax treaties. An individual who does not qualify for the Closer Connection Exception may still be able to claim nonresident status under a tax treaty’s tie-breaker rules. Conversely, qualifying for the Closer Connection Exception may eliminate the need to rely on treaty provisions. See Treas. Reg. §301.7701(b)-7.

Closer Connection Exception: Implications for Other Reporting Requirements

While the Closer Connection Exception can significantly alter an individual’s US income tax obligations, it is very important to understand that it may not exempt the individual from all US reporting requirements, particularly information returns such as FBAR and Form 8938.

Contact Sherayzen Law Office for Professional Help With US International Tax Law

US international tax law is extremely complex.  The Closer Connection Exception and its potential impact on an individual’s tax status is just an example of this complexity. This is why, if you have assets in or income from foreign countries, you need to seek the professional help of Sherayzen Law Office.  We are a leading US international tax law firm which offers comprehensive support in US international tax compliance (including IRS offshore voluntary disclosures) and US international tax planning. Our deep understanding of and extensive experienced in US international tax law allows us to proffer a professional advice tailored to your specific circumstances.

Contact Us Today to Schedule Your Confidential Consultation!

Minneapolis Foreign Inheritance Lawyer | International Tax Attorney Minnesota

/in , , /by

Retaining a Minneapolis foreign inheritance lawyer to deal with the IRS is very likely to be necessary if you reside in Minneapolis, Minnesota and have received an inheritance from a non-resident alien (i.e. foreign inheritance).  Sherayzen Law Office, Ltd. is a leader in US international tax compliance concerning foreign inheritance, including offshore voluntary disclosures concerning late disclosure of a foreign inheritance, and may be your Minneapolis foreign inheritance lawyer.

Minneapolis Foreign Inheritance Lawyer: Why Foreign Inheritance is Important to Your US international Tax Compliance

Receiving a foreign inheritance requires proper US international tax compliance in five areas: disclosure of foreign inheritance to the IRS, information reporting requirements that are linked to foreign inheritance, classification and recognition of income linked to foreign inheritance (including special requirements concerning inheritance of foreign real estate), inheritance of US-situs property and transfers of cash/assets to the United States.

Each of these areas of foreign inheritance has its own complications, traps and important reporting reporting requirements. These reporting requirements may have important tax implications with potentially high noncompliance IRS penalties.

This is precisely why it is highly recommended to consult a tax lawyer if you received or about to receive foreign inheritance. However, not every tax attorney would be the right fit for your foreign inheritance case.  In order to be properly classified as a Minneapolis foreign inheritance lawyer, the lawyer must be an international tax attorney with extensive experience in various US international tax reporting requirements related to foreign inheritance.

Minneapolis Foreign Inheritance Lawyer: International Tax Attorney

A foreign inheritance lawyer is first and foremost an international tax attorney – i.e. a lawyer with profound knowledge of and extensive experience in US international tax law, particularly in the area of US international tax compliance. This means that a lawyer must be familiar with such common US international tax forms as: Form 3520 (critically important for foreign inheritance reporting) and Form 8938.  He must also understand related US international tax compliance forms such as Forms 3520-A, 5471, 8865, 8858, et cetera.  Of course, every US international tax lawyer must be very familiar with FinCEN Form 114 commonly known as FBAR.

In addition to information returns, an international tax lawyer must be familiar with all types of foreign income reporting.  This requirement includes the knowledge of such distinct areas of international income tax reporting sub-areas as foreign rental income, PFIC compliance, GILTI income, capital gains concerning foreign real estate, et cetera.

Sherayzen Law Office is a highly-experienced and highly-knowledgeable international tax law firm with respect to all of the aforementioned income tax and information return requirements, including all of the aforementioned forms.

Minneapolis Foreign Inheritance Lawyer: Tax Planning

In cases where it is possible, it is highly prudent to engage in tax planning concerning a foreign inheritance. This is important not only for the purpose of limiting future tax burdens, but also to control future US tax compliance costs.  Hence, when you look for a Minneapolis foreign inheritance attorney, you should retain a law firm which has experience with foreign inheritance US tax planning.

Sherayzen Law Office has an extensive experience in foreign inheritance US tax planning for its clients in Minneapolis and all over the world.  We also have a highly valuable experience of combining income tax planning with offshore voluntary disclosures.

Minneapolis Foreign Inheritance Lawyer: Offshore Voluntary Disclosures

When retaining a Minneapolis Foreign Inheritance Lawyer, consider the fact that such an attorney’s work may not limited only to the current or future US international tax compliance. In my experience, a discussion of a foreign inheritance often involves identification and remedying of past US international tax noncompliance. In other words, foreign inheritance issues often lead to engaging in an IRS offshore voluntary disclosure option.

This means that a Minneapolis Foreign Inheritance Lawyer should be very familiar with all offshore voluntary disclosure options.

Offshore Voluntary Disclosures is a core area of the our international tax practice at Sherayzen Law Office. We have helped hundreds of US taxpayers worldwide, including in Minneapolis, to bring their tax affairs into full compliance with US tax laws. This work included the preparation and filing of all kinds of offshore voluntary disclosures including: SDOP (Streamlined Domestic Offshore Procedures), SFOP (Streamlined Foreign Offshore Procedures), DFSP (Delinquent FBAR Submission Procedures), DIIRSP (Delinquent International Information Return Submission Procedures), et cetera.

Contact Sherayzen Law Office for Professional Foreign Inheritance Tax Help

Sherayzen Law Office is an international tax law firm that specializes in US international tax compliance, including foreign inheritance reporting.  We are based in Minneapolis, Minnesota, with an extensive local Minnesota clientele. We have helped numerous clients in Minnesota with their foreign inheritance. We can help you!

Hence, if you are looking for a Minneapolis Foreign Inheritance Lawyer, contact Mr. Sherayzen now to schedule Your Confidential Consultation!

2024 IRS Standard Mileage Rates | IRS Tax Lawyer & Attorney

/in , /by

Beginning January 1, 2024, the IRS changed the optional standard mileage for the calculation of deductible costs of operating an automobile (sedans, vans, pickups and panel trucks) for business, charitable, medical or moving purposes. Let’s discuss in more detail these new 2024 IRS Standard Mileage Rates.

2024 IRS Standard Mileage Rates for Business Usage

For the tax year 2024, the business-use cost of operating a vehicle will be 67 cents per mile. This is 1.5 cents higher than in 2023. The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile.

As in previous years, a taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

2024 IRS Standard Mileage Rates for Medical and Moving Purposes

For the tax year 2024, the medical and moving cost of operating a vehicle will be 21 cents per mile. This is lower by one cent from 2023. The rate for medical and moving purposes is based on the variable costs.

2024 IRS Standard Mileage Rates for Charitable Purposes

For the tax year 2024, the costs of operating a vehicle in the service of charitable organizations will be 14 cents per mile. The charitable rate is set by statute and remains unchanged.

2024 IRS Standard Mileage Rates vs. Actual Costs vs. Miscellaneous Itemized Deductions

It is important to note that under the Tax Cuts and Jobs Act, taxpayers can no longer claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. With the exception of active duty members of Armed Forces, taxpayers also cannot claim a deduction for moving expenses. Notice-2019-02.

However, taxpayers are not forced to use the standard mileage rates; rather, this is optional. Sherayzen Law Office advises taxpayers that they have the option of calculating the actual costs of using a vehicle rather than using the standard mileage rates. If the actual-cost method is chosen, then all of the actual expenses associated with the business use of a vehicle can be used: lease payments, maintenance and repairs, tires, gasoline (including all taxes), oil, insurance, et cetera.

IRS Notice 2024-08

IRS Notice 2024-08, posted on IRS.gov, contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan. In addition, for employer-provided vehicles, the Notice provides the maximum fair market value of automobiles first made available to employees for personal use in calendar year 2024 for which employers may use the fleet-average valuation rule in § 1.61-21(d)(5)(v) or the vehicle cents-per-mile valuation rule in § 1.61-21(e).