International Tax Attorney Minnesota Minneapolis

Importance of Pre-Immigration Tax Planning

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Pre-immigration tax planning is done by very few of the millions of immigrants who come to the United States. This is highly unfortunate because US tax laws are highly complex and it is very easy to get into trouble. The legal and emotional costs of bringing your tax affairs back into US tax compliance (after you violated any of these complex laws) are usually a lot higher than those of the pre-immigration tax planning. In this writing, I would like to discuss the concept and process of pre-immigration tax planning for persons who wish to immigrate and/or work in the United States.

The concept of pre-immigration tax planning is far more complex than what people generally believe. Most people simply focus on the actions required by local tax laws of their home country; very little attention is actually paid to the tax laws of the future host country – the United States. Perhaps, the only exception to this rule is avoidance of double-taxation; however, even this concept is approached narrowly to avoid only the taxation of US-source income by the home country.

Yet, the pre-immigration tax planning should focus on both, US tax laws and the laws of the home country. It is even safe to argue that a much larger effort should be going into US tax planning due to the much farther reach and the higher level of complexity of the US tax system; in fact, the capacity of US tax laws to invade one’s life is not something for which the new US immigrants are likely to be prepared. Furthermore, once a person emigrates to the United States, he will likely lose his tax residency in his home country.

Once the correct focus on US tax laws is adopted, the pre-immigration tax planning process should begin by securing a consultation with an international tax lawyer in the United States. Beware of using local tax lawyers who are not licensed in the United States to do your pre-immigration tax planning – having an idea of US tax laws is not the same as practicing US tax law. A separate article can be written on how to find and secure the right international tax lawyer, but, if you are reading this article, you already know that you should call Sherayzen Law Office for help with your pre-immigration tax planning!

During the consultation, your international tax lawyer should carefully go over your existing asset structure, their acquisition history, any built-up appreciation and other relevant matters. Then, he should classify the assets according to their likely US tax treatment and identify the problematic assets or assets which need further research. The lawyer should also discuss with you some of the most common US tax compliance requirements.

After the initial consultation, your US international tax lawyer will engage in preliminary pre-immigration tax planning, creating the first draft of your plan solely from US tax perspective.

Then, he will contact a tax professional in your home country (preferably a tax professional that you supply and who is familiar with your asset structure). If you have assets in multiple jurisdictions, the US lawyer should also contact tax attorneys in these jurisdictions in order to find out the tax consequences of his plan in these jurisdictions. He will then modify his plan based on these discussions to create the second draft of your pre-immigration tax plan.

The next step of your pre-immigration tax planning should be the discussion of the relevant details of the modified plan with your immigration lawyer in order to make sure that the plan does not interfere with your immigration goals. Once the immigration lawyer’s approval is secured, you can proceed with the implementation of the tax plan.

Obviously, this discussion of your pre-immigration tax planning is somewhat simplified in some aspects and overly structured in others. Not all of the steps need to be always followed, especially followed in the same order; a lot will depend on your asset structure and how complex or simple it is.

Finally, it is important to emphasize that pre-immigration tax planning applies not only to persons who wish to obtain US permanent residence, but also to persons who just wish to work (either as employees, contractors or business owners) in the United States, because these persons are likely to become US tax residents even if they never become US permanent residents.

Contact Sherayzen Law Office for Experienced Help With Your Pre-Immigration Tax Planning

If you are thinking of immigrating to or working in the United States, contact a leading international tax law firm in this field, Sherayzen Law Office, for professional tax help. Our experienced legal team has helped foreign individuals and families around the world and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Mr. Sherayzen Completes Immigration and International Tax Law Seminar

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On February 18, 2016, Mr. Sherayzen, in cooperation with two lawyers (an immigration lawyer and a business lawyer) completed another immigration and international tax law seminar “Foreign Investment in the United States: Key Immigration, Business and Tax Considerations”.

During this immigration and international tax law seminar, the immigration lawyer, Mr. Streff, covered a wide range of topics including investors visas, such as E-2 and EB-5, and alternative options for entrepreneurs, such as L-1 intracompany transferees, EB-1 and O-1 extraordinary ability, and National Interest Waivers’ through the Entrepreneurs Pathways initiative.

While immigration and international tax law issues were at the center of the seminar, a substantial part of the seminar was also devoted to business issues associated with various immigration options. The business lawyer, Mr. Vollmers, covered relevant business issues of appropriate entity formation, business plans, international business relationships, investment due diligence, and funds tracing.

Mr. Sherayzen’s presentation focused on the intersection of immigration and international tax law, especially U.S. tax residency classification, disclosure of foreign income and foreign assets, and foreign business ownership compliance requirements. U.S. tax residency is a concept completely different from U.S. permanent residence or “green card” and it occupies the center of any tax inquiry that involves immigration to the United States.

A lot of attention was given to tax compliance requirements with respect to another common intersection of immigration and international tax law issues – business ownership tax compliance issues associated with L-1 visa structures. In particular, Mr. Sherayzen discussed Forms 5471, 5472, 8865 and 8858 as well as PFIC and Subpart F antideferral regimes.

During the seminar, Mr. Sherayzen spent a substantial amount of time to one of the most important points of convergence of immigration and international tax law – reporting of foreign financial assets. Here, he explained the importance of FBAR and Form 8938, as well as FATCA.

Another part of Mr. Sherayzen’s presentation was devoted to the importance of pre-immigration tax planning. It is important for persons who plan to immigrate to the United States to contact a U.S. international tax attorney before they actually become U.S. persons. The international tax attorney should review their existing asset structure and advise on how this structure should be modified in order to avoid the various U.S. tax landmines and maximize favorable treatment under U.S. tax law. Special attention should be paid not only to income tax rules, but also estate and gift tax laws.

Mr. Sherayzen ended his presentation with the emphasis that immigration lawyers are at the forefront of international tax compliance, because they are usually the first to deal with persons who immigrate to the United States. Therefore, it is highly important for the immigration lawyers to be able to identify the most common junctions of immigration and international tax law issues and timely advise their clients to seek professional international tax help.

Individual IRS Tax Deadlines in the Calendar Year 2016

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As the New Year festivities are drawing to an end, the attention of hundreds of millions of US taxpayers focuses more and more on its annual US tax compliance in the calendar year 2016. In this brief article, I would like to summarize some of the most important deadlines of the calendar year 2016. Obviously, other calendar year 2016 deadlines may also apply to you depending on your situation; please, consult your tax attorney for a detailed review of your US tax requirements.

January 15, 2016: Form 1040-ES for the final installment of estimated tax payments for the tax year 2015.

February 1, 2016: If you did not make your final estimated tax payment by January 15, 2016, you can still avoid the penalty by filing your 2015 US tax return by February 1, 2016.

April 18, 2016: Three important deadlines fall on this date.

First, due to the fact that April 15 falls on Saturday and the following Monday (April 17) is a federal holiday, the US taxpayers will receive a few extra days to file their 2015 individual tax returns by April 18, 2016.

Second, April 18 is also the deadline for the first installment of 2016 estimated tax payments that should be filed with Form 1040-ES.

Third, April 18 is the deadline for filing the automatic 6-month extension to file 2015 income tax return. The extension is done by filing Form 4868 with the IRS. Remember, the estimated tax liability must still be paid by April 18 (i.e. the extension applies to the return filing deadline, not to the actual income tax payment).

June 15, 2016: this is a dual deadline for US individual taxpayers who reside outside of the United States. First, June 15 is the 2015 income tax return filing deadline for such individuals. Second, if these US individual taxpayers do not yet desire to file their 2015 individual income tax returns, then they can file an automatic four-month extension by June 15, 2016. Similar to April 18 extensions, however, the estimated 2015 income tax liability must still be paid by June 15, 2016.

Furthermore, June 15, 2016, is the deadline for the second installment for 2016 estimated tax payments.

June 30, 2016: FinCEN Form 114, commonly known as FBAR (Report of Foreign Bank and Financial Accounts), is due for the calendar year 2016. This is one of the most important international tax deadlines and no extensions are allowed.

September 15, 2016: this is the deadline for the third installment for 2016 estimated tax payments.

October 17, 2016: if the filing extensions to file 2015 individual income tax returns were properly filed, these returns will be due on October 17, 2016 (normally, the deadline would be on October 15, but it falls on a Saturday in the 2016 and the deadline shifts to the following Monday).

Interest Rates for the Fourth Quarter of 2015 and First Quarter of 2016

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The IRS underpayment and overpayment interest rates are highly important in US tax law in general, and offshore voluntary disclosures in particular. Not only do these rates determine the interest on additional tax liability on the amended tax returns, but the same rates are sued to determine the PFIC interest rate on “excess distributions”. During the fourth quarter of 2015 and the first quarter of 2016, the IRS underpayment and overpayment interest rates will be:

three (3) percent for overpayments (two (2) percent in the case of a corporation);
three (3) percent for underpayments;
five (5) percent for large corporate underpayments; and
one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code (IRC), the interest rates are determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

US Tax Return Statute of Limitations and IRC Section 6501(c)(8)

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Most tax practitioners are familiar with the general rules of assessment statute of limitation for US tax returns. However, very few of them are aware of the danger of potentially indefinite extension of the statute of limitations contained in IRC Section 6501(c)(8). In this article, I would like to do offer a succinct observation of the impact of IRC Section 6501(c)(8) on the US tax return Statute of Limitations as well as your offshore voluntary disclosure strategy.

Background Information

While IRC Section 6501(c)(8) has existed for a while, its present language came into existence as a result of the infamous HIRE act (the same that gave birth to FATCA) in 2010. The major amendments came from PL 111-147 and PL 111-226.

When IRC Section 6501(c)(8) Applies

IRC Section 6501(c)(8) applies when there has been a failure to by the taxpayer to supply one or more accurate foreign information return(s) with respect to reporting of certain foreign assets and foreign-related transactions under IRC Sections 1295(b), 1298(f), 6038, 6038A, 6038B, 6038D, 6046, 6046A and 6048. In essence, it means IRC Section 6501(c)(8) applies whenever the taxpayer fails to file Forms 8621, 5471, 5472, 926, 3520, 3520-A, 8865, 8858 and 8938 (and potentially other forms). In essence, this Section comes into play with respect to virtually all major international tax reporting requirements, with the exception of FBAR (which is governed by its own Title 31 Statute of Limitations provisions).

It is important to emphasize that it is not just the failure to file these international tax returns that triggers IRC Section 6501(c)(8). Rather, most international tax attorneys agree that, if the filed international tax returns are inaccurate or incomplete, IRC Section 6501(c)(8) still applies.

IRC Section 6501(c)(8) only applies to the returns filed after the date of the enactment of the provisions that amended the section – March 18, 2010. The Section also applies to returns filed on or before March 18, 2010 if the statute of limitations under Section 6501 (without regard to the amendments) has not expired as of March 18, 2010.

The Impact of IRC Section 6501(c)(8) On the Statute of Limitations

As amended by PL 111-147 and PL 111-226, IRC Section 6501(c)(8) may have a truly monstrous effect on the statute of limitations for the entire affected tax return – a failure to file any of the aforementioned international tax forms (including a failure to provide accurate and complete information) will keep the statute of limitations open indefinitely with respect to “any tax return, even, or period to which such information relates”.

Thus, a failure to file a foreign information return may keep the statute of limitations open forever for the entire tax return, not just that particular foreign information return. This means that the IRS can potentially audit a taxpayer’s return and assess additional taxes outside of the usual statute of limitations period; the IRS changes can affect any item on the US tax return, not just the items on the foreign information return.

Reasonable Cause Exception to the “Entire Case” Rule

IRC Section 6501(c)(8)(B) provides a limited exception to the “entire case” rule. Where a taxpayer establishes that the failure to file an accurate international information return was due to a reasonable cause and not willful neglect, only the international tax forms will be subject to indefinite statute of limitations and not the entire return.

Impact of IRC Section 6501(c)(8) on Your Voluntary Disclosure Strategy

IRC Section 6501(c)(8) may have a significant impact on the voluntary disclosure strategy where multiple international tax forms need to be filed. In these cases, the taxpayers are more likely to go into Streamlined disclosures or 2014 OVDP (now closed) rather than attempt doing a reasonable cause disclosure.

This is the case because this indefinite statute of limitations may undermine a reasonable cause strategy if the disclosure period does not coincide with the years in which the international tax returns were due. For example, let’s suppose that US citizen X owned PFICs during the years 2008-2014, but he never filed Forms 8621 even though they were required. If X decides to do a reasonable cause disclosure and files amended 2012-2014 tax returns only, then, the years 2008-2011 will still be open to an IRS audit (though, if X successfully establishes reasonable cause for the earlier non-filing, only Forms 8621 will be subject to an IRS audit). In this case, X may have to make a choice between an unpleasant filing of amended 2008-2011 tax return or doing a Streamlined disclosure.

Obviously, IRC Section 6501(c)(8) is just one factor in what could be a very complex maze of pros and cons of a distinct voluntary disclosure strategy. Other factors need to be taken into effect in determining, including whether the financials were disclosed on the FBAR and Form 8938 and the amounts of underreported income (which may actually keep the statute of limitations open for the years 2009-2011 as well).

These types of decisions need to be made carefully by a tax professional on a case-by-case basis with detailed analysis of the facts and potential legal strategies; I strongly recommend retaining an experienced tax attorney for the creation and implementation of your voluntary disclosure strategy.

Contact Sherayzen Law Office for Help With Your Delinquent International Tax Forms

If you have not filed international tax forms and you were required to do so, contact the professional international tax team of Sherayzen Law Office. Our team is lead by an experienced international tax attorney, Mr. Eugene Sherayzen, and has helped hundreds of US taxpayers around the world to bring their US tax affairs into fully US tax compliance.

Contact Us Today to Schedule Your Confidential Consultation!