international tax lawyers

Reporting Foreign Gifts and Inheritance to the IRS: Form 3520

/in , /by

While gifts and bequests from nonresident aliens are usually not taxable, they must be reported to the IRS if they are above a certain threshold.  Generally, U.S. persons who receive the aggregate amount of $100,000 or more in gifts and/or bequests from nonresident aliens or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) during a tax year must report those amounts on Form 3520.  The same reporting requirement applies to U.S. persons who receive a gift of more than $14,165 from foreign corporations (or foreign persons related to such foreign corporations or foreign partnerships).

Failure to file Form 3520 (and even late filing of the form) may result in substantial penalties, unless the taxpayer may demonstrate that failure to comply was due to a reasonable cause and not willful neglect.

It should be noted that U.S. person must also use Form 3520 to report distributions from a foreign trust during the relevant tax year.  Remember, while gifts and bequests are not taxable, the distributions from a foreign trust are generally taxed as income by the U.S. government.

Furthermore, one should remember that receiving a foreign inheritance or a gift may trigger other U.S. tax reporting requirements.  The most prominent of these requirements is the Report on Foreign Bank and Financial Accounts (FBAR). Generally, FBAR is required to be filed by any U.S. person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

For example, if a taxpayer receives an inheritance of $120,000 in 2011 which is then deposited into the taxpayer’s checking account in India, this taxpayer must file both forms 3520 and FBAR.  The likely due date for Form 3520 would be April 15, 2012 whereas the FBAR must be received by the Department of Treasury by June 30, 2012. (Note: Form 3520 and FBAR are both now due in April as of 2017.)

Finally, a note of caution: requirements under Form 3520 may become complex fairly fast.  For example, the exact date of inheritance or gift may be in dispute.  Also, it is possible that some gifts should be reported in a certain way only.  Even the calculation of $100,000 per year may be subject to various interpretations.  Therefore, a help of an international tax attorney should be secured by the taxpayer in order to determine what international tax reporting requirements apply.

Contact Sherayzen Law Office for International Tax Help

If you believe that you may be subject to Form 3520 reporting requirement, contact Sherayzen Law Office now to resolve this situation.  Our experienced international tax firm will guide you through the complex international tax reporting requirements, including voluntary disclosure issues.

Remember, it does not matter whether you are located in another state or outside of the United States – we can help!

FBAR Deadline Extension for Signature Authority Only – IRS Notice 2011-54

/in , , /by

On June 16, 2011, the Internal Revenue Service issued IRS Notice 2011-54, granting additional relief to persons with signature or other authority over, but no financial interest in, a foreign financial account held during calendar year 2009 or earlier calendar years.

Previous, IRS Notices 2009-62 and 2010-23 already extended this deadline until June 30, 2010: “Persons with signature authority over, but no financial interest in, a foreign financial account for which an FBAR would otherwise have been due on June 30, 2010, will now have until June 30, 2011, to report those foreign financial accounts.” (IRS Notice 2010-23).

Notice 2011-54 further states that:

Persons having signature authority over, but no financial interest in, a foreign financial account in 2009 or earlier calendar years for which the reporting deadline was extended by Notice 2009-62 or Notice 2010-23 will now have until November 1, 2011, to file FBARs with respect to those accounts. The deadline for reporting signature authority over, or a financial interest in, foreign financial accounts for the 2010 calendar year remains June 30, 2011.

Thus, IRS Notice 2011-54 extends the FBAR filing deadline from June 30, 2011 until November 1, 2011 for all persons with signature authority over, but no financial interest in, a foreign financial account in 2009 or earlier calendar years.

Be careful, though – the deadline for the 2010 FBAR remains June 30, 2011.

Also, note that the relief granted by FinCEN Notices 2011-1 and 2011-2 is not affected by IRS Notice 2011-54.

Contact Sherayzen Law Office NOW For FBAR Help

If you believe that you may be subject to FBAR requirements, contact Sherayzen Law Office as soon as possible. Our experienced international tax firm will guide you through the complex maze of FBAR reporting requirements, including any voluntary disclosure issues.

Remember, it does not matter whether you are located in another state or outside of the United States – we can help!

FBAR Extension for Certain Individuals: FinCEN Notices 2011-1 and 2011-2

/1 Comment/in , , /by

On May 31, 2011, and June 17, 2011, in FinCEN Notices 2011-1 and 2011-2, the Internal Revenue Service and the Financial Crimes Enforcement Network (FinCEN) announced that a small subset of individuals, who are required to file the Report of Foreign Bank and Financial Accounts (FBAR), will receive a one-year extension beyond the recent filing date of June 30, 2011.

FinCEN Notices 2011-1 and 2011-2 concern only individuals with signature authority and apply to the following narrow categories of filers:

1). An employee or officer of a covered entity (see 31 C.F.R. § 1010.350(f)(2)(i)-(v)) who has signature or other authority over and no financial interest in a foreign financial account of another entity more than 50 percent owned, directly or indirectly, by the entity (a “controlled person”).
2). An employee or officer of a controlled person of a covered entity (see 31 C.F.R. § 1010.350(f)(2)(i)-(v)) who has signature or other authority over and no financial interest in a foreign financial account of the entity or another controlled person of the entity.
3). An employee or officer of an investment advisor registered with the Securities and Exchange Commission who has signature or other authority over and no financial interest in a foreign financial account of persons that are not investment companies registered under the Investment Company Act of 1940.

Notice that categories 1 and 2 do not apply to companies that are not publicly traded or not SEC-registrants.

The new extended filing deadline for the categories of individuals above is June 30, 2012. The deadline applies to FBARs for 2010, 2009 and earlier years.

Unless another relief notice applies, all other U.S. persons required to file an FBAR this year are required to meet the June 30, 2011 filing date. Unlike with federal income tax returns, extensions of time to file are not available.

Contact Sherayzen Law Office for FBAR Guidance

If you have any questions with respect to FinCEN Notices 2011-1 and 2011-2 or if you are looking for FBAR guidance, contact Sherayzen Law Office NOW! Eugene Sherayzen an experienced tax attorney will explain to you the current FBAR requirements and devise the appropriate FBAR compliance strategy for you.

Gold Bullion Foreign Accounts and FBAR

/in , , /by

A frequent question in my practice is whether a foreign account holding gold bullion is required to be reported on FinCEN Form 114 formerly Form TD F 90-22.1, usually referred to as “FBAR” (Report on Foreign Bank and Financial Accounts).

FBAR is required to be filed by any U.S. person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year. FBAR is due April 15th or October 15th (for the previous calendar year). There is an automatic extension if the FBAR is not filed by the April 15th deadline, unlike Federal and some State returns that must be filed by extension. For federal returns the extension is Form 4868. The FBAR rules are enforced by the Internal Revenue Service.  You can read more about the general FBAR requirements here.

Whether gold buillion is required to be reported on the FBAR involves a general issue of whether FBAR definition of “financial account” covers foreign accounts that hold only non-monetary assets.  The answer is yes – an account with a financial institution that is located in a foreign country is a financial account for FBAR purposes whether the account holds cash or non-monetary assets.

Therefore, most taxpayers must reports foreign accounts that hold gold bullion on the FBAR.

Contact Sherayzen Law Office For FBAR Help

If you have any questions with respect to FBARs or you just found out that you should have filed the FBARs for the past years and you wish to go through a voluntary disclosure, contact Sherayzen Law Office as soon as possible.  Our experienced international tax firm can help you deal with any FBAR-related issues.

Remember, it does not matter whether you are located in another state or outside of the United States – we can help!

Foreign Investment in Real Property Tax Act

/in , , /by

The IRS generally taxes U.S. taxpayers on all income, from any source derived.  Foreign taxpayers, on the other hand, will usually only pay U.S. taxes on income sourced in the U.S.  However, under The Foreign Investment in Real Property Tax Act (“FIRPTA”), the IRS treats gain on the disposition of certain U.S. property and interests as if it were “effectively connected” with the conduct of a U.S. trade or business, and thus subject to U.S. tax, even if foreign individuals or businesses are not actually engaged in a U.S. trade or business.  (In general, effectively connected income consists of both U.S.-source income and certain types of foreign source income earned by non-resident aliens and foreign corporations engaged in the conduct of a trade or business within the U.S).

Penalties for failure to comply with the IRS provisions can be substantial, so taxpayers and purchasing agents should be aware of these rules if they are involved in such transactions.

The FIRPTA Withholding Tax

The FIRPTA income tax withholding provisions (IRC Section 1445 and related sections) require purchasers or agents acquiring U.S. real property interests (“USRPI)” from foreign persons to withhold 10 percent of the amount realized on the disposition, subject to certain exemptions.  In general, a USRPI is any direct interest in parcels of real property located in the U.S., and any interests in a U.S. corporation (such as shares, but not including solely a creditor interest).

The IRS defines “disposition” for this provision to include disposition for any purpose of the Internal Revenue Code, including but not limited to: sales or exchanges, liquidations, redemptions, gifts, transfers, and similar transactions.  “Foreign” persons are broadly defined by the IRS, and include nonresident alien individuals, foreign corporations, partnerships, trusts, estates, and foreign branches of U.S. financial institutions if the foreign branch is a qualified intermediary.  The “amount realized” generally means the sales or contract price of the property (see IRS rules for more detail).

Upon advance request, the IRS has the authority reduce the 10 percent withholding tax to an amount that will cover the estimated tax liability due, if it is determined that the collection of the amount due under applicable IRS provisions will not be jeopardized by the reduction.

Note that special rules apply for distributions of USPRIs by foreign corporations, partnerships, trusts, or estates, and by certain domestic corporations to foreign shareholders.

Penalties

In general, various penalties may be imposed under the applicable FIRPTA provisions.  Penalties apply for failure to file the required Form 8288 when due and for failure to pay the withholding when due.  Additionally, any tax required to be withheld under Section 1445 may be collected, plus interest on the unpaid amount, if the taxpayer fails to do so.  Further, a criminal penalty of $10,000 or five years in prison may be imposed under Section 7202 for willful failure to collect and pay over the required tax.  Corporate officers or other responsible persons may face separate penalties under Section 6672.

Contact Sherayzen Law Office

This article is intended to give a brief summary of some of the issues concerning, and should not be construed as legal or tax advice.  If you have further questions regarding these matters as it pertains to your own tax circumstances, Sherayzen Law Office offers professional advice in all of your tax and international tax needs.  Call (952) 500-8159 to discuss your tax situation with an experienced business tax lawyer.