international tax lawyers

South Korean Inheritance Leads to Criminal Sentence for FBAR Violations

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On January 25, 2018, a South Korean citizen and a US Permanent Resident, Mr. Hyong Kwon Kim, was sentenced to prison for filing false tax returns and willful FBAR violations; additionally, he had to pay over $14 million in FBAR willful civil penalties. I already discussed Mr. Kim’s guilty plea and the main facts of his case in an earlier article last year, but I would like to come back to another aspect of this case: South Korean inheritance. In particular, I would like to trace how a South Korean inheritance led to Mr. Kim’s guilty plea and a criminal sentence for FBAR violations.

From South Korean Inheritance to Swiss Account FBAR Violations

According to the US Department of Justice (“DOJ”), Mr. Kim became a US permanent resident in 1998. The DOJ describes him as a sophisticated business executive who ran family businesses with operations in the United States and internationally.

At some point after he became a US tax resident, Mr. Kim inherited tens of millions of dollars from his family in South Korea. Instead of properly reporting his South Korean inheritance (which would not have been subject to US taxation at that time), he decided to hide it in foreign accounts. You can find the details of his efforts to hide his accounts in this article (unavailable).

In the end, despite his ingenuous efforts, the IRS was able to identify Mr. Kim as a willfully noncompliant taxpayer who deliberately failed to file FBARs and filed false income tax returns for the years 1999 through 2010. As a result of his willful FBAR and income tax noncompliance and as part of Mr. Kim’s guilty plea, U.S. District Court Judge Brinkema sentenced Mr. Kim to six months to prison, imposed a fine of $100,000 and ordered him to pay $243,542 in restitution to the IRS. Moreover, Mr. Kim already paid $14 million in willful FBAR penalties.

In other words, as a result of his actions, Mr. Kim lost the majority of his South Korean inheritance and all earnings on that inheritance in addition to going to be jail.

Failure to Report South Korean Inheritance Was the First Step that Led to Criminal FBAR Violations

While, undoubtedly, the entire history of willful failures to file FBARs and report foreign income on tax returns is the primary cause of Mr. Kim’s imprisonment in 2018, it is important to understand that his noncompliance was only possible because Mr. Kim did not properly report his South Korean inheritance.

In other words, had Mr. Kim disclosed on Form 3520 that he had received an inheritance from South Korea in the last 1990s, he would not have been tempted to hide his inheritance from the IRS. In fact, the disclosure of his South Korean inheritance, would have made it impossible for him to hide his foreign assets in Swiss banks afterwards.

Primary Lesson from Mr. Kim’s South Korean Inheritance Case

This is an important lesson from this case that many observers and tax attorneys have missed – Mr. Kim’s noncompliance began with failure to report South Korean inheritance, not from the failure to file FBARs and foreign income (even though, he was sentenced and penalized for the latter two activities).

In fact, a very high number of my offshore voluntary disclosure clients came from a similar background – they received an inheritance from a foreign country (and it could be any foreign country: Australia, Canada, China Colombia, France, Germany, Italy, Russia, South Korea, Thailand, et cetera) and they failed to report the foreign inheritance first (usually, due to lack of knowledge about proper reporting of foreign inheritance). This failure to report foreign inheritance later led to significant US tax noncompliance that could have only been corrected through a voluntary disclosure.

Starting in 2013-2014, I have also seen the steady rise in the “reverse discovery” inheritance cases – i.e. clients would receive a foreign inheritance and would come to me to discuss on how to best disclose it. Then, as a result of my due diligence checklist, we would uncover prior FBAR or other tax noncompliance with respect to other foreign assets my clients had prior to their foreign inheritance.

Contact Sherayzen Law Office for Proper Reporting of Your Foreign Inheritance

If you received a foreign inheritance, you should contact Sherayzen Law Office for professional help. Sherayzen Law Office is an international tax law firm that specializes in US tax reporting of a foreign inheritance. We can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

Broadcom Re-domiciliation Approved | International Tax Lawyer & Attorney

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On January 29, 2018, Broadcom Board of Directors approved the plan for Broadcom re-domiciliation in the United States. This move was expected after Broadcom’s November of 2017 pledge to president Trump that the company would return to the United States.

Broadcom Re-domiciliation: A Story of Tax Inversion and Tax Remorse

The story of the Broadcom re-domiciliation began fairly recently in February of 2016. At that time, Broadcom did what was very popular during the Obama administration – tax inversion. California-based Broadcom allowed itself to be acquired by Singapore’s Avago Technologies Limited with the result of creation of a single Singapore entity.

The real motivation for the inversion was lowering the corporate taxes. At that time, during the political climate that existed in the United States, Broadcom thought that it was a good move.

Now, Broadcom believes that the tax inversion might not have been such a great thing to do in light of the new developments and certain consequences that it did not seem to have anticipated prior to tax inversion. First of all, Broadcom’s business in the US has continued to expand as it stepped-up its acquisition strategy. Already in 2017, barely a year and a half after tax inversion, Broadcom has stated that the benefits of this business strategy outweigh the potential additional taxes it might have to pay when it returns to the United States (especially after the tax reform – see below).

Second and closely related to the first reason, as a foreign company based in Singapore, Broadcom is under constant scrutiny of the Committee on Foreign Investment in the United States (“CFI”). CFI focuses on the review of transactions that may result in control of a US business by a foreign person and the impact of such control on US national security. This is an irritating and expensive factor that continuously hinders Broadcom’s acquisition strategy in the United States.

Third, Broadcom apparently did not anticipate that the tax reform be so radical and so beneficial to corporations. There is one issue in particular that makes Broadcom re-domiciliation in the United States so important. At the time of its tax inversion, Broadcom established a deferred tax liability on its balance sheet with respect to integration of the company’s intellectual property (“IP”). Under the old law, this deferred tax liability would have become payable at 35% tax rate in the United States.

Now, under the Tax Cuts and Jobs Act of 2017 (“TCJA”), this deferred liability will be recognized in fiscal year 2018 as deemed repatriated foreign earnings at a much lower tax rate. This means that Broadcom re-domiciliation in 2018 will save the company a huge amount in taxes; or, as the company itself put it: “a material reduction in the amount of other long-term liabilities on our balance sheet”.

Broadcom Re-domiciliation Approved Within One Month of TCJA

The tax motivation behind Broadcom re-domiciliation became especially evident in light of the fact that the Broadcom Board approved it within just one month of the passage of TCJA. Moreover, in its filings with SEC, Broadcom directly stated that, as a result of TCJA, the tax cost of being a US-based multinational company has decreased substantially.

Sherayzen Law Office will continue to observe the impact of the recent tax reform on the behavior of US companies that went through tax inversion.

IMF Wants “Modern” Croatian Real Estate Tax | Tax Lawyer News

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On January 16, 2018, the International Monetary Fund (“IMF”) released its 2017 Article IV consultation notes with respect to Croatia. Among its recommendations is the introduction of a modern Croatian Real Estate Tax.

Croatian Real Estate Tax: IMF assessment of Croatian Economy

The IMF began on the positive note stating that, in 2017, Croatia continued its third year of positive economic growth, mostly supported by tourism, private consumption, trade partner growth and improved confidence. The IMF also noted that the fiscal consolidation was progressing at a much faster pace than originally anticipated with Croatia leaving the European Union’s Excessive Deficit Procedure in June of 2017. The international organization made other positive comments, particularly stressing that Croatia was overcoming its Agrokor crisis.

Then, the IMF turned increasingly negative. It first noted that, while the balance risks has improved, it was not satisfied with the high level of Croatian public and external debt levels. Then, it stated that the full impact of the Agrokor restructuring is not yet known. The IMF was also unhappy about the pace of structural reforms since 2013 (when Croatia became a member of the EU), further stating that Croatia’s GDP per capita stood at about 60% of the EU average and Croatian business environment remained less favorable than that of its peers.

Finally, the IMF expressed its concerns over the fact that the output did not recover from its pre-recessing level and stated that, in the medium-term, the Croatia’s economic growth is expected to decelerate. Hence, the IMF emphasized that Croatia needed to do more to improve its economic prospects.

Croatian Real Estate Tax: IMF Recommendations

What precisely does Croatia need to do in the IMF opinion? Mainly reduction of public debt.

How does the IMF recommend that Croatia accomplish this task? The IMF made a number of proposals that can be consolidated into five courses of action. First, enhance the efficiency of public services by streamlining public services. Second, keep the wages low and reform the welfare state policies (here, it probably means either slashing the state benefits or privatizing them). Third, relaxing the labor regulations, particularly in the areas of hiring and temporary employment. Fourth, enhancement of legal and property rights. Finally, improvement of the structure of revenue and expenditure.

This last enigmatic phrase is the keyword for reducing the expenses and the introduction of new taxes. In particular, the IMF wants to see an introduction of a modern Croatian real estate tax.

What is a “Modern” Croatian Real Estate Tax According to IMF

The IMF defined a “modern” Croatian real estate tax as a “real estate tax that is based on objective criteria” and the one that “would be more equitable and would yield more revenue than the existing communal fees.” The idea is that “a modern more equitable property tax could allow for a reduction of less growth-friendly taxes.” In fact, the additional revenue derived from this tax “could compensate for a further reduction in the income tax burden, the parafiscal fees, or even VAT.”

It should be noted that the Croatian government already listened to the IMF and tried to impose a Croatian real property tax starting January of 2018, but the implementation of the law was suspended in light of strong public opposition.

Sherayzen Law Office will continue to monitor the situation.

Home Equity Tax Deduction Eliminated in 2018 | Tax Lawyers News

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The Home Equity Tax Deduction used to be one of the most common deductions used by US taxpayers. The Tax Cuts and Jobs Act of 2017 eliminated this deduction. Let’s take a brief look at the Home Equity Tax Deduction and what its elimination may mean for your US tax return.

Home Equity Tax Deduction: What are Home Equity Loans and Home Equity Lines of Credit?

A Home Equity Loan is a loan which uses the borrower’s equity in his home as a collateral for the loan.

A Home Equity Line of Credit or HELOC is a loan in which a lender agrees to lend a certain amount of funds to the borrower who uses his equity in his home as a collateral. HELOC is different from a conventional home equity loan because the borrower does not receive the entire amount of the credit up front, but uses a line of credit to borrow funds as needed (but not to exceed the credit limit). HELOC is very similar to a credit card, but it is backed-up by the borrower’s real estate.

Home Equity Tax Deduction as of 2017

Prior to the Tax Cuts and Jobs Act of 2017, homeowners who took out home equity loans could deduct from their adjusted gross income (on Schedule A) the interest on a Home Equity Loan or HELOC up to $100,000. This was called the Home Equity Tax Deduction.

Home Equity Tax Deduction Eliminated Starting Tax Year 2018

As a result of the 2017 tax reform (the Tax Cuts and Jobs Act of 2017), the Home Equity Tax Deduction was completely eliminated. In fact, the deduction was eliminated for both, new and existing borrowers (unlike the home mortgage deduction).

Home Equity Tax Deduction Elimination May Impact 2018 Individual Tax Returns

While the precise tax impact of the elimination of the Home Equity Tax Deduction may vary based on your precise tax situation, it can be reasonably supposed that the end of this deduction may result in a larger amount of taxpayers taking standard deduction rather than trying to itemize their deductions. This will be especially true since, in 2018, the standard deduction will double in size.

Toledo Tax Lawyer and Attorney | Ohio Tax Lawyers

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A Toledo Tax Lawyer who specializes in international tax law does not necessarily have to be a tax lawyer who actually resides in Toledo. An international tax lawyer who offers US international tax law services to residents of Toledo, Ohio, may also be considered a Toledo Tax Lawyer. Let’s analyze a bit deeper why this is the case.

Toledo Tax Lawyer Definition: Offering International Tax Services to Residents of Toledo

Of course, the definition of a Toledo Tax Lawyer includes all tax lawyers who are physically located in Toledo, Florida, and offer their tax services there.

With respect to US international tax law, however, the definition of a Toledo Tax Lawyer expands to encompass all international tax lawyers who offer services to residents of Toledo, Ohio.

The reason for such an expansion in the definition of Toledo Tax Lawyer lies in the nature of US international tax law. Unlike many other areas of law which are predominantly local in nature (such as local contracts, torts, criminal law, et cetera), US international tax law is federal law which is applied equally to the residents of all states of the United States. In other words, there is nothing local about it; the city of Toledo cannot in any way modify US international tax law.

Hence, an international tax lawyer residing in Minneapolis, such as attorney Eugene Sherayzen of Sherayzen Law Office, Ltd., has the same right to offer international tax law services to residents of Toledo as a lawyer who lives in Toledo.

Toledo Tax Lawyer Definition: Local Tax Law

It is important to distinguish, however, a tax lawyer who offers US international tax services from a tax lawyer who offers his services with respect to local tax law. In the first case, as I had mentioned before, the lawyer may call himself a Toledo Tax Lawyer as long as he offers international tax services to residents of Toledo (even though he is not residing in Toledo or anywhere else in the State of Ohio).

In the second case, however, an out-of-state lawyer cannot be classified as a Toledo Tax Lawyer, because he is working on local Toledo or Ohio state tax issues. In fact, in this case, it would best for local taxpayers to retain a local Toledo Tax Lawyer who resides in Toledo, Ohio.

Sherayzen Law Office is Your Preferred Choice for Toledo Tax Lawyer With Respect To US International Tax Issues

Sherayzen Law Office is a highly experienced international tax law firm which specializes in the area of foreign account tax compliance. We have been helping our clients worldwide with their international tax issues, including FBAR, FATCA and Offshore Voluntary Disclosure issues since the end of 2005. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!