international tax lawyers

Indians working on H1 Visa Need to Pay US Taxes on Indian Income

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US taxes on Indian income is one of the most important topics relevant to the everyday life of Indian-Americans and Indians who reside and work in the United States. In this article, I will focus on the issue of US taxes on Indian Income earned by H1 (mostly H1B) visa holders.

US Taxes on Indian Income and US Tax Residency

Whether an Indian working in the United States needs to pay US taxes on Indian income primarily depends on whether he is a US tax resident. There are three categories of US tax residents – US citizens, US Permanent Residents (i.e. green-card holders), and the individuals who satisfied the Substantial Presence Test.

Any person who is considered to be a US tax resident is required to report his worldwide income on his US tax return and pay US taxes on this income. Hence, if an Indian working in the United States on H1 visa has Indian-source income and he satisfied the Substantial Presence Test, he would be required to pay US taxes on his Indian income, not just income earned in the United States.

US Taxes on Indian Income: the Substantial Presence Test

The Substantial Presence Test is very important in US tax law because it affects millions of foreigners who reside in or visit the United States. The Substantial Presence Test basically states that any individual who is physically present in the United States for 183 days or more within the most recent three-year period is considered to be a US tax resident.

The 183 days are calculated as follows: all days spent in the current year + one-third of the days spent in the year immediately prior to the current year + one-sixth of the days spent in the year right before the prior year (in other words, the second year before the current year) “Current year” here means the year for which you are trying to figure out whether you were a tax resident.

Failure to Pay US Taxes on Indian Income May Result in IRS Penalties and Endangerment of Your Immigration Status

Any Indian who is a US tax resident and fails to pay US taxes on Indian income runs a great risk of the imposition of IRS penalties. If the failure to pay US taxes on Indian income is combined with the failure to file information returns, such as FBARs, then his legal situation in the United States becomes extremely precarious.

Not only are the IRS penalties extremely high (such a person may owe to the IRS more than the balance on your unreported accounts), including criminal penalties with potential jail time, but his immigration status may be endangered as a result of his US tax noncompliance.

Contact Sherayzen Law Office for Professional Help With Your Undisclosed Indian Income and Indian Foreign Accounts

Given these extreme risks, an Indian working in the United States on H1 visa should contact Sherayzen Law Office for professional legal and tax help as soon as possible.

We have helped numerous clients from India to reduce and even, in some cases, completely eliminate their IRS penalties and bring their US tax affairs into full compliance with US tax laws, thereby preserving their immigration status.

We can help you! Contact Us Today to Schedule Your Confidential Consultation!

2017 Tax Filing Season Begins January 23 & Tax Returns due April 18, 2017

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On December 12, 2016, the IRS announced today that the 2017 tax filing season (for the tax year 2016) will begin on January 23, 2017. The 2017 tax filing season e-filings will be accepted by the IRS starting that date. The IRS again expects that more than four out of five tax returns will be prepared electronically using tax return preparation software.

2017 Tax Filing Season Deadline is on April 18, 2017

The filing deadline to submit 2016 tax returns will be April 18, 2017 (Tuesday), rather than the usual April 15. The delay is caused by the fact that April 16 falls on a Saturday which would usually move the deadline to the following Monday (April 17). However, April 17 is the Emancipation Day, which is a legal holiday in the District of Columbia, and the final deadline is pushed to April 18, 2017 (under the law, legal holidays in the District of Columbia affect the national filing deadlines).

Early Paper Filing Offers No Advantage in the 2017 Tax Filing Season

Many software companies and tax professionals will begin accepting tax returns before January 23 and then they will submit the returns when the IRS systems open. It is noteworthy to state, however, that the IRS will begin processing paper tax returns only on January 23. Hence, there is no advantage to filing paper tax returns in early January instead of waiting for the IRS to begin accepting e-filed returns.

Some of the 2017 Tax Filing Season Refunds Could Be Affected by the PATH Act

The IRS also reminded the taxpayers that the Protecting Americans from Tax Hikes Act (the PATH Act) will have a direct impact on the timing of some refunds. In particular, the PATH Act requires the IRS to hold refunds that claim Earned Income Tax Credit (“EITC”) and the Additional Child Tax Credit (“ACTC”) until February 15. The hold applies to the entire refund, not just the portion associated with EITC and ACTC. Then, it will take several days for these refunds to be released and processed through financial institutions. With weekends and holidays, the IRS estimates that many taxpayers will not be able to access their refunds until after February 27, 2017.

The idea behind the new law is to protect the taxpayers by giving the IRS more time to detect and prevent tax fraud, which has become a huge headache for the IRS in the past few years.

US International Tax Lawyer Lectures at Alliance Française on Offshore Reporting

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On December 7, 2016, Mr. Eugene Sherayzen, the founder of Sherayzen Law Office and a US international tax lawyer, gave a lecture at the Minneapolis chapter of Alliance Française. The topic of the lecture was an introduction to reporting of foreign income and foreign assets for individual taxpayers in the United States. The lecture was well-attended and raised a lot of interest among the participants.

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US International Tax Lawyer Explained the US Tax Residency Requirements

Mr. Sherayzen first focused on defining the crucial term of “US tax resident”. As he explained during the lecture, the starting point for legal analysis of any US international tax lawyer is often the determination of whether his client is a US person.

During the lecture, Mr. Sherayzen covered three categories of US tax residents – US citizens, US Permanent residents and individuals who met the requirements of the Substantial Presence Test.

He also distinguished the immigration-law concept of US permanent residency (i.e. green-card holders) from the tax concept of US tax residency. The US international tax lawyer also discussed certain exceptions to the Substantial Presence Test, focusing on F-1 and J-1 visas.

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US International Tax Lawyer Emphasized Worldwide Income Reporting Requirement

Then, Mr. Sherayzen explained to the audience that US tax residents are required to disclose and pay US taxes on their worldwide income, even if this income was already disclosed on foreign tax returns.

At that point, the US international tax lawyer observed that the worldwide income reporting requirement is one of the most violated laws. Mr. Sherayzen distinguished three groups of US tax residents who are not in compliance with this law.

The first group consisted of US tax residents who were born overseas and were not aware of the worldwide income compliance requirement due to their prior experiences in their home countries (especially those which adopted the territorial model of taxation).

The second group was described as a small group of persons who were aware of the requirement and willfully violated it.

Finally, Mr. Sherayzen distinguished a third group of individuals who knew about the worldwide income reporting requirement, attempted to comply with it to the best of their ability, but failed to do so due to their lack of sufficient knowledge of US tax laws. The US international tax lawyer specifically referenced the Assurance Vie accounts as a representative case for such violations due to huge differences between the US and the French tax treatment of these accounts.

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US International Tax Lawyer Described Top Three Reporting Requirements with Respect to Foreign Bank and Financial Accounts

The third part of the presentation was devoted to the discussion of the FBAR, Form 8938 and Form 8621 (PFIC passive foreign investment company) requirements with respect to reporting foreign bank and financial accounts. The discussion concerned the types of accounts that needed to disclosed, the reporting thresholds, the due dates and how the forms needed to be filed. Some history of the forms was provided; due to time limitations, however, only a limited introduction to FATCA was provided to the audience.

This discussion produced a lively Q&A exchange between the US international tax lawyer and the audience.

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US International Tax Lawyer Discussed the Reporting of Foreign Gifts and Inheritance

The fourth part of the discussion concentrated on the Form 3520 reporting of foreign gifts and inheritance, including the filing threshold and the penalties associated with the form. Mr. Sherayzen also explained that, in certain circumstances, Form 8938 may be applicable to foreign gifts and inheritance for the purpose of annual tax compliance.

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US International Tax Lawyer Introduced the Hypothetical to Illustrate How These Forms Might Apply in a Real-Life Situation

The final part of the presentation was devoted to the analysis of a hypothetical to demonstrate how all of these information returns could apply in a real-life situation. The focus of the hypothetical was on the French and French-Canadian issues. Mr. Sherayzen also invited the audience to participate in the legal analysis of the hypothetical which was enthusiastically welcomed by the audience.

The presentation concluded with an additional fifteen-minute Q&A session.

International Tax Lawyer

Foreign Investment in Real Property Tax Act | US Real Estate Tax Attorney

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Foreign Investment in Real Property Tax Act (also referred to as “FIRPTA”) is the most important tax law for foreign investors in US real estate. Not only does FIRPTA determine the tax treatment of the gains on the real estate owned by nonresident aliens, but it also establishes the famous FIRPTA tax withholding mechanism that is important not only to foreign investors, but also to the entire US real estate industry as well as the US buyers of real estate.

In this article, I intend to provide a general introduction to Foreign Investment in Real Property Tax Act. In the subsequent articles, I will provide a more detailed exploration of each individual part of FIRPTA.

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Foreign Investment in Real Property Tax Act: Legislative Background

Prior to 1981, nonresident aliens were largely exempt from US capital gain taxes produced by the sales of US real estate. The Foreign Investment in Real Property Tax Act of 1980 was enacted as part of the Omnibus Reconciliation Act of 1980 (Pub. L. No. 96-499, 94 Stat. 2599, 2682 (Dec. 5, 1980)) and dramatically changed this situation.

In essence, FIRPTA forced the nonresident aliens to recognize gain upon disposition of the so-called “US real property interest” (a term of art specifically defined in the Treasury regulations), though a number of exceptions remained. In addition, FIRPTA established a powerful tax withholding mechanism by requiring buyers to act as a withholding agent and withhold 10% of the gross sales price from the payment to a nonresident alien seller.

Obviously, FIRPTA was intended to protect the US purchasers from a flood of foreign investors who could drive up the prices of US real estate. However, over the years, an opposition arose to FIRPTA, especially as the IRS expanded the reach of FIRPTA in its rulings.

The Protecting Americans from Tax Hikes Act (the PATH Act) passed in 2015 was a compromise decision which was meant to encourage certain foreign investment in US real estate while adjusting the withholding rate higher to make up for lost revenue as well as to put it in line with the higher US capital gains tax rate. The PATH act generally increased the tax withholding rate to 15% from the prior 10%, exempted certain qualified foreign pension funds from FIRPTA tax withholding, increased the exemption threshold for publicly traded stock exception, introduced certain changes to domestically-controlled REITs and modified the eligibility criteria for the so-called FIRPTA cleansing rule.

Foreign Investment in Real Property Tax Act: Nonresident Alien Gains from Disposition of US Real Property Interest is Treated as ECI

As I already stated above, the most important part of the Foreign Investment in Real Property Tax Act is the imposition of tax on the disposition US Real Property Interest (the “Disposition”). However, FIRPTA goes further than just subjecting nonresident aliens to a new tax. It actually treats any gain or loss from such a Disposition as income effectively connected with a US trade or business.

In other words, under the Foreign Investment in Real Property Tax Act, the gain or loss from a Disposition is treated according to the regular US income tax laws, including progressive tax rates in some situations and capital gain tax rates in others. This means that, if it is a property directly owned by a nonresident alien, the Disposition gains will generally be taxed at the rate of 15% to most likely 20% (depending on the tax bracket of the nonresident alien). On the other hand, if the nonresident alien owns the real property through a US corporation, the Disposition will generally be taxed at 35% corporate tax rate. Obviously, the exact rates are subject to change due to future changes of the US tax law and the potential variations within the ownership structure.

Foreign Investment in Real Property Tax Act: The Tax Withholding Regime

The Foreign Investment in Real Property Tax Act also generally requires the withholding of 15% of the gross sales price on the Disposition by a non-resident alien. There are a number of exceptions available to the tax withholding rule, but the buyer needs to make sure that all of the requirements for an exception are met (otherwise, he himself may end up being liable for the failure to withhold the tax with penalties and interest).

It is important to understand that the FIRPTA tax withholding acts as a credit against the capital tax due. In other words, a non-resident alien can later file Form 1040NR to claim a tax refund if the FIRPTA withholding exceeds the actual tax due.

Contact Sherayzen Law Office for Help with Foreign Investment in Real Property Tax Act

If you are involved in a transaction where a seller of a US real property interest is a nonresident alien, you may be facing the enormously complex FIRPTA requirements. The introduction provided in this article is merely the tip of the FIRPTA iceberg. Numerous tax reporting requirements, complex tax forms and tax withholding compliance traps make FIRPTA one of the most dangerous US tax laws for almost all parties involved in a disposition of a US real estate property interest by a nonresident alien.

Contact Sherayzen Law Office for Professional Help with the Tax Requirements of the Foreign Investment in Real Property Tax Act!