taxation law services

I am Working in the US on L1 Visa and I have Foreign Accounts

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“I am working in US on L1 Visa and I have foreign accounts” – this is the phrase that I often hear from various callers. Usually, these persons know very little about their US tax obligations and are concerned about their US tax compliance. Let’s analyze this phrase – “I am working in US on L1 Visa and I have foreign accounts” – and see if we can draw some general conclusions about the US tax obligations of such individuals.

“I am working in US on L1 Visa and I have Foreign Accounts” – L1 Visa

L1 visa is a a non-immigrant work visa which allows international companies that operate in the United States and abroad to transfer certain classes of employees from its foreign divisions to the US division for up to seven years. Some of clients eventually end up moving to H-1B visa before applying for US permanent residency.

“I am working in US on L1 Visa and I have Foreign Accounts” – US Tax Residency

If a person is working in the United States on L1 visa, a natural question arises about that person’s tax obligations in the United States; more specifically, whether such a person should file For m 1040-NR (as a non-resident) or Form 1040 (as a US tax resident). Since an L1 Visa holder is not a US citizen or a US permanent resident, the key issue here is whether this person satisfies the Substantial Presence Test.

If the Substantial Presence Test is not satisfied, then Form 1040-NR should be filed for US-source income only. However, if the Substantial Presence Test is satisfied, then this individual should file Form 1040 as a US tax resident.

“I am working in US on L1 Visa and I have Foreign Accounts” – Income Tax Consequences of US Tax Residency

If a person becomes a US tax resident under the Substantial Presence Test, he is required to report and pay US taxes on his worldwide income. This is the case even if a person is here just on L1 visa and he is not a US permanent resident. Also, a whole set of US laws comes into effect with respect to this person’s foreign income which may dramatically alter his tax situation.

For example, if an L1 individual satisfies the Substantial Presence Test, his foreign tax-exempt income may suddenly become taxable in the United States. This often occurs with respect to various “building” or “construction” accounts which are present in many countries (for example, Colombia, France, Germany, United Kingdom, et cetera). Moreover, new complexity will be added with PFIC treatment of certain investments in foreign mutual funds.

“I am working in US on L1 Visa and I have Foreign Accounts” – Foreign Accounts

The last part of the phrase – “I am working in US on L1 Visa and I have Foreign Accounts” – is related to the ownership of foreign accounts. If the L1 visa holder satisfies the Substantial Presence Test, he is required to report these foreign accounts to the IRS (and perhaps in more than one way) if the relevant balance thresholds are satisfied. The most important forms for reporting foreign accounts are FinCEN Form 114 (FBAR) and IRS Form 8938. Other forms may also be applicable.

Undoubtedly, FBAR occupies the central place in foreign account reporting. This is the case not only because of the lower reporting thresholds, but also due to the draconian penalties that the IRS may impose for FBAR noncompliance.

“I am working in US on L1 Visa and I have Foreign Accounts” – A Dangerous Phrase that Requires Legal Help

Even from the very general description above, it becomes clear that this phrase – “I am working in US on L1 Visa and I have Foreign Accounts” – indicates a precarious legal situation that needs a detailed examination by an experienced international tax lawyer. The penalties for noncompliance are extraordinarily high making a professional analysis of this person’s situation almost obligatory.

Contact Sherayzen Law Office for Legal Help With Reporting of Your Foreign Accounts and Filing Delinquent Tax Forms

If this phrase – “I am working in US on L1 Visa and I have Foreign Accounts” – applies to your situation, contact Sherayzen Law Office for legal help. Sherayzen Law Office is a highly-experienced international tax law firm that has helped hundreds of US taxpayers around the world to bring their tax affairs into full compliance. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Mexican Fideicomiso is not a Foreign Trust | International Tax Attorney

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Mexican Fideicomiso is one of the most convenient ways for U.S. persons to purchase land in Mexico. Of course, one can purchase the land through a Mexican corporation, but such an arrangement will require additional tax planning and higher annual compliance costs, including potentially filing form 5471, Form 8938 and other forms. Therefore, most U.S. persons prefer to purchase land in Mexico through a Mexican Fideicomiso.

I am often asked a question about whether Mexican Fideicomiso should be considered a foreign trust for U.S. tax purposes. The answer to this questions is fairly straightforward, but it is important to point out a potential pitfall.

Main Rule: Mexican Fideicomiso is Not a Foreign Trust for U.S. Tax Purposes

The U.S. tax treatment of Mexican Fideicomiso was settled by the IRS in PLR 201245003 and, even more authoritatively, IRS Revenue Ruling 2013-14. In PLR 201245003 and Rev. Rul. 2013-14, the IRS decisively ruled that a Mexican Fideicomiso is not a foreign trust for U.S. tax purposes.

Main Rule Applies Only If a True Mexican Fideicomiso Relationship is Preserved

It is important to understand, however, that PLR 201245003 and Rev. Rul. 2013-14 apply only if the true Fideicomiso relationship is preserved. If this relationship is modified with other features and agreements, then the U.S. tax treatment of the new arrangement may actually change. For example, if the trustee of Mexican Fideicomiso suddenly acquires the ability to act independently and in complete disregard of the beneficiary’s instructions, the IRS may start treating this modified Mexican Fideicomiso as a foreign trust.

Contact Sherayzen Law Office for Help with Reporting of Your Foreign Assets and Foreign Income

If you have foreign assets or foreign income, you are facing a difficult challenge of trying to comply with the numerous complex U.S. tax requirements. It is very easy to make mistakes in this area; given the high penalties associated with noncompliance, the cost of remedying these mistakes may be high.

This is why you need the help of Sherayzen Law Office, an experienced international tax law firm that has helped hundreds of U.S. taxpayers around the globe to bring and maintain their tax affairs in full compliance with U.S. tax laws.

Contact Us Today to Schedule Your Confidential Consultation!

Undeclared Accounts in Singapore Are Under IRS Investigation | FBAR Attorney

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For several years now, Sherayzen Law Office has been warning U.S. taxpayers about the ever-increasing IRS interest in undeclared accounts in Singapore. On June 22, 2016, the IRS announced that UBS AG has complied with the IRS summons for bank records held in its Singapore office. This news come after repeated initiatives by the IRS to follow the money that was flowing out of what used to be secret Swiss bank accounts into the undeclared accounts in Singapore.

Facts Surrounding the IRS Summons Regarding UBS Undeclared Accounts in Singapore

The IRS served an administrative summons on UBS for records pertaining to accounts held by Ching-Ye “Henry” Hsiaw. According to the petition, the IRS needed the records in order to determine Hsiaw’s federal income tax liabilities for the years 2006 through 2011. Hsiaw transferred funds from a Switzerland-based account with UBS to the UBS Singapore branch in 2002, according to the declaration of a revenue agent filed at the same time as the petition. UBS refused to produce the records, and the United States filed its petition to enforce the summons.

“The Department of Justice and the IRS are committed to making sure that offshore tax evasion is detected and dealt with appropriately,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Tax Division. “One critical component of that effort is making sure that the IRS has all of the information it needs to audit taxpayers with offshore assets. In this case, we filed a petition to enforce a summons for offshore documents, but that’s only one of the tools we have available for gathering information. Taxpayers with offshore assets who underreported their income should come forward before we come looking for them.”

Lessons to be Learned from the Recent Summons of UBS Undeclared Accounts in Singapore

The recent IRS summons of UBS undeclared accounts in Singapore and the startling ease with which the IRS obtained the necessary information, confirm three earlier predictions that Sherayzen Law Office made after the announcing of the DOJ Program for Swiss Banks. First, the IRS takes a keen interest in the undeclared accounts in Singapore and it will not satisfy itself simply with destroying the Swiss bank secrecy laws with respect to U.S. taxpayers. The IRS is actively expanding its investigations beyond Switzerland and Singapore is definitely one of its top targets.

Second, the IRS will continue to utilize in its investigations the information that it obtained from the Swiss Bank Program, the IRS offshore voluntary disclosure programs and the IRS compliance procedures. The IRS has obtained mountains of information from these programs regarding not only the “favorite” countries for opening and maintaining undeclared accounts, but also the main patterns of U.S. tax noncompliance. In fact, the IRS now has evidence at its disposal to prosecute foreign banks far beyond Switzerland (a fact confirmed by recent criminal prosecutions of two Cayman Islands financial institutions). Hence, the undeclared accounts in Singapore and the foreign banks which are holding them are under increased IRS scrutiny today.

Finally, the implementation of FATCA combined with the two trends described above makes the discovery of undeclared accounts in Singapore (and most other countries) increasingly likely. Furthermore, it seems that the IRS also feels more and more confident to ask the courts for harsher penalties against noncomplying U.S. taxpayers.

What Should U.S. Taxpayers with Undeclared Accounts in Singapore Do?

U.S. taxpayers with undeclared accounts in Singapore now face a very unpleasant scenario where their discovery by the IRS can occur at any point with the imposition of draconian penalties and even potential prison time. Furthermore, it appears that such a discovery by the IRS is not only possible, but very likely.

Given the high probability of the discovery of their undeclared accounts in Singapore, the noncompliant U.S. taxpayers should retain as soon as possible an experienced international tax firm to explore their voluntary disclosure options. One of the best international tax law firms that provides these services is Sherayzen Law Office, Ltd.

Contact Sherayzen Law Office for Professional Help with Your Undeclared Accounts in Singapore

If you have undeclared accounts in Singapore (or any other country), you should immediately contact Sherayzen Law Office for professional help. Sherayzen Law Office is an international tax law firm that is highly experienced in offshore voluntary disclosures, including IRS Offshore Voluntary Disclosure Program and Streamlined Compliance Procedures (both Domestic and Foreign). You can rely on us with confidence that your case will be handled in an efficient, speedy and professional manner. We will strive for the best result for you!

Contact Us Today to Schedule Your Confidential Consultation!

Julius Baer Deferred Prosecution Agreement

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On February 4, 2016, the US DOJ announced that it filed criminal charges against Bank Julius Baer & Co. Ltd. (“Julius Baer” or “the company”). At the same time, the DOJ announced a Julius Baer Deferred Prosecution Agreement. Let’s explore this event in more detail.

Julius Baer Deferred Prosecution Agreement Background

Unlike many other Swiss Banks, Julius Baer could not participate in the Swiss Bank Program due to its classification as a Category 1 bank. Hence, the Julius Baer Deferred Prosecution Agreement comes as an independent agreement with the DOJ after the DOJ filed criminal charges against Julius Baer.

According to the IRS and the court documents, from at least the 1990s through 2009, Julius Baer helped many of its U.S. taxpayer-clients evade their U.S. tax obligations, file false federal tax returns with the IRS and otherwise hide accounts held at Julius Baer from the IRS (hereinafter, undeclared accounts). Julius Baer did so by opening and maintaining undeclared accounts for U.S. taxpayers and by allowing third-party asset managers to open undeclared accounts for U.S. taxpayers at Julius Baer. Casadei and Frazzetto, bankers who worked as client advisers at Julius Baer, directly assisted various U.S. taxpayer-clients in maintaining undeclared accounts at Julius Baer in order to evade their obligations under U.S. law. At various times, Casadei, Frazzetto and others advised those U.S. taxpayer-clients that their accounts at Julius Baer would not be disclosed to the IRS because Julius Baer had a long tradition of bank secrecy and no longer had offices in the United States, making Julius Baer less vulnerable to pressure from U.S. law enforcement authorities than other Swiss banks with a presence in the United States.

Julius Baer was aware that many U.S. taxpayer-clients were maintaining undeclared accounts at Julius Baer in order to evade their U.S. tax obligations, in violation of U.S. law. In internal Julius Baer correspondence, undeclared accounts held by U.S. taxpayers were at times referred to as “black money,” “non W-9,” “tax neutral,” “unofficial,” or “sensitive” accounts.

At its high-water mark in 2007, Julius Baer had approximately $4.7 billion in assets under management relating to approximately 2,589 undeclared accounts held by U.S. taxpayer-clients. From 2001 through 2011, Julius Baer earned approximately $87 million in profit on approximately $219 million gross revenues from its undeclared U.S. taxpayer accounts, including accounts held through structures.

However, the IRS noted that the behavior of Julius Baer started to change. By at least 2008, Julius Baer began to implement institutional policy changes to cease providing assistance to U.S. taxpayers in violating their U.S. legal obligations. For example, by November 2008, the company began an “exit” plan for U.S. client accounts that lacked evidence of U.S. tax compliance. In that same month, Julius Baer imposed a prohibition on opening accounts for any U.S. clients without a Form W-9.

Additionally, in November 2009, before Julius Baer became aware of any U.S. investigation into its conduct, Julius Baer decided proactively to approach U.S. law enforcement authorities regarding its conduct relating to U.S. taxpayers. Prior to self-reporting to the Department of Justice, Julius Baer notified its regulator in Switzerland of its intention to contact U.S. law enforcement authorities. This Swiss regulator requested that Julius Baer not contact U.S. authorities in order not to prejudice the Swiss government in any bilateral negotiations with the United States on tax-related matters. Accordingly, Julius Baer did not, at that time, self-report to U.S. law enforcement authorities.

After ultimately engaging with U.S. authorities, Julius Baer has taken extensive actions to demonstrate acceptance and acknowledgment of responsibility for its conduct. Julius Baer conducted a swift and robust internal investigation, and furnished the U.S. government with a continuous flow of unvarnished facts gathered during the course of that internal investigation. As part of its cooperation, Julius Baer also, among other things, (1) successfully advocated in favor of a decision provided by the Swiss Federal Council in April 2012 to allow banks under investigation by the U.S. Department of Justice to legally produce employee and third-party information to the department, and subsequently produced such information immediately upon issuance of that decision; and (2) encouraged certain employees, including specifically Frazzetto and Casadei, to accept responsibility for their participation in the conduct at issue and cooperate with the ongoing investigation.

Julius Baer Deferred Prosecution Agreement Details

Under the Julius Baer Deferred Prosecution Agreement, the bank admitted to helping U.S. taxpayers hide assets and knowingly assisted many of its U.S. taxpayer-clients in evading their tax obligations under U.S. law. The admissions are contained in a detailed Statement of Facts attached to the agreement. The agreement requires Julius Baer to pay a total of $547 million by no later than February 9, 2016, including through a parallel civil forfeiture action also filed today in the Southern District of New York.

Julius Baer Deferred Prosecution Agreement Impact on U.S. Taxpayers

The Julius Baer Deferred Prosecution Agreement signifies yet another IRS victory over the now-defeated Swiss bank secrecy system. The IRS is simply “mopping-up” the left-over issues in Switzerland as it shifts its focus to other major offshore tax havens. Yet, the Julius Baer Deferred Prosecution Agreement is still a major event that has repercussions for U.S. taxpayers with undeclared foreign accounts.

First, the Julius Baer Deferred Prosecution Agreement is likely to continue to impact former Julius Baer U.S. taxpayers who transferred their funds out of this Swiss bank to another country or another bank in the hopes of avoiding IRS detection of their prior non-compliance. Under the agreement, Julius Baer will continue to cooperate with the IRS in the identification of such noncompliant U.S. taxpayers.

Second, Julius Baer is an important Swiss bank and the fact that the Julius Baer Deferred Prosecution Agreement was reached encourages other noncompliant banks (not only in Switzerland, but other countries) to follow its example. Therefore, U.S. taxpayers who believe they are safe outside of Switzerland are now in the ever increasing danger of IRS detection.

Contact Sherayzen Law Office for Professional Help with Your Undeclared Foreign Accounts

The Julius Baer Deferred Prosecution Agreement is another reminder on how dangerous is the current tax environment for noncompliant U.S. taxpayers. Therefore, if you have not disclosed your foreign accounts, foreign assets or foreign income, please contact Sherayzen Law Office as soon as possible. Our team of tax professionals is highly experienced in handling these matters and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Third Quarter of 2016 IRS Interest Rates

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The Internal Revenue Service recently announced that Third Quarter of 2016 IRS Interest Rates will remain the same for the. Third quarter begins on July 1, 2016 and ends on September 30, 2016) The Third Quarter of 2016 IRS Interest Rates:

four (4) percent for overpayments [three (3) percent in the case of a corporation];
four (4) percent for underpayments;
six (6) percent for large corporate underpayments; and
1 and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis; therefore, US taxpayers and tax professionals should refer to IRS announcements of IRS interest rates on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Third Quarter of 2016 IRS Interest Rates are relevant for various reasons; among these reasons, three main uses stand out. First, these are the rates that will be used to charge an interest on any tax owed by a taxpayer. Second, these rates will be used to calculate the interest rate that the IRS owes with respect to tax refunds on the amended US tax returns.

Finally, Third Quarter of 2016 IRS Interest Rates are relevant to PFIC default 1291 calculations. The PFIC tax that is levied on “excess distribution” is subject to IRS interest rates. Hence, if a PFIC’s holding period includes the third quarter of 2016, the tax attorney who calculates PFIC interest on the PFIC tax will need to use Third Quarter of 2016 IRS Interest Rates.

The IRS interest rates were stagnant at 3% for a very long time (from 2010 through first quarter of 2016). However, in the second quarter of 2016, the IRS raised the interest rates from 3% to 4% following the increase of the federal short-term rate from 0% to 1%. Sherayzen Law Office will continue to closely monitor the moves of the Federal Reserve to increase its interest rates in the future.