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2017 Tax Reform Seminar | U.S. International Tax Lawyer & Attorney

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On April 19, 2018, Mr. Eugene Sherayzen, an international tax lawyer, co-presented with an attorney from KPMG at a seminar entitled “The 2017 U.S. Tax Reform: Seeking Economic Growth through Tax Policy in Politically Risky Times” (the “2017 Tax Reform Seminar”). This seminar formed part of the 2018 International Business Law Institute organized by the International Business Law Section of the Minnesota State Bar Association.

The 2017 Tax Reform Seminar discussed, in a general manner, the main changes made by the 2017 Tax Cuts and Jobs Act to the U.S. international tax law. Mr. Sherayzen’s part of the presentation focused on two areas: the Subpart F rules and the FDII regime.

Mr. Sherayzen provided a broad overview of the Subpart F rules, the types of income subject to these rules and the main exceptions to the Subpart F regime. He emphasized that the tax reform did not repeal the Subpart F rules, but augmented them with the GILTI regime (the discussion of GILTI was done by the KPMG attorney during the same 2017 Tax Reform Seminar).

Then, Mr. Sherayzen turned to the second part of his presentation during the 2017 Tax Reform Seminar – the Foreign Derived Intangible Income or FDII. After reviewing the history of several tax regimes prior to the FDII, the tax attorney concluded that the nature of the current FDII regime is one of subsidy. In essence, FDII allows a US corporation to reduce its corporate income by 37.5% of the qualified “foreign derived” income (after the year 2025, the percentage will go down to 21.875%). Mr. Sherayzen explained that, in certain cases, there is an additional limitation on the FDII deduction.

Qualifying income includes: sales to a foreign person for foreign use, dispositions of property to foreign persons for foreign use, leases and licenses to foreign persons for foreign use and services provided to a foreign person. There are also a number exceptions to qualifying income.

Mr. Sherayzen concluded his presentation at the 2017 Tax Reform Seminar with a discussion of the reaction that FDII produced in other countries. In general this reaction was not favorable; China and the EU even threatened to sue the United States over what they believed to be an illegal subsidy to US corporations.

Foreign Inheritance and Stepped-Up Basis | US International Tax Lawyer

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If you received a property as part of your foreign inheritance, one of the key questions that you are facing is whether this inherited property is entitled to a stepped-up basis in the United States. This issue was resolved some time ago by the IRS in Revenue Ruling 84-139, 1984-2 C.B. 168.

What is a Stepped-Up Basis?

First, let’s understand the concept of “stepped-up basis”. From the outset, it is important to understand that this is a purely tax concept – the property that existed right before and right after the step-up in the basis is exactly the same property.

There are two terms that we need to understand here: “basis” and “step-up”. Basis is basically the amount of capital investment in a property – i.e. the amount of capital a taxpayer invested in a property, including the purchase price, the construction costs, subsequent improvements of the property, et cetera. Not all expenses are allowed to be “capitalized” or added to the basis (also referred to as “cost-basis”) under US tax law; sometimes, expenses are just deducted in the year they were incurred. Furthermore, the cost-basis may also be reduced by certain usage of a property through appreciation, amortization, depreciation, et cetera.

The “step-up” in the basis means the adjustment of the basis for tax purposes to the fair market value of the asset at the time the “step-up” event occurs. One of the most common step-up events is inheritance.

Of course, this is a simplified explanation of a stepped-up basis and many complexities are simply omitted here (such as step-up in a community property state, et cetera), but, for educational purposes, it is sufficient to provide the general idea.

Is an Inherited Foreign Property Subject to Stepped-Up Basis?

Despite the fact that the foreign inherited property was not subject to an estate tax in the United States, the IRS has clearly ruled that such a property is entitled to a step-up in its basis. The logic is not complex. IRC (Internal Revenue Code) Section 1014(a)(1) states that the basis of a property acquired from a decedent shall be the fair market value of the property at the date of the decedent’s death. IRC Section 1014(b)(1) adds that an inherited property is considered to be acquired under IRC Section 1014(a)(1). Treasury Regulations Section 1.1014-2(b)(2) in essence provides that the stepped-basis applies to a foreign property (because the requirement that such property is includible in the value of a decedent’s gross estate does not apply).

Contact Sherayzen Law Office for Help with US Tax Issues Concerning a Foreign Inheritance

If you received a foreign inheritance, contact Sherayzen Law Office for professional help with your US tax compliance. Sherayzen Law Office is an international tax law firm that has helped its clients around the world with planning for a foreign inheritance, identification of the relevant US tax requirements and the preparation of the necessary tax forms (including Forms 3520). Our legal team has also helped our clients with the issues concerning late reporting of a foreign inheritance, including as part of an offshore voluntary disclosure.

Contact Us Today to Schedule Your Confidential Consultation!

OVDP lawyers: Recent News Regarding the DOJ Program for Swiss Banks

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For OVDP lawyers, one of the most significant recent developments in the US international tax law enforcement was the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (“Program”) announced by the US Department of Justice (“DOJ”) on August 29, 2013. Since the Program began functioning, more than a hundred Swiss banks (out of the approximate total of three hundred eligible banks) elected to enter the Program.

This article will briefly highlight some recent developments concerning Swiss banks participating in the Program, as well as the likely future focus of the DOJ efforts to locate the offshore accounts of US taxpayers (an important focus for OVDP lawyers and their clients). This article is not intended to convey tax or legal advice. If you have an offshore account, you should seek the advice of a tax attorney as significant penalties may be involved. Please contact the experienced OVDP International tax firm, Sherayzen Law Office, Ltd. for professional legal and tax assistance.

OVDP Lawyers: At Least Ten Swiss Banks Have Withdrawn From the Program

It appears that some of the Swiss banks entered the Program out of pure caution. According to a recent article in the Swiss newspaper, NZZ am Sonntag, at least ten Swiss banks have withdrawn their participation in the Program. The paper, citing anonymous sources, did not specify which banks withdrew. However, the banks reportedly determined that they had not broken applicable US laws, and according to various news reports, the DOJ had no objection to the banks withdrawing from the Program.

One Swiss bank that publicly announced that it was withdrawing last month is the Liechtenstein-based private bank, VP Bank. According to a news report citing an official statement, the bank noted, “Thorough internal investigations and external expert opinions showed that the conditions for continued participation did not exist…VP Bank therefore withdrew from the U.S. programme.”

For OVDP lawyers, this maybe an important fact that may affect the voluntary disclosure strategies of their clients.

OVDP Lawyers: Many Swiss Banks May Have to Wait Until 2015 to Resolve Disputes in the Program

An important issue for the Swiss Banks and OVDP lawyers is when the DOJ will reach the final resolution under the Program. In a recent article published in the Swiss financial newspaper, finews.ch, Shelby du Pasquier, a partner at the Geneva law firm Lenz & Staehelin representing more than twenty Swiss banks enrolled in the Program, gave the opinion that for most banks enrolled, settling disputes in the Program would last until spring of 2015. He noted that this was his “personal opinion” and not the official opinion of any of the twenty (unnamed) banks he represents. In a separate news report, Boris Collardi, CEO of Julius Baer, was quoted in July of this year as stating that he expects his bank to find a “fair and equitable solution” within the next few months. Du Pasquier seconded the opinion that Julius Baer will likely be one of the next large Swiss banks to settle, along with an unnamed “smaller bank.”

Du Pasquier also opined that the US DOJ is likely to increase scrutiny of accounts in other offshore jurisdictions, especially the Bahamas, Hong Kong and Singapore, and any Swiss bank subsidiaries operating in such countries.

At Sherayzen Law Office, Mr. Sherayzen already expressed his opinion that the IRS is already in the process of widening its scope of enforcement with the particular emphasis on the Carribean region, Central America, Hong Kong, India, Singapore in addition to its already deep involvement in Israel. Mr. Sherayzen also seconded the opinion that the resolution of the issues under the Program is unlikely to be reached for most of the participants in 2014; most likely, we are looking at 2015 and maybe even 2016 for the most difficult cases.

OVDP Lawyers: Several Swiss Banks Seek More US Customers for Offshore Accounts

While most Swiss banks no longer pursue US customers desiring offshore accounts and funds because of the recent increased IRS and DOJ efforts, several Swiss banks have actually increased marketing for this customer base. The new marketing efforts are legal if such offshore funds are properly registered with the US Securities and Exchange Commission (SEC), or other applicable authorities.

In a recent news article in swissinfo.ch, René Marty, CEO of UBS Swiss Financial Advisers (UBS-SFA) stated, “We only accept clients who have declared all their assets.” The Swiss Bank, Vontobel, not only registered with the SEC, but also established a branch in Texas to pursue US customers.

UBS-SFA, Vontobel, and Pictet North America Advisors are the Swiss leaders in this targeted market. Furthermore, from a practical perspective, these banks may provide the only option for US persons living overseas who have declared their offshore accounts, but are unable to open accounts in various Swiss banks that now view having US customers as a stigma.

For OVDP lawyers, it is important to advise their clients that these offshore banks are likely to be subject to additional US tax reporting requirements.

Contact Sherayzen Law Office for Help with Undisclosed Foreign Accounts and Other Foreign Assets

If you have undisclosed foreign accounts, you may be running a grave risk of IRS detection and investigation due to FATCA enforcement as well as the widening scope of IRS investigations as it goes through the piles of information it collected as a result of the voluntary disclosure programs and the Swiss Program for Banks. This is why you need the help of an experienced OVDP lawyer to properly advise you with respect to your voluntary disclosure options.

We can help you as we have helped hundreds of our clients around the world. Our international tax team is highly experienced in all voluntary disclosure options involving offshore accounts and other foreign assets. Our international tax compliance team will thoroughly review your case, identify the international tax issues involved, analyze the penalty exposure and the available voluntary disclosure options, and implement the preferred voluntary disclosure plan for you (including preparation of all legal documents and tax forms).

Contact US to Schedule Your Confidential Consultation.

Swiss Bank Letters Cause Legal Complications for U.S. Taxpayers

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The Swiss Bank letters continue to pour into the mailboxes of U.S. taxpayers with bank and financial accounts in Switzerland as the April 30th deadline approaches for many Swiss banks that participate in the ongoing U.S. Department of Justice (“DOJ”) The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (the “Program”). In an earlier article, I already discussed what the Swiss Bank letters contain, and the importance of the need for the comprehensive analysis of the offshore voluntary disclosure options. In this article, I would like to concentrate on another aspect of Swiss Bank letters – the top three legal complications that these Swiss Bank letters cause to U.S. taxpayers.

1. Swiss Bank Letters Provide Notice of Non-Compliance with the FBAR and Other International Tax Compliance Requirements

The first problem with the Swiss Bank Letters is that they provide the notice of non-compliance with the FBAR and other important international tax requirements (depending on the Bank, it can include such Forms as 5471, 8865, 926, 3520 and so on). The issue here is not so much that the Banks are making their U.S. taxpayers aware of the U.S. tax reporting requirements, but the context in which this is done.

If the Swiss Bank letters were to arrive upon the opening of a Swiss bank account or, at least, prior to the Program, it would be a huge benefit to the unsuspecting U.S. taxpayers. However, this is not the case. Rather, the notice of these requirements is given after a potentially substantial period of non-compliance with these requirements.

Moreover, the Swiss Bank letters provide a notice of non-compliance in the context of forced disclosure under the terms of the Program. Such notice has a potential to taint disclosures outside of the OVDP with the same air of the taxpayer being “forced” to disclose as opposed to doing it voluntarily (at the very least, the argument that the taxpayer is doing this disclosure without any pressure from the IRS definitely loses credibility).

Finally, the Swiss Bank letters provide a Notice of non-compliance with requirements, without even attempting to educate their audience about these requirements or suggesting to contact an international tax attorney to see if these taxpayers are really in violation of these requirements. For example, how would a taxpayer know whether Form 3520 requirement actually applies to him?

2. Swiss Bank Letters Start the Clock for Disclosure Under Extreme Time Pressure

The second problem with Swiss Bank letters is that they start the clock for the taxpayer to be able to disclosure his accounts voluntarily under an enormous time pressure. A lot of the banks that send these Swiss Bank letters will disclose by April 30, 2014. This means that the taxpayers who receive the Notice today have less than two months to disclose their accounts voluntarily before they run an enormous risk of prior disclosure of their accounts by Swiss banks to the IRS (with the effect on potentially preventing these taxpayers from entering into the OVDP). Even the taxpayers who received notices at the end of last year and January of this year are not much better off.

This is a very big problem, because time pressure may not allow the taxpayers to choose the right type of voluntary disclosure. Moreover, even if they wanted to do one type of disclosure rather than another, their options may be limited due to insufficient time to implement the strategies necessary to make their preferred choice of the voluntary disclosure successful.

3. Swiss Bank Letters May Mislead U.S. Taxpayers in Believing that OVDP is the Only Option

Swiss Bank letters uniformly advise their clients to enter into the OVDP without ever mentioning any alternatives. It is as if the assumption of willful failure to file FBARs is already written into the Swiss Bank letters. Theoretically, one could even argue that, by advising taxpayers to enter the OVDP instead of consulting an international tax attorney about their options, some of the Swiss Bank letters over-step their boundaries and enter the world of giving legal advice without a license.

At the practical level, the problem is even more profound. The Swiss Bank letters have the potential to mislead U.S. taxpayers with undisclosed accounts into believing that OVDP is the only option available to them and they have to take this option because their bank will soon disclose their accounts to the IRS. While, undoubtedly, OVDP may be the best option in many cases, this may not be true in other cases. The problem is that, the way Swiss Bank letters are drafted, the U.S. taxpayers may never be even given the choice.

Contact Sherayzen Law Office for Help If You Received Swiss Bank Letters

Sherayzen Law Office is here to help you with the voluntary disclosure of your Swiss bank and financial accounts. Owner Eugene Sherayzen is an international tax attorney and expert in this field who can analyze the facts of your case and explain to you the available voluntary disclosure options. After you choose the voluntary disclosure option, our firm can prepare all legal documents and tax forms required for your voluntary disclosure, fully implement the ethically available strategies and rigorously defend your position against the IRS.

Contact Us for a Confidential and Privileged Consultation!

IRS 2013 Budget Proposal Emphasizes International Tax Enforcement

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Every year, the President has to submit a budget request to U.S. Congress for federal agencies, including the Internal Revenue Service. In February of 2012, the IRS posted the following information regarding its budget.

Administration’s fiscal year (FY) 2013 budget request for the Internal Revenue Service is approximately $12.8 billion, a $944.5 million increase (8%) over the FY 2012 enacted level.

A significant portion of the increase from FY 2012 represents the Administration’s request to restore lost revenue resulting from reductions in IRS funding made over the past two years. This request is designed to provide the resources necessary to administer and enforce the current tax code, implement recent changes to the law to update the Code and serve the American taxpayer in a timely manner.

In FY 2011, the IRS collected $2.415 trillion in taxes, representing 92 percent of federal government receipts. The IRS processed more than 144.7 million individual returns during the 2011 filing season and issued almost 110 million refunds totaling $345 billion.

The IRS consistently achieves a high return on investment for its activities while running a fiscally disciplined operation. In FY 2013, the IRS expects to identify nearly $71 million in cost savings from increased use of electronic return filing, reductions in non-case related travel and streamlining operations.

Enforcement Program

IRS Enforcement Program is projected to receive the lion’s share of the increase. The FY 2013 budget includes $403 million in new IRS enforcement activities, which are expected to raise $1.48 billion in revenue annually at full performance, once new hires are fully trained and develop broader experience by FY 2015. This is a 4.3-to-1 return on investment. The return on investment is even greater when factoring in the deterrence value of these investments and other IRS enforcement programs, which is conservatively estimated to be at least three times the direct revenue impact.

The enforcement budget also includes $200 million in additional examination and collection programs that will generate more than $1.1 billion in additional annual enforcement revenue by FY 2015. Investments such as these in IRS enforcement programs are especially important to further the IRS’ mission of improving tax compliance.

International Tax Compliance Emphasized by the IRS

International tax compliance is specifically emphasized by the IRS. The IRS will continue to address offshore tax evasion by individuals through a combined “carrot and stick” approach – special offshore voluntary disclosure program and increased examinations and prosecutions.

International tax compliance will also concern domestic businesses operating abroad and foreign businesses owned by U.S. taxpayers. In order to ensure business entity compliance, the IRS will provide additional international technical specialists to increase coverage of complex international transactions.

Contact Sherayzen Law Office for Tax Help with International Tax Compliance Issues

If you have any issues regarding international tax compliance with U.S. laws and regulations, contact Sherayzen Law Office. Our experienced international tax firm will review the facts of your case, analyze the available options, propose a concrete plan of action with respect to your U.S. tax compliance issues, and implement this plan (including drafting and completing the necessary tax documents and forms).