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Colombian Bank Accounts | International Tax Lawyer & Attorney Miami

Even today many US owners of Colombian bank accounts remain completely unaware of the numerous US tax requirements that may apply to them. The purpose of this essay is to educate these owners about the requirement to report income generated by these accounts in the United States as well as the FBAR and FATCA obligations concerning the disclosure of ownership of Colombian bank accounts to the IRS.

Colombian Bank Accounts: Individuals Who Must Report Them

Before we discuss the aforementioned requirements in more detail, we need to determine who is required to comply with them. In other words, is every Colombian required to file FBAR in the United States? Or, does this obligation apply only to certain individuals?

The answer is very clear: only Colombians who fall within one of the categories of US tax residents must comply with these requirements. US tax residents include US citizens, US Permanent Residents, an individual who satisfies the Substantial Presence test and an individual who properly declares himself a US tax resident. There are important exceptions to this general rule, but, if you fall within any of these categories, you need to contact an international tax attorney as soon as possible to determine your US tax obligations concerning your ownership of Colombian bank accounts.

Colombian Bank Accounts: Income Reporting

All US tax residents are subject to the worldwide income reporting requirement. In other words, they must disclose on their US tax returns not only their US-source income, but also their foreign income. The latter includes all bank interest income, dividends, royalties, capital gains and any other income generated by Colombian bank accounts.

The worldwide income reporting requirement also requires the disclosure of PFIC distributions, PFIC sales, Subpart F income and GILTI income. These are complex requirements which are outside the scope of this article, but US owners of Colombian bank accounts need to be aware of the existence of these requirements.

Colombian Bank Accounts: FinCEN Form 114 (FBAR)

FinCEN Form 114, the Report of Foreign Bank and Financial Accounts (commonly known as “FBAR”) mandates US tax residents to disclose their ownership interest in or signatory authority or any other authority over Colombian bank and financial accounts if the aggregate highest balance of these accounts exceeds $10,000. Every part of this sentence has a special significance and contains a trap for the unwary.

The most dangerous of these traps is the definition of an “account”. The FBAR definition of account is much broader than how this word is generally understood by taxpayers. For the purposes of FBAR compliance, this term includes checking accounts, savings accounts, fixed-deposit accounts, investments accounts, mutual funds, options/commodity futures accounts, life insurance policies with a cash surrender value, precious metals accounts, earth mineral accounts, et cetera. In fact, it is very likely that the IRS will find that an account exists whenever there is a custodial relationship between a foreign financial institution and a US person’s foreign asset.

FBAR has its own intricate penalty system which is widely known for its severity. The FBAR penalties range from incarceration to willful and even non-willful penalties which may easily exceed the value of the penalized accounts. In order to circumvent the potential 8th Amendment challenges and make the penalty imposition more flexible, the IRS has implemented a system of self-imposed limitations, but it is a completely voluntary system (i.e. the IRS can, and in fact already did several times, disregard these limitations).

Colombian Bank Accounts: FATCA Form 8938

While Form 8938 is a relative newcomer (since tax year 2011), it has occupied a special place among the US international tax requirements. In fact, one could argue that it is currently as important as FBAR for US taxpayers with Colombian bank accounts.

The Foreign Account Tax Compliance Act (“FATCA”) gave birth to Form 8938, making it part of a taxpayer’s federal tax return. This means that a failure to file Form 8938 may render the entire federal tax return incomplete, and the IRS may be able to audit the return. Immediately, we can see the profound impact Form 8938 has on the Statute of Limitations for the entire tax return.

Given the fact that it is a direct descendant of FATCA, it is not surprising Form 8938’s primary focus is on foreign financial assets. Form 8938 requires a US taxpayer to disclose all Specified Foreign Financial Assets (“SFFA”) as long as he satisfies the relevant filing threshold. The filing thresholds differ depending on the filing status and the place of residence (i.e. inside or outside of the United States) of the taxpayer.

SFFA includes an enormous variety of foreign financial assets, including foreign bank and financial accounts. In fact, with respect to bank and financial accounts, Form 8938 is very similar to FBAR, which often results in double-reporting of the same assets. It is important to emphasize that Form 8938 does not replace FBAR, both forms must still be filed. In other words, US taxpayers should report their Colombian bank accounts on FBAR and disclose them again on Form 8938.

Form 8938 has its own penalty system which contains some unique elements. In addition to its own $10,000 failure-to-file penalty, Form 8938 directly affects the accuracy-related income tax penalties and the ability of a taxpayer to use foreign tax credit.

Contact Sherayzen Law Office for Professional Help With the US Tax Reporting of Your Colombian Bank Accounts

US international tax compliance is extremely complex. It is very easy to get yourself into trouble, and much more difficult and expensive to get yourself out of this trouble. This is why, if you have Colombian bank accounts, you should contact the experienced international tax attorney and owner of Sherayzen Law Office, Mr. Eugene Sherayzen. Mr. Sherayzen has helped hundreds of US taxpayers with their US international tax issues, and He can help You!

Contact Mr. Sherayzen Today to Schedule Your Confidential Consultation!

Happy New Year 2019 from Sherayzen Law Office!

The legal tax team of Sherayzen Law Office, Ltd. wishes a very Happy New Year 2019 to our clients, blog readers and all US taxpayers around the world! May this new year bring you good health, prosperity and happiness! And, of course, full and proper compliance with all US international tax laws.

2019 Will Be a Highly Challenging Year from US Tax Compliance Perspective Due to the 2017 Tax Reform

The coming year is going to be a challenging one for all US taxpayers due to the enormous changes made to the Internal Revenue Code as a result of the 2017 tax reform. Already in 2018, some US taxpayers (especially owners of foreign corporations) had to work through the tax year 2017 transition rules.

The 2017 tax reform will be felt on an even grander scale in 2019 as millions of US taxpayers will struggle with the new rules in order to correctly file their 2018 tax returns. While many of these rules are meant to benefit these taxpayers, the tax compliance associated with them is likely to be complex.

Happy New Year 2019 to Individual US Taxpayers!

After the pain of learning how to comply with the new rules subsides, tens of millions of Americans are likely to call this a Happy New Year 2019 due to lower 2018 individual tax rates, the doubling of the child tax credit and higher standard deduction.

Millions of other, especially the upper middle-class Americans, however, are likely to be greatly hurt by the itemized deductions limitations with respect to state taxes and property taxes. The elimination of personal exemptions will further aggravate this problem. It will not be a Happy New Year 2019 for these taxpayers.

Happy New Year 2019 to Small-Business Owners!

It should still be a Happy New Year 2019 for the majority of the small business owners, including owners of S-corporations, due to the 20% reduction of pass-through income mandated by the tax reform. New depreciation rules are likely to have an overall beneficial impact, even if, in some cases, they may not be very helpful.

Happy New Year 2019 to C-Corporations and Their US & Foreign Owners!

It will be a very Happy New Year 2019 for one class of taxpayers in particular – regular C-corporations. These taxpayers arguably benefitted from the 2017 tax reform more than any type of taxpayers. The reduction in the tax rate from 35% to 21%, introduction of Foreign-Derived Intangible Income (“FDII”) and a whole series of small changes to corporate tax code have already led to the surge to corporate profits; this corporate tax boom is likely to continue to play out this year.

On the other hand, the introduction of the GILTI (Global Intangible Low-Taxed Income) tax, new attribution rules concerning the inclusion of non-US corporations and a myriad of other rules will greatly complicate the tax year 2018 corporate tax compliance. In fact, some corporations that never paid any taxes on their foreign income may now be forced to pay the GILTI tax in the United States.

Happy New Year 2019 to US Taxpayers Who Are Trying to Remedy Past Tax Noncompliance Through an Offshore Voluntary Disclosure!

The taxpayers with undisclosed foreign bank accounts and other assets will face increasing challenges in the year 2019 due to two unwelcome trends that came into existence after FATCA was fully implemented but became apparent to most professionals only in 2018. First, the IRS is narrowing the voluntary disclosure options, especially for willful taxpayers. As I just mentioned, this trend began already in 2017, but it could be clearly observed in the closure of the flagship 2014 OVDP on September 28, 2018. While it does not appear that the Streamlined Compliance Procedures will be targeted by the IRS any time soon, there is always a danger that the IRS may modify the terms of this voluntary disclosure option.

The November 20, 2018 modification of the Traditional Voluntary Disclosure (which greatly narrowed the utility of this option) is another manifestation of this trend. In fact, this modification poses a direct danger of forcing taxpayers into either Streamlined Compliance Procedures or the Traditional Voluntary Disclosure Program at the expense of Reasonable Cause disclosures.

The second trend complements the first trend: the loss of interest in offshore voluntary disclosures directly coincided with an increasingly aggressive IRS tax enforcement. The IRS audits, especially international tax audits, are on the rise as the IRS is taking advantage of the huge pile of information it has accumulated as a result of the previous voluntary disclosure programs, Swiss bank program and FATCA compliance.

The taxpayers will need professional help from an international tax attorney to successfully navigate around the legal challenges posed by these two negative trends in US international tax enforcement.

Taxpayers Will Need the Professional Help of Sherayzen Law Office For Proper Tax Compliance and Offshore Voluntary Disclosures of Foreign Assets in 2019

Overall, the new year 2019 promises to be a very interesting but highly complex year from the perspective of US international tax compliance. US taxpayers without adequate legal help are likely to either fail to take full benefit of the 2017 tax reform, suffer excessively from the negative aspects of the reform and/or even face the dreaded IRS penalties for international tax noncompliance.

At the same time, the narrower post-OVDP offshore voluntary disclosure options and the rising intensity of IRS audits will also present additional challenges to the already difficult situation of many taxpayers who wish to voluntarily resolve their past US international tax noncompliance issues.

Sherayzen Law Office can help you meet all of your 2019 tax challenges, including annual 2018 tax compliance, 2019 offshore voluntary disclosures of foreign assets and foreign income and IRS audit defense. We have helped hundreds of US taxpayers like you, and We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Personal Services Income Sourcing | International Tax Lawyer & Attorney

This article continues our series of articles on the source of income rules. Today, I will explain the general rule for individual personal services income sourcing. I want to emphasize that, in this essay, I will focus only on individuals and provide only the general rule with two exceptions. Future articles will cover more specific situations and exceptions.

Personal Services Income Sourcing: General Rule

The main governing law concerning individual personal services income sourcing rules is found in the Internal Revenue Code (“IRC”) §861 and §862. §861 defines what income is considered to be US-source income while §862 explains when income is considered to be foreign-source income.

The general rule for the individual personal services income is that the location where the services are rendered determines whether this is US-source income or foreign-source income. If an individual performs his services in the United States, then this is US-source income. §861(a)(3). On the other hand, if this individual renders his services outside of the United States, then, this will be a foreign-source income. §862(a)(3).

In other words, the key consideration in income sourcing with respect to personal services is the location where the services are performed. Generally, the rest of the factors are irrelevant, including the residency of the employee, the place of incorporation of the employer and the place of payment.

As always in US tax law, there are exceptions to this general rule. In this article, I will cover only two statutory exceptions; in the future, I will also discuss other exceptions as well as the rule with respect to situations where the work is partially done in the United States and partially in a foreign country.

Personal Services Income Sourcing: De Minimis Exception

IRC §861(a)(3) provides a statutory exception to the general rule above specifically for nonresident aliens whose income meet the de minimis rule. The de minimis rule states that the US government will not consider the services of a nonresident alien rendered in the United States as US-source income as long as the following four requirements are met:

1. The nonresident alien is an individual;

2. He was only temporarily in the United States for a period or periods of time not exceeding a total of 90 days during the tax year;

3. He received $3,000 or less in compensation for his services in the United States; AND

4. The services were performed for either of two persons:

4a. “A nonresident alien, foreign partnership, or foreign corporation, not engaged in trade or business within the United States”. §861(a)(3)(C)(i); OR

4b. “an individual who is a citizen or resident of the United States, a domestic partnership, or a domestic corporation, if such labor or services are performed for an office or place of business maintained in a foreign country or in a possession of the United States by such individual, partnership, or corporation.” §861(a)(3)(C)(ii).

Personal Services Income Sourcing: Foreign Vessel Crew Exception

The personal services income performed by a nonresident alien individual in the United States will not be deemed as US-source income if the following requirements are satisfied:

1. The individual is temporarily present in the United States as a regular member of a crew of a foreign vessel; and

2. The foreign vessel is engaged in transported between the United States and a foreign country or a possession of the United States. See §861(a)(3).

Contact Sherayzen Law Office for Professional Help Concerning US International Tax Law, Including Personal Services Income Sourcing Rules

Sherayzen Law Office is a leading international tax law firm in the United States that has successfully helped hundreds of US taxpayers with their US international tax compliance issues. Contact Us Today to Schedule Your Confidential Consultation!

Uruguay-US Social Security Agreement Sent to Congress | Tax Lawyer

On March 19, 2018, President Trump sent the Uruguay-US Social Security Agreement to the US Senate. This is an important step toward the final ratification of the treaty that promises to benefit the citizens of both countries.

Uruguay-US Social Security Agreement: What is a Social Security Agreement?

A Social Security Agreement (also called a Totalization Agreement) is essentially a treaty between two countries that eliminates the burden of dual social security taxation for individuals and businesses who operate in both countries.

Typically, the potential for this type of double-taxation arises when a worker from country A works in Country B, but he is covered under the social security systems in both countries. In such situations, without a Social Security Agreement, the worker will have to pay social security taxes to both countries on the same earnings. A Social Security Agreement, on the other hand, allows the worker (and employers) to pay social security taxes only in one country identified in the treaty.

Social Security Agreements are authorized by Section 233 of the Social Security Act. Right now, only 26 Totalization Agreements are in force between the United States and another country: Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, South Korea, Spain, Sweden, Switzerland and the United Kingdom. Uruguay may become the 27th country to have a Social Security Agreement with the United States.

Uruguay-US Social Security Agreement: Recent History

The Uruguay-US Social Security Agreement has had a very favorable history so far. In fact, it may set the record for the fastest treaty ever negotiated by Uruguay. The countries first agreed to pursue a Social Security Agreement between them in May 2014, when the then Uruguayan president Jose Mujica was in Washington.

Amazingly, already in May of 2015, after just two rounds of talks held over a six-month period, the countries finished the negotiations of the Uruguay-US Social Security Agreement. Typically, it takes anywhere between two to three years to negotiate a Totalization Agreement.

On January 10, 2017, the Uruguay-US Social Security Agreement was signed in Montevideo. The United States was represented by its ambassador Mr. Kelly Kinderling. Uruguay was represented by its Foreign Minister Jose Luis Cancela and Labor and its Social Security Minister Ernesto Murro.

On October 3, 2017, the Uruguayan Senate approved the pending Uruguay-US Social Security Agreement, thereby completing the first part of the necessary ratification process. By sending the treaty to Congress for the required 60-day review period, President Trump started the US ratification process.

Uruguay-US Social Security Agreement: Benefits

According to Uruguay, the Uruguay-US Social Security Agreement will benefit some 60,000 Uruguayans working in the United States and up to 6,000 Americans living in Uruguay. The primary benefit is that the workers of both countries will be able to count the working years spent in both countries to be obtain eligibility for their home-country retirement, disability and survivor benefits.

Additionally, the Agreement will exempt US citizens sent by US-owned companies to work in Uruguay for five years or less from paying the Uruguayan social security taxes. Similarly, Uruguayan citizens sent to work temporarily in the United States by Uruguayan-owned companies will not need to pay social security taxes to the US government. Thus, employers in both countries will pay social security taxes only to their employees’ home countries.

Additionally, both countries hope that the Uruguay-US Social Security Agreement will boost trade between the countries. Currently, more than 200 American firms operate in Uruguay (mostly in the service sector).

Sherayzen Law Office will continue to monitor future developments with respect to this highly-beneficial treaty.

UK Tax Haven May Be the Result of Brexit | US International Tax Attorney

In her January 17, 2017 speech, the British Prime Minister Theresa May confirmed that the United Kingdom (“UK”) will leave the European Union (“EU”) and seek a free trade deal with the EU. The Prime Minister also appears to have made the threat of creating a UK Tax Haven if the deal is not struck.

UK Tax Haven: UK is Leaving the EU

Since the ground-breaking referendum vote to leave the EU in June of 2016, many analysts have predicted that the UK will not leave and seek some sort of a partial participation in the EU.

On January 17, 2017, the Prime Minister’s response to these doubters was clear: “No, the United Kingdom is leaving the European Union.” She also stated: “We do not seek to hold on to bits of membership as we leave.”

She also outlined the procedural roadmap to how the UK will leave the EU. In particular, the Prime Minister stated that the government would bring the final withdrawal agreement to the Parliament for a vote before the Agreement comes into force. Furthermore, the UK government will repeal the European Communities Act. Surprisingly, the Prime Minister further said that the existing body of the EU law will be converted into British law.

UK Tax Haven: The Freedom to Set Competitive Tax Rates

The Prime Minister’s speech also contained something of great interest to international tax lawyers. She stated that, once the UK leaves the EU, it will “have the freedom to set the competitive tax rates and embrace the policies that would attract the world’s best companies and biggest investors to Britain.”

Not surprisingly, the reporters, the opposition and some foreign leaders had interpreted this statement as a threat of converting the UK into a major tax haven for the European companies. It appears that the UK government plans to materializes this threat of the UK tax haven only if the UK is excluded from the EU single economic market as a result of a punitive EU action.

This threat of creating a major UK tax haven echos a similar threat made by the Chancellor of the Exchequer Philip Hammond. In his interview with a German newspaper “Welt am Sonntag”, Mr. Hammond stated that, if the UK is excluded from the EU market, the government will try to contain the damage of such a move by switching away from the European model of taxation.

Is the UK Tax Haven Likely to Become a Reality?

So, is the UK Tax Haven a certainty at this point? Probably not. I view this threat more as a negotiation tool rather than the certainty of enacting a certain plan. The UK economy is one of the most important and complex economies in the world; it is very unlikely that the British government will be even able to pursue a course of action of turning the UK into a full tax haven.

On the other hand, it is obvious that the British government will take advantage of the situation and seek to improve the country’s competitiveness through enaction of certain tax strategies. There is a high likelihood that the corporate tax rate may be lowered to a level where it is better than in most other EU countries, but cannot yet be considered as that of a tax haven.

Furthermore, it is possible that the UK tax haven will materialize only with respect to certain classes of taxpayers from certain countries. For example, the United States can be readily considered as a tax shelter for foreign individuals. The UK may be tempted to adopt a similar approach.

Finally, it is important to remember that the UK is already an attractive country from tax perspective. Its corporate rate is not high (it can even be called relatively low), there is no dividend withholding tax, favorable rules for expats, wide treaty network, and so on. Furthermore, the UK did not enact certain beneficial ownership transparency rules that other European countries already have in place.

Most likely, the UK just wishes to keep its options open for now and there is not going to be a UK tax haven in a traditional sense of this word, despite its threats to do so. International tax lawyers, however, should closely follow the UK developments for any tax opportunities that may become available to their clients.