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Texas Streamlined Disclosure Lawyer | FBAR FATCA Tax Attorney

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The increased emigration to Texas of foreigners and Americans from other states resulted in a higher portion of Texans with undisclosed foreign assets. The vast majority of these Texans are non-willful with respect to their prior reporting noncompliance and, once they discover their prior noncompliance, they look for professional help resolve their US tax noncompliance through Streamlined Domestic Offshore Procedures – i.e. they look for a Texas streamlined disclosure lawyer. In this essay, I explain who should be included within the definition of a Texas streamlined disclosure lawyer.

Texas Streamlined Disclosure Lawyer: International Tax Lawyer

It is important to understand that an offshore voluntary disclosure of noncompliance concerning foreign assets and foreign income generated by these assets falls within a specific sub-area of US international tax law. In other words, an offshore voluntary disclosure is part of US international tax law. This means that, when you are looking for a lawyer who can help you with Streamlined Domestic Offshore Procedures, you are searching for an international tax lawyer.

Texas Streamlined Disclosure Lawyer: Voluntary Disclosure Expertise

Not every international tax lawyer, however, is able to conduct the necessary legal analysis required to successfully complete an offshore voluntary disclosure, including Streamlined Domestic Offshore Procedures. Only a lawyer who has developed expertise in a very narrow sub-field of offshore voluntary disclosures within US international tax law will be fit for this job.

This means that you are looking for an international tax lawyer who specializes in offshore voluntary disclosure and who is familiar with the various offshore voluntary disclosure options. Offshore voluntary disclosure options include: SDOP (Streamlined Domestic Offshore Procedures), SFOP (Streamlined Foreign Offshore Procedures), DFSP (Delinquent FBAR Submission Procedures), DIIRSP (Delinquent International Information Return Submission Procedures), VDP (IRS Voluntary Disclosure Practice) and Reasonable Cause disclosures. Each of these options has it pros and cons, which may have tremendous legal and tax (and, in certain cases, even immigration) implications for your case.

Texas Streamlined Disclosure Lawyer: Geographical Location Does Not Matter

While the expertise and experience in offshore voluntary disclosures are highly important in choosing your international tax lawyer, the geographical location (i.e. the city where the lawyer resides) does not matter. The reason for it is also very simple and I already stated it above: offshore voluntary disclosure options were all created by the IRS and form part of US international (i.e. federal) law; the local Texan law has no connection whatsoever to the SDOP (even though the mailing address for the SDOP voluntary disclosure package is in Texas).

This means that you are not limited to Texas when you are looking for a lawyer who can help you with your streamlined disclosure. Any international tax lawyer who specializes in this field may be able to help you, irrespective of whether this lawyer resides in Texas or Minnesota.

Moreover, the development of modern means of communications has pretty much eliminated any communication advantages that a lawyer in Texas might have had in the past over the out-of-state lawyers. This is especially true in today’s world where the pandemic greatly reduced the number of face-to-face meetings.

Sherayzen Law Office May Be Your Texas Streamlined Disclosure Lawyer

Sherayzen Law Office, Ltd. is a highly-experienced international tax law firm that specializes in all types of offshore voluntary disclosures, including SDOP, SFOP, DFSP, DIIRSP, VDP and Reasonable Cause disclosures. Our professional tax team, led by attorney Eugene Sherayzen, has successfully helped our US clients around the globe, including in Texas, with the preparation and filing of their Streamlined Domestic Offshore Procedures disclosure. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

CFC Income Recognition: Five Groups | International Tax Lawyer & Attorney

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Ownership of a Controlled Foreign Corporation (“CFC”) presents unique income tax challenges under US international tax law. One of them is the fact that US shareholders of a CFC may have to recognize CFC income on their US tax returns beyond what is required under US domestic tax laws. In this article, I will introduce the readers to the main five CFC income recognition groups.

CFC Income Recognition: General Definitions of “CFC” and “US Shareholder”

Before we describe the five main CFC income recognition groups, we should briefly define the US international tax concepts of “CFC” and “US Shareholder”. I will provide only a general definition of both here; there are some specific circumstances that may modify this definition.

Generally, a foreign corporation is a CFC if US shareholders own more than 50% of the corporation’s stock. One determines the percentage of stock ownership either based on the value of stocks or the voting rights associated with these stocks.

A person is considered to be a US Shareholder if this person is a US person that owns more 10% or more of the total voting power or the total value of all classes of stock in a foreign corporation. Besides the direct ownership of stock, one should also include this US person’s indirect ownership of stock as well as any stock he (or it) owns constructively by the operation of any of the attribution rules of IRC §958(b). These rules are described in detail in other articles on sherayzenlaw.com.

CFC Income Recognition As A Special Set of US International Tax Rules

When we talk about “CFC income recognition”, we mean a set of special US international tax rules that require US shareholders of a CFC to recognize income from the CFC that would not be normally taxed. In other words, this is income that no one would recognize under the normal US domestic tax rules or even any other US international tax rules.

CFC Income Recognition: Five Main Groups

The CFC income recognition rules force US shareholders of a CFC to increase their gross income only by certain types of income of a CFC. There are five main groups of this special CFC income:

  1. §951(a)(1)(A): subpart F income earned by a CFC;
  2. Former §951(a)(1)(A)(ii) and former §951(a)(1)(A)(iii) (both repealed by the 2017 tax reform, but still relevant for the years beginning before January 1, 2018): previously excluded subpart F income withdrawn from certain types of investments;
  3. §951(a)(1)(B): investments in certain types of US property;
  4. §951A: GILTI (Global Intangible Low-Taxed Income) income starting January 1, 2018; and
  5. §59A: base erosion minimum tax starting January 1, 2019.

Note that these are not the only rules that may accelerate recognition of CFC income. As stated above, these five groups of income are the ones that apply only to US shareholders of a CFC. However, there are other tax rules that apply to CFCs as well as other types of corporations.

Contact Sherayzen Law Office Concerning CFC Income Recognition Rules

Each of the aforementioned five groups of CFC income contains a huge amount of highly complex rules and exceptions. There are also important rules for the interaction of these categories with each other as well as other general US tax rules. It is very easy to get into trouble in this area of law without the help of an experienced international tax lawyer.

If you are US shareholder of a CFC contact Sherayzen Law Office for professional tax help. We have successfully helped US shareholders around the world with their US tax compliance concerning their ownership of CFCs, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

IRC §267 Purpose | International Tax Lawyer & Attorney Austin TX

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This brief essay explores the IRC §267 purpose of existence – i.e. Why did Congress decide to enact IRC §267 and in what situations does it generally apply?

IRC §267 Purpose: Problematic Scenarios

When Congress enacted IRC §267, it meant to address a very specific problem in the context of two scenarios. The problem was the rise of a large number of tax minimization strategies based on transactions between persons with shared economic interests (for example, a transaction between a father and his son). The IRS calls such persons with shared economic interests “related persons”.

In particular, these related person transaction strategies focused on two different scenarios. The first scenario was the creation of an artificial loss on the sale or exchange of property between related persons. The second scenario involved transactions between related persons where one of them recognized a deduction while the other one did not recognize any income from the same transaction.

IRC §267 Purpose: Limitations on Related Person Tax Planning

Given the high potential of related person transactions to artificially lower tax liability of all parties involved, Congress enacted IRC §267. The main purpose of IRC §267 is to impose severe limitations on the ability of related persons to realize losses from sales of property to related persons and take deductions with respect to transactions involving related persons.

It should be emphasized that IRC §267 does not impose an absolute limitation on one’s ability to take losses. For example, once a property is sold to an unrelated person, IRC §267(d) allows the seller to offset recognized gain by the previously disallowed loss. In other words, the IRC §267 purpose is to handicap the ability of related persons to artificially lower their federal tax liability, not to deprive related persons from recognizing legitimate losses in transactions with unrelated persons.

Contact Sherayzen Law Office for Professional Help With IRC §267

If you have a transaction involving related persons, contact Sherayzen Law Office for professional help with US business tax planning. We have helped taxpayers around the globe with the US tax planning, and We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

Sale of Russian Real Estate by US Residents | International Tax Lawyer

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Sale of Russian Real Estate by US permanent residents was the subject of a recent guidance letter from the Russian Ministry of Finance (“MOF”). Guidance Letter 03-04-05/66382 (dated October 11, 2011, but released only earlier this week) provides a thorough analysis of questions concerning the sale of real estate in Russia by a US resident and, eventually, comes to conclusion such a sale should be subject to a 30% tax rate. Let’s explore this recent MOF analysis in more detail.

Sale of Russian Real Estate: What is MOF Guidance Letter?

The closest US equivalent to the Russian MOF Guidance Letter is the IRS Private Letter Ruling (“PLR”). Similarly to PLR, the MOF Guidance Letters usually address a fairly specific situation and, generally, have a suggestive rather than normative value. A Guidance Letter does not have a precedential value (again similar to PLR). Nevertheless, the MOF Guidance Letters are good indicators of how the MOF would view similar situations and have a very strong persuasive value.

Sale of Russian Real Estate: Fact Pattern Addressed by Guidance Letter 03-04-05/66382

Guidance Letter 03-04-05/66382 specifically addresses a situation where an individual is a Russian citizen who has resided in the United States since 1996. It is not clear whether the individual actually received his green card in 1996 or he simply commenced to reside in the United States on a permanent basis in 1996. This individual wishes to dispose of (or already sold) a real property in Russia.

Sale of Russian Real Estate: Is the Sale Done by a Russian Taxpayer Who Is Subject to Russian Taxation?

The MOF begins its analysis by establishing that, in accordance with Section 1 of Article 207 of the Russian Tax Code (“Tax Code”), individuals who receive Russian-source income are Russian taxpayers for the purposes of the Russian income tax irrespective of whether they are Russian tax residents or not. Since Article 208, Section 1(5) states that income earned from the sale of Russian real estate is considered to be Russian-source income, an individual selling Russian real estate is considered to be a Russian taxpayer who is subject to Russian taxation.

Sale of Russian Real Estate: Is the Sale Done by a Russian tax resident?

The MOF then continued its analysis to determine whether, in the situation described in the Guidance Letter 03-04-05/66382, the individual is a Russian tax resident. I believe that this was the key reason why the individual in question requested the MOF Guidance letter: he was hoping that he would be found a Russian tax resident under the Russia-US tax treaty due to the fact that he had real estate in Russia (and, hence, subject to lower tax on the proceeds from sale).

The MOF analysis involved two steps: the determination of tax residency under the tax treaty between the United States and the Russian Federation (because the individual in question has resided permanently in the United States since 1996) and, then, the determination of tax residency under the domestic Russian tax laws.

First, the MOF stated that, pursuant to paragraph 1 of Article 4 of the Russia-US Tax Treaty, a person should be recognized as a permanent resident of a contracting state in accordance with the provisions of the national law of that state. In other words, the determination of who is a tax resident of the Russian Federation should be done under the Russian domestic tax law.

Here, the MOF also addressed the critical part of this Guidance Letter – does the ownership of Russian real estate matter for the purposes of establishing the Russian tax residency under the Treaty. The MOF determined that the factor of ownership of real estate matters only in cases where the owner of real estate is recognized as a resident of both contracting states in accordance with the national legislation of both, the United States and Russia. This is the most important part of the MOR Guidance Letter 03-04-05/66382.

Having made this determination, the MOF went into the second half of its analysis – those considered to be Russian tax residents under the Russian laws. According to Section 2 of Article 207 of the Tax Code, individuals are considered Russian tax residents if they are physically present in Russia for at least 183 calendar days within a period of 12 consecutive months. Since the individual in question did not satisfy the residency requirement of Article 207, the MOF determined that he was not a tax resident of the Russian Federation.

Sale of Russian Real Estate: Can Russia Tax the Proceeds from the Sale under the Russia-US Tax Treaty?

Having determined that the owner of the Russian Real Estate was not a Russian tax resident, the next issue was whether Russia can still tax the proceeds from the sale. The MOF stated that, under paragraph 3 of Article 19 of the Treaty, the gains from the sales of real estate located in one contracting state received by a permanent resident of the other contracting state can be taxed in accordance with the domestic tax legislation of the state where the property is located. Hence, Russia can tax the sale of Russian Real Estate made by a US permanent resident.

As a side note, Russia can also tax a disposition of shares or other rights of participation in the profits of a company in which Russian real estate makes up at least 50 percent of the assets.

Sale of Russian Real Estate: What is the Applicable Tax Rate?

The final point addressed by the MOF was the applicable tax rate for the sale of Russian real estate by a US permanent resident and a nonresident of Russia. Pursuant to Section 3 of Article 224 of the Tax Code, the MOF decided that tax rate in this situation should be 30 percent.

Contact Sherayzen Law Office for Professional International Tax Help

If you are looking for a professional advice concerning US international tax law, contact Sherayzen Law Office. Our legal team, headed by attorney Eugene Sherayzen, is highly experienced in US international tax law, including international tax compliance filing requirements, international tax planning and offshore voluntary disclosures.

Contact Us Today To Schedule Your Confidential Consultation!

Voluntary Compliance with US Tax Laws | International Tax Attorney Austin

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The IRS has repeatedly stated that the US tax system is a voluntary compliance system. Yet, what does “voluntary compliance” mean in this context? Does it mean that US taxpayers only need to comply with US tax laws whenever they wish to do it? Does it mean that any US taxpayer has a right to refuse to comply with US tax laws or file his tax returns whenever he feels like doing it?

A lot of people tried to take this position and failed. The IRS has always won on the issue that US taxpayers have an obligation to comply with US tax laws, whether they want to do it or not.

Then, what is so “voluntary” about our tax system? Let’s explore this question in more detail.

Voluntary Compliance with US Tax Laws is Obligatory

Let us start with the affirmative statement that the word “voluntary” does not refer to the actual obligation of US taxpayers to comply with US tax laws. In other words, the compliance with US tax laws is compulsory and any noncompliance with US tax laws is punishable to the extent permitted by the law. Intentional noncompliance may even result in incarceration of a noncompliant taxpayer.

The IRS Inability to Engage in Full Enforced Tax Compliance

Since the word “voluntary” does not apply to the actual obligation to comply with US tax laws, we must look at the assessment of US tax liability to understand what voluntary compliance means. In particular, our focus should be on what is known as “enforced tax compliance” – i.e. direct assessment of tax liability and the audit of tax returns.

Here, we encounter an obvious yet interesting fact: the IRS does not have the resources to audit every one of the hundreds of millions of US taxpayers (resident and non-resident, individual and business), especially on an annual basis. Similarly, the IRS also lacks the ability to audit every single tax return every year; in fact, it only audits about 3% of all tax returns per year.

This means that the IRS does not have the capacity to sustain a system of enforced tax compliance and the vast majority of US taxpayers operate outside of this system.

The Definition of Voluntary Compliance

This lack of the IRS ability to engage in 100% enforced tax compliance leads to the inevitable conclusion that it has to rely on US taxpayers to timely file their own tax returns, assess their own tax liability and pay this tax liability to the IRS. It is precisely in this sense that US tax compliance system is “voluntary”.

In other words, voluntary compliance means that US taxpayers do their own self-assessment of their US tax liability (hopefully, in accordance with the IRS guidance) instead of the IRS doing it for each of them. Underlying this voluntary compliance, however, is the threat that the IRS can audit the tax returns and impose noncompliance penalties.

Contact Sherayzen Law Office for Professional Help with Your Voluntary Compliance Concerning US International Tax Laws

The IRS focus on the enforced tax compliance regarding the US international tax obligations of US taxpayers has caused an unprecedented rise in the voluntary compliance in this area of law. Noncompliant US taxpayers are at a historically-high risk of detection by the IRS and may face draconian IRS penalties, including jail time.

This means that, if you have foreign assets and foreign income, you need the professional help of Sherayzen Law Office to bring your tax affairs into full compliance with US tax laws. Our firm is highly experienced in the area of US international tax compliance with hundreds of successful cases closed and millions of dollars saved in US taxes and potential penalties! We can help you!

Contact Us Today to Schedule Your Confidential Consultation!