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Coronavirus & Chinese Offshore Voluntary Disclosures | SDOP Tax Law Firm

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The ongoing coronavirus pandemic has disrupted many areas of human activity around the planet. The coronavirus even affected the IRS offshore voluntary disclosures concerning US taxpayers’ unreported financial assets and income in China (“Chinese Offshore Voluntary Disclosures”). In fact, the impact of coronavirus on the Chinese Offshore Voluntary Disclosures has been severe and extremely disruptive. Let’s look at the top three ways in which coronavirus has disrupted the Chinese Offshore Voluntary Disclosures.

Coronavirus & Chinese Offshore Voluntary Disclosures: Access to Information

The first and most important disruption caused by coronavirus is reduced access to information necessary to complete offshore voluntary disclosures. As a result of the quarantine measures, many financial institutions in China are either closed or work only limited hours. Hence, it has become much harder to obtain relevant information from the Chinese financial institutions, particularly with respect to certain complex investment products and investment insurance policies.

Moreover, as a result of the suspension of travel between China and the United States, many taxpayers are unable to travel to China to obtain the necessary documents. In many cases, internet access to financial data in China is limited to only a few years, whereas taxpayers often need to go back at least six years to obtain the necessary information to accurately complete their delinquent FBARs. In most instances, a taxpayer needs to personally visit his financial institution to collect this older data. At this point, this is almost impossible.

Coronavirus & Chinese Offshore Voluntary Disclosures: Mailing of Signed Documents

With respect to US taxpayers who are currently in China, many of them have limited ability to execute the documents necessary to complete offshore voluntary disclosures and mail them to their international tax attorneys in the United States.

Coronavirus & Chinese Offshore Voluntary Disclosures: Case Schedule

As a result of the two factors above as well as the current communication disruptions in the United States, the coronavirus has caused long delays in the voluntary disclosures that involve undisclosed financial assets in China. The schedule disruptions can last from weeks to months; in fact, in some cases, it is too early to be able to fully assess the impact of coronavirus on an offshore voluntary disclosure schedule.

While Sherayzen Law Office has been able to minimize the impact of coronavirus on the Chinese Offshore Voluntary Disclosures, certain delays still exist due to clients’ inability to obtain the necessary information.

Contact Sherayzen Law Office for Help With Chinese Offshore Voluntary Disclosures

If you have undisclosed financial accounts or foreign businesses in China, contact Sherayzen Law Office for professional help as soon as possible. While the disruptions caused by coronavirus have been severe, by employing careful planning, we can still help you maximize your ability to complete your offshore voluntary disclosure in an accurate and timely manner.

We have already helped hundreds of US taxpayers like you, including in China, to successfully bring their financial and business affairs in full compliance with US tax laws. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

§318 Downstream Corporate Attribution | Corporate Tax Lawyer & Attorney

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This article continues a series of articles on the constructive ownership rules of the IRC (Internal Revenue Code) §318. Today, we will discuss corporate attribution rules, even more specifically the §318 downstream corporate attribution rules.

§318 Downstream Corporate Attribution: Two Types of Attribution

There are two types of §318 corporate attribution rules: downstream and upstream. Under the downstream corporate attribution rules, stocks owned by a corporation are attributed to this corporation’s shareholders. The upstream corporate attribution rules are exactly the opposite: stocks (in another corporation) owned by shareholders are attributed to the corporation. As stated above, this article will focus on the downstream attribution rules; the upstream attribution rules will be covered in a future article.

§318 Downstream Corporate Attribution: Main Rule

Under §318(a)(2)(C), if a person owns, directly and indirectly, 50% or more in value of the stock “such person shall be considered as owning the stock owned, directly or indirectly, by or for such corporation, in that proportion which the value of the stock which such person so owns bears to the value of all the stock in such corporation.”

There are two critical parts of this downstream attribution rule: 50% threshold and proportionality. Let’s discuss each part in more detail.

§318 Downstream Corporate Attribution: 50% Threshold

A person must own directly or indirectly 50% or more of the stock value of a corporation in order for the §318 corporate attribution rules to apply. Under Treas. Reg. §1.318-1(b)(3), in determining whether the 50% threshold is satisfied, one must aggregate all stocks that the person actually and constructively owns.

The valuation of stocks should be determined in reference to the relative rights of the outstanding stock of a corporation. All restrictions, such as limitations on transferability, should be considered. On the other hand, the presence or absence of control of the corporation is irrelevant. This means that the value of stocks may differ from the voting power associated with these stocks.

Let’s use the following fact scenario to demonstrate the potential complexity of stock valuation: C, a C-corporation, has two classes of stocks – 100 shares of common stock with a value of $1 each and 50 shares of preferred stock with a value of $1 each (i.e. the total value of common stock is $100 and the total value of preferred stock is $50) – with only common stocks having voting rights; A owns 60 shares of common stock and 10 shares of preferred stock (i.e. his common stock is worth $60 and his preferred stock $10); C owns all of the outstanding shares of another corporation, X. The issue is how many shares of X should be attributed to A?

The answer is none. A does not constructively own any of X’s shares because his total value of C’s stocks is below 50% (the value of his stocks is $60 + $10 = $70, but the total value of C’s stocks is $100 + $50 = $150). The fact that A controls C through his 60% voting power is irrelevant.

§318 Downstream Corporate Attribution: Proportionality

As it was stated above, if the 50% corporate ownership threshold is met, then the shareholder will be considered a constructive owner of shares owned by the corporation in another corporation in proportion to the value of his stock.

While this looks like a straightforward rule, there is one problem. Whether the 50% threshold is satisfied should be determined by the combination of actual and constructive stock ownership. Does it mean that the attribution of corporate stocks under §318 should be in proportion to the value of both actual and constructive ownership combined? Or, does the proportionality of attribution based solely on the actual stock ownership in the holding corporation?

As of the time of this writing, the IRS still has not issued any guidance on this problem. Hence, taking either position is fine by an attorney as long as it is reasonable under the facts.

§318 Downstream Corporate Attribution: S-Corporations

It should be emphasized that the §318 downstream corporate attribution rules do not apply S-corporations with respect to attribution of corporate stock between an S-corporation and its shareholders. Rather, in such cases, the S-corporation is treated as a partnership and its shareholders as partners. See §318(a)(5)(E). Hence, generally, corporate stocks owned by an S-corporation are attributed on a proportionate basis even to shareholders who own less than 50% of the value of the S-corporation stock.

Keep in mind, however, that the usual constructive ownership rules for corporations and shareholders apply for the purpose of determination of whether any person owns stock in an S-corporation.

Contact Sherayzen Law Office for Professional Help With US International Tax Law

US tax law is incredibly complex, and this complexity increases even more at the international level. US taxpayers who deal with US international tax law without assistance of an experienced international tax lawyer run an enormous risk of violating US tax laws and incurring high IRS penalties.

Sherayzen Law Office is a highly experienced international tax law firm which specializes in US international tax compliance and offshore voluntary disclosures. We have helped hundreds of US taxpayers to successfully resolve their US international tax compliance issues, and We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

2020 IRS Standard Mileage Rates | IRS Tax Lawyer & Attorney

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Beginning January 1, 2020, the IRS changed the optional standard mileage for the calculation of deductible costs of operating an automobile (sedans, vans, pickups and panel trucks) for business, charitable, medical or moving purposes. Let’s discuss in more detail these new 2020 IRS Standard Mileage Rates.

2020 IRS Standard Mileage Rates for Business Usage

For the tax year 2020, the business-use cost of operating a vehicle will be 57.5 cents per mile. This is half a cent lower from 2019. The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile.

As in previous years, a taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

2020 IRS Standard Mileage Rates for Medical and Moving Purposes

For the tax year 2020, the medical and moving cost of operating a vehicle will be 17 cents per mile. This is lower by three cents from 2019. The rate for medical and moving purposes is based on the variable costs.

2020 IRS Standard Mileage Rates for Charitable Purposes

For the tax year 2020, the costs of operating a vehicle in the service of charitable organizations will be 14 cents per mile. The charitable rate is set by statute and remains unchanged.

2020 IRS Standard Mileage Rates vs. Actual Costs vs. Miscellaneous Itemized Deductions

It is important to note that under the Tax Cuts and Jobs Act, taxpayers can no longer claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. With the exception of active duty members of Armed Forces, taxpayers also cannot claim a deduction for moving expenses. Notice-2019-02.

However, taxpayers are not forced to use the standard mileage rates; rather, this is optional. Sherayzen Law Office advises taxpayers that they have the option of calculating the actual costs of using a vehicle rather than using the standard mileage rates. If the actual-cost method is chosen, then all of the actual expenses associated with the business use of a vehicle can be used: lease payments, maintenance and repairs, tires, gasoline (including all taxes), oil, insurance, et cetera.

IRS Notice 2020-05

IRS Notice 2020-05, posted on IRS.gov, contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan. In addition, for employer-provided vehicles, the Notice provides the maximum fair market value of automobiles first made available to employees for personal use in calendar year 2020 for which employers may use the fleet-average valuation rule in § 1.61-21(d)(5)(v) or the vehicle cents-per-mile valuation rule in § 1.61-21(e).

Indian US Dollar Remittances | International Tax Lawyer & Attorney

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For some years now, India has remained at the top of all countries that receive remittances in US dollars. A lot of these funds flow from Indian-Americans and Indians who reside in the United States. The problem is that a lot of them are not in compliance with respect to their US international tax obligations that arise as a result of these Indian US dollar remittances.

Indian US Dollar Remittances: India Has Been the Top Recipient

For many years now, India has been one of the top countries in turn of US dollar remittances; lately it has occupied the number one spot. For example, in 2018, India received about $78.6 billion from overseas; China was a distant with only $67.4 billion followed by Mexico ($35.7 billion), the Philippines ($33.8 billion) and Egypt ($28.9 billion).

One of the biggest (if not the biggest) sources of these Indian US dollar remittances has been the United States. In fact, according to the World Bank, one of the reasons why Indian US dollar remittances were so high in 2018 was a better economic performance of the US economy. Hence, we can safely conclude that a large number of Indian-Americans and Indians who reside in the United States send a large portion of their US earnings back to India.

Indian US Dollar Remittances: US International Tax Compliance Issues

The biggest problem with Indian US dollar remittances is their potential for triggering various US international tax compliance requirements, because these remittances are made by US tax residents. Oftentimes, the repatriated funds are sitting in Indian bank accounts or they are invested in Indian stocks, bonds, mutual funds and structured products. Moreover, some of these funds are used to purchase real estate which is rented out to third parties. Still other funds are used to finance business ventures in India.

Such usage of repatriated funds may result in the obligation not only to report Indian income in the United States , but also to file numerous US information returns such as: Report of Foreign Bank and Financial Accounts (FinCEN Form 114 better known as FBAR), Forms 8938, 8621, 5471 and others. Failure to report foreign income and file these information returns may result in the imposition of draconian IRS penalties and even a criminal prosecution.

Indian US Dollar Remittances: Unawareness Among Indians of US Tax Compliance Requirements

The high potential of Indian US dollar remittances to give rise to US tax compliance issues is combined with a widespread unawareness of these issues among Indians and Indian-Americans. Many of these taxpayers are not even aware of the fact that they are considered US tax residents. Others simply have never heard of the requirement to disclose foreign accounts and other foreign assets in the United States. Still others cling to erroneous ideas and various incorrect myths concerning US tax system.

The rise of various US tax compliance requirements as a result of remittances of funds to India and the widespread ignorance of these requirements among Indians is a bad combination, because it creates the potential for the imposition of the aforementioned draconian IRS penalties on Indians who are not even conscious of the fact that they need to report their worldwide income.

Contact Sherayzen Law Office for Professional Help With US International Tax Compliance and Offshore Voluntary Disclosures Concerning Remittances of US Earnings to India

If you are an Indian who resides in the United States and you sent part of your US earnings to India, contact Sherayzen Law Office for professional help. We have successfully helped hundreds of Indians and Indian-Americans to resolve their US international tax compliance issues, including conducting offshore voluntary disclosures (such as Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures) with respect to past US tax noncompliance. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

2019 Tax Filing Season for Individual Filers Opens on January 27 2020

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On January 6, 2020, the IRS announced that the 2019 tax filing season will commence on Monday, January 27, 2020. In other words, on that date, the IRS will begin accepting and processing the 2019 tax returns.

This year the deadline for the filing of the 2019 tax returns as well as any payment of taxes owed is April 15, 2020. The IRS expects that individual taxpayers will file more than 150 million tax returns for the tax year 2019; the vast majority of them should come in prior to the April deadline.

This is not the case, however, for US taxpayers with exposure to international tax requirements. Usually, most of these taxpayers file extensions in order to properly prepare all of the required international information returns by the extended deadline in October. Often, such tax filing extensions are necessary in order to obtain the necessary information from foreign countries which may operate on a fiscal year rather than a calendar year. However, even in such cases, taxpayers are expected to pay at least 90% of the tax owed by April 15, 2020.

Moreover, it should be mentioned that taxpayers who reside overseas receive an automatic tax filing extension. For such taxpayers, the 2019 tax filing season will commence also on January 27, 2020, but their tax return filing deadline is June 15, 2020.

The IRS is certain that it will be ready for the 2019 tax filing season by January 27, 2020. In other words, the agency believes that it will not only be able to process the returns smoothly, but all of its security systems will be operational by that date. The IRS also believes that, by January 27, 2020, it will address the potential impact of recent tax legislation on 2019 tax returns

The IRS encourages everyone to e-file their 2019 tax returns. This, however, is not always possible for US taxpayers who have to file international information returns due to software limitations.

Contact Sherayzen Law Office for Professional Help With Your 2019 Tax Filing Season If You Have To Comply With US International Tax Filing Requirements

Sherayzen Law Office helps US and foreign persons with their US international tax compliance requirements, including the filing of all required international information returns such as FBAR, FATCA Form 8938, Form 3520, Form 3520-A, Form 5471, Form 8865, Form 8858, Form 926 and other relevant forms.

With respect to taxpayers who have not been in full compliance with these requirements in the past, Sherayzen Law Office helps you to choose, prepare and file the relevant offshore voluntary disclosure option, including Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures, Delinquent International Information Return Submission Procedures, Delinquent FBAR Submission Procedures, Reasonable Cause Noisy Disclosures and Modified IRS Traditional Voluntary Disclosures.

Contact Us Today to Schedule Your Confidential Consultation!