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IRS Appeals Video Conference | IRS Tax Lawyer & Attorney

In May of 2019, Mr. Andrew Keyso, a deputy chief of the IRS Office of Appeals, stated that the Appeals Office is in the early stages of rolling out the technology to conduct video conferences as an option for Appeals conferences. This is great news for tax practitioners – an IRS Appeals video conference is a very convenient option for doing business with the IRS.

IRS Appeals Video Conference: WebEx Platform and Early Testing

The IRS Appeals video conference option will be based on WebEx video conferencing software developed by Cisco. It is secure and convenient, but some training is necessary to use it efficiently.

The IRS has already successfully tested WebEx software for appeals video conferences in early 2018. In October of 2018, IRS made the software more broadly available to its employees so that they can offer video conferences.

IRS Appeals Video Conference: IRS Wants Employees to Use It More

Unfortunately, not all IRS employees at the Appeals Office offer video conferences. Neither do many taxpayers seek them (undoubtedly due to lack of knowledge about them). Those who do so, however, find this option very attractive.

The IRS definitely wants its employees to use the IRS Appeals video conference option more. Speaking at the American Bar Association Section of Taxation conference in May of 2019, Diane Ogawa, an IRS appeals officer in Honolulu, stated: “We are trying to get more appeals officers training and on board with WebEx”. Sherayzen Law Office believes that, as more Appeals employees, taxpayers and tax practitioners become familiar with WebEx, the usage of the IRS Appeals video conference option should greatly increase.

IRS Appeals Video Conference: Positive Reaction from Tax Lawyers

The tax lawyers are generally in favor of using the IRS Appeals video conference option. They find it a convenient and effective way to conduct a hearing conference. There is also an additional benefit of reduced costs: there is no need to waste time and money on traveling to the IRS office.

IRS Appeals Video Conference: Potential Problems

This option, however, is not without potential problems. Besides the potential technical issues, the biggest problem is privacy. An unrepresented taxpayer may try to hold a video conference in a public place (like Starbucks) and the IRS will simply not agree to it. A represented taxpayer will not likely run into this problem, because his representative should know about these privacy issues.

The bigger privacy concern, though, comes from tax lawyers. They need to make sure that the prying eye of WebEx technology does not catch the other clients’ files, names and so on in the background of the WebEx video. Lawyers should strive to protect the attorney-client privileged information to the maximum extent possible.

Sherayzen Law Office Supports the IRS Video Conference Option and Hopes the IRS Expands It to Audit Interviews

As an international tax law firm, Sherayzen Law Office has clients throughout the United States and, indeed, the world. Flying to a meeting with an IRS agent is sometimes inconvenient for both, the taxpayer and the attorney; it is also expensive. Video conferencing is a perfect solution to this issue, and Sherayzen Law Office fully supports the current IRS video conferencing efforts.

Moreover, we encourage the IRS to apply video conferencing to other areas, such as IRS audit meetings.

Noncompetition Agreement Income Sourcing | International Tax Lawyer

Oftentimes, as part of their noncompetition agreement, a taxpayer may receive income for restraining from competing with another party in certain areas. An issue often arises with respect to international noncompetition agreement income sourcing rules – i.e. should the income paid as part of such a noncompetition agreement be considered US-source income or foreign-source income? Let’s explore the answer to this question in this essay.

Noncompetition Agreement Income Sourcing: General Rule

The general rule with respect to income sourcing for noncompetition agreements was settled in the distant year 1943. In that year, the Tax Court held that the source of income from a noncompetition agreement is the location of the forbearance. Korfund Co., Inc. v. Commissioner, 1 T.C. 1180, 1187 (1943). In other words, income received from an agreement not to compete is deemed to be income earned in a place where the agreement prohibits the taxpayer from competing.

The reasoning of the Tax Court is clearly laid out in its opinion. The Court stated that the rights that a party enjoys from the noncompetition agreement “were interests in property in [the] country [of forbearance]. … The situs of the right was in the United States, not elsewhere, and the income that flowed from the privileges was necessarily earned and produced here. … These rights were property of value and the income in question was derived from the use thereof in the [country of forbearance].” Id.

In 1996, in its Field Service Advice, the IRS restated its commitment to the position adopted by the Tax Court in Korfund: “income from covenants not to compete covering areas outside of the United States is foreign source income because the income from a covenant covering areas outside the United States is from the use of a property right outside the United States.” 1996 FSA LEXIS 191, *5 (I.R.S. August 30, 1996).

Noncompetition Agreement Income Sourcing: Apportionment

What if a noncompetition agreement covers both, part of the United States and a foreign country? In this case, the IRS is likely to take a position that an apportionment of some sort is necessary. In other words, only part of the income will be deemed as US-source income, while the rest will be considered foreign-source income.

Contact Sherayzen Law Office for Professional Help With Noncompetition Agreement Income Sourcing

If you are dealing with an international noncompetition agreement, you should contact Sherayzen Law Office for professional help with US international tax compliance. Our firm has helped hundreds of US taxpayers around the world with their US international tax issues. We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

Italian Bank Accounts | International Tax Lawyer & Attorney New York New Jersey

US tax requirements concerning Italian bank accounts can be quite burdensome and complex. The chief three US reporting requirements applicable to Italian bank accounts are: worldwide income reporting, FBAR and FATCA Form 8938. Let’s discuss each of these requirements in more depth.

Italian Bank Accounts: US Tax Residents and US Persons

Before we delve into the discussion of these requirements, we need to identify who is required to comply with these requirements. This task is complicated by the fact that each of aforementioned three requirements has its own definition of a required filer.

Nevertheless, we can readily identify the categories of required filers shared by all three requirements. These categories correspond most closely, but not exactly to the concept of US tax residents. “US tax residency” is a broad term which includes US citizens, US permanent residents, residents who satisfy the Substantial Presence Test and individuals who declare themselves as US tax residents.

This definition of a US tax resident is fully applicable to the worldwide income reporting requirement and very closely corresponds to the concept of the Specified Person of Form 8938. FBAR’s concept of “US Persons”, however, does differ more significantly from the definition of a “US tax resident”, but only in more unusual circumstances. The most common differences arise with respect to the treaty “tie-breaker” provisions to escape US tax residency and persons who declare themselves tax residents of the United States.

Additionally, I wish to caution the readers that even the definition of US tax residents which I just stated has a number of important exceptions, such as visa exemptions (for example, an F-1 visa five-year exemption for foreign students) from the Substantial Presence Test.

In other words, the issue of who the required filer is, requires careful analysis of the facts and circumstances of an individual. This is definitely the job of your international tax attorney; it is just too dangerous to attempt to do it yourself.

Italian Bank Accounts: Worldwide Income Reporting

All US tax residents must report their worldwide income on their US tax returns. In other words, US tax residents must disclose both US-source and foreign-source income to the IRS. In the context of the Italian bank accounts, foreign-source income means all bank interest income, dividends, royalties, capital gains and any other income generated by these accounts.

Italian Bank Accounts: FBAR Reporting

The official name of the Report of Foreign Bank and Financial Accounts (“FBAR”) is FinCEN Form 114. FBAR requires all US Persons to disclose their ownership interest in or signatory authority or any other authority over Italian bank and financial accounts if the aggregate highest balance of these accounts exceeds $10,000.

I wish to emphasize again that, while the term “US persons” is very close to “US tax residents”, it is not the same. The term “US tax residents” is slightly broader than “US persons”. I encourage you to search our website – sherayzenlaw.com – for articles concerning the definition of a US Person.

One aspect of the FBAR requirement, however, deserves a special mention here – the definition of an “account”. The FBAR definition of an account is substantially broader than how this word is generally understood in our society. “Account” for FBAR purposes 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, whenever there is a custodial relationship between a foreign financial institution and a US person’s foreign asset, there is a very high probability that the IRS will find that an account exists for FBAR purposes.

Finally, no discussion of FBAR can be considered complete without mentioned the much-dreaded FBAR penalty system. It is complex and severe to an astonishing degree. The most feared penalties are criminal FBAR penalties with up to 10 years in jail (of course, these penalties come into effect only in the most egregious situations). The next layer of penalties are FBAR willful civil penalties which can easily exceed a person’s net worth. Finally, FBAR imposes penalties even on non-willful taxpayers.

All of the civil FBAR penalties have their own complex web of penalty mitigation layers, which depend on the facts and circumstances of one’s case. One of the most important factors is the size of the Italian bank accounts subject to FBAR penalties. Additionally, since 2015, the IRS has added another layer of limitations on the FBAR penalty imposition. These self-imposed limitations of course help, but one must keep in mind that they are voluntary IRS actions and may be disregarded under certain circumstances (in fact, there are already a few instances where this has occurred).

Italian Bank Accounts: FATCA Form 8938

FATCA Form 8938 has been in existence since 2011. Unlike FBAR, it is filed with a federal tax return and considered to be an integral part of the return. This means that a failure to file File 8938 may render the entire tax return incomplete and potentially subject to an IRS audit.

Form 8938 requires “Specified Persons” to disclose on their US tax returns all of their Specified Foreign Financial Assets (“SFFA”) as long as these Persons meet the applicable filing threshold. The filing threshold depends on a Specified Person’s tax return filing status and his physical residency. For example, if he is single and resides in the United States, he needs to file Form 8938 as long as the aggregate value of his SFFA is more than $50,000 at the end of the year or more than $75,000 at any point during the year.

The IRS defines SFFA very broadly to include an enormous variety of financial instruments, including foreign bank accounts, foreign business ownership, foreign trust beneficiary interests, bond certificates, various types of swaps, et cetera. In some ways, FBAR and Form 8938 require the reporting of the same assets, but these two forms are completely independent from each other. This means that a taxpayer may have to do duplicate reporting on FBAR and Form 8938.

Specified Persons consist of two categories: Specified Individuals and Specified Domestic Entities. You can find a detailed explanation of both categories by searching our website sherayzenlaw.com.

Finally, Form 8938 has its own penalty system which has far-reaching consequences for income tax liability (including disallowance of foreign tax credit and imposition of higher accuracy-related income tax penalties). There is also a $10,000 failure-to-file penalty.

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

Worldwide income reporting, FBAR and Form 8938 do not constitute a complete list of US reporting requirements that may apply to Italian bank accounts. There may be many more.

This is why, if you have Italian bank accounts, you should contact Sherayzen Law Office. We have a highly knowledgeable international tax compliance team headed by an experienced international tax attorney, Mr. Eugene Sherayzen. We have helped hundreds of US taxpayers with their US international tax issues, including reporting Italian bank accounts, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Worldwide Income Reporting Requirement | IRS International Tax Lawyer

Worldwide income reporting is at the core of US international tax system. Yet, every year, a huge number of US taxpayers fail to comply with this requirement. While some of these failures are willful, most of this noncompliance comes from misunderstanding of the worldwide income reporting requirement. In this essay, I will introduce the readers to the worldwide income reporting requirement and explain who must comply with it.

Worldwide Income Reporting Requirement: Who is Affected

It is important to understand that the worldwide income reporting requirement applies to all US tax residents. US tax residents include US citizens, US Permanent Residents (the so-called “green card” holders), taxpayers who satisfied the Substantial Presence Test and non-resident aliens who declared themselves US tax residents on their US tax returns. This is the general definition and there are certain exceptions, including treaty-based exceptions.

Worldwide Income Reporting Requirement: What Must Be Disclosed

The worldwide income reporting requirement mandates US tax residents to disclose all of their US-source income and all of their foreign-source income on their US tax returns. This seems like a very straightforward rule, but its practical application creates many tax traps for the unwary, which I will discuss in a future article.

Worldwide Income Reporting Requirement: Constructive Income and Anti-Deferral Regimes

It is important to emphasize that the worldwide income reporting requirement requires the disclosure not only of the income that you actually received, but also the income that you are deemed to have received by the operation of law. In other words, US tax residents must also disclose their constructive income.

One of the most common sources of constructive income in US international tax law are Anti-Deferral regimes that arise from the ownership of a foreign corporation. The two most common regimes are Subpart F rules (which apply only to a Controlled Foreign Corporation) and the brand-new GILTI  regime. You can find out more about these two highly-complex US tax laws by searching the articles on our website.

Contact Sherayzen Law Office for Professional Help With the Worldwide Income Reporting Requirement

The worldwide income reporting requirement can be extremely complex; you can easily get yourself into trouble with the IRS over this issue. In order to avoid making costly mistakes and correct prior US tax noncompliance in the most efficient manner, you should contact Sherayzen Law Office help. We have helped hundreds of US taxpayers to comply with their US international tax obligations with respect to foreign income and foreign assets, 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!