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French Bank Accounts US Tax Obligations | International Tax Lawyer & Attorney

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For many years now France has consistently been one of the top five countries for my offshore voluntary disclosure cases. One of the top reasons for such an extensive noncompliance is the fact that the US tax reporting requirements are very diverse and easy to violate by a US owner of French bank and financial accounts. In this article, I will discuss the top three of such French bank accounts US tax obligations.

French Bank Accounts US Tax Obligations: Definition of US Owner

Our first point of departure is to define the term “US owner”.  I use this phrase to refer to US citizens, US permanent residents and individuals who satisfied the Substantial Presence Test requirements.  Note that such persons are generally US tax residents for income tax purposes, unless an exception applies.

French Bank Accounts US Tax Obligations: Two Sets pf Reporting Requirements

A US owner of French bank accounts potentially faces two large sets of US tax reporting requirements: income tax reporting requirements and US information returns.  Some of these requirements may be overlapping and even duplicative. It is important for a US owner of French bank accounts to remember that he may need to comply with both sets of requirements.  Complying with just one is not enough.

French Bank Accounts US Tax Obligations: Income-Reporting Requirements

Let’s start with the first important reporting requirement concerning French Bank accounts: income tax reporting requirements. If the US owner of French bank accounts is a US tax resident for income tax purposes, then he must disclose his worldwide income on his US tax returns. Of course, this includes any income generated by his French bank accounts.

The US owner must disclose his income from foreign bank accounts irrespective of whether he lives in the United States or outside of the country, whether this income is brought to the United States or if it continues to accumulate in his foreign bank accounts and whether the owner already paid French taxes on this income or not. The main rule is that, as long as you are a tax resident of the United States, you must comply with the worldwide income reporting requirement.

This requirement applies to all reportable income as determined by US tax rules. I want to emphasize this point: the worldwide income reporting rule requires US tax residents to disclose all of their foreign income deemed reportable under the US tax rules, not the French rules. Since there are huge differences between the French tax code and the US Internal Revenue Code, there are a lot of potential tax traps for US taxpayers with French bank and financial accounts.

French Bank Accounts US Tax Obligations: Assurance Vie Accounts

Probably the most common tax trap that illustrates well the differences between US tax rules and French tax rules are Assurance Vie accounts.  They are very common among French citizens and non-taxable (except certain social taxes) until there is a withdrawal from the account.  US tax rules completely disregard the preferential tax treatment of the French government. Instead, the IRS taxes Assurance Vie accounts as just an investment account.  Since at least a part of each Assurance Vie account is usually invested in foreign mutual funds, the result is that the US owners of this type of an account are very likely to have extensive and expensive PFIC compliance issues.

French Bank Accounts US Tax Obligations: FBAR

The most important asset reporting requirement that applies to US taxpayers with French bank accounts is FinCEN Form 114, the Report of Foreign Bank and Financial Accounts, commonly known as “FBAR”. As long they meet the filing threshold (see below), US taxpayers are required to disclose all of their French bank accounts over which they have signatory authority or in which they have a financial interest (i.e. they own an account directly or indirectly, either individually or jointly).

FBAR is a unique information return. The anomaly begins with the fact that FBAR is not technically a tax form, but a BSA form which has been administered by the IRS since the year 2001. This is why FBAR is not filed together with the tax return but has to be e-filed separately through BSA website.

Second, FBAR also has a very low filing threshold – just $10,000. Moreover, this threshold is determined by taking the highest balances during a calendar year of all of the taxpayer’s foreign accounts (even if these accounts are located in a foreign country other than France) and adding them all up. Sometimes, this results in significant over-reporting of a person’s actual balances, which easily satisfies the reporting threshold.

Finally, FBAR has very severe noncompliance penalties. Its penalties range from non-willful penalties (i.e. potentially a situation where a person simply did not know about FBAR’s existence) to extremely high civil willful penalties and even criminal penalties. In other words, in certain circumstances, FBAR noncompliance may result in actual jail time.

French Bank Accounts US Tax Obligations: FATCA Form 8938

While a relative newcomer, FATCA Form 8938 quickly occupied a special place in US international tax compliance. It may appear that Form 8938 duplicates FBAR with respect to foreign bank account reporting, but there are very important differences between these forms. Let’s focus on the top five differences.

First, unlike FBAR, the taxpayer files Form 8938 together with his US tax return. This means that the Form 8938 noncompliance may keep the statute of limitations open on the filer’s entire tax return indefinitely, thereby potentially subjecting it to an IRS audit indefinitely.

Second, there are differences between FBAR and Form 8938 concerning foreign account information that one needs to disclose on these forms. Form 8938 forces US taxpayers to disclose not only most of the information that is required to be reported on FBAR, but also such details as whether an account was opened or closed in the reporting year, whether it produced any income, how much income was produced, et cetera. This may give the IRS additional information necessary to determine if there was prior tax noncompliance with respect to these accounts.

Third, there are important substantive differences between these two forms with respect to what accounts have to be disclosed. For example, signatory authority accounts must be disclosed on FBAR, but Form 8938 has no such requirement. On the other hand, a paper bond certificate may not need to be reported on FBAR, but it must be disclosed on Form 8938. In general, Form 8938 is likely to apply to a wider range of French assets than FBAR; this is why Form 8938 is often called the “catch-all” form.

Fourth, while FBAR penalties can be extremely severe, Form 8938 sports its own arsenal of formidable noncompliance penalties. In fact, in a non-willful situation, Form 8938 penalties may have an equivalent or even larger impact due to the fact that they have a much broader and affect even the income tax penalties. For example, Form 8938 noncompliance may lead to higher accuracy-related penalties with respect to income-tax noncompliance. Form 8938 penalties may also impact a taxpayer’s ability to utilize foreign tax credit.

Finally, unlike FBAR, Form 8938 comes with a third-party FATCA verification mechanism. Under FATCA, the IRS should receive foreign-account information not only from taxpayers who file Forms 8938, but also from their foreign financial institutions (“FFIs”). This means that it is much easier for the IRS to identify Form 8938 noncompliance than FBAR noncompliance (although, a FATCA-based disclosure by the FFIs may also lead to a fairly fast discovery of FBAR noncompliance).  

Contact Sherayzen Law Office for Professional Help with Your French Bank Accounts US Tax Obligations

If you are a US Person who has undisclosed French bank accounts, contact Sherayzen Law Office for professional help as soon as possible. We have helped hundreds of US taxpayers around the globe to resolve their past FBAR and FATCA noncompliance, including with respect to financial accounts in France.  We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

New York FBAR Attorney | International Tax Lawyers New York

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If you reside in New York, New York and have unreported foreign bank and financial accounts, you may be looking for a New York FBAR Attorney.  In this case, you should contact Sherayzen Law Office, Ltd., a leader in FBAR compliance, including offshore voluntary disclosures concerning delinquent. Let’s consider the main reasons for it.

New York FBAR Attorney: International Tax Lawyer

From the outset, it is very important to understand that, by looking for New York FBAR attorney, in reality, you are searching for an international tax lawyer who specializes in FBAR compliance.

The reason for this conclusion is the fact that FBAR enforcement belongs to a very special field of US tax law – US international tax law. FBAR is an information return concerning foreign assets, which necessarily involves US international tax compliance concerning foreign assets/foreign income. Moreover, ever since the FBAR enforcement was turned over to the IRS in 2001, the term FBAR attorney applies almost exclusively to tax attorneys.

Hence, when you look for an FBAR attorney, you are looking for an international tax attorney with a specialty in FBAR compliance.

New York FBAR Attorney: Deep Knowledge of US International Tax Law and Offshore Voluntary Disclosures

When retaining New York FBAR attorney, consider the fact that such an attorney’s work is not limited only to the preparation and filing of FBARs. Rather, the attorney should be able to deliver a variety of tax services and freely operate with experience and knowledge in all relevant areas of US international tax law, including the various offshore voluntary disclosure options concerning delinquent FBARs.

Moreover, as part of an offshore voluntary disclosure, an FBAR Attorney often needs to amend US tax returns, properly prepare foreign financial statements according to US GAAP, correctly calculate PFICs, and complete an innumerable number of other tasks.

Mr. Sherayzen and his team of motivated experienced tax professionals of Sherayzen Law Office have helped hundreds of US taxpayers worldwide to bring their tax affairs into full compliance with US tax laws. This work included the preparation and filing of offshore voluntary disclosures concerning delinquent FBARs. Sherayzen Law Office offers help with all kinds of offshore voluntary disclosure options, including: SDOP (Streamlined Domestic Offshore Procedures), SFOP (Streamlined Foreign Offshore Procedures), DFSP (Delinquent FBAR Submission Procedures), DIIRSP (Delinquent International Information Return Submission Procedures), IRS VDP (IRS Voluntary Disclosure Practice) and Reasonable Cause disclosures.

New York FBAR Attorney: Out-Of-State International Tax Lawyer

Whenever you are looking for an attorney who specializes in US international tax law (which is a federal area of law, not a state one), you do not need to limit yourself to lawyers who reside in New York, New York. On the contrary, consider international tax attorneys who reside in other states and help New York residents with their FBAR compliance.

Contact Sherayzen Law Office for Professional FBAR Help

Sherayzen Law Office is an international tax law firm that specializes in US international tax compliance, including FBARs. While our office is in Minneapolis, Minnesota, we help taxpayers who reside throughout the United States, including New York, New York. Thus, if you are looking for a New York FBAR Attorney, contact Mr. Sherayzen as soon as possible to schedule Your Confidential Consultation!

Tax Residency Starting Date | International Tax Lawyer & Attorney

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In situations where a person was not classified as a resident alien at any time in the preceding calendar year and he became a resident alien at some point during current year, a question often arises concerning the tax residency starting date of such a person. This article seeks to provide a succinct overview of this question in three different contexts: US permanent residence, substantial presence test and election to be treated as a tax resident.

Tax Residency Starting Date: General Rule for Green Card Holders

Pursuant to IRC (Internal Revenue Code) §7701(b)(2)(A)(iii), the starting tax residency date for green card holders is the first day in the calendar year in which he or she is physically present in the United States while holding a permanent residence visa.  However, if the green card holder also satisfies the Substantial Presence Test prior to obtaining his green card, the tax residency is the earliest of either the green card test described in the previous sentence or the substantial presence test (see below).

Tax Residency Starting Date: General Rule for the Substantial Presence Test

Generally, under the substantial presence test, the tax residence of an alien starts on the first day of his physical presence in the United States in the year he met the substantial presence test. See IRC §7701(b)(2)(A)(iii).  For example, if an alien meets the requirements of the Substantial presence test in 2022 and his first day of physical presence in the United States was March 1, 2022, then his US tax residency started on March 1, 2022.

Tax Residency Starting Date: Nominal Presence Exception & the Substantial Presence Test

A reader may ask: how does the rule described above work in case of a “nominal presence” in the United States. IRC §7701(b)(2)(C) provides that, for the purposes of determining the residency starting date only, up to ten (10) days of presence in the United States may be disregarded, but only if the alien is able to establish that he had a “closer connection” to a foreign country rather than to the United States on each of those particular ten days (i.e., all continuous days during a visit to the United States may be excluded or none of them). There is some doubt about the validity of this rule, but it has never been contested in court as of the time of this writing.

This rule may lead to a paradoxical result.  For example, if X visits the United States between March 1 and March 10 and leaves on March 10; then later comes back to the United States on May 1 of the same year and meets the substantial presence test, then he may exclude the first ten days in March and his US tax residency will start on May 1.  If, however, X prolongs his visit and leaves on March 12, then none of the days will be excluded (since March 11 and 12 cannot be excluded under the rules) and his US tax residency will commence on March 1.

I want to emphasize that the nominal presence exception only applies in determining an alien’s residency starting date. It is completely irrelevant to the determination of whether a taxpayer met the Substantial Presence Test; i.e. the days excluded under the nominal presence exception are still counted toward the Substantial Presence Test calculation.

Tax Residency Starting Date: Additional Requirements for Nominal Presence Exception & Penalty for Noncompliance

The IRS has imposed two additional requirements concerning claiming “nominal presence” exclusion (again, both of them have questionable validity as there is nothing in the statutory language about them).  First, the alien must show that he had a “tax home” in the same foreign country with which he has a closer connection.

Second, Treas. Regs. §301.7701(b)-8(b)(3) requires that an alien who claims the nominal presence exception must file a statement with the IRS as well as attach such statement to his federal tax return for the year in which the termination is requested. The statement must be dated, signed, include a penalty of perjury clause and contain: (a) the first day and last day the alien was present in the United States and the days for which the exemption is being claimed; and (b) sufficient facts to establish that the alien has maintained his/her tax home in and a closer connection to a foreign country during the claimed period. Id.

A failure to file this statement may result in an imposition of a substantial penalty: a complete disallowance of the nominal presence exclusion claim.  Since IRC §7701(b)(8) does not contain the requirement to file any statements with the IRS to claim the nominal presence exception, the penalty stands on shaky legal grounds.  However, as of the time of this writing, there is no case law directly on point.

Additionally, as almost always in US international tax law, there are exceptions to this rule.  First, if the alien shows by clear and convincing evidence that he took: (a) “reasonable actions” to educate himself about the requirement to properly file the statement and (b) “significant affirmative actions” to comply with this requirement, then the IRS may still allow the nominal presence exclusion claim to proceed. Treas. Regs. 301.7701(b)-8(d). 

Second, under Treas. Regs. §301.7701(b)-8(e), the IRS has the discretion to ignore the taxpayer’s failure to file the required nominal presence statement if it is in the best interest of the United States to do so.

Tax Residency Starting Date: Election to Be Treated as a US Tax Resident

In situations where a resident alien elects to be treated as a US tax resident (for example, by filing a joint resident US tax return with his spouse), the tax residency date starts on the first day of the year for which election is made.  See Treas. Regs. §7701(b)(2)(A)(iv).

Contact Sherayzen Law Office for Professional Help with US International Tax Law, Including the Determination of the Tax Residency Starting Date

If you have foreign assets or foreign income or if you are trying to determine your tax residency status in the United States, contact Sherayzen Law Office for professional help.  Our law firm is a leader in US international tax compliance; we have helped hundreds of US taxpayers around the world and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

2021 Form 3520 Deadline in 2022 | Foreign Trust Tax Lawyer & Attorney

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The beginning of a new tax season starts the clock on completing the required US international information returns, including Form 3520. In this brief essay, I will discuss the tax year 2021 Form 3520 deadline.

2021 Form 3520 Deadline: What is Form 3520 ?

IRS Form 3520 is a US international information return used by the IRS to collect information related to foreign trusts, foreign gifts and foreign inheritance. In essence, Form 3520 collects four types of data from US taxpayers:

  • Certain transactions with foreign trusts;
  • Ownership of foreign trusts under the rules of sections 671 through 679;
  • Receipt of certain large gifts from foreign persons; and
  • Bequests from foreign persons.

It is very important that you file Form 3520 timely, because late filing Form 3520 penalties can be very high. For example, a failure to timely disclose a reportable foreign gift on Form 3520 may result in a penalty as high as 25% of the value of the gift. Initial Form 3520 penalty for a failure to report a property transferred by a US transferor to a foreign trust may be as high as 35% of the gross value of the property.

2021 Form 3520 Deadline: Where to File

Form 3520 reporting is complicated by the fact that this form is not filed with a US tax return. Rather, for the tax year 2021, a Form 3520 with all required attachments should be mailed to the following address:

Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409

My recommendation is to mail your 2021 Form 3520 by US Certified Mail.

2021 Form 3520 Deadline: When to File

Generally, 2021 Form 3520 deadline will correspond to your US income tax return deadline. In other words, a US person must file his Form 3520 by and including the 15th day of the 4th month following the end of such person’s tax year for US income tax purposes. Same rule applies to Forms 3520 filed by an estate and on behalf of a US decedent. If the due date falls on a Saturday, Sunday, or legal holiday, file by the next day that is not a Saturday, Sunday, or legal holiday.

For individual taxpayers who reside in the United States, this usually means April 15. However, due to the fact that April 15 is a legal holiday this year, your 2021 Form 3520 will be due on April 18, 2022.

Moreover, if you are a US citizen or resident and (a) you live outside of the United States and Puerto Rico and your place of business or post of duty is outside the United States and Puerto Rico, OR (b) you are in the military or naval service on duty outside of the United States and Puerto Rico, then your tax deadline will shift to the 15th day of the 6th month (i.e. June 15). In other words, if you satisfy either (a) or (b) above and you are either a US citizen or US resident, then your 2021 Form 3520 will be due on June 15, 2022. You must include a statement with your 2021 Form 3520 showing that you are a U.S. citizen or resident who meets one of these conditions listed above.

Finally, if a US person is granted an extension of time to file an income tax return, the due date for filing Form 3520 shifts to the 15th day of the 10th month following the end of the US person’s tax year. In other words, if you are an individual who filed an extension on your US income tax return, then your 2021 Form 3520 will be due on October 17, 2022 (because October 15 falls on a Saturday this year).

Contact Sherayzen Law Office for Professional Help With Your 2021 Form 3520 Deadline

If you are required to file a Form 3520 for the tax year 2021 (whether because you are an owner or a beneficiary of a foreign trust, you received a foreign gift or you received a foreign inheritance), contact Sherayzen Law Office for professional help. We have successfully helped US taxpayers around the world with their Form 3520 compliance, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Subsidiary vs. Branch | International Business Tax Lawyer Minneapolis

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For the purposes of US international tax laws, it is very important to distinguish a subsidiary from a branch. Let’s define both terms in this short essay.

Subsidiary vs. Branch: Definition of a Branch

A branch is a direct form of doing business by a corporation in another country where the corporation retains the direct title of the assets used in the branch’s business. In other words, a branch is a direct extension of the corporation to another country.

Most importantly, there is no separate legal identity between a corporation’s branch in one country and its head office in another. It is all the same company doing business in two countries.

One of the practical advantages of a branch is that it usually requires a lot less effort to establish a branch than a subsidiary. However, it is not always the case – for example, in Kazakhstan, creation of a branch is a very formal process. Moreover, while the legal formalities may not be that complicated, the tax consequences of having a branch in another country may be far more complex.

Subsidiary vs. Branch: Definition of a Subsidiary

A subsidiary is a complete opposite of a branch. It is a separately-chartered foreign corporation owned by a US parent corporation. In other words, a subsidiary has its own legal identity separate from that of its parent US corporation. In the eyes of a local jurisdiction, the US corporation is merely a shareholder of its foreign subsidiary; the US corporation is not directly doing any business in the foreign jurisdiction.

Of course, a situation can be reversed: it can be a foreign parent corporation that organizes a US subsidiary. In this case, the foreign parent company will have its separate identity from its US subsidiary. It will be merely a shareholder of the US company in the eyes of the IRS.

As a separate legal entity, subsidiaries will usually have a host of legal and tax duties in the jurisdiction where they are organized.

Subsidiary vs. Branch: Forced Tax Similarities

Despite these legal differences, the US tax treatment of a subsidiary and a branch created some artificial similarities between these two forms of business. The reason for these similarities is the huge potential for tax deferral through subsidiaries.

The basic trend here is to minimize the advantages of a separate legal identity of a subsidiary, making it a lot more similar to a branch when it comes to tax treatment. The IRS has achieved this through the usage of a number of anti-deferral regimes, such as Subpart F rules and GILTI tax, as well as transfer pricing rules.

Contact Sherayzen Law Office to Determine Whether a Branch or a Subsidiary is Best for Your Business

Whether you are a US business entity who wishes to do business overseas or a foreign entity that wishes to do business in the United States, you can contact Sherayzen Law Office for professional help. We have helped domestic and foreign businesses with their US international tax planning concerning their inbound and outbound transactions, and we can help you!