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2019 Tax Filing Season Will Begin on January 28, 2019 | Tax Lawyer News

On January 7, 2019, the IRS confirmed that the 2019 tax filing season will begin on January 28, 2019. In other words, the 2019 tax filing season will begin on schedule despite the government shutdown.

2019 Tax Filing Season for 2018 Tax Returns and 2018 FBAR

During the 2019 tax filing season, US taxpayers must file their required 2018 federal income tax returns and 2018 information returns. Let me explain what I mean here.

One way to look at the US federal tax forms is to group them according to their tax collection purpose. The income tax returns are the tax forms used to calculate a taxpayer’s federal tax liability. The common example of this type of form is Form 1040 for individual taxpayers.

The information returns are a group of federal tax forms (and, separately, FBAR) which taxpayers use to disclose certain required information about their assets and activities. These forms are not immediately used to calculate a federal tax liability. A common example of this form is Form 8938. FinCEN Form 114, the Report of Foreign Bank and Financial Account, commonly known as FBAR, also belongs to this category of information returns even though it is not a tax form.

There is a third group of returns that consists of hybrid forms – i.e. forms used for both, income tax calculation and information return, purposes. Form 8621 for PFICs has been a prominent example of this type of a form since tax year 2013.

2019 Tax Filing Season Deadline and Available Extensions for Individual Taxpayers

Individual US taxpayers must file their required income tax and information returns by Monday, April 15, 2019. An interesting exception exists for residents of Maine and Massachusetts. Due to the Patriots’ Day holiday on April 15 in these two states and the Emancipation Day holiday on April 16 in the District of Columbia, the residents of Maine and Massachusetts will have until April 17, 2019 to file their US tax returns.

Taxpayers who reside overseas get an automatic extension until June 17 , 2019, to file their US tax returns.  The reason why the deadline is on June 17 is because June 15 falls on a Saturday. The taxpayers still must pay their estimated tax due by April 15, 2019.

Taxpayers can also apply for an automatic extension until October 15, 2019, to file their federal tax returns. Again, these taxpayers must still pay their estimated tax due by April 15, 2019, in order to avoid additional penalties.

Finally, certain taxpayers who reside overseas may ask the IRS for additional discretionary extension to file their 2018 federal tax return by December 16 (because December 15 is a Sunday this year), 2019. These taxpayers should send their request for the discretionary extension before their automatic extension runs out on October 15, 2019.

2019 Tax Filing Season Refunds

In light of the ongoing government shutdown, one of the chief concerns for US taxpayers is whether they will be able to get their tax refunds during the 2019 Tax Filing Season. The IRS assured everyone that it has the power to issue refunds during the government shutdown.

The IRS has been consistent in its position that, under the 31 U.S.C. 1324, the US Congress provided a permanent and indefinite appropriation for refunds. In 2011, the Office of Management and Budget (“OMB”) disagreed with the IRS and ordered it not to pay any refunds. It appears, however, that the OMB changed its position sometime after 2011.

2017 Tax Reform Seminar | U.S. International Tax Lawyer & Attorney

On April 19, 2018, Mr. Eugene Sherayzen, an international tax lawyer, co-presented with an attorney from KPMG at a seminar entitled “The 2017 U.S. Tax Reform: Seeking Economic Growth through Tax Policy in Politically Risky Times” (the “2017 Tax Reform Seminar”). This seminar formed part of the 2018 International Business Law Institute organized by the International Business Law Section of the Minnesota State Bar Association.

The 2017 Tax Reform Seminar discussed, in a general manner, the main changes made by the 2017 Tax Cuts and Jobs Act to the U.S. international tax law. Mr. Sherayzen’s part of the presentation focused on two areas: the Subpart F rules and the FDII regime.

Mr. Sherayzen provided a broad overview of the Subpart F rules, the types of income subject to these rules and the main exceptions to the Subpart F regime. He emphasized that the tax reform did not repeal the Subpart F rules, but augmented them with the GILTI regime (the discussion of GILTI was done by the KPMG attorney during the same 2017 Tax Reform Seminar).

Then, Mr. Sherayzen turned to the second part of his presentation during the 2017 Tax Reform Seminar – the Foreign Derived Intangible Income or FDII. After reviewing the history of several tax regimes prior to the FDII, the tax attorney concluded that the nature of the current FDII regime is one of subsidy. In essence, FDII allows a US corporation to reduce its corporate income by 37.5% of the qualified “foreign derived” income (after the year 2025, the percentage will go down to 21.875%). Mr. Sherayzen explained that, in certain cases, there is an additional limitation on the FDII deduction.

Qualifying income includes: sales to a foreign person for foreign use, dispositions of property to foreign persons for foreign use, leases and licenses to foreign persons for foreign use and services provided to a foreign person. There are also a number exceptions to qualifying income.

Mr. Sherayzen concluded his presentation at the 2017 Tax Reform Seminar with a discussion of the reaction that FDII produced in other countries. In general this reaction was not favorable; China and the EU even threatened to sue the United States over what they believed to be an illegal subsidy to US corporations.

FACC Seminar (French-American Chamber of Commerce Seminar) | News

On October 19, 2017, Mr. Eugene Sherayzen, an owner of Sherayzen Law Office and a highly experienced international tax attorney, conducted a seminar titled “Introduction to U.S. International Tax Compliance for U.S. Owners of Foreign Businesses” at the French-American Chamber of Commerce in Minneapolis, Minnesota (the “FACC Seminar”). The audience of the FACC Seminar consisted of business lawyers and business owners.

The FACC Seminar commenced with the breakdown of the title of the seminar into various parts. Mr. Sherayzen first analyzed the tax definition of “owner” and contrasted it with the legal definition of owner. Then, he identified who is considered to be a “U.S. owner” under the U.S. international tax law.

During the second part of the FACC Seminar, Mr. Sherayzen discussed the definition of “foreign” (i.e. foreign business) and the definition of the concept of “business”, contrasting it with a foreign trust. At this point, the tax attorney also acquainted the attendees with the differences between the common-law and the civil-law definitions of partnership.

Then, the focus of the FACC Seminar shifted to the discussion of the U.S. international tax requirements. The tax attorney stated that he would discuss four major categories of U.S. international tax requirements: (1) U.S. tax reporting requirements related to ownership of a foreign business; (2) U.S. owner’s tax reporting requirements related to assets owned by a foreign business; (3) U.S. tax reporting requirements related to transactions between a foreign business and its U.S. owners; and (4) income recognition as a result of anti-deferral regimes.

Mr. Sherayzen first discussed the U.S. tax reporting requirement related to the ownership of a foreign business. In particular, he covered Forms 5471, 8865 and 8858. The tax attorney also introduced the catch-all Form 8938. In this context, he also explained the second category of U.S. international tax requirements concerning the assets owned by a foreign business.

The next part of the FACC Seminar was devoted to the U.S. tax reporting requirements concerning transactions between a foreign business and its U.S. owners. Mr. Sherayzen explained in detail Form 926 and Schedule O of Form 8865, including the noncompliance penalties associated with these forms. The tax attorney also quickly reviewed Form 8886 for participating in transactions related to tax shelters. The discussion of the complex penalty system of Form 8886 surprised the audience.

The last part of the FACC Seminar was devoted to the income tax recognition and other U.S. tax reporting requirements that arise by the operation of anti-deferral regimes. Both, the Subpart F and the PFIC regimes were covered by the tax attorney.

SLO’s 2017 Seminar on Business Lawyers’ International Tax Mistakes

On February 23, 2017, Mr. Eugene Sherayzen, an international tax lawyer and owner of Sherayzen Law Office (“SLO”), conducted a seminar titled “Top 5 International Tax Mistakes Made by Business Lawyers”. The seminar was sponsored by the Corporate Counsel Section and International Business Law Section of the Minnesota State Bar Association.

Mr. Sherayzen commenced the seminar by asking a question about why business lawyers should be concerned with making international tax mistakes. After identifying the main answers, the tax attorney stated that he would focus on the strategic mistakes, rather than any specific U.S. international tax requirements.

Mr. Sherayzen first discussed the Business Purity Trap, a situation where business lawyers view a business transaction as something exclusively within the business law domain and with no relation whatsoever to U.S. tax law. The tax attorney stated that all business transactions have tax consequences, even if the effect is not immediate and there is no actual income tax impact.

Then, Mr. Sherayzen discussed the Tax Dabble Trap. This trap describes a situation where a business lawyer attempts to provide an advice on an international tax issue. The tax attorney explained why business lawyers often fall into this trap and the potentially disastrous consequences this trap may have for the business lawyers’ clients.

The Tax Law Uniformity Trap was the third trap discussed by the tax attorney. One of the most common international tax mistakes that business lawyers (and also many accountants) make is to believe that U.S. domestic tax law and U.S. international tax law are similar. Mr. Sherayzen also pointed out that there is a variation on this trap with respect to foreign owners of U.S. entities.

The discussion of the fourth trap, the Tax Professional Equality Trap, turned out be very fruitful. Mr. Sherayzen drew a sharp distinction between the role played by a general accountant versus the role of an international tax attorney. He also specifically focused on the potentially disastrous consequences the reliance on a domestic accountant may have in the context of offshore voluntary disclosures.

Finally, Mr. Sherayzen discussed the Foreign Exceptionalism Trap. This trap deals with a false belief that certain foreign transactions that occur completely outside of the United States have no tax consequences for the U.S. clients involved in these transactions. Mr. Sherayzen also pointed out that danger of relying solely on foreign accountants and lawyers in this context.

He concluded the seminar with a short examination of another “bonus” tax trap called the Linguistic Uniformity Trap. The description of all tax traps was accompanied by real-life examples from Mr. Sherayzen’s international tax law practice.

Contact Sherayzen Law Office for Professional U.S. International Tax Advice to Avoid Costly International Tax Mistakes

If you are a business lawyer who deals with international business transactions or transactions involving tax residents of a foreign country, please contact Sherayzen Law Office to avoid costly international tax mistakes. Our law firm has worked with many business lawyers, helping them to properly structure international business transactions in a way that avoids making international tax mistakes. Remember, it is much easier and cheaper to avoid making international tax mistakes than fixing them later.

Contact Us Today to Schedule Your Confidential Consultation!

Source of Income: Sale of Real Property | International Tax Law Firm

One of the most common questions that often arises is whether a sale of real property is considered to be a foreign-source or US-source income. In this short essay, I will briefly describe the source of income rule for the sale of real property and discuss its importance.

Sale of Real Property: What is “Source of Income”

The sourcing rules within the United States Internal Revenue Code (“IRC”) determine to which part of the world a particular income item needs to be assigned. In other words, the source of income rules allow a taxpayer to determine whether his income is considered to be “domestic” or “foreign” for US tax purposes.

Sale of Real Property: the Importance of the Source of Income Rules

The importance of the source of income rules is difficult to overstate. For US tax residents, the source of income rules determine the amount of foreign tax credit that can be claimed on their US tax returns. Moreover, the source of income rules may have other important effects, especially for corporate taxpayers.

However, the significance of the source of income rules is felt the most by nonresident aliens. For these foreign persons, the determination of whether income is foreign or domestic may result in a complete escape from US taxation or, on the opposite end, the obligation to submit a US tax return (even if the nonresident alien has no other connection to the United States). Moreover, the sourcing of income has direct implications for the numerous US tax withholding obligations.

Sourcing of a Sale of Real Property

The US source of income rule with respect to sales of real property is clear: the gain from a sale of real property is sourced to the place where the property is located. In other words, if a house is located in the United States, then the gains from the sale of the house will be considered US-source income. On the other hand, if a house is located in a foreign country, then it will be considered foreign-source income (actually, sourced to the specific country where the sold property is located).

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

Sherayzen Law Office is a tax law firm that specializes in US international tax law. We have developed deep expertise in US international tax law that allows us to effectively resolve our clients’ problems in this area. Procedurally, we are experienced in every stage of an international tax case: tax planning, tax preparation, offshore voluntary disclosures, IRS representation and federal litigation. We have successfully helped hundreds of taxpayers around the globe with their US international tax issues, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!