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Mexican Bank Accounts & US Tax Obligations | International Tax Lawyers

In this essay, I would like to discuss three main US tax obligations concerning Mexican bank accounts: the worldwide income reporting requirement, FBAR and Form 8938. I will only concentrate on the obligations concerning individuals, not business entities.

Mexican Bank Accounts and US Tax Residents

Before we delve into the discussion concerning US tax obligations, we should establish who is required to comply with these obligations. In other words, who needs to report their Mexican bank accounts to the IRS?

The answer to this question is clear: US tax residents. Only US tax residents must disclose their worldwide income and report their Mexican bank accounts on FBAR and Form 8938. Non-resident aliens who have never declared themselves as US tax residents do not need to comply with these requirements.

US tax residents include US citizens, US Permanent Residents, an individual who satisfied the Substantial Presence test and an individual who properly declares himself a US tax resident. This is, of course, the general rule; important exceptions exist to this rule.

Mexican Bank Accounts: Worldwide Income Reporting Requirement

US tax residents must disclose their worldwide income on their US tax returns, including any income generated by Mexican bank accounts. In other words, all interest, dividend and royalty income produced by these accounts must be reported on Form 1040. Similarly, any capital gains from sales of investments held in Mexican bank accounts should also be disclosed on Form 1040. US taxpayers should pay special attention to the reporting of PFIC distributions and PFIC sales.

It is also possible that you may have to disclose passive income generated by your Mexican business entities through the operation of Subpart F rules and the GILTI regime, but this is a topic for a separate discussion.

Mexican Bank Accounts: FBAR

US tax residents must disclose on FBAR their ownership interest in or signatory authority or any other authority over Mexican bank and financial accounts if the aggregate highest balance of these accounts exceeds $10,000. FBAR is a common acronym for the Report of Foreign Bank and Financial Accounts, FinCEN Form 114. Even though this is a FinCEN Form, the IRS is charged with the enforcement of this form since 2001.

While seemingly simple, FBAR contains a number of traps for the unwary. One of the most common trap is the definition of “account”. For the FBAR purposes, “account” has a much broader definition than what people generally think of as an account. ‘Account” includes not just regular checking and savings accounts, but also investment accounts, life insurance policies with a cash surrender value, precious metals accounts, earth mineral accounts, et cetera. In fact, it is very likely that the IRS will find that an account exists whenever there is a custodial relationship between a financial institution and a US person’s foreign asset.

FBAR is a very dangerous form. Not only is the filing threshold very low, but there are huge penalties for FBAR noncompliance. For a willful violation, the penalties can go up to $100,000 (adjusted for inflation) per account per year or 50% of the highest value of the account per year, whichever is higher. In special circumstances, the IRS may refer FBAR noncompliance to the US Department of Justice for criminal prosecution. Even non-willful FBAR penalties may go up to $10,000 (again, adjusted for inflation) per account per year.

Mexican Bank Accounts: FATCA Form 8938

The final requirement that I wish to discuss today is the FATCA Form 8938. Born out of the Foreign Account Tax Compliance Act, Form 8938 occupies a unique role in US international tax compliance. On the one hand, it may result in the duplication of a taxpayer’s US tax disclosures (especially with respect to the accounts already disclosed on FBAR). On the other hand, however, Form 8938 is a “catch-all” form that fills the compliance gaps with respect to other US international tax forms.

For example, if a taxpayer holds a paper bond certificate, this asset would not be reported on FBAR, because it is not an account. For the Form 8938 purposes, however, the IRS would consider this certificate as part of assets that fall within the definition of the Specified Foreign Financial Assets (“SFFA”).

Hence, the scope of Form 8938 is very broad. It requires a specified person (this term is almost equivalent to a US tax resident) to disclose all SFFA as long as these SFFA, in the aggregate, exceed the applicable filing threshold.

SFFA includes a huge variety of foreign financial assets which are divided into two sub-categories: (a) foreign bank and financial accounts; and (b) “other” foreign financial assets. The definition of the “other” assets is impressive in its breadth: bonds, stocks, ownership interest in a closely-held business, beneficiary interest in a foreign trust, an interest rate swap, currency swap; basis swap; interest rate cap, interest rate floor, commodity swap; equity swap, equity index swap, credit default swap, or similar agreement with a foreign counterparty; an option or other derivative instrument with respect to any currency or commodity that is entered into with a foreign counterparty or issuer; and so on.

Form 8938 requires not only the reporting of SFFA, but also the income generated by the SFFA. In essence, the worldwide income reporting requirement is incorporated directly into the form.

The filing threshold for Form 8938 is more reasonable than that of FBAR for specified persons who reside in the United States, but it is still fairly low (especially for individuals). For example, if a taxpayer lives in the United States, he will need to file Form 8938 if he has SFFA of $50,000 ($100,000 for a married couple) or higher at the end of the year or $75,000 ($150,000 for a married couple) or higher during any time during the year. Specified persons who reside outside of the United States enjoy much higher thresholds.

Form 8938 has its own penalty system which contains some unique elements. First of all, a failure to comply with the Form 8938 requirements may allow the IRS to impose a $10,000 failure-to-file penalty which may go up to as high as $50,000 in certain circumstances. Second, Form 8938 noncompliance will lead to an imposition of much higher accuracy-related penalties on the income tax side – 40% of the additional tax liability. Third, Form 8938 noncompliance will limit the taxpayer’s ability to utilize the Foreign Tax Credit.

Finally, a failure to file Form 8938 will directly affect the Statute of Limitations of the entire tax return by extending the Statute to the period that ends only three years after the form is filed. In other words, Form 8938 penalties may allow the IRS to audit tax years which otherwise would normally be outside of the general three-year statute of limitations.

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

Sherayzen Law Office’s core area of practice is international tax compliance, including offshore voluntary disclosures – i.e. helping US taxpayers with foreign assets and foreign income to stay in US tax compliance and, if a taxpayer fails failed to comply with US tax laws in the past, bring him into compliance through an offshore voluntary disclosure. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Japanese Bank Accounts : Main US Tax Obligations | FATCA Tax Lawyer

Despite the fact that FATCA has been implemented already in July of 2014, a lot of US taxpayers are still unaware of their obligation to disclose their Japanese bank accounts in the United States. In this essay, I will discuss the three most important US international tax requirements concerning Japanese bank accounts: worldwide income reporting, FBAR and FATCA Form 8938.

Japanese Bank Accounts: Japanese Income Must Be Disclosed on US Tax Returns

All US tax residents must disclose their worldwide income on their US tax returns. This requirement includes all income generated by the Japanese bank accounts. This obligation applies to all types of income: bank interest income, dividends, capital gains, et cetera.

In this context, it is important to reject two incorrect, but commonly-held beliefs concerning the reporting of Japanese-source income. First, a significant number of US taxpayers believe that Japanese income does not need to be reported if it never left Japan. This is completely false; it does not matter where the income is earned or held – as long as you are a US tax resident, you must disclose your Japanese income on your US tax returns whether or not it was ever transferred to the United States.

The second and most common myth is the belief that, if the income is subject to Japanese tax withholding, it does not need to be reported in the United States. Some taxpayers hold this belief because of their familiarity with the territorial system of taxation, while others assume that this is true due to the prohibition of double-taxation under the US-Japan tax treaty.

In either case, this myth is also completely false. All US tax residents must disclose their Japanese income on their US tax returns even if it is subject to Japanese tax withholding or reported on Japanese tax returns. However, you may be able to take advantage of the Foreign Tax Credit to reduce your US tax liability by the amount of taxes paid in Japan.

Japanese Bank Accounts: FBAR

The Report of Foreign Bank and Financial Accounts, FinCEN Form 114 (popularly known as “FBAR”) is one of the most important reporting requirements that applies to Japanese bank accounts. Generally, a US person is required to file FBAR if he has a financial interest in or signatory authority or any other authority over foreign bank and financial accounts which, in the aggregate, exceed $10,000 at any point during a calendar year.

FBAR has a severe penalty system for failure to file the form, failure to provide accurate information on the form and failure to maintain supporting documentation for the amounts reported on FBAR. The penalties range from criminal penalties (i.e. actual time in jail) to willful and non-willful civil penalties. The civil penalties are adjusted for inflation each year.

Given the fact that FBAR penalties may completely destroy one’s financial life, US taxpayers should strive to do everything in their power to make sure that they comply with this requirement.

Japanese Bank Accounts: FATCA Form 8938

In addition to FBAR, US tax residents with Japanese bank accounts may be required to file Form 8938. Form 8938 is the creation of the Foreign Account Tax Compliance Act (“FATCA”). US tax residents must disclose their Specified Foreign Financial Assets (“SFFA”) on Form 8938 in each year their SFFA exceed the form’s filing threshold.

Form 8938 has a higher filing threshold than FBAR, but it is still relatively low, especially if the owner of Japanese bank accounts resides in the United States. For example, if a taxpayer resides in the United States and his tax return filing status is “single”, then he would only need to have $50,000 or higher at the end of the year or $75,000 or higher at any point during the year in order to trigger the Form 8938 filing requirement.

Moreover, SFFA is defined very broadly to include a lot of more financial assets than what is required to be reported on FBAR; hence, it is easier for US taxpayers to meet the Form 8938 filing Threshold. SFFA includes foreign bank and financials accounts, bonds, swaps, ownership interest in a foreign business, beneficiary interest in a foreign trust and many other types of financial assets. A word of caution: even when FBAR and Form 8938 cover the same assets, both forms must be filed despite the duplication of the disclosure.

The readers should also remember that Form 8938 has it own distinct penalty structure for failure to file the form or failure to comply with all of its requirements.

Contact Sherayzen Law Office for Professional Help With Reporting of Your Japanese Bank Accounts in the United States

This essay broadly covered three most important and most common reporting requirements concerning Japanese bank accounts. There may be a lot more of these requirements depending on your particular fact pattern.

Sherayzen Law Office has extensive experience working with Japanese clients and their bank accounts. We can help you identify your US international tax requirements and prepare all of the tax documents necessary to comply with them. Moreover, if you did not comply with any of these US tax obligations in the past, we will help you with your offshore voluntary disclosure to minimize your IRS penalties and avoid IRS criminal prosecution.

We have successfully helped hundreds of US taxpayers to deal with their US international tax compliance, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

2018 Tax Filing Season | International Tax Lawyer News

On January 4, 2018, the IRS announced that the 2018 tax filing season for the tax year 2017 will commence on January 29, 2018. This date was chosen by the IRS to make sure its software incorporates the full impact of the Tax Cuts and Jobs Act of 2017 on the 2017 tax returns.

2018 Tax Filing Season: EITC and ACTC Refunds

Despite the fact that the 2018 tax filing season will begin on January 29, the IRS warned that taxpayers who will claim Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) will not receive their refunds until at least February 27, 2018.

2018 Tax Filing Season: Processing of Paper Tax Returns

Also, it is important to note that the processing of paper returns will begin only in mid-February, because the system updates will continue until that time. The IRS, however, will begin accepting both, electronic and paper tax returns, on January 29, 2018.

This is very important for taxpayers who file US international information returns, such as Forms 926, 5471, 8621, 8865, 8938, et cetera. A lot of these returns are voluminous and cannot be e-filed due to tax software limitations; hence, they must be filed on paper.

2018 Tax Filing Season: Deadline on April 17, 2018

The filing deadline to submit 2017 tax returns will be on Tuesday, April 17, 2018. Usually, the deadline would be on April 15, but, in 2018, April 15 falls on a Sunday and April 16 is a legal holiday in the District of Columbia (Emancipation Day). Under the tax law, legal holidays in the District of Columbia affect the filing deadline for federal tax returns; hence, the filing deadline moved by one more day to April 17, 2018.

US taxpayers who have to file international information returns should keep in mind that there are two categories of such returns: information reports which are filed with their 2017 tax returns and the information reports which are filed (or e-filed) separately from the 2017 tax returns. Forms 926, 5471, 8621, 8865, 8938 and other similar information returns must be filed with the original US tax returns.

On he other hand, FBARs (FinCEN Form 114) and Form 3520 should be filed separately from the taxpayers’ tax returns. The deadline for this category of returns, however, is the same as the deadline for the 2017 tax returns – April 17, 2018 (unless an extension is filed).

Contact Sherayzen Law Office for Help with Your US International Tax Compliance During this 2018 Tax Filing Season

If you have foreign income and/or foreign assets, or if you received a foreign gift or inheritance, you should contact Sherayzen Law Office for professional help in determining your US tax compliance obligations and the preparation of the required US international information returns.

Contact Us Today to Schedule Your Confidential Consultation!

IRS International No Rule List Updated | International Tax Lawyer News

On January 2, 2018, the IRS issued Rev. Proc. 2018-7 (2018-1 IRB 271) to update its existing international No Rule list. I will quickly overview what the No Rule List is and provide a copy of Sections 3 and 4 of the No Rule List.

What is an International No Rule List?

It may be surprising to many taxpayers to learn, but the IRS does not rule on all matters within its jurisdiction. The IRS may provide a Private Letter Ruling, Determination Letters and Opinion Letters with respect to most, but not all areas of the Internal Revenue Code.

The areas for which the IRS will not issue a letter ruling or a determination letter are grouped under a single term “No Rule List”.

Rev. Proc. 2018-7 and the International No Rule List

Rev. Proc. 2018-7 supersedes Rev. Proc. 2017-7 and updates all international tax matters under the IRS jurisdiction for which the IRS will not answer a taxpayer’s inquiry. Rev. Proc. 2018-7 is directly relevant to 26 CFR 601.201 (which deals with rulings and determination letters).

The chief change introduced by Rev. Proc. 2018-7 to the No Rule List is a new section 4.01(26), which deals with IRC Section 1059A. Additionally, Rev. Proc. 2018-7 renumbered the rest of the relevant sections and cross references due to the addition of a new section.

No Rule List: Section 3 List Versus Section 4 List

The No Rule List differentiates between two types of situations which are organized under Section 3 and Section 4 of Rev. Proc. 2018-7. Section 3 lists the areas of the IRC in which letter rulings and determination letters will not be issued under any circumstances.

Section 4, however, lists the areas of the IRC in which a ruling will not ordinarily be issued unless there are unique and compelling reasons that justify issuing a letter ruling or a determination letter.

Despite the existence of the No Rule List, the IRS may still provide a general information letter in response to inquiries in areas on either list. On the other hand, just because an IRC section or an item is not listed on the No Rule List does not automatically mean that the IRS will answer a taxpayer’s inquiry. Rev. Proc. 2018-7 specifically states that the IRS may “decline to rule on an individual case for reasons peculiar to that case, and such decision will not be announced in the Internal Revenue Bulletin”.

International No Rule List and Section 4 International Tax Interpretation Requests

As it was mentioned above, a taxpayer may still request a letter ruling or a determination letter for any of the Section 4 items of the No Rule List. If he decides to do so, he should contact (by telephone or in writing) the Office of Associate Chief Counsel (International) (“the Office”) prior to making such a request and discuss with the Office the unique and compelling reasons that the taxpayer believes justify issuing such letter ruling or determination letter. While not required, a written submission is encouraged since it will enable the Office personnel to arrive more quickly at an understanding of the unique facts of each case. A taxpayer who contacts the Office by telephone may be requested to provide a written submission.

International No Rule List Section 3

I am copying here Section 3 of the Rev. Proc. 2018-7 which describes the areas in which ruling or determination Letters will no be issued under any circumstances:

“.01 Specific Questions and Problems

(1) Section 861. – Income from Sources Within the United States. – A method for determining the source of a pension payment to a nonresident alien individual from a trust under a defined benefit plan that is qualified under § 401(a) if the proposed method is inconsistent with §§ 4.01, 4.02, and 4.03 of Rev. Proc. 2004–37, 2004–1 C.B. 1099.

(2) Section 862. – Income from Sources Without the United States. – A method for determining the source of a pension payment to a nonresident alien individual from a trust under a defined benefit plan that is qualified under § 401(a) if the proposed method is inconsistent with §§ 4.01, 4.02, and 4.03 of Rev. Proc. 2004–37, 2004–1 C.B. 1099.

(3) Section 871(g). – Special Rules for Original Issue Discount. – Whether a debt instrument having original issue discount within the meaning of § 1273 is not an original issue discount obligation within the meaning of § 871(g)(1)(B)(i) when the instrument is payable 183 days or less from the date of original issue (without regard to the period held by the taxpayer).

(4) Section 894. – Income Affected by Treaty. – Whether a person that is a resident of a foreign country and derives income from the United States is entitled to benefits under the United States income tax treaty with that foreign country pursuant to the limitation on benefits article. However, the Service may rule regarding the legal interpretation of a particular provision within the relevant limitation on benefits article.

(5) Section 954. – Foreign Base Company Income. – The effective rate of tax that a foreign country will impose on income.

(6) Section 954. – Foreign Base Company Income. – Whether the facts and circumstances evince that a controlled foreign corporation makes a substantial contribution through the activities of its employees to the manufacture, production, or construction of the personal property sold within the meaning of § 1.954–3(a)(4)(iv).

(7) Section 7701(b). – Definition of Resident Alien and Nonresident Alien. – Whether an alien individual is a nonresident of the United States, including whether the individual has met the requirements of the substantial presence test or exceptions to the substantial presence test. However, the Service may rule regarding the legal interpretation of a particular provision of § 7701(b) or the regulations thereunder.

.02 General Areas.

(1) The prospective application of the estate tax to the property or the estate of a living person, except that rulings may be issued on any international issues in a ruling request accepted pursuant to § 5.06 of Rev. Proc. 2018–1, in this Bulletin.

(2) Whether reasonable cause exists under Subtitle F (Procedure and Administration) of the Code.

(3) Whether a proposed transaction would subject a taxpayer to criminal penalties.

(4) Any area where the ruling request does not comply with the requirements of Rev. Proc. 2018–1.

(5) Any area where the same issue is the subject of the taxpayer’s pending request for competent authority assistance under a United States tax treaty.

(6) A ‘comfort’ ruling will not be issued with respect to an issue that is clearly and adequately addressed by statute, regulations, decisions of a court, tax treaties, revenue rulings, or revenue procedures absent extraordinary circumstances (e.g., a request for a ruling required by a governmental regulatory authority in order to effectuate the transaction).

(7) Any frivolous issue, as that term is defined in § 6.10 of Rev. Proc. 2018–1.”

International No Rule List Section 4

I am copying here Section 4 of the International No Rule List which describes the areas in which ruling or determination Letters will not ordinarily be issued:

“.01 Specific Questions and Problems

(1) Section 367(a). – Transfers of Property from the United States. – Whether an oil or gas working interest is transferred from the United States for use in the active conduct of a trade or business for purposes of § 367(a)(3); and whether any other property is so transferred, where the determination requires extensive factual inquiry.

(2) Section 367(a). – Transfers of Property from the United States. – Whether a transferred corporation subject to a gain recognition agreement under § 1.367(a)–8 has disposed of substantially all of its assets.

(3) Section 367(b). – Other Transfers. – Whether and the extent to which regulations under § 367(b) apply to an exchange involving foreign corporations, unless the ruling request presents a significant legal issue or subchapter C rulings are requested in the context of the exchange.

(4) Section 864. – Definitions and Special Rules. – Whether a taxpayer is engaged in a trade or business within the United States, and whether income is effectively connected with the conduct of a trade or business within the United States; whether an instrument is a security as defined in § 1.864–2(c)(2); whether a taxpayer effects transactions in the United States in stocks or securities under § 1.864 –2(c)(2); whether an instrument or item is a commodity as defined in § 1.864 –2(d)(3); and for purposes of § 1.864–2(d)(1) and (2), whether a commodity is of a kind customarily dealt in on an organized commodity exchange, and whether a transaction is of a kind customarily consummated at such place.

(5) Section 871. – Tax on Nonresident Alien Individuals. – Whether a payment constitutes portfolio interest under § 871(h); whether an obligation qualifies for any of the components of portfolio interest such as being in registered form; and whether the income earned on contracts that do not qualify as annuities or life insurance contracts because of the limitations imposed by § 72(s) and § 7702(a) is portfolio interest as defined in § 871(h).

(6) Section 881. – Tax on Income of Foreign Corporations Not Connected with United States Business. – Whether the income earned on contracts that do not qualify as annuities or life insurance contracts because of the limitations imposed by § 72(s) and § 7702(a) is portfolio interest as defined in § 881(c).

(7) Section 892. – Income of Foreign Governments and of International Organizations. – Whether income derived by foreign governments and international organizations from sources within the United States is excluded from gross income and exempt from taxation and any underlying issue related to that determination.

(8) Section 893. – Compensation of Employees of Foreign Governments and International Organizations. – Whether wages, fees, or salary of an employee of a foreign government or of an international organization received as compensation for official services to such government or international organization is excluded from gross income and exempt from taxation and any underlying issue related to that determination.

(9) Section 894. – Income Affected by Treaty. – Whether the income received by an individual in respect of services rendered to a foreign government or a political subdivision or a local authority thereof is exempt from federal income tax or withholding under any of the United States income tax treaties which contain provisions applicable to such individuals.

(10) Section 894. – Income Affected by Treaty. – Whether a taxpayer has a permanent establishment in the United States for purposes of any United States income tax treaty and whether income is attributable to a permanent establishment in the United States.

(11) Section 894. – Income Affected by Treaty. – Whether certain persons will be considered liable to tax under the laws of a foreign country for purposes of determining if such persons are residents within the meaning of any United States income tax treaty. But see Rev. Rul. 2000–59, 2000–2 C.B. 593.

(12) Section 894. – Income Affected by Treaty. – Whether the income received by a nonresident alien student or trainee for services performed for a university or other educational institution is exempt from federal income tax or withholding under any of the United States income tax treaties which contain provisions applicable to such nonresident alien students or trainees.

(13) Section 894. – Income Affected by Treaty. – Whether the income received by a nonresident alien performing research or teaching as personal services for a university, hospital or other research institution is exempt from federal income tax or withholding under any of the United States income tax treaties which contain provisions applicable to such nonresident alien teachers or researchers.

(14) Section 894. – Income Affected by Treaty. – Whether a foreign recipient of payments made by a United States person is ineligible to receive the benefits of a United States tax treaty under the principles of Rev. Rul. 89–110, 1989–2 C.B. 275.

(15) Section 894. – Income Affected by Treaty. – Whether a recipient of payments is or has been a resident of a country for purposes of any United States tax treaty. Pursuant to § 1.884 –5(f), however, the Service may rule whether a corporation representing that it is a resident of a country is a qualified resident thereof for purposes of § 884.

(16) Section 894. – Income Affected by Treaty. – Whether an entity is treated as fiscally transparent by a foreign jurisdiction for purposes of § 894(c) and the regulations thereunder.

(17) Section 901. – Taxes of Foreign Countries and of Possessions of United States. – Whether a foreign levy meets the requirements of a creditable tax under § 901.

(18) Section 901. – Taxes of Foreign Countries and of Possessions of United States. – Whether a person claiming a credit has established, based on all of the relevant facts and circumstances, the amount (if any) paid by a dual capacity taxpayer under a qualifying levy that is not paid in exchange for a specific economic benefit. See § 1.901–2A(c)(2).

(19) Section 903. – Credit for Taxes in Lieu of Income, Etc., Taxes. – Whether a foreign levy meets the requirements of a creditable tax under § 903.

(20) Sections 954(d), 993(c). – Manufactured Product. – Whether a product is manufactured or produced for purposes of § 954(d) and § 993(c).

(21) Section 937. – Definition of Bona Fide Resident. – Whether an individual is a bona fide resident of American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, or the U.S. Virgin Islands. However, the Service may rule regarding the legal interpretation of a particular provision of § 937(a) or the regulations thereunder.

(22) Section 956. – Investment of Earnings in United States Property. – Whether a pledge of the stock of a controlled foreign corporation is an indirect pledge of the assets of that corporation. See § 1.956–2(c)(2).

(23) Section 985. – Functional Currency. – Whether a currency is the functional currency of a qualified business unit.

(24) Section 989(a). – Qualified Business Unit. – Whether a unit of the taxpayer’s trade or business is a qualified business unit.

(25) Section 1058. – Transfers of Securities Under Certain Agreements. – Whether the amount of any payment described in § 1058(b)(2) or the amount of any other payment made in connection with a transfer of securities described in § 1058 is from sources within or without the United States; the character of such amounts; and whether the amounts constitute a particular kind of income for purposes of any United States income tax treaty.

(26) Section 1059A. – Limitation on taxpayer’s basis or inventory cost in property imported from related persons. – Whether a taxpayer’s cost or inventory basis in property imported from a foreign affiliate will not be limited by § 1059A due to differences between customs valuation and tax valuation.

(27) Sections 1471, 1472, 1473, and 1474. – Taxes to Enforce Reporting on Certain Foreign Accounts. – Whether a taxpayer, withholding agent, or intermediary has properly applied the requirements of chapter 4 of the Internal Revenue Code (sections 1471 through 1474, also known as “FATCA”) or of an applicable intergovernmental agreement to implement FATCA.

(28) Section 1503(d). – Dual Consolidated Loss. – Whether the income tax laws of a foreign country would deny any opportunity for the foreign use of a dual consolidated loss in the year in which the dual consolidated loss is incurred under § 1.1503(d)–3(e)(1); whether no possibility of foreign use exists under § 1.1503(d)–6(c)(1); whether an event presumptively constitutes a triggering event under § 1.1503(d)–6(e)(1)(i)–(ix); whether the presumption of a triggering event is rebutted under § 1.1503(d)–6(e)(2); and whether a domestic use agreement terminates under § 1.1503(d)–6(j)(1). The Service will also not ordinarily rule on the corresponding provisions of prior regulations under § 1503(d).

(29) Section 2501. – Imposition of Tax. – Whether a partnership interest is intangible property for purposes of § 2501(a)(2) (dealing with transfers of intangible property by a nonresident not a citizen of the United States).

(30) Section 7701. – Definitions. – Whether an estate or trust is a foreign estate or trust for federal income tax purposes.

(31) Section 7701. – Definitions. – Whether an intermediate entity is a conduit entity under § 1.881–3(a)(4); whether a transaction is a financing transaction under § 1.881–3(a)(4)(ii); whether the participation of an intermediate entity in a financing arrangement is pursuant to a tax avoidance plan under § 1.881–3(b); whether an intermediate entity performs significant financing activities under § 1.881–3(b)(3)(ii); whether an unrelated intermediate entity would not have participated in a financing arrangement on substantially the same terms under § 1.881–3(c).

(32) Section 7874. – Expatriated Entities and Their Foreign Parents. – Whether, after the acquisition, the expanded affiliated group has substantial business activities in the foreign country in which, or under the law of which, the foreign entity is created or organized, when compared to the total business activities of the expanded affiliated group.

(33) Section 7874. – Expatriated Entities and Their Foreign Parents. – Whether a foreign corporation completes the direct or indirect acquisition of substantially all of the properties held directly or indirectly by a domestic corporation or substantially all of the properties constituting a trade or business of a domestic partnership.

.02 General Areas

(1) Whether a taxpayer has a business purpose for a transaction or arrangement.

(2) Whether a taxpayer uses a correct North American Industry Classification System (NAICS) code or Standard Industrial Classification (SIC) code.

(3) Any transaction or series of transactions that is designed to achieve a different tax consequence or classification under U.S. tax law (including tax treaties) and the tax law of a foreign country, where the results of that different tax consequence or classification are inconsistent with the purposes of U.S. tax law (including tax treaties).

(4)(a) Situations where a taxpayer or a related party is domiciled or organized in a foreign jurisdiction with which the United States does not have an effective mechanism for obtaining tax information with respect to civil tax examinations and criminal tax investigations, which would preclude the Service from obtaining information located in such jurisdiction that is relevant to the analysis or examination of the tax issues involved in the ruling request.

(b) The provisions of subsection 4.02(4)(a) above shall not apply if the taxpayer or affected related party (i) consents to the disclosure of all relevant information requested by the Service in processing the ruling request or in the course of an examination to verify the accuracy of the representations made and to otherwise analyze or examine the tax issues involved in the ruling request, and (ii) waives all claims to protection of bank or commercial secrecy laws in the foreign jurisdiction with respect to the information requested by the Service. In the event the taxpayer’s or related party’s consent to disclose relevant information or to waive protection of bank or commercial secrecy is determined by the Service to be ineffective or of no force and effect, then the Service may retroactively rescind any ruling rendered in reliance on such consent.

(5) The federal tax consequences of proposed federal, state, local, municipal, or foreign legislation.

(6)(a) Situations involving the interpretation of foreign law or foreign documents. The interpretation of a foreign law or foreign document means making a judgment about the import or effect of the foreign law or document that goes beyond its plain meaning.

(b) The Service, at its discretion, may consider rulings that involve the interpretation of foreign laws or foreign documents. In these cases, the Service may request information in addition to that listed in § 7.01(2) and (6) of Rev. Proc. 2018–1, including a discussion of the implications of any authority believed to interpret the foreign law or foreign document, such as pending legislation, treaties, court decisions, notices or administrative decisions.”

El Salvador Tax Amnesty Program | International Tax Lawyer & Attorney

On October 10, 2017, the Salvadorian Congress enacted the Legislative Decree No. 804, “La Ley Transitoria para el Cumplimiento Voluntario de Obligaciones Tributarias y Aduaneras”. After noting the experience of the past El Salvador voluntary disclosure options, the Decree announced a three-month long El Salvador Tax Amnesty Program. Let’s briefly explore the main contours of this new El Salvador Tax Amnesty Program.

The Duration of El Salvador Tax Amnesty Program

The Decree specifies that the program will become effective on October 27, 2017 and it will end on January 27, 2018.

The Terms of El Salvador Tax Amnesty Program

El Salvador Tax Amnesty Program basically allows El Salvadorian taxpayers to voluntarily come forward, correctly declare their income and pay any undeclared or understated taxes. In return for doing so, all penalties, charges and interest will be waived by the tax authorities of El Salvador, la Dirección General de Impuestos Internos. This Salvadorian voluntary disclosure program compares very favorably with the IRS OVDP now closed (which is not really an amnesty program and imposes a significant penalty for prior noncompliance).

The El Salvador Tax Amnesty Program is also very broad. The voluntary disclosure program is applicable to all taxpayers with outstanding tax liabilities that were due prior to October 27, 2017. The program covers understated taxes, undeclared taxes, withholding taxes, VAT, real estate transfer taxes and basically all other situations. The program is applicable to taxpayers irrespective of whether they ever filed their tax returns. El Salvador Tax Amnesty Program will even allow the taxpayers to simply pay their tax liability without any penalties, even if the income was already declared and taxes assessed.

Only a narrow category of taxpayers is not eligible to participate in El Salvador Tax Amnesty Program: the taxpayers already under a criminal investigation initiated by la Dirección General de Impuestos Internos and la Dirección General de Aduanas.

US Taxpayers May Participate in El Salvador Tax Amnesty Program and US Voluntary Disclosure at the Same Time

If you are a US taxpayer who has not declared his Salvadorian income in the United States and El Salvador, you may be eligible to participate in the voluntary disclosure programs of both countries at the same time.

It is important to remember, however, that these voluntary disclosures should be coordinated by your US and Salvadorian lawyers. The main reason for this coordination is a concern that an information disclosed under El Salvador Tax Amnesty Program may be automatically disclosed to the IRS by la Dirección General de Impuestos Internos, leading to an investigation that may prevent you from going through a voluntary disclosure in the United States.