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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!

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.