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4th Quarter 2016 Underpayment and Overpayment Interest Rates

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On September 14, 2016, the IRS announced that the 4th Quarter 2016 underpayment and overpayment interest rates will remain the same.  This means that, the 4th quarter 2016 IRS underpayment and overpayment interest rates will be as follows:

four (4) percent for overpayments (two (3) percent in the case of a corporation);
four (4) percent for underpayments;
six (6) percent for large corporate underpayments; and
one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code (IRC), the interest rates are determined on a quarterly basis; for taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The IRS underpayment rates are especially important for US taxpayers who participate in the OVDP or a voluntary disclosure under the Streamlined Domestic Offshore Procedures. This is the case because the IRS underpayment rates are used to calculate the interest charged on any tax due as well as PFIC interest (default Section 1291 PFICs) on any excess distributions.

The IRS interest rates remained at 3% for from the 4th quarter of 2011 through the first quarter of 2016. However, in the second quarter of 2016, the IRS raised the interest rates from 3% to 4% following the increase of the federal short-term rate. The recent 4th Quarter 2016 IRS rates remain the same as in the second and third quarters of 2016. However, the situation may change in the 1st quarter of 2017 if the Federal Reserve raises its rates either in September or December of 2016.

US–Hungary Totalization Agreement Enters Into Force

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On September 1, 2016, the US–Hungary Totalization Agreement entered into force. In this article, I will briefly discuss the main benefits of this Agreement to US and Hungarian nations.

US–Hungary Totalization Agreement: What is a Totalization Agreement?

The Totalization Agreements are authorized by Section 233 of the Social Security Act for the purpose of eliminating the burden of dual social security taxes. In essence, these are social security agreements between two countries that protect the benefit rights of workers who have working careers in both countries and prevent such workers and their employers from paying social security taxes on the same earnings in both countries.

Usually, such a situation arises where a worker from country A works in Country B, but he is covered under the social security systems in both countries. In such cases, without a totalization agreement, the worker has to pay social security taxes to both countries A and B on the same earnings.

US–Hungary Totalization Agreement Background

The US–Hungary Totalization Agreement was signed by the United States and Hungary on February 3, 2015 and entered into force on September 1, 2016. This means that Hungary now joined 25 other countries – Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, South Korea, Spain, Sweden, Switzerland and the United Kingdom – that have similar Totalization Agreements with the United States.

US–Hungary Totalization Agreement: Key Provisions

There are three key provisions of the US–Hungary Totalization Agreement which are relevant to Hungarian and US workers. First, protection of workers’ benefits and prevention of dual taxation. US workers who work in Hungary and are already covered under Hungarian social security system should be exempt from US social security payments, including health insurance (under FICA and SECA only), retirement insurance, survivors and disability insurance contributions. However, US–Hungary Totalization Agreement does not apply to the Medicare; US employees must still make sure that they have adequate medical insurance coverage. Similarly, Hungarian workers who work in the United States and are already covered by the US social security system should be exempt from Hungarian social security taxes.

The second key provision of the US–Hungary Totalization Agreement provides for a Certificate of Coverage. The Certificate can be used by an employee to remain covered under his home country’s social security system for up to 60 months. Additional extensions are possible upon approval by the host country.

Finally, under the US–Hungary Totalization Agreement, workers may qualify for partial US benefits or partial Hungarian benefits based on combined (or “totalized”) work credits from both countries. This means that, where there is insufficient number of periods (or credits in the United States) to claim social security benefits, the periods of contributions in one country can be added to the period of contributions in another country to qualify to these benefits.

Contact Sherayzen Law Office for US Tax Issues Concerning Hungarian Assets and Income

If you have foreign accounts and other assets in Hungary and/or income from these Hungarian assets, contact Sherayzen Law Office for professional help. We have helped hundreds of clients throughout the world, including in Hungary, with their US tax issues and we can help you!

IRS Uses Panama Papers to Identify Noncompliant Taxpayers

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In April of 2016, the IRS acknowledged its participation in meetings with Joint International Tax Shelter Information and Collaboration network (“JITSIC”), International Monetary Fund (IMF) and World Bank to take advantage of the data about more than 200,000 offshore companies identified in the Panama Papers. At the same time, the IRS urged noncompliant U.S. taxpayers to come forward before the IRS finds them.

JITSIC and IMF/World Bank Meetings on Panama Papers

The JITSIC meeting regarding Panama Papers brought together senior tax officials from more than forty countries to discuss, per OECD, “opportunities for obtaining data, co-operation and information-sharing in light of the ‘Panama Papers’ revelations”. The IRS officials said they could not discuss who participated and what, specifically, was discussed. But in its statement to NBC News, the IRS described the meeting as “productive and timely” and said “governments around the world are working together cooperatively” to respond to the information released in the Panama Papers, with JITSIC setting itself up as a coordinator.

The following day, the IRS further discussed Panama Papers in gatherings that were part of the annual IMF and World Bank meetings.

After those meetings regarding Panama papers, bankers and finance ministers from the world’s twenty largest economies warned tax havens about their future efforts to punish governments that continue to hide billions of dollars in offshore accounts. The IRS also encouraged any U.S. citizens and companies that may have money in offshore accounts to do a voluntary disclosure with respect to these accounts.

Panama Papers Increase Pressure on IRS to Move Forward Against Cayman Islands, Singapore, Bermuda and Other Tax Shelters

According to media reports, the Panama papers may contain information on potentially thousands of U.S. citizens and firms that have at least an indirect connection to offshore accounts affiliated with Mossack Fonseca. The Panama papers, however, are not likely to contain any spectacular information with respect to U.S. taxpayers because these taxpayers mostly prefer to use Cayman Islands, Singapore and Bermuda.

Nevertheless, while the Panama papers might not be very informative about the U.S. citizens, these documents have increased the political pressure on the IRS to move forward against other tax shelters. Therefore, we should not be surprised if we see new bold IRS initiatives in Cayman Islands, Singapore and Bermuda.

This means that the U.S. taxpayers who have undisclosed foreign assets in Cayman Islands, Singapore and Bermuda should analyze their voluntary disclosure options before it is too late. After the IRS discovery, most (and, perhaps, all) of their voluntary disclosure options will be foreclosed due to IRS examinations.

Contact Sherayzen Law Office for Professional Help With Your Offshore Voluntary Disclosure

If you own, directly or indirectly (through a domestic or foreign corporation, LLC, partnership or trust) undisclosed foreign accounts, you should contact the professional legal team of Sherayzen Law Office as soon as possible. Our highly-experienced legal team is headed by one of the leading experts in U.S. international tax law, attorney Eugene Sherayzen. We will thoroughly review the facts of your case, analyze your current U.S. tax exposure and available voluntary disclosure options, prepare all of the necessary legal documents and tax forms and defend your case against the IRS until its completion. We have helped U.S. taxpayers around the world and we can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Indian FATCA Letters

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As the FATCA deadline to report Indian preexisting accounts approaches for Indian foreign financial institutions, more and more Indian-Americans and Indians who live and work in the United States receive Indian FATCA Letters (i.e. FATCA letters from Indian foreign financial institutions).

Many U.S. taxpayers of Indian origin are completely unprepared for Indian FATCA Letters and do not understand what they need to do. In this article, I would like to discuss the origin and purpose of Indian FATCA Letters as well as what you should do if you received such a letter.

Indian FATCA Letters

Indian FATCA Letters are the tools used by Indian foreign financial institutions to comply with their FATCA obligations. Since its enaction into law in 2010, the Foreign Account Tax Compliance Act (FATCA) has had a tremendous impact on global tax information exchange, forcing foreign financial institutions from more than 110 jurisdictions to comply with FATCA provisions.

One of the most prominent aspects of FATCA is the fact that it forces foreign financial institutions to report (directly or indirectly) certain information regarding U.S. owners of foreign bank and financial accounts. In essence, foreign financial institutions around the world are now forced to play the role of IRS informants, actively spying and turning over information regarding foreign financial activities of U.S. taxpayers to the IRS.

FATCA is implemented worldwide through a network of bilateral treaties. India signed such a treaty which came into force on August 31, 2015, forcing Indian foreign financial institutions to adopt FATCA-compliant procedures.

Indian FATCA Letters represent this compliance effort by Indian foreign financial institutions. In particular, Indian FATCA Letters are designed to collect various information required by FATCA, such as: the name and address of a U.S. taxpayer, the tax identification number of a U.S. taxpayer, and other information required to determine the U.S. tax status of the accountholder.

Indian FATCA Letters and Undisclosed Indian Bank and Financial Accounts

Indian FATCA Letters may have profound impact on U.S. taxpayers with undisclosed bank and financial accounts in India. First of all, Indian FATCA Letters automatically establish the awareness of U.S. tax requirements on the part of U.S. taxpayers – i.e. after receiving these letters, the taxpayers must take prudent steps to assure current and future U.S. tax compliance if they wish to avoid willful noncompliance with consequent imposition of heavy IRS penalties. This is especially important for taxpayers who receive Indian FATCA letters right before the tax return and FBAR filing deadlines.

Second, Indian FATCA Letters “start the clock” for U.S. taxpayers who wish to do a voluntary disclosure. This is done in two ways – direct and indirect.

The direct impact of Indian FATCA Letters is the FATCA requirement that foreign financial institutions report the required FATCA information to the IRS with respect to their U.S. (or suspected U.S.) accountholders within certain limited period of time. If the taxpayer refuses to answer his Indian FATCA Letters, the financial institutions will report him to the IRS as a “recalcitrant” taxpayer. This, in turn, may lead to a subsequent IRS examination which may deprive the taxpayer of the ability to take advantage of any type of a voluntary disclosure option.

The indirect impact of Indian FATCA Letters is linked to the “knowledge” issue described above – Indian FATCA Letters start the clock for the taxpayers to do their voluntary disclosure. If they do not do it within reasonable period of time (which may differ depending on circumstances), the IRS may proceed based on the assumption that prior noncompliance with U.S. tax requirements by the procrastinating taxpayers was willful.

Contact Sherayzen Law Office if You Received Indian FATCA Letters

If you received one or more Indian FATCA Letters from foreign financial institutions, contact Sherayzen Law Office as soon as possible. Our experienced legal team is led by one of the leading experts in offshore voluntary disclosures in the world – attorney Eugene Sherayzen. He will personally analyze your situation, advise you with respect to your FATCA Letter, and develop your voluntary disclosure strategy. Then, our legal team will implement this strategy, including the preparation of all required tax forms.

Call Us Today to Schedule Your Confidential Consultation!

IRS Increases Interest Rates for the Second Quarter of 2016

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On March 16, 2016, the Internal Revenue Service announced that interest rates have increased for the second quarter of 2016, which began on April 1, 2016 and ends on June 30, 2016. The second quarter of 2016 IRS interest rates will be:

four (4) percent for overpayments [three (3) percent in the case of a corporation];
one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000;
four (4) percent for underpayments; and
six (6) percent for large corporate underpayments.

The increase in the IRS interest rates for the second quarter of 2016 is the first such increase since the fourth calendar quarter of 2010. The second quarter of 2016 interest rates are computed from the federal short-term rate determined during January 2016 and went into effect Feb. 1, 2016, based on daily compounding. The federal short-term rate has increased from 0% to 1%. This is the first change to the interest rates since the fourth calendar quarter of 2010 when the federal short-term rate decreased from 1% to 0%.

Under the Internal Revenue Code, the rate of interest for the second quarter of 2016 is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

It is important to note that the increase in the interest rates for the second quarter of 2016 directly affects the calculation of PFIC interest.