Minnesota Streamlined Disclosure Lawyer | International Tax Attorney

Minnesota has a sizable immigrant community with over 9% of the population foreign-born and another more than 7% of the population that has at least one immigrant parent. The top countries of original for immigrants are: Mexico, Somalia, India, Laos and Ethiopia. Many of these new US taxpayers own assets in foreign countries and receive income generated by these assets. Unfortunately some of these taxpayers are not in compliance with their US international tax obligations and want to participate in Streamlined Domestic Offshore Procedures (SDOP) or Streamlined Foreign Offshore Procedures (SFOP). These individuals often look for a Minnesota streamlined disclosure lawyer for professional help, but they do not understand what this term really means. In this essay, I would like to explain the definition of Minnesota streamlined disclosure lawyer and outline who belongs to this category of lawyers.

Minnesota Streamlined Disclosure Lawyer: International Tax Attorney

From the outset, It is important to understand that all voluntary disclosures, including the Streamlined options, form part of US international tax compliance, because these options deal with US international tax laws concerning foreign assets and foreign income. The knowledge that SDOP and SFOP are part of US international tax law makes you better understand what kind of lawyer you are looking for when you search for a Minnesota streamlined disclosure lawyer. In reality, when you are seeking help with the SDOP and SFOP filings, you are searching for an international tax attorney.

Minnesota Streamlined Disclosure Lawyer: Specialty in Offshore Voluntary Disclosures

As I stated above, SDOP and SFOP form part of a very specific sub-area of offshore voluntary disclosures. This means that not every international tax attorney would be able to conduct the necessary legal analysis required to successfully complete an offshore voluntary disclosure, including Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures. Only a lawyer who has developed expertise in a very narrow sub-field of offshore voluntary disclosures within US international tax law will be fit for this job.

This means that you are looking for an international tax attorney who specializes in offshore voluntary disclosures and who is familiar with the various offshore voluntary disclosure options. Offshore voluntary disclosure options include: 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. Each of these options has it pros and cons, which may have tremendous legal and tax (and, in certain cases, even immigration) implications for your case.

Minnesota Streamlined Disclosure Lawyer: Geographical Location Does Not Matter

While the expertise and experience in offshore voluntary disclosures is highly important in choosing your international tax lawyer, the geographical location (i.e. the city where the lawyer lives and works) does not matter. I already hinted at why this is the case above: offshore voluntary disclosure options were all created by the IRS and form part of US international (i.e. federal) law. In other words, the local law has no connection whatsoever to the SDOP and SFOP.

This means that you are not limited to Minnesota when you are looking for a lawyer who can help you with your streamlined disclosure. Any international tax lawyer who specializes in this field may be able to help you, irrespective of whether this lawyer resides in Minnesota or Minnesota.

Moreover, the development of modern means of communications has pretty much eliminated any communication advantages that a lawyer in Minnesota might have had in the past over the out-of-state lawyers. This has already been established in today’s post-pandemic world which greatly reduced the number of face-to-face meetings.

Sherayzen Law Office Can Be Your Minnesota Streamlined Disclosure Lawyer

Sherayzen Law Office, Ltd. is a highly-experienced international tax Minnesota law firm that specializes in all types of offshore voluntary disclosures, including SDOPSFOPDFSP, DIIRSP, IRS VDP and Reasonable Cause disclosures. Our professional tax team, led by attorney Eugene Sherayzen, has successfully helped our US clients around the globe, including in Minnesota, with the preparation and filing of their Streamlined Domestic Offshore Procedures disclosure. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

IRS Civil Penalties and Voluntary Compliance | US International Tax Lawyer

There has been a spectacular growth in the number of the IRS civil penalties. In 1955, there were about 14 penalties in the entire Internal Revenue Code (“IRC”); on the other hand, today, there are over 150 penalties. The most recent growth in penalties has been driven mostly by offshore compliance concerns and the appearance of new requirements to address these concerns. FATCA Form 8938 is just the most recent example of this trend.

Does this growth in the IRS civil penalties mean that our tax system is shifting its focus from encouraging voluntary compliance to punishing abusive behavior? Let’s explore this issue from a historical perspective and try to answer the question.

The Stated Purpose of the IRS Civil Penalties

The US tax system is based on the taxpayers’ voluntary compliance with US tax laws. As I explained in a previous article, “voluntary compliance” really means the self-assessment of tax and the filing of tax returns by US taxpayers; the actual compliance with US tax laws is compulsory.

In other words, the Congress burdened the taxpayers with all of the hassle and complexity of US tax compliance and it still wants them to do it accurately, timely and in direct opposition to their self-interest of paying the least amount of tax. How can such a system function?

The solution lies in the creation of a system of the IRS civil penalties (a discussion of criminal penalties is outside of the scope of this article). The threat of the imposition of the IRS civil penalties during a random audit is meant to “encourage” voluntary compliance. This is the official purpose of the IRS penalties.

How exactly do the IRS civil penalties encourage voluntary compliance according to Congress? First, the penalties establish the standard of compliant behavior by defining noncompliance. Second, the penalties are meant to define the “remedial consequences” for noncompliant behavior. Finally, the IRS civil penalties impose monetary sanctions against the taxpayers and tax professionals who fail to comply with the aforementioned standard.

IRS Civil Penalties Must be Viewed as Precise and Proportional

Yet, in order to properly function and accomplish their goal of encouraging voluntary compliance, the IRS Civil Penalties must be viewed by the taxpayers as precise and proportional to the fault committed and the harm that resulted from that fault. In other words, the taxpayers must view the IRS Civil Penalties as a deterrence of improper conduct rather than punishing innocent taxpayers. If these penalties are viewed as excessive, the goal of voluntary compliance will be undermined.

Unfortunately, with respect to many IRS Civil Penalties, the taxpayers feel that they are disproportionate and imprecise. This is especially true with respect to international information tax returns, such as FBAR, Form 8938, Form 5471 and so on. The FBAR penalties are especially abhorred by the taxpayers because they apply to even non-willful conduct.
IRS Past Efforts to Change the Taxpayers’ Perspective on the IRS Civil Penalties

The IRS has been trying to battle this impression of unfairness of the IRS civil penalties, though we cannot say that it has been entirely successful in this respect.

Already in February of 1989, the IRS Commissioner’s Executive Task Force issued a “Report on Civil Tax Penalties” which emphasized the complexity and perceived unfairness of the IRS Civil Penalties. This Report remains one of the key documents which has not been substantially modified for past twenty some years.

The report established a philosophy of penalties, provided a statutory analysis of the three broad categories of penalties (filing of returns, payment of tax and accuracy of information), and proposed a list of action items to resolve the inconsistencies between civil penalties.

Among these recommendations, the IRS proposed to:

(1) develop and adopt a single-penalty policy statement emphasizing that civil tax penalties exist for the purpose of encouraging voluntary compliance;

(2) develop a single consolidated handbook on penalties for all employees. The IRS emphasized that the handbook should be sufficiently detailed to serve as a practical everyday guide for most issues of penalty administration and provide clear guidance on computing penalties;

(3) revise existing training programs to ensure consistent administration of penalties in all functions for the purpose of encouraging voluntary compliance;

(4) examine its communications with taxpayers to determine whether these communications do the best possible job of explaining why the penalty was imposed and how to avoid the penalty in the future;

(5) finalize its review and analysis of the quality and clarity of machine-generated letters and notices used in various divisions within the IRS;

(6) consider ways to develop better information concerning the administration and effects of penalties; and

(7) develop a Master File database to provide statistical information regarding the administration of penalties. That IRS envisioned that the information would be continuously reviewed for the purpose of suggesting changes in compliance programs, educational programs, and penalty design and penalty administration.

1989 IMPACT’s Effect on the IRS Civil Penalties

The IRS efforts did not go unnoticed. The Congress responded by enacting the Improved Penalty and Compliance Tax Act (“IMPACT”) as part of its Omnibus Budget Reconciliation Act of 1989.

It appears IMPACT had an overall salutary effect on the IRS civil penalties with respect to domestic activities. However, IMPACT’s role in curbing the perceived unfairness with respect to US international tax penalties has been minimal.

The Restructuring and Reform Act of 1998 Changed the Way the IRS Civil Penalties Are Imposed

At the end of the 1990s, the Congress made one more effort to solidify the image of fairness with respect to the imposition of the IRS civil penalties. The Restructuring and Reform Act of 1998 made a valuable contribution to maintaining the focus on encouraging voluntary compliance by creating the IRC Section 6751(b). IRC Section 6751(b) states that most of the IRS Civil Penalties (other than those automatically calculated by a computer) imposed after June 30, 2001, require a written managerial approval by the immediate manager or higher-level official of the employee who initially proposed the penalty.

The idea behind Section 6751(b) is to bring some restrain in the imposition of penalties by the “trigger-happy” employees. The extra level of review is further meant to promote the image of fairness of process during the imposition of the IRS Civil Penalties.

Conclusion: Encouragement of Voluntary Compliance Remains A Priority in General but the Emphasis on Abusive Transactions Dominates International Tax Law Compliance

Now that we have analyzed the IRS Civil Penalties from a historical perspective, let’s return to the original questions that I posed at the beginning of this article: does the growth in the number of the IRS civil penalties mean that our tax system is shifting its focus from encouraging voluntary compliance to punishing abusive behavior?

Based on the IRS past efforts to improve the taxpayer’s perception of the tax system and civil penalties and the Congress’ effort to encourage voluntary compliance through laws like IMPACT, one can say that, in general, the encouragement of voluntary compliance remains the main purpose of the IRS civil penalties.

There is one area, however, where the application of civil penalties has been driven not by only voluntary compliance considerations, but also by the desire to punish certain modes of behavior. This area is international tax law and, more precisely, abusive offshore transactions.

In fact, it appears more and more that the focus of the current tax policy is on punishing abusive offshore transactions irrespective of how it may affect innocent taxpayers. Since 2001, millions of taxpayers found themselves potentially facing draconian FBAR penalties solely for not reporting their foreign accounts. Thousands of small businesses also face large penalties associated with Forms 5471 and 8865 as well as other US international information return penalties. Finally, FATCA Form 8938 created with a new array of penalties and an added compliance burden to US taxpayers.

The fact that all of these forms may be necessary is not the issue. The problem is that the application of these forms has been indiscriminate almost irrespective of the actual income tax impact and the net worth of the taxpayer. For example, small businesses now have to comply with the burden of US GAAP compliance (normally applied only to publicly-traded companies) on Form 5471 or face severe IRS civil penalties for noncompliance. One non-willfully unreported foreign account which could have produced a few dollars of interest may be subject to a $10,000 FBAR penalty.

Naturally, the disproportionate and imprecise application of the IRS civil penalties in the area of the US international tax compliance has generated a great amount of discontent and resentment among the affected US taxpayers. This is precisely what IMPACT tried to avoid in order to encourage voluntary compliance.

This is why the IRS and Congress should work together to make the application of the IRS civil penalties more precise with respect to who should be paying these penalties and more proportionate to the actual fault (i.e. the damage sustained by the US treasury).

US Airspace and the Definition of the United States | US Tax Lawyers

This article is a continuation of a recent series of articles on the exploration of the definition of the United States. As it was mentioned in a prior article, the general definition of the United States found in IRC § 7701(a)(9) has numerous exceptions throughout the Internal Revenue Code (“IRC”). The US airspace is another example of such exceptions. In this article, I would like to outline some of the ways in which the borders of the United States are defined in the context of the US airspace.

General Tax Definition of the United States Does Not Mention US Airspace

The general tax definition of the United States is found in IRC § 7701(a)(9). According to IRC § 7701(a)(9), the United States is comprised of the 50 states, the District of Columbia and the territorial waters. There is no mention of the US airspace.

This, of course, does not mean that US airspace never constitutes part of the United States. Rather, as I had explained it in a prior article, one needs to look at the specific tax provisions and determine if there is a special definition of the United States that applies to them.

Examples of Various IRC Provisions Including and Excluding US Airspace from the Definition of the United states

Indeed, there is a rich variety of treatment of US airspace that can be found within the IRC. Here, I will just mentioned three examples that demonstrate how differently the IRC provisions define the United States with respect to its airspace.

1. There is an esoteric but important IRC § 965 which deals with the Dividends Received deduction for repatriated corporate earnings. IRS Notice 2005-64 provides foreign tax credit guidance under IRC § 965 and specifically follows the general definition of the United States with the addition of the Continental Shelf. Then, the Notice states: “the term ‘United States’ does not include possessions and territories of the United States or the airspace over the United States and these areas”. Thus, the US airspace is excluded from the tax definition of the United States under IRC § 965.

2. The treatment of the US airspace is the opposite for the purposes of the Foreign Earned Income Exclusion (“FEIE”). Since FEIE allows a taxpayer to exclude only “foreign” earned income, the tax definition of the United States is crucial for this part of the IRC.

In general, the courts have ruled that the airspace over the United States is included within the definition of the United States with respect to IRC § 911. This means that, if you are flying over the United States, you are considered to be within the United States for the purposes of FEIE.

3. When we are dealing with the analysis of whether an individual is a US tax resident under the Substantial Presence Test, we are again back to the same situation as in example 1 – the US airspace is not included in the definition of the United States.

Contact Sherayzen Law Office for Professional Legal and Tax Help

Sherayzen Law Office is a premier international tax law firm that helps individuals and businesses with US tax compliance, including Offshore Voluntary Disclosures. We can help you with any US international tax law issues.

Contact Us Today to Schedule Your Confidential Consultation!

Totalization Agreement with Romania Progresses | Minnesota Tax Lawyer

On October 26, 2016, the Totalization Agreement with Romania entered a new stage – the government of Romania approved for signature a draft social security (also known as “Totalization”) agreement with the United States.

The Totalization Agreements are authorized by Section 233 of the Social Security Act. The United States currently has Totalization Agreements with 26 countries – Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary (the most recent addition), Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, South Korea, Spain, Sweden, Switzerland and the United Kingdom

The purpose of a Totalization Agreement is to eliminate the burden of dual social security taxes. Such situation arise usually in the context of workers from one country working in another country while they are covered by the social security systems in both countries. In such cases, the Totalization Agreement protects the workers from paying social security taxes in both countries on the same earnings.

The Totalization Agreement with Romania is intended to benefit the Romanian workers who work in the United States and US workers who work in Romania. This is why any advance in the progress of the Totalization Agreement with Romania is of high interest to workers and businesses who work in both countries, United States and Romania.

Obviously, there is still a very long road to go for the Totalization Agreement with Romania. First, the Totalization Agreement with Romania has to be finalized (and it seems that this stage has been reached), then signed by both countries and, finally, ratified by both countries. This process, especially ratification, can take years especially if the US Congress and the new President do not see “eye to eye” on this issue. However, the obvious benefits of the Totalization Agreement with Romania should eventually pave the way to its ratification in both countries.

Minneapolis International Tax Attorney: Geography in Retainer Choice

If you were to search “Minneapolis international tax attorney”, Sherayzen Law Office, PLLC (which is based in Minneapolis) is likely to come out on the first page together with other Minneapolis international tax attorneys. The question is: should the geographical proximity of an attorney play a role in the retainer decision?

The answer depends on many factors. On the one extreme, if you are looking for a criminal law attorney in a murder case, then you may not have a choice but to find a local attorney. This is because local law and procedure would govern in this case, and only an attorney admitted to practice before the court of a local jurisdiction should handle the case. Of course, even in this case, there are exceptions because, sometimes, the unique qualities of an outside attorney are so desirable by the client that the court may accede in temporarily admitting this outside lawyer to practice just for one case.

If you are searching for a Minneapolis international tax attorney because you have undeclared offshore assets, then the pendulum swings to other extreme. Here, the knowledge of local law and procedure are likely to be of very little value. Instead, the experience and knowledge of an attorney in his area of practice (i.e. international tax law) will become the overriding factors in retaining an international tax attorney.

If you live in Minneapolis and you find a Minneapolis international tax attorney, then consider two other factors before hiring the attorney. First, international tax attorneys differ in their natural ability to identify problems and find solutions, creativity, advocacy and many other factors. Therefore, have a consultation with your Minneapolis international tax attorney before retaining him.

Second, in addition to differences in personal qualities, the experience of the international tax attorney in the international tax sub-area that you need and the ability to analyze the specific subject matter in the broader context are very important factors in retaining the attorney and should override the attorney’s particular geography.

Of course, the best outcome would be to find the international tax attorney in Minneapolis who you trust and who satisfies both issues above.

Contact Sherayzen Law Office Minneapolis International Tax Attorney for Help With International Tax Issues

If you have any international tax issues with respect to undeclared foreign assets, international tax compliance or international tax planning, contact the experienced international tax firm of Sherayzen Law Office for comprehensive legal and tax help.