Let me give you another example and this comes in the Voluntary Disclosure context. This time the client was a Canadian Citizen and a Permanent Resident of the United States. He received a Foreign Inheritance; and when I say a Foreign Inheritance, I mean non-Canadian and non-US.
The question really was: Where should he declare himself a Tax Resident? In the United States or …. and I apologize the year in which the inheritance occurred, he was not yet a Permanent Resident; he was just here in the United States. He satisfied the Substantial Presence Test but he was not a US Permanent Resident at that point. So the question was: Where should he be a Tax Resident, in Canada or should he be a Tax Resident in the United States?
He came to a Business Lawyer in New York. The Business Lawyer actually brought in an Accountant from a very large firm. And what they did is they said, ‘Okay’. It’s very interesting because it shows you to some degree the way that a lot of Accountants are thinking. Their primary goal was to avoid US Tax Liability so they declared my client as a Non-Resident of the United States and as a Canadian Resident avoiding all of the taxes which were associated with the income from that Foreign Inheritance.
The problem was that there were sufficient Foreign Tax Credits first of all to offset most of that tax liability; there was some but not much. But in Canada, Foreign Inheritance is actually taxed unlike in the United States where it would have to be only declared, in Canada it would have to be taxed.
Because they were late, they were facing penalties. So they had a Canadian Attorney negotiating some sort of a settlement with Canadian Authorities for (anonymously) five or six years. (My client was only part of that larger family that received that Inheritance).
By thinking very narrowly about only US Tax Liabilities, they exposed the client to a much larger Foreign Tax Liability. In the end, he declared himself a US Tax Resident; we did a Voluntary Disclosure on the Income. He paid some taxes but he paid a set of penalties in Canada and didn’t pay a set of taxes on his Foreign Inheritance in the United States because there is no Foreign Inheritance tax in the United States.
That shows you that you really need, when it comes to International Tax issues, you really need an International Tax Attorney if you want to approach that problem correctly and properly.
http://sherayzenlaw.com/wp-content/uploads/2018/01/sherlawltd_logo.png00adminhttp://sherayzenlaw.com/wp-content/uploads/2018/01/sherlawltd_logo.pngadmin2020-05-01 20:25:432024-07-29 22:27:15International Tax Lawyers Boston | You Need an International Tax Attorney for US International Tax Law
The Foreign Exceptionalism Trap: This is a belief that certain business transactions or events that occur completely outside of the United States do not have any US Tax Consequences for US Persons involved in these transactions.
This is probably one of the most dangerous traps. One of the most common and one of the most dangerous.
It’s very dangerous because it’s completely false. If a US Person is involved in a transaction, there will be US Tax Consequences no matter where the transaction takes place. I want to repeat that: no matter where a transaction takes place there will be US Tax Consequences.
It might be in the form of tax; it might be in the form of the tax reporting but there will be US Tax Consequences. This trap usually occurs when there is a complete and full reliance on Foreign Accountants and Foreign Tax Advisors in general.
It’s usually associated, obviously with the failure to coordinate this entire transaction with a US International Tax Attorney.
I want to share with you an example from my practice: a case which has to do more with Foreign Trusts rather than anything else but it can be equally applicable to a Corporate situation.
My client was a beneficiary of a Foreign Trust (actually several, but that doesn’t really matter because the one we are talking about here is the one where the problem appeared) and that trust in the language, the actual Trust Agreement… let me go back a little bit; the trust was formed in the United Kingdom so all the documents were in English. I received the Trust Agreement from the Trustee and I reviewed the Trust Agreement and in the Trust Agreement, it says that my client is entitled to ‘all income’; so, income has to be distributed every year.
If income has to be distributed every year for US Tax Purposes, it’s a Simple Trust as apposed to a Complex Trust where a client would be entitled to only a partial income or no income and whether the Trustee has a discretion in distributing that income.
In the UK, those Complex Trusts are known as Discretionary Trusts. At first when I looked at it I thought: ‘Okay, income, income, income distribution. Income is income right?’ But then for some reason I started wondering: ‘Income, is it really Income? What does it mean by Income?’ My experience has taught me to doubt everything and I was right to do that because in the United States ‘income’ means all income: Capital Gains and Ordinary Income, Dividends, whatever – all of that is income.
In the United Kingdom, ‘income’ means really Ordinary Income. Capital Gains is a completely different category. So, in reality my initial conclusion that this trust was a Simple Trust was erroneous.
You ask: Why do we care if it’s a Simple Trust or a Complex Trust? The problem is if it’s a Simple Trust then all of the income including Capital Gains are deemed to be Distributed to the client and the client has to pay taxes on that income on his tax return; whereas, if it’s a Complex Trust then we only count the income to which he is entitled as being distributed. So that ordinary income, in that case was Rental Income to the client and the Capital Gains were kept off the tax returns.
So this is a very good illustration of the Linguistic Uniformity Trap: Doubt Everything!
http://sherayzenlaw.com/wp-content/uploads/2018/01/sherlawltd_logo.png00adminhttp://sherayzenlaw.com/wp-content/uploads/2018/01/sherlawltd_logo.pngadmin2020-05-01 19:50:332021-12-28 16:09:37Foreign Trust Lawyer St Paul Minnesota | Example of the Linguistic Uniformity Trap
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International Tax Lawyers Boston | You Need an International Tax Attorney for US International Tax Law
/in International tax attorney & lawyer Video /by adminLet me give you another example and this comes in the Voluntary Disclosure context. This time the client was a Canadian Citizen and a Permanent Resident of the United States. He received a Foreign Inheritance; and when I say a Foreign Inheritance, I mean non-Canadian and non-US.
The question really was: Where should he declare himself a Tax Resident? In the United States or …. and I apologize the year in which the inheritance occurred, he was not yet a Permanent Resident; he was just here in the United States. He satisfied the Substantial Presence Test but he was not a US Permanent Resident at that point. So the question was: Where should he be a Tax Resident, in Canada or should he be a Tax Resident in the United States?
He came to a Business Lawyer in New York. The Business Lawyer actually brought in an Accountant from a very large firm. And what they did is they said, ‘Okay’. It’s very interesting because it shows you to some degree the way that a lot of Accountants are thinking. Their primary goal was to avoid US Tax Liability so they declared my client as a Non-Resident of the United States and as a Canadian Resident avoiding all of the taxes which were associated with the income from that Foreign Inheritance.
The problem was that there were sufficient Foreign Tax Credits first of all to offset most of that tax liability; there was some but not much. But in Canada, Foreign Inheritance is actually taxed unlike in the United States where it would have to be only declared, in Canada it would have to be taxed.
Because they were late, they were facing penalties. So they had a Canadian Attorney negotiating some sort of a settlement with Canadian Authorities for (anonymously) five or six years. (My client was only part of that larger family that received that Inheritance).
By thinking very narrowly about only US Tax Liabilities, they exposed the client to a much larger Foreign Tax Liability. In the end, he declared himself a US Tax Resident; we did a Voluntary Disclosure on the Income. He paid some taxes but he paid a set of penalties in Canada and didn’t pay a set of taxes on his Foreign Inheritance in the United States because there is no Foreign Inheritance tax in the United States.
That shows you that you really need, when it comes to International Tax issues, you really need an International Tax Attorney if you want to approach that problem correctly and properly.
International Tax Lawyers Seattle | Foreign Exceptionalism Trap
/in International tax attorney & lawyer Video /by adminThe Foreign Exceptionalism Trap: This is a belief that certain business transactions or events that occur completely outside of the United States do not have any US Tax Consequences for US Persons involved in these transactions.
This is probably one of the most dangerous traps. One of the most common and one of the most dangerous.
It’s very dangerous because it’s completely false. If a US Person is involved in a transaction, there will be US Tax Consequences no matter where the transaction takes place. I want to repeat that: no matter where a transaction takes place there will be US Tax Consequences.
It might be in the form of tax; it might be in the form of the tax reporting but there will be US Tax Consequences. This trap usually occurs when there is a complete and full reliance on Foreign Accountants and Foreign Tax Advisors in general.
It’s usually associated, obviously with the failure to coordinate this entire transaction with a US International Tax Attorney.
Foreign Trust Lawyer St Paul Minnesota | Example of the Linguistic Uniformity Trap
/in International tax attorney & lawyer Video /by adminI want to share with you an example from my practice: a case which has to do more with Foreign Trusts rather than anything else but it can be equally applicable to a Corporate situation.
My client was a beneficiary of a Foreign Trust (actually several, but that doesn’t really matter because the one we are talking about here is the one where the problem appeared) and that trust in the language, the actual Trust Agreement… let me go back a little bit; the trust was formed in the United Kingdom so all the documents were in English. I received the Trust Agreement from the Trustee and I reviewed the Trust Agreement and in the Trust Agreement, it says that my client is entitled to ‘all income’; so, income has to be distributed every year.
If income has to be distributed every year for US Tax Purposes, it’s a Simple Trust as apposed to a Complex Trust where a client would be entitled to only a partial income or no income and whether the Trustee has a discretion in distributing that income.
In the UK, those Complex Trusts are known as Discretionary Trusts. At first when I looked at it I thought: ‘Okay, income, income, income distribution. Income is income right?’ But then for some reason I started wondering: ‘Income, is it really Income? What does it mean by Income?’ My experience has taught me to doubt everything and I was right to do that because in the United States ‘income’ means all income: Capital Gains and Ordinary Income, Dividends, whatever – all of that is income.
In the United Kingdom, ‘income’ means really Ordinary Income. Capital Gains is a completely different category. So, in reality my initial conclusion that this trust was a Simple Trust was erroneous.
You ask: Why do we care if it’s a Simple Trust or a Complex Trust? The problem is if it’s a Simple Trust then all of the income including Capital Gains are deemed to be Distributed to the client and the client has to pay taxes on that income on his tax return; whereas, if it’s a Complex Trust then we only count the income to which he is entitled as being distributed. So that ordinary income, in that case was Rental Income to the client and the Capital Gains were kept off the tax returns.
So this is a very good illustration of the Linguistic Uniformity Trap: Doubt Everything!