Navigating the Global Tax Landscape in 2024 – Third Quarter Roundup

by Jack Brister | Oct 10, 2024 | Taxes, 2024, Compliance, International, U.S.

Navigating the Global Tax Landscape in 2024 – Third Quarter Roundup

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

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Navigating the Global Tax Landscape in 2024 – Third Quarter Roundup

It’s been a busy year for global tax issues, between the Global Minimum Tax, worldwide calls for a wealth tax, and significant judicial decisions in the United States. Navigating these complex changes requires a keen understanding of the evolving legal and regulatory environment.

OECD Initiatives Move Forward

The year led off with discussions around the Global Minimum Tax, specifically, the continued rollout under Pillar Two of the Base Erosion and Profit Shifting (BEPS) initiative. The GMT, aimed at curbing profit shifting and ensuring a fairer tax regime, is reshaping international tax strategies. Many countries are adjusting their tax laws to comply, aiming to ensure multinational enterprises pay at least a 15% tax rate on profits.

The tax has been agreed to by 140 countries—but not the United States. Japan and South Korea have already enacted domestic Pillar Two legislation, and other countries, including the UK, Switzerland, Ireland, and Germany, have released draft legislation or publicly announced their plans to introduce legislation based on the OECD Model Rules.

The U.S. hasn’t signed on to the initiative yet—and is missing out on tax revenue as other countries opt-in. Though U.S. domestic tax regulations haven’t changed, American companies face potential impacts from the agreement. For example, U.S companies operating in Switzerland may need to pay a 15% tax in Switzerland, regardless of existing U.S. tax structures.

While the U.S.Treasury Department actively participates in discussions and contributes to technical aspects of the implementation, the next resident of the White House will have an impact on what the United States does next. Democratic Presidential candidate Kamala Haris has proposed increasing the corporate tax rate to 28% to boost revenue if she’s elected president, which raises questions about changes to the corporate tax base and the future of the OECD’s global tax deal.

The United Nations Weighs In

G20 leaders are also calling for a global tax on billionaires. And the United Nations is answering the call. As ministers from several countries have suggested a 2% tax for the global fight against poverty, inequality and climate change, the UN General Assembly started negotiations on a new fairer global tax architecture.

In the United Nations Framework Convention on International Tax Cooperation, the international organization seeks a way to better coordinate international tax policy, and to reform what they view as a flawed tax system, riddled with loopholes that permit corporations and wealthy individuals to avoid paying taxes. The convention has already met twice, determining the parameters that will guide the negotiation. Cross-border services were prioritized. The final draft of the parameters will go to a vote at the UN General Assembly near year-end.

U.S. Court Cases Question Wealth Tax Rules

While the rest of the world is looking to increase wealth taxes, pivotal court cases in the United States are setting new precedents that could have far-reaching implications for wealth management and tax planning. Moore v. United States involved whether the government could tax a company’s owners on income that is earned by the company, but that has not actually been distributed to those owners. The Tax Cuts and Jobs Act (TCJA) imposed a one-time tax on certain investors in foreign corporations that could offset lost revenue due to the broader corporate tax cuts contained in the TCJA.

The high court rejected the Moores’ challenge that the tax was a one-time federal tax, and that it did not violate the Constitution because it was a tax on income, which is permitted under the Sixteenth Amendment. The decision affirmed that the government could tax unrealized gains, even if the income had not been distributed to the shareholders, thereby expanding the scope of taxable income and setting a precedent for future taxation of unrealized gains.

While the ruling upheld the government’s ability to impose taxes on income that has not been directly received by the taxpayer, the opinion by Justice Brett Kavanaugh contained information about the ability to impose a wealth tax. In a footnote Kavanaugh says that his opinion does not resolve the question of whether Congress could impose a wealth tax and also suggests that certain wealth taxes could be unconstitutional.

The U.S. Presidential Election: Tax Cuts or Hikes Hang in the Balance

Heading into the end of the year, much attention will be paid to the U.S. presidential election. Besides evaluating each candidate’s tax policies, there is the pressing issue of the expiring tax breaks from the Tax Cuts and Jobs Act, as one estimate shows that over 60% of taxpayers could see higher taxes in 2026 if the provisions are not extended.

The fourth quarter of 2024 promises to be an interesting turn of tax and other financial events, as global policies shift, the U.S. presidential election takes place, foreign wars continue to escalate, and businesses grapple with integrating AI technology and an untethered workforce. Watch this space for breaking U.S and international tax news as it develops.

IWTA Provides Guidance and Know-How

Jack Brister and his capable team know U.S. and international tax statutes inside and out. We’re here for a consultation, an evaluation and as a trusted advisor and accounting partner. Whether you call Detroit, Dublin or Dubai your home, if you have investments, business or residences in the USA, we’re here to help.

Redefining the 16th Amendment: The Impact of the Mandatory Repatriation Tax on Ultra High Net Worth Clients

by Jack Brister | Sep 26, 2023 | Taxes, 2023, International, U.S.

Redefining the 16th Amendment: The Impact of the Mandatory Repatriation Tax on Ultra High Net Worth Clients

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

Redefining the 16th Amendment: The Impact of the Mandatory Repatriation Tax on Ultra High Net Worth Clients

How has a relatively minor tax bill — $14,729 to be exact — turned into one of the most important tax cases for the United States? The matter at hand is whether the United States federal government can tax unrealized gains as income in Moore v. United States (Docket 22–800).

What is the Mandatory Repatriation Tax?

In 2017, the Tax Cuts and Jobs Act (TCJA) was signed into law, introducing the mandatory repatriation tax (MRT), or transition tax, on pre-2018 profits that companies and some U.S. shareholders kept in sheltered accounts abroad. Prior to the Act, U.S. corporations were generally taxed on worldwide income, but foreign income could be deferred indefinitely by retaining earnings through a foreign subsidiary. Through Tax Code Section 95, MRT taxes profits regardless if shareholders receive the income.

Will SCOTUS Reinterpret the 16th Amendment?

The Sixteenth Amendment of the United States declares:

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

The Amendment was ratified in 1913 and granted Congress the authority to institute a graduated income tax on the earnings of American workers and paved the way for the modern income tax system as it is known today. Prior to ratification, the United States collected the majority of revenue from tariff and excise taxes. The 16th Amendment is credited to Senator Norris Brown of Nebraska, who first proposed the idea of a nationwide income tax.

There have been several Supreme Court cases regarding the Amendment, including a 1915 case where the Court declared income tax constitutional.

Taxing Unrealized Gains: Moore v United States

Will Moore v. United States become one of the most important cases in tax history? The case dates back to 2005 when Charles G. and Kathleen F. Moore invested $40,000 in a friend’s firm, KisanKraft, in return for 11% of common shares. KisanKraft, which supplied modern tools to small farmers in India, is more than 50% owned by U.S. persons and is considered a controlled foreign corporation (CFC).

Like many CFCs, KisanKraft has never distributed earnings to shareholders, instead reinvesting all earnings as additional shareholder investments and keeping the funds offshore. Prior to 2017, U.S. citizens would only pay taxes on CFC earnings that were distributed due to the provision in the U.S. tax code called “Subpart F” (26 U.S.C. § 951), which allowed for the taxation of certain types of a U.S. person’s CFC earnings when that U.S. person owned at least 10% of a CFC’s voting stock. U.S. shareholders meeting this ownership threshold could be taxed on their share of specific categories of undistributed CFC earnings, such as dividends, interest, and earnings invested in certain U.S. property.

However, Subpart F did not permit the U.S. government to tax U.S. shareholders on the CFC’s active business income held offshore. In other words, income generated by the CFC’s own business activities was only subject to U.S. taxation when it was repatriated to the U.S. through dividends, loans or investments in U.S. property. This traditional tax system allowed U.S. shareholders to defer U.S. taxation on foreign earnings as long as those earnings remained offshore.

But when then-President Donald Trump signed the Tax Cuts and Jobs Act into law, U.S. corporate taxation changed from a worldwide system, where corporations were generally taxed regardless of where their profits were derived, toward a territorial system, where corporations are generally taxed only on their domestic source profits.

Subpart F was modified by the MRT, and classified earnings derived after1986 as taxable income in 2017, regardless of whether the CFC distributed earnings. After Jan. 1, 2018, a CFC’s income taxable under Subpart F includes current earnings. But the Moores challenged this ruling.

From Farm Tools in India to SCOTUS

In 2018, the Moores learned that due to the MRT, their tax liability for the year 2017 increased by approximately $15,000, based on their pro rata share of KisanKraft’s retained earnings. The Moores paid the tax, but believing that this provision violated their constitutional rights, specifically the 16th Amendment, took the case to District Court.

The District Court ruled in favor of the government and denied the Moores’ cross-motion for summary judgment, determining that the MRT was a tax on income, and although it was retroactive, it did not violate the Fifth Amendment’s Due Process Clause. Following the upholding of the decision by the Appellate Court, the Moores filed a petition for a writ of certiorari on Feb. 21, 2023, which was granted by the Supreme Court on Jun. 26, 2023.

By agreeing to hear the case, the court faces a challenge that goes far beyond the Moores case and could have implications on the entire U.S. tax system.

The Future of Taxes for High Net-Worth Clients

At stake for the U.S. government is billions in revenue. According to the District Court documents, the government estimates the MRT will generate $340 billion in tax revenue for the United States, helping to offset other individual and corporate tax cuts, as well as broader international tax reform in the 2017 TCJA.

But is there more on the line for affluent investors as the Supreme Court interprets whether the 16th Amendment has a realization requirement for income? If the MRT is upheld, it could possibly introduce a variety of new wealth taxes on anything the government deems income. Yet, if the justices consider the tax unconstitutional, the current partnership and international tax treaties — which routinely tax unrealized income — are at stake.

Pre-Hearing Controversy

While Moore v United States is expected to be heard “soon,” there is no shortage of controversy within the high court itself regarding the case. On September 8th, The Hill reported that Justice Samuel Alito refused to recuse himself from the case after sitting for two interviews with an attorney involved in the case. The interviews, appearing in the Wall Street Journal Opinions section, prompted Senate Judiciary Chairman Dick Durbin (D-Ill.) and others to call for Alito’s recusal in the Moore case.

IWTA will continue to keep you abreast of further developments on the Moore v United States case, and advise on how the decisions affect you and your clients’ financial future.

IRS: Partial Penalty Relief Still Available for 2019 and 2020 Returns, But it Depends…

by Jack Brister | Oct 12, 2022 | Taxes, 2022, Compliance, U.S.

IRS: Partial Penalty Relief Still Available for 2019 and 2020 Returns, But it Depends…

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

IRS: Partial Penalty Relief Still Available for 2019 and 2020 Returns, But it Depends…

Amidst the upheaval of the COVID-19 pandemic, some U.S. taxpayers were unable to file their 2019 or 2020 income tax returns within the IRS’ filing deadlines The Internal Revenue Service, in a show of understanding, fully waived penalties for individual taxpayers and businesses who filed certain late returns by September 30, 2022. Although the deadline has recently passed — and the IRS is not extending it — taxpayers who file late 2019 or 2020 returns may nonetheless be eligible for partial penalty relief, according to the IRS. According to the IRS, the agency will calculate failure to file penalties based on an October 1st start date, not the date that a taxpayer’s returns were originally due. This means that taxpayers who missed the September 30th should nonetheless file their delinquent returns as early as possible.

IRS Extends Provisional Grace

On August 24, the IRS announced that it would provide automatic, broad-based penalty relief for taxpayers filing several different kinds of tax and information returns, including Form 1040, U.S. Individual Income Tax Return; Form 1041, U.S. Income Tax Return for Estates and Trusts; and Form 1120, U.S. Corporation Income Tax Return (Notice 2022-36).

The relief also applies to taxpayers filing certain international information returns, including

Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts; Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner (Under section 6048(b)).

The IRS’ relief exempts eligible taxpayers from paying a failure-to-file penalty, which is a 5 percent penalty applied monthly, up to 25 percent of the unpaid tax when a federal income tax return is filed late, according to the IRS.

Importantly, the relief did not apply to situations where a fraudulent return was filed, or where the penalties were part of an accepted offer in compromise, a closing agreement, or were finally determined by a court.

Since the relief is automatic, taxpayers simply had to file their late 2019 or 2020 income tax returns on or before September 30, 2022. Taxpayers who had already paid their penalties received those back in the form of refunds or credits.

Tax Industry Seeks Penalty Forgiveness Extensions

After the IRS made its announcement, some lawmakers and accounting industry stakeholders asked the IRS to extend its deadline.

A group of Republican lawmakers wrote the IRS and requested an extension until mid-to-late November, noting that the five week period between August 24 and September 30 might be insufficient for taxpayers who need to gather information and supporting documents.

The American Institute of CPAs (AICPA) asked the IRS to extend the deadline to December 31, 2022, due to concerns that the timeline would overburden practitioners and might be too short for taxpayers living abroad.

“Given the complex facts often associated with international information reporting and that many affected taxpayers live abroad, the September 30 deadline is unrealistic and will fail to prompt a critical mass of impacted taxpayers to avail themselves of the benefits of the Notice,” said the AICPA.

The AICPA followed up with another letter asking the IRS to extend penalty relief to several international forms, including Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests; Form 8938, Statement of Foreign Financial Assets; and FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)

Partial Penalty Relief Still Available

The IRS declined to extend the filing period or expand relief to the forms listed by the AICPA. In a statement, IRS Commissioner Chuck Rettig said the IRS understood the concerns of taxpayers and practitioners, but needed to keep the September 30 deadline so it can prepare for the upcoming 2023 tax filing season.

However, taxpayers who missed the September 30 deadline may still receive partial penalty relief for the returns listed in Notice 2022-36. In the same statement, the IRS explained that taxpayers who file for the first few months after September 30 will be eligible for partial relief.

According to the IRS, failure to file penalties for eligible returns filed after the deadline will start accruing on October 1, 2022, not the return’s original due date. However, failure to pay penalties and interest will accrue based on the return’s original due date.

Post Sep 30, 2022 Options

Taxpayers who missed the September 30 filing deadline for returns covered by Notice 2022-36 should immediately engage the help of a trusted tax advisor to file their returns as quickly as possible and take advantage of the IRS’ partial penalty relief. For taxpayers whose returns are not listed in the IRS’ notice, options for penalty relief may be more limited; counsel from a tax professional will be necessary to determine the proper course of action.

TIGTA Highlights the IRS’ FATCA Enforcement Woes

by Jack Brister | Jul 13, 2022 | Compliance, 2022, International, Taxes, U.S.

TIGTA Highlights the IRS’ FATCA Enforcement Woes

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

TIGTA Highlights the IRS’ FATCA Enforcement Woes

In the first 12 years of the U.S. Foreign Account Tax Compliance Act, the IRS has spent nearly $600 million on enforcement but has only managed to collect $14 million in penalties in return. This poor performance indicates that the agency strongly needs to revise its enforcement strategy according to a recent audit report by the Treasury Inspector General for Tax Administration.

Initially, the IRS had big compliance plans for FATCA and published a sprawling compliance roadmap addressing several aspects of FATCA. But years of budget constraints and other personnel resource issues led the IRS to shrink those plans to two compliance campaigns, which are handled by the IRS’ Large Business & International division.

The first campaign, Campaign 896, focuses on offshore private banking and U.S. taxpayers who have either underreported or failed to report their foreign assets on Form 8938. According to the IRS, over 330,000 taxpayers with foreign accounts exceeding $50,000 failed to file the form between 2016 and 2019. This means the government could collect at least $3.3 billion in penalties from the group, if each taxpayer pays the minimum FATCA penalty, which is $10,000.

The second campaign, Campaign 975, focuses on the accuracy of taxpayers’ FATCA filings, but the IRS has only been able to review one tax year — 2016 — leaving the agency far behind its goals.

All of this means that the IRS has a lot of work to do in monitoring FATCA and ensuring taxpayers are complying with the law. In an audit report published April 7, the Treasury Inspector General for Tax Administration described some of the IRS’ progress and setbacks with FATCA compliance. TIGTA conducted the audit to evaluate how the IRS has been using the information it gathers under FATCA to improve taxpayer compliance.

The most important takeaway is that the IRS is planning to increase its audits and reviews of U.S. foreign account holders, meaning that taxpayers with such accounts should prepare for increased scrutiny. If they have any unreported accounts, they should also evaluate voluntary disclosure and other options to potentially minimize any penalties from the government.

THE ABCs of FATCA

The U.S. government created FATCA to ensure transparency of U.S. taxpayers’ offshore financial accounts and combat tax evasion. Under the law, taxpayers with a certain threshold of foreign financial assets. must file Form 8938, Statement of Specified Foreign Financial Assets. The thresholds, which start at $50,000 and top out at $600,000, depend on the taxpayer’s marital status and whether they live in the U.S. or abroad. Foreign financial institutions also have reporting obligations. Those with U.S. taxpayer assets are required to share information about those clients’ financial accounts with the IRS. Institutions that fail to do soare subject to a 30 percent withholding rate on their U.S. source payments.

Updating Procedures and Tightening the Reins

The IRS has spent a lot of money on FATCA compliance — over $573 million dollars — yet it has only collected a small fraction of that amount — $14 million — in FATCA penalties. In light of this lackluster performance, TIGTA made six recommendations to the IRS, some of which the IRS said it has already implemented, and others it is currently working on.

The first TIGTA recommendation is that the LB&I (Large Business and International) Division needs to tighten its surveillance of taxpayers who underreport their foreign assets and step up its compliance activity for that group, including levying penalty assessments and conducting examinations on taxpayers who consistently underreport. The IRS said it has already implemented that recommendation. For a list of currently published LB&I campaigns click here.

The second recommendation is that the IRS should establish procedures for identifying taxpayers who fail to file Form 8938 and particularly focus on examinations or penalty assessments for that group. The IRS said it already has a filter that identifies potential non-filers. Importantly for taxpayers, the IRS revealed that it is currently conducting civil and criminal examinations on non-filing taxpayers and is considering penalties in examinations, when they are appropriate.

The third recommendation is that the LB&I Division needs to ensure that foreign financial institutions are also complying with FATCA, and should think about expanding the scope of Campaign 975 to address taxpayers and foreign financial institutions alike. The IRS said it agreed and that Campaign 975 is doing just that. According to the IRS, the agency has already reviewed about 4,000 foreign financial institutions and flagged potential noncompliance by 34 institutions. Although this is a good development, the seemingly small level of noncompliance suggests that the IRS should not devote extensive resources to this, and might be better served by focusing more heavily on individual taxpayers.

But TIGTA and the IRS disagreed over the auditor’s fourth suggestion. The IRS requires foreign financial institutions to include taxpayers’ taxpayer identification numbers on their FATCA report (Form 8966), but between 2017 and 2019 the IRS exempted some institutions, allowing more time to comply with the requirement. TIGTA believes the IRS should now issue a notice to foreign countries that their financial institutions must collect and provide the taxpayer identification numbers of U.S. individuals owning a foreign bank account.

The IRS believes this is not necessary because it issued a notice about this in 2017 (Article 2, Model 1A Reciprocal IGA; Notice 2017-46). TIGTA pushed back on this and wrote that the IRS should not assume that foreign financial institutions are aware of the 2017 notice and know what to do. They pointed out that less than half of the Form 8966s filed between tax years 2016 and 2019 had a valid TIN. The majority had an invalid TIN or completely lacked one. If the IRS does implement TIGTA’s recommendation, this could bring greater transparency to the agency’s investigations and compliance campaigns.

The fifth recommendation is that the IRS should establish goals, milestones, and timelines for FATCA campaigns in order to determine whether the campaigns are effective in meeting their objectives and affecting tax compliance. The IRS agreed with this and pledged to refine their metrics with respect to goals, milestones, and timelines.

Lastly, TIGTA recommended that the IRS should create an information sharing program that would allow the agency’s Small Business/Self-Employed division to access FATCA data and use it for examinations and collection actions. The IRS said it has implemented that recommendation.

A Tighter Leash for FATCA Compliance

The fact that the IRS already has implemented some of TIGTA’s recommendations demonstrates the agency’s seriousness about FATCA and ensuring that taxpayers and foreign financial institutions comply with the law. TIGTA’s report shows that the IRS’ FATCA issues are two-fold: first, the agency needs additional resources to oversee FATCA, but it also needs to better allocate the resources it does have. Considering that the Biden administration recently increased the IRS’ budget, a tighter leash for FATCA laggards and new FATCA-related compliance campaigns could be right around the corner.

The Cost of Non-Compliance With IRS Form 926

by Jack Brister | Jul 8, 2022 | Compliance, 2022, International, Taxes, U.S.

The Cost of Non-Compliance With IRS Form 926

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

The Cost of Non-Compliance With IRS Form 926

The 16th amendment of the U.S. Constitution empowers Congress to collect taxes from U.S. persons from whatever source, with no limitations on the collections of taxes or worldwide income. All United States tax laws and regulations apply to every U.S. Person whether he/she is working in the United States or in a foreign country and entities formed under U.S. law. The IRS takes this opportunity increasingly seriously, and taxpayers need to do the same.

IRS Form 926 is the form U.S. citizens and entities including estates and trusts must file to report certain exchanges or transfers of property to a foreign corporation. This would include transfers of cash over $100,000 to a foreign corporation, or situations in which the transfer of cash resulted in owning more than 10% of the foreign corporation’s stock. This reporting requirement applies to outbound transfers of both tangible and intangible property.

The primary purpose of Form 926 is to ensure that taxable gain is recognized and tax is paid. The reason for the complexity is the attempt of U.S. tax law to formalize distinction between legitimate business operations outside the U.S. and transactions considered to avoid tax.

It is also designed to equalize the taxation between transactions within the U.S. and outside the U.S. In that way there are no significant advantages to transactions and operations outside the U.S..

Form 926 must be complete, accurate, and filed with the taxpayer’s income tax return by the due date of the return (including extensions).

Penalties are Severe and Limitless

In an attempt to prevent taxpayers from hiding assets offshore or earning unreported income overseas, the IRS has recently begun increasingly aggressive enforcement of cross-border corporate reorganizations, divisions, and liquidations.

The rules surrounding Form 926 are extremely complex, therefore, correct filing of the form requires a high level of scrutiny. There are literally dozens of stipulations and technical details that must be followed.

The failure to file, fully meet the filing requirements, or misrepresentation of assets can result in the levying of substantial penalties. For example, the statute of limitations doesn’t end until three years after the date Form 926 is filed. However, if the form was never filed to begin with, the statute of limitations clock hasn’t started yet. This means the IRS could assess a penalty at any time, even 20 years after the missed mandatory deadline.

Returns that are filed but that are not substantially complete and accurate are considered “un-filed” and may result in penalty assessments. Criminal penalties may apply to U.S. and foreign taxpayers who willfully fail to file a return (IRC 7203) or file a false or fraudulent return (IRC 7206 and IRC 7207).

Certain international information returns are also considered un-filed if the taxpayer does not provide required information when requested by the IRS, and penalties may be assessed even if the required return has been submitted.

If a taxpayer under-reports on Form 926 and that leads to a tax underpayment, they can receive a 40% penalty. Sometimes a tax penalty may be avoided if the filer can show that the misrepresentation was due to reasonable cause and they acted in good faith – but don’t count on it.

IRS: Ignorance of the Requirements is No Excuse

The IRS maintains that taxpayers who conduct business or transactions offshore or in foreign countries have a responsibility to exercise ordinary business care and prudence in determining their filing obligations and other requirements. The IRS’s position is that lack of information or misinformation is not grounds for dismissal of taxes and penalties; therefore, it’s incumbent on the individual taxpayer or entity to learn and comply with the rules related to Form 926. Engaging the services of a qualified tax consultant-CPA and law firm specializing in international tax and business transactions will ensure compliance is met.

For more information on U.S. tax rules as they apply to U.S. taxpayers that are foreign investors or hold foreign assets, refer to the following articles on the International Wealth Tax Advisors website:

Foreign Asset and FBAR Reporting

Foreign Trusts, Estates and Gift Tax

Foreign Assets and Foreign Trusts

IWTA Answers to Foreign Trust FAQs

IRS Voluntary Disclosure

GILTI Tax and Controlled Foreign Corporations

FATCA Filing: What U.S. Citizens Need to Know

Frozen: How the Revocation of the U.S. – Russia Tax Treaty Puts Global Trade on Thin Ice

by Jack Brister | May 18, 2022 | 2022, International, Taxes, U.S.

Frozen: How the Revocation of the U.S. – Russia Tax Treaty Puts Global Trade on Thin Ice

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

Updated: May 18, 2022

We continue to monitor the U.S.-Russia tax treaty withdrawal along with economic and trade sanctions. It’s a constantly developing situation that profoundly affects global business and cross-border tax collection. Following is an update to IWTA founder Jack Brister’s article published in JD Supra on March 18, 2022.

New Developments

The Biden administration is poised to fully block Russia’s ability to pay U.S. bondholders. A temporary exemption deadline that gave Moscow leeway to pay coupons in dollars expires on May 25, 2022. The move could bring Moscow closer to the brink of default, Treasury sources told Bloomberg.

Tax Treaty Revocation in Action

The U.S. government had already been putting pressure on Russia. On April 5th the Treasury Department told multiple news outlets that it had suspended its tax information exchanges with Russia. That decision essentially blocks Russian authorities from obtaining tax information from the U.S. that would help their domestic collections, which could be a strong economic blow to the country.

Frozen: How the Revocation of the U.S. – Russia Tax Treaty Puts Global Trade on Thin Ice

Originally published on March 18, 2022 on JDSupra.

Permanent Normal Trade Relations (PNTR), commonly known as a nation’s most favored (MFN) status has been used in trade treaties for years. Using the MFN clause requires that a country that provides a trade concession to one trading partner must extend the same treatment to all of its partners. Used by the World Trade Organization the loss of this status can expose a country to discriminatory import tariffs.

Through the MFN status, the 164 members in the World Trade Organization treat each other equally, benefitting from highest import quotas, lowest tariffs and fewest trade barriers for goods and services. Members are allowed to impose whatever trade measures they wish on non- members, within reason. In addition, Biden announced that the G7 was seeking to ban Russia’s borrowing from the IMF and the World Bank. By revoking Russia’s MFN status, the United States and its allies send a strong signal that they no longer consider Russia an economic partner.

But the losses will go farther than Russia. The resulting tariffs will also raise costs for Americans and trading partners that may rely on affected Russian products. The United States is somewhat reliant on commodities exported from Russia, including fertilizers and base metals and the specific import restrictions will determine the impact of the sanctions.

What Are the Tax Implications of a Revoked U.S. – Russia Tax Treaty?

In tax treaties, the MFN clause promotes non-discrimination and parity for treaty partner countries. The main purpose of a tax treaty is to ensure proper tax treatment of monies earned by citizens, expats and residents of each other’s country. At present, the tax treaty between the United States and Russia is still in place, however, the US Senate Foreign Relations Committee has proposed a review of the US-Russia tax treaty.

Without the treaty, Russian investors with U.S.-sourced dividends would not only face a 30% withholding tax rate, they would also lose preferential treatment. The impact could be as great for American businesses in Russia as it is for Russian businesses. However, the ability to have offshore holdings in haven jurisdictions as well as the option of using cryptocurrencies for transactions, revocation of the tax treaty may not be as effective as it looks on paper..

Proposed tax changes aimed at penalizing the Russian government and Russians subject to sanctions who own U.S. assets is also in play. The plan, by Senate Finance Committee Chairman Ron Wyden (D., Ore.), would look to remove foreign-tax credits and certain deductions for U.S. companies earning income in Russia and Belarus.

We advise clients with business and investment ties to Russia to keep in touch as we continue to monitor the breaking developments in this unprecedented time of turmoil.

International Tax in 2022: The Year of Disclosure and Investment

by Jack Brister | Jan 19, 2022 | 2022, Covid-19, International, Taxes, U.S.

International Tax in 2022: The Year of Disclosure and Investment

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

International Tax in 2022:

The Year of Disclosure and Investment

For taxing authorities around the world, monitoring taxpayer disclosures and transparency will be a top line item in 2022, meaning taxpayers — especially high-net-worth individuals and corporate entities — should expect more scrutiny into their affairs. Governments are in a unique position as they navigate multiple demands and pressures. On one hand, the revenue demands of the COVID-19 economic recovery require creative strategizing, and lawmakers around the world are eyeing tax as a main driver. Increased public scrutiny on high-net-worth individuals due to data leaks like the Panama Papers and Pandora Papers is also placing more pressure on lawmakers to hold tax evaders to account. Throw in long simmering concerns about tax fraud, international money laundering and corruption, and it is apparent that taxing authorities will be focusing on how they can obtain more taxpayer information. At the same time, countries are also competing for foreign investment as part of their pandemic recovery strategy, and tax incentives for foreign investors will be a key area to watch in 2022.

New Rules: The U.S. Corporate Transparency Act

In the United States, Democratic and Republican lawmakers alike are concerned that the country’s millions of anonymous shell companies are enabling corruption, tax fraud, and money laundering. Those concerns drove Congress in January 2021 to enact a wide-sweeping beneficial ownership reporting law, the Corporate Transparency Act, which is one of the largest transparency-related laws in recent memory. The CTA was included in the National Defense Authorization Act for Fiscal Year 2021. In 2022, Treasury’s Financial Crimes Enforcement Network (FinCEN) will release three sets of implementing rules for the CTA that will impact millions of U.S. corporations, limited liability companies, and similar entities. Over the next few months, taxpayers will need to keep abreast of the rules as they are released by FinCEN and potentially participate in FinCEN’s regulatory notice and comment process as the office attempts to address several open issues within the law.

The CTA requires domestic and foreign “reporting companies” to send to FinCEN the names, addresses, dates of birth, and driver’s licenses or other identification numbers of their beneficial owners who have substantial control. But what is a reporting company? Or a beneficial owner? What does substantial control mean for purposes of the CTA? The first tranche of proposed FinCEN rules, which were published December 8, 2021, to provide some guidance.

The CTA applies to corporations, LLCs, and “other similar entities” and although the law doesn’t define “other similar entities” the December 8 proposed rules offer some insight.

A foreign reporting company is any entity formed under foreign law that is registered to do business within the United States. A domestic reporting company is any entity created by the filing of a document with a secretary of state or filed with a similar office within a U.S. jurisdiction, like a state.

In the proposed regulations, FinCEN wrote that the proposed definition of domestic reporting company “would likely include limited liability partnerships, limited liability companies, business trusts (aka statutory trusts or Massachusetts trusts) and most limited partnerships, in addition to corporations and limited liability companies,” because they typically are created by a filing with a secretary of state or similar office.

That definition will capture a lot of entities – there are about 30 million in the U.S. according to FinCEN’s estimation. Another 3 million are created annually. FinCEN said it does not plan to include any other legal forms other than corporations and LLCs within the definition, noting that U.S. state and tribal laws differ on whether other types of trusts and business forms like general partnerships are created by a filing.

There also are several exemptions, as the CTA exempts 23 different kinds of entities under 31 U.S.C. 5336(a)(11)(B)(i)-(xxiii). For example, FinCEN’s proposed regulations clarify that under the large company exemption, any domestic company or foreign entity that is registered to do business in the U.S. is exempt from the CTA’s reporting requirements if it meets the following hallmarks: (1) Over 20 full-time U.S.-based employees; (2) more than $5 million in gross receipts or sales from sources inside the U.S., as reflected on a U.S. federal income tax or information return; and (3) operates a physical office in the U.S.

The next question is, who is a beneficial owner with substantial control? The CTA defines a beneficial owner as “any individual who meets at least one of two criteria: (1) exercising substantial control over the reporting company; or (2) owning or controlling at least 25 percent of the ownership interest of the reporting company.” Under the CTA, substantial control is defined as: (1) service as a senior officer of a reporting company; (2) authority over the appointment or removal of any senior officer or dominant majority of the board of directors (or similar body) of a reporting company; and (3) direction, determination, or decision of, or substantial influence over, important matters of a reporting company.

Beyond that, the proposed regulations say that determining an ownership interest is a facts and circumstances inquiry that evaluates criteria such as: (1) equity in the reporting company and other types of interests, like capital or profit interests (including partnership interests), or convertible instruments; (2) warrants or rights; or (3) other options or privileges to acquire equity, capital, or other interests in a reporting company.

The stakes – and potential penalties – are high. Taxpayers that willfully fail to share beneficial ownership information with FinCEN face civil penalties of up to $500 per day. Criminal penalties can hit $10,000 per violation. Based on this, and the broad sweeping nature of the CTA, taxpayers who meet the criteria for domestic or foreign reporting companies or want to know if they are exempt, will want to explore their options with an experienced international tax professional.

High Net Worth Individuals: Wealth Tax VS Enforcement

Globally, wealth taxation has commanded quite a bit of attention as governments strategize ways to raise revenue in light of the COVID-19 pandemic. Some countries have been more active than others. For example, Singaporean lawmakers are considering a graduated net wealth tax between 0.5 and 2 percent imposed on individual net worth exceeding SGD 10 million (about $7.4 million). Norway’s Parliament at the end of 2021 passed a bill to increase the country’s wealth tax base rate from 0.85 percent to 0.95 percent. Taxpayers whose assets exceed NOK 20 million will be assessed at a 1.1 percent rate.

Meanwhile, in the U.S. and much of Europe, wealth taxes have failed to gain much traction. What has proven popular is an increased focus on tax enforcement. President Joe Biden placed tax enforcement as a cornerstone of his Build Back Better economic strategy, and he wants to increase the IRS’ funding by $80 billion. For over a decade significant budget cuts have eroded IRS enforcement capabilities and cost the government billions of dollars in uncollected taxes. The IRS funding plan, which is part of Biden’s now- stalled Build Back Better social spending bill, would give the IRS $80 billion over 10 years to ramp up its enforcement and investigative work, particularly on audits of corporations and wealthy taxpayers. See our recent article on Build Back Better.

In the United Kingdom, HM Revenue & Customs has increased its investigations into criminal and tax offenders, and that work has recovered over £1 billion over the past five years. HMRC plans to continue that work in 2022, and specifically plans to rely more heavily on its powers to freeze and recover unexplained assets. Judging by the department’s prior activity, that could be quite a bit of activity: between 2020 and 2021, HMRC issued 151 account freezing orders, covering over £26 million in assets.

In 2021, Spain decided to investigate high net worth individuals who move their tax domicile abroad to determine whether or not they are doing so fraudulently, and that activity will continue in 2022. The same is true in China. In late 2021, China’s State Tax Administration announced that it would launch investigations into high net worth individuals suspected of engaging in tax evasion. Developments like these suggest that high net worth individuals should prepare for increased scrutiny into their tax affairs and engage the help of a professional to prepare for potential inquiries.

For how this ties-in to the new treatment of GILTI tax rules, see our related articles, The Biden Administration is Homing in on GILTI.

Global Tax Incentives for Investors

On the other hand, governments are keen to attract foreign investors with various tax credits and incentives, and individuals taking stock of these opportunities have a wide menu to peruse.

For example, Canada recently enacted an investment tax credit for capital invested in carbon capture, utilization, and storage projects, which can be claimed starting in 2022. Malaysia’s National Economic Recovery Plan contains a host of tax incentives for foreign businesses, including reduced corporate tax rates for companies that want to create a principal hub in Malaysia. China decided to offer an important tax exemption to foreign investors investing in China’s mainland bond market. Effective November 7, 2021 through December 31, 2025, foreign institutional investors are exempted from paying corporate income tax and value-added tax on bond interest gains generated by investments in the Chinese mainland bond market, according to the country’s Ministry of Finance and State Administration of Taxation. Poland’s Ministry of Finance is also assessing the country’s suite of tax incentives and whether they need an overhaul, in order to attract more investors to Poland. Accordingly, the Ministry has commissioned a study and results should be released in the next few months.

Prepare Now

In summary, foreign and domestic business entities, high net worth individuals and cross-border taxpayers will have to navigate an increasingly sophisticated terrain in the coming year and should be prepared to defend their current tax activity or take advantage of new taxing incentives as they appear. Legislative uncertainty only adds to the urgency. Given the breadth and depth of these new and anticipated changes, taxpayers are strongly advised to enlist the help of an experienced international tax practitioner to develop a game plan, mitigate loss, and stay ahead of global tax changes.

Three Key Tax Implications of the Biden Administration’s New Infrastructure Bill

by Jack Brister | Nov 16, 2021 | Taxes, 2021, U.S.

Three Key Tax Implications of the Biden Administration’s New Infrastructure Bill

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

Tax Implications of the Biden Administration’s New Infrastructure Bill

Part One

The long-awaited infrastructure proposal was approved by Congress late last week and has been signed into law by President Joe Biden. As part of the President’s mission to “build back better,” the proposal is a considerable investment in the country’s infrastructure.

And while not as large as once envisioned — originally, it was $3.5 trillion — it is still a substantial amount at $1.2 trillion. Funding for the Infrastructure Bill will come from a few sources.

Following are some of the tax changes that will impact businesses and investors.

Early Expiration of the Employee Retention Tax Credit

Established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, the Employee Retention Tax Credit, or ERC, provided relief to business owners. The intention was to help businesses retain their workforces and avoid layoffs. While the ERC was supposed to end at the end of 2021, once President Biden signs the Infrastructure Bill, the provision will end on September 30, 2021.

The ERC allowed a per-employee refundable quarterly tax credit to eligible businesses based on a percentage of qualified wages and health insurance benefits. Not every business was eligible for the ERC — employers had to have shown a significant decline in gross receipts.

The ERC will be considered terminated effective October 1, 2021, except for recovery startup businesses. It remains unknown whether employers who would have qualified for the fourth quarter credit and reduced their payroll tax deposits prior to the passage of the bill, will face late deposit penalties for the short-fall of the payroll taxes deposited.

Targeting the Cryptocurrency Industry

While the ERC amendment simply moved back an already expiring provision by three months, rules for reporting on cryptocurrency transactions are more substantial — including treating failure to report as a felony.

The provisions state that any person who regularly executes transfers of digital assets — including bitcoin, ether and NFTs — needs to report those transactions to the IRS, as well as reporting any digital asset transaction over $10,000. The rule is similar to the mandates that exist for stock and bond trades today.

Crypto fans fear the new rules will require everyday users, developers, and cryptocurrency miners to report information they may be unaware of, thus finding themselves positioned for potential felony convictions and five-year prison terms.

Under the new law, the definition of a broker will be expanded to include those who operate trading platforms for cryptocurrency and other digital assets. In addition, brokers will be subject to new reporting requirements for purchases, sales, transfers and transactions involving cryptocurrency. Transfers between self-custody wallets and crypto exchanges would need to be reported by the exchange, and could lead to an incorrect cost base.

The bill will require the IRS to define a “broker” of digital assets and what are “digital assets,” and both have yet to be defined. This part of the bill is expected to be fought in Congress and the Courts before it takes effect in January 2024.

Pension Smoothing

Pension smoothing provides flexibility in funding pension obligations to sponsor defined benefit plans. The infrastructure bill adjusts the funding stabilization percentages that were included in the American Rescue Plan Act enacted in March, and extends the interest rate stabilization period from 2029 to 2034.

International and domestic tax are in a period of dynamic change, as how and where we conduct business and what we define as currency is evolving at a rapid pace.

We look forward to keeping our readers and clients up-to-date with timely information for strategic planning.

IRS Introduces Tax Relief Measures for Those Impacted by Covid-19

by IWTA | Nov 24, 2020 | Covid-19, 2020, Taxes, U.S.

IRS Introduces Tax Relief Measures for Those Impacted by Covid-19

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

IWTA Breaking Tax News: November 2, 2020

IRS Introduces Tax Relief Measures for Those Impacted by Covid-19

On November 2, 2020 the Internal Revenue Service announced changes designed to de-stress taxpayers filing late 2019 returns, and those that have fallen behind on previously-negotiated installment agreements or otherwise struggling to pay balances owed.

In short, any taxpayer struggling financially due to the pandemic can take comfort in and advantage of the second phase of tax relief, or what the IRS calls its “People First” initiative. These tax relief measures apply to small business owners too, who have been hurt badly by the pandemic-induced economic slowdown. Many taxpayers requesting payment plans, including Installment Agreements, may apply online, using IRS.gov without ever having to talk to a representative.

Darren Guillot, the IRS Small Business/Self-Employed Deputy Commissioner for Collection and Operations Support, discussed the just-announced tax relief options in a new edition of the IRS blog, “A Closer Look.”

In addition to setting up payment plans and payment agreements, the IRS is offering expanded tax relief services in the following areas:

Temporarily Delaying CollectionIf the IRS determines the taxpayer is unable to pay, they may qualify.
Offer in CompromiseFor some taxpayers who are temporarily unable to meet the payment terms of an accepted offer in compromise, the IRS is offering more flexible arrangements.
Relief from PenaltiesThe IRS is offering reasonable cause assistance and first-time penalty abatement relief.

Specific tax relief options highlighted by the IRS are listed below. Note: these options are listed exactly as they appear on the IRS website:

Taxpayers who qualify for a short-term payment plan option may now have up to 180 days to resolve their tax liabilities instead of 120 days.
The IRS is offering flexibility for some taxpayers who are temporarily unable to meet the payment terms of an accepted Offer in Compromise.
The IRS will automatically add certain new tax balances to existing Installment Agreements, for individual and out of business taxpayers. This taxpayer-friendly approach will occur instead of defaulting the agreement, which can complicate matters for those trying to pay their taxes.
To reduce burden, certain qualified individual taxpayers who owe less than $250,000 may set up Installment Agreements without providing a financial statement or substantiation if their monthly payment proposal is sufficient.
Some individual taxpayers who only owe for the 2019 tax year and who owe less than $250,000 may qualify to set up an Installment Agreement without a notice of federal tax lien filed by the IRS.

Additionally, qualified taxpayers with existing Direct Debit Installment Agreements may now be able to use the Online Payment Agreement system to propose lower monthly payment amounts and change their payment due dates.

Disaster Tax Relief for Victims of Hurricanes and Wildfires

2020 has wrought a torrent of disasters down on the people of the USA. In addition to the devastating loss of life and livelihood due to Covid-19, many Americans on the West Coast have suffered all matter of damage to life and limb, business and property due to raging wildfires. Southern and mid-Atlantic states have suffered devastation due to a sequential series of hurricanes. Puerto Rico experienced an earthquake.

The IRS recognizes that tax relief is needed for the victims of 2020 natural disasters. Use this page to access a complete listing of disaster tax relief by state and type. Many have been extended beyond the initial cutoff dates.

If you find yourself or your business in need of help in navigating the new tax relief measures, what you may qualify for, and expertise in negotiating with the IRS, don’t hesitate to contact us. Check the IWTA list of specialized services in cross-border tax, foreign trusts tax consulting, foreign investment tax issues, etc., for more ways we can help.

Are You FIRPTA Compliant? IRS Targets Foreign Holders of U.S. Real Estate

by IWTA | Oct 26, 2020 | Taxes, 2020, Business Investments, Compliance, International, Real Estate, U.S.

Are You FIRPTA Compliant? IRS Targets Foreign Holders of U.S. Real Estate

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

The IRS is Targeting Foreigners Selling U.S. Real Estate Interests

Individuals, investors, families and businesses have all found it necessary to pivot to a greater or lesser extent in light of the 2020 pandemic and ensuing economic crises. The IRS is no different.

Given its current limitations in conducting larger-scale audits, the IRS has determined that its best play is to focus on “issue-based” non-compliance. In other words: catch bigger fish in the leaky loophole nets of the tax law. There is much anecdotal evidence within international tax circles to know that FIRTPA is an area teeming with reporting and compliance errors—not just by foreign investors, but also by U.S. withholding agents. Thus, the campaign is underway.

Who or What is Subject to FIRTPA?

The U.S. Congress designed the Foreign Investment in Real Property Tax Act (FIRPTA) to collect tax on the sale of a U.S. property by a foreign person or business entity in order to ensure that foreign persons and entities paid tax on their U.S. source (situated) income (i.e., extract a type of capital gains tax that would normally not apply).

The U.S. Congress determined that the sale of a defined interest in U.S. real property (USRPI) is the same as receiving income from a U.S. trade or business, and therefore becomes a taxable capital gain. A USRPI can apply to many investments besides a direct ownership interest in U.S. real estate, so foreign investors that think they are in the clear from FIRTPA compliance could be in for a big surprise.

To get a better and more thorough understanding of who and what is subject to FIRTPA and how it applies to property-related investments, please see the IWTA Services page on U.S. Real Estate and Foreign Investments.

Our section entitled “Navigating Real Estate Structures for Non-Resident Aliens” on our Tax Planning for Non-Resident Aliens services page also has some useful FIRPTA pointers.

What you Need to Know Now

On October 5^th 2020, the IRS Large Business & International Division (LB&I) issued a notice regarding their resumption of an enforcement campaign to target NRAs receiving rental income from USRPIs. Nonresident alien (NRA) and other non-US taxpayer rental property owners can be subject to a 30% withholding tax on the gross amount of collected rental income unless they elect to categorize the income as effectively connected with US trade or business activities.

The LB&I’s previous announcement on Sept 14, 2020 announced their campaign to aggressively enforce tax withholding and reporting obligations of foreign investors, including foreign trusts, of U.S. real property and property interests.

According to a report by Statista, foreign property investment by foreign nationals is a major source of investment in the United States. Property sales to foreign buyers totaled a whopping 78 billion dollars in 2019.

“In recent years, the largest share of foreign residential buyers originated from China and Canada, followed by Mexico. Foreign buyers of U.S. real estate prefer properties in suburban areas to properties in small towns and central areas of major cities,” says Statista.

Is it any wonder that the IRS is putting some firepower behind FIRPTA enforcement?

Forewarned is forearmed. The international cross-border tax experts at IWTA will gird you, your family, your trust, or business against the coming FIRTPA onslaught and help you emerge in good financial shape.

Contact us here to set up a consultation.

Additional IWTA Articles on FIRPTA:

https://iwtas.com/top-tips-for-international-tax-clients-during-the-covid-19-crisis/

Any questions or comments on this article? We’d love to hear them! Email us

IRS Cuts FDII and GILTI Some Slack

by Jack Brister | Aug 21, 2020 | Taxes, 2020, International, U.S.

IRS Cuts FDII and GILTI Some Slack

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

A new “flexible approach” addresses concerns about documentation and unnatural adjustments to accepted business practices.

Last month, on July 9, to be exact, the U.S. Treasury Department and the IRS officially rolled out final regulations under IRS tax code Section 250, providing updated guidance on the deduction for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI).

The final regulations (T.D. 9901, 85 Fed. Reg. 43042) were published in the Federal Register on July 15, 2020. Generally speaking, the revised regulations reduce certain documentation requirements and provide greater flexibility and further clarifications in areas such as the taxable income limitation.

Because the final regulations do not apply until 2021, clients and their tax preparation providers have additional time to implement new policies and procedures. That being said, the new regulations come with new rules — to advertising services and electronically supplied services, for example, these new rules will undoubtedly result in new issues and questions for those businesses and individuals impacted by GILTI and FDII.

The IRS’ new and more flexible stance is a result of concerns raised that documentation requirements of the previously proposed regulations could mandate major and unreasonable changes to already-established business processes, potentially damaging customer relationships, and thus, business in general.

Despite the relaxation of some rules, transactional categories such as: general property sales to resellers and manufacturers, sales of intangible property, and the performance of general services to business recipients are still subject to specific substantiation requirements which may require a business to make contractual changes and/or elicit additional information from customers in order to do busines

Further Information on GILTI, FDII and the Tax Code Section 250

“Elevator Explanation” of FDII

IRS Section 250(a)(1)(A) permits a domestic corporation to take a deduction equal to 37.5 percent of its FDII. In broad terms, a domestic corporation’s FDII is considered to be the amount of its intangible income from sales, lease, or licensing of property to persons located outside of the U.S., OR from services provided to persons located outside of the U.S. Export sales would be one example.

“Elevator Explanation” of GILTI

GILTI is a new category of income specifically designated for U.S. taxpayers that own a controlled foreign corporation (CFC). In general terms, all income of a CFC amounting to more than 10 percent return on a CFC’s basis in tangible depreciable property, with a few exceptions, is GILTI. The GILTI provisions commenced for CFC’s tax years after Dec. 31, 2017. The proposed regulations on computation of GILTI income were published on Oct. 10, 2018 in the Federal Register.

Need help navigating the new FIIDI and GILTI regulations and how they apply to your tax responsibilities? Contact us to set up a Zoom meeting or a phone call, or email us for more information.

Other Publications with Information and Summaries on IRS Tax Code 250

Further resources from the International Wealth Tax Advisors Web Site

https://iwtas.com/gilti-tax-and-foreign-trust-corps/

https://iwtas.com/services/real-estate-and-foreign-investment/

https://iwtas.com/services/nra-tax-planning/

Finally- All the Most Frequently Asked Questions About Foreign Trusts in One Place!

by IWTA | Jul 14, 2020 | FAQ, 2020, International, Taxes, U.S.

Finally- All the Most Frequently Asked Questions About Foreign Trusts in One Place!

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

Finally- All the Most Frequently Asked Questions About Foreign Trusts in One Place!

BONUS: A Handy Yes/No Calculation Quiz to Determine:

If Your Trust is a Foreign Trust
Type of Trust

You asked, we answered. Click here to be a Foreign Trust know-it-all.

Foreign Trust tax reporting, tax management and filing of the infamous Form 3520 is all in a day’s work for a qualified international tax advisory and accountancy. For clients and financial professionals not-so-familiar with the international tax world, it is far from routine. Foreign Trusts are one of the most asked-about and misunderstood financial instruments. Questions abound in determining category, following legal compliance and fulfilling tax responsibilities.

We sympathize.

So, instead of paying for a lengthy and costly consultation by a legal or cross-border tax professional just to learn the basics, or scouring the Internet for bits and pieces of information, we thought we’d cut you some slack and give you the whole enchilada. Well, at least a healthy-sized serving.

We looked through our client history, researched search engine queries and combed online forums to come up with the top ten frequently asked questions on foreign trusts.

They are….(drumroll, please):

Who should file IRS Form 3520?
What is a foreign trust?
Are trust distributions taxable to the beneficiary?
Do trust beneficiaries of a foreign trust pay taxes?
What is a foreign grantor trust owner statement?
Is a gift from a foreign person taxable?
How to create an international trust?
Is a TFSA considered a foreign Trust?
What is the Schedule B compliance requirement for foreign accounts and trusts?
What is the U.S. taxation of foreign trusts?

And as an added courtesy, our office math whizzes came up with a simple-to-use tool in the form of a very short yes/no quiz to determine, in less than a minute, if the instrument you are dealing with is a Foreign Trust or U.S. Trust, and the specific type. The type of trust will determine the nature of your/your beneficiaries’ tax filing requirements. How’s that for one-stop Q & A shopping?

Click here to read the answers to the IWTA Foreign Trust Top Ten FAQs and try our 30-second determination tool.

If you or your clients need help with the next steps of Foreign Trust reporting, management and tax filing, contact us and we’ll be glad to be of service.

We’d love to hear your feedback and comments! Email us at info@iwtas.com or editor@iwtas.com

Breaking Covid-19 Tax News Update: IRS’ “Substantial Presence 60-Day Covid-19 Waiver is Set to Expire

by Jack Brister | Jun 30, 2020 | Covid-19, 2020, Taxes, U.S.

Breaking Covid-19 Tax News Update: IRS’ “Substantial Presence 60-Day Covid-19 Waiver is Set to Expire

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

Breaking: June 30, 2020

Our previous blog posts, in particular April 20, 2020, (posted at the height of the tragic intersection of Covid-19 and stranded foreign visitors and business people) outlined unexpected tax issues created by the global pandemic. It looks like the IRS is ending their tax grace period, the 60-day “Covid-19 Emergency Period” for eligible non-resident alien individuals. In U.S. Treasury Department terms, IRS Rev. Proc. 2020-20 and Rev Proc 2020-27 are coming to an end.

The IRS released relief measures (Rev. Proc 2020-20, Rev. Proc. 2020-27) in April 2020. In brief, the measures allowed non-resident individuals, foreign corporations, and partnerships to choose a 60-day period between Feb. 1 and April 1 in which the IRS would not consider their extended U.S. activity a tax liability. The agency updated its relief information earlier in June 2020.

According to Bloomberg News, an IRS spokesperson declared at a recent Washington DC industry panel, “We are not considering extending that relief, but we are continuing to monitor the situation.”

The spokesperson further commented: “It’s important to note that all that relief is premised on a certain state of the world with certain kinds of travel disruptions,” he said. “We see that travel disruptions are beginning to get better, although of course they still exist.”

As of this writing, the 14-day change in new Coronavirus cases in the U.S.A. is at an astounding 80%. Today the European Union announced it will officially open its borders to visitors tomorrow, July 1, 2020. The EU also announced that U.S. travelers are barred from entry. Will the Treasury Department reverse its stance that travel disruptions are “getting better”? Check our blog and Twitter feed for updates!

Review our previous blog posts covering Covid-19 and and cross-border tax issues:

IWTA Blog Post March 20, 2020

IWTA Blog Post April 1, 2020

IWTA Blog Post April 20, 2020

IWTA Blog Post April 28, 2020

IWTA Blog Post May 1, 2020

IWTA Blog Post, June 11, 2020

IWTA Blog Post June 12, 2020

As a service to our clients, colleagues and all those with an interest in cross-border tax issues, we post updates to breaking and critical tax news stories. Check the IWTA Tax News Blog Page and sign up for our email newsletter (bottom of blog page) to stay current.

Breaking Tax News Week of June 8, 2020

by Jack Brister | Jun 12, 2020 | Taxes, 2020, U.S.

Breaking Tax News Week of June 8, 2020

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

Breaking: June 10, 2020

The IRS announced it is extending the deadline on estimated tax payments for tax year 2020 to July 15. 2020, due to the Cocid-19 pandemic.

However, here is where it gets tricky: Not all U.S. States have changed their 2019 filing deadlines to the federal Jul 15, 2020 date, and the same is true for estimated 2020 tax due dates. Life is complicated.

Forbes has compiled a comprehensive list of State-by-State 2019 income tax and 2020 estimated tax filing deadlines. Get in the know before you inadvertently find yourself out of compliance.

Click here for your guide to state tax deadlines for filing returns and making estimated payments.

Breaking: June 11, 2020

What is the State of the Coronavirus Stimulus?

Will congress come through with more dough? You’ll have to wait until the Senate returns from summer recess to find out.

Although the May Jobs Report showed the U.S. unemployment numbers at a dismal 13.3%, the fact that the unemployment numbers fell from April, and 2.5 million jobs were added was enough good news to buoy the U.S. Senate into rethinking whether another round of stimulus was justified. Add to this that a lot of business stimulus money has remained unspent, and you have a recipe for a summer showdown in congress.

There are numbers to support opinions on both sides of the aisle, with the average American business and individual still picking up the pieces of their upended lives and livelihoods.

Will Summer 2020 usher in the long, hot road to recovery, a lazy, hazy stall or set the stage for a (down) Fall? Watch these pages for updates as the data swims in.

This recent Forbes article will give you the numbers that are simultaneously fueling the conclusions of the stimulus cutters and the stimulus believers.

If you have questions or concerns in regards to any cross-border tax and investment management issues. Contact IWTA. We’re here to help.

A Taxing Pandemic: Covid-19 and Cross-Border Tax Issues

by Jack Brister | Jun 11, 2020 | Taxes, 2020, International, U.S.

A Taxing Pandemic: Covid-19 and Cross-Border Tax Issues

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

Tax Laws are Bending, Flexing and Breaking to Deal with an Ever-Evolving Situation

As they say in the news business, Covid-19 is a “developing story,” and the adjustments being made by the U.S. Treasury department to address the unique tax issues arising as a result of the pandemic are historic. At this halfway mark of the year, with summer on the near horizon, I have compiled what I consider to be this point in time, the most critical cross-border tax stories. I have summarized three issues, along with the IRS reference documents. If you or your clients have a compelling and unique tax circumstance that has arisen due to the Coronavirus pandemic, we would appreciate your sharing the story with us. And, please feel free to share your comments in an email, and we will publish them.

Issue #1: The Land of Lost Deductions: U.S. Citizens and Permanent Residents Living or Working Abroad in the Time of Covid

Summary:

Under normal circumstances, U.S. citizens or residents living abroad can qualify to exclude a maximum dollar amount from reported income made overseas. The amount is adjusted upward annually to account for inflation. In 2019 the maximum deduction was $105,900. In 2020 it is $107,600. This is called the foreign earned income exclusion. In addition, those who qualify can also claim an exclusion or deduction from gross income for foreign housing.

Question: What happens when the U.S. individual has to leave their foreign place of business and/or residence because of the Covid-19 pandemic? Qualified individuals must normally prove uninterrupted foreign residence for a minimum of 330 days.

Answer: The IRS has provided relief under these extenuating circumstances. If living/working in China, the individual would have to prove presence in the country on or before December 1, 2019. For qualifying individuals living in other locales, they must prove their foreign presence commenced on or before February 1, 2020. Therefore, individuals who under normal circumstance would have expected to meet the IRS’ 330-day continuous presence requirement while also meeting the other requirements for qualification, are permitted to use any 12-month period to satisfy the “qualified individual” requirement.

Reference:

https://www.irs.gov/pub/irs-drop/rp-20-27.pdf

Issue #2: Non-Resident Aliens and UTSBs Caught in the U.S. Government’s “Substantial Presence” Trap Due to the Covid-19 Outbreak

Summary:

Here we find a situation occurring on U.S. territory. To wit: a foreign visitor or business person has overstayed their allowance of tax-exempt visitor time, due to complications arising from the Coronavirus pandemic. The situations that ensued for those caught up in the quarantine were varied and often tragic. See my previous blog posts on the subject:

https://iwtas.com/the-perfect-storm-of-timing-tragedy-and-tax-law-nras-and-covid-19/

https://iwtas.com/breaking-news-update-u-s-department-of-treasury-offers-tax-relief-to-nras-remaining-in-usa-during-covid-19-pandemic/

A “Covid-19 Emergency Period” was established by the IRS. It begins on or after February 1, 2020 and ends on or before April 1, 2020.

The IRS has an FAQ page covering the myriad issues. (Link below.) Note that in some cases, filing preemptive individual or business taxes even if not required may actually result in gains, as treaty-based relief and statute of limitation issues could be claimed.

Reference:

https://www.irs.gov/newsroom/information-for-nonresident-aliens-and-foreign-businesses-impacted-by-covid-19-travel-disruptions

Issue #3: Transfer Tax Extensions

Summary:

Many categories of Estate, Gift, and Trust tax returns were granted filing extensions of July 15. 2020 due to the Covid-19 pandemic. The extension affects many required forms. For a full list see the IRS publication below. For a summary, click here.

Reference:

https://www.irs.gov/pub/irs-drop/n-20-23.pdf

Also see our previous blog post: https://iwtas.com/top-tips-for-international-tax-clients-during-the-covid-19-crisis/

If you, a colleague or client need help with any of the above issues, do not hesitate to reach out.

Contact us here.

Breaking News Update: U.S. Department of Treasury Offers Tax Relief to NRAs Remaining in USA During Covid-19 Pandemic

by Jack Brister | May 1, 2020 | Compliance, 2020, Taxes, U.S.

Breaking News Update: U.S. Department of Treasury Offers Tax Relief to NRAs Remaining in USA During Covid-19 Pandemic

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

The following is an addendum to our original blog post of April 20, 2020 entitled:

“The Perfect Storm of Timing, Tragedy and Tax Law: NRAs and Covid-19”

Recognizing the unusual circumstances non-resident aliens have faced while sick, trapped or morally obligated to remain in the USA during the Covid-19 pandemic, the U.S. Department of Treasury has relaxed rules regarding what is commonly referred to as “the substantial presence test.”

Under Revenue Procedure 2020-27, as issued on April 21, 2020, a non-resident alien who had to remain in the USA due to personal circumstances or government policies can now pick a starting date from a 60-day date range beginning on February 1, 2020 and ending April 1, 2020, in which they will not be considered to have violated the substantial presence test. Aliens violating the substantial presence test are subject to U.S. tax obligations and possible penalties.

From the IRS Revenue Procedure 2020-27 FAQ Page:

“A nonresident alien, foreign corporation, or a partnership in which either is a partner (Affected Person) may choose an uninterrupted period of up to 60 calendar days, beginning on or after February 1, 2020, and on or before April 1, 2020 (the COVID-19 Emergency Period), during which services or other activities conducted in the United States will not be taken into account in determining whether the nonresident alien or foreign corporation is engaged in a USTB, provided that such activities were performed by one or more individuals temporarily present in the United States and would not have been performed in the United States but for COVID-19 Emergency Travel Disruptions.”

“UTSB” is an acronym for “U.S. Trade or Business”, which means the NRA is on U.S. soil principally for the purpose of conducting business. Normally an individual engaged in a UTSB during the pandemic period would not be exempt from U.S. tax obligations. However, the U.S. Treasury is cutting those engaged in UTSB some slack during the Covid-10 period. If the individual had no recourse than to perform business activities because they could not return to their home country, they are exempt from tax collection. The above applies to nonresident or foreign corporations if they have been conducting business activities that under normal circumstances, would not have been performed on U.S. soil.

The IRS further states: “In all events, the Affected Person should retain contemporaneous documentation to establish the period chosen as the COVID-19 Emergency Period and that the relevant business activities conducted by individuals temporarily present in the United States during the COVID-19 Emergency Period would not have been undertaken in the United States but for COVID-19 Emergency Travel Disruptions. The Affected Person should be prepared to provide that documentation upon request by the IRS.”

“Nonresident aliens and foreign corporations (including those that are partners in partnerships) may make protective filings of their annual U.S. tax returns, even if they believe they are not required to file for the 2020 taxable year because they were not engaged in a USTB, to avail themselves of the benefits and protections that arise from such filings (such as those relating to deductions, statutes of limitations, and claiming tax treaty-based relief.”

International Wealth Tax Advisors echoes the IRS in advising all foreign national clients that currently meet NRA or UTSB status to:

Keep records of all their business and personal activities within their chosen 60-day Covod-19 emergency period
Check in with us periodically to ascertain whether Revenue Procedure 2020-27 has been further updated; or whether new guidelines relating to NRAs and UTSBs have been issued.

If you have NRA or UTSB status and would like a consultation with international tax expert Jack Brister, https://iwtas.com/booking-page/

Contact IWTA in regards to any cross-border tax and investment management. We welcome your inquiries.

Top Tips for International Tax Clients During the Covid-19 Crisis

by Jack Brister | Apr 28, 2020 | FAQ, 2020, International, Taxes, U.S.

Top Tips for International Tax Clients During the Covid-19 Crisis

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

At International Wealth Tax Advisors, we’re suggesting cross-border tax clients, both U.S. citizens and foreign nationals, consider the following tips to help mitigate any unexpected tax and financial consequences as a result of the Covid-19 pandemic.

Foreign Trusts

Tax returns and international information returns including Forms 3520 for foreign trusts have been extended to July 15 from April 15. This includes any tax payments that may be due as of April 15.
Many foreign trusts have underlying companies which hold the assets of the trust and these underlying entities require additional filings such as Forms 5471 (Controlled Foreign Corporation), Form 5472 (US entity 25{105615a82985984cf1704e8776ec685e1345b73ddec43811fd3f038097961455} or more owned by Foreign Persons)
Consider the utilization of foreign trust losses due to the crisis as a tax benefits

Real Estate Holdings

Consider disposing U.S. real property investments by foreigners with minimal or no FIRPTA (Foreign Investment in Real Property Tax Act) implications (withholding taxes) and / or little U.S. tax.
Disposal could also reduce foreigners’ exposure to U.S. estate tax.

Other U.S. Investments

Consider reducing U.S. portfolio assets or restructuring to minimize U.S. estate and gift tax exposure.
Foreign national executives currently working inside the U.S. should consider a U.S. trust structure or other structure before being assigned to the U.S. on a more permanent basis.

Foreign Companies Doing Business in the U.S.

Consider restructure with little or no tax implications while value of business is low due to crisis.
Look to obtain stimulus money by way of PPP loan or payroll tax credits.

For help in navigating your multinational business and personal tax obligations as applied to the U.S tax system in this confusing time, don’t hesitate to contact us.

For a private consultation with me on Zoom, click here to book a timeslot.

The Perfect Storm of Timing, Tragedy and Tax Law: NRAs and Covid-19

by Jack Brister | Apr 20, 2020 | Taxes, 2020, Compliance, U.S.

The Perfect Storm of Timing, Tragedy and Tax Law: NRAs and Covid-19

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

Update: The day after we broke this story, The U.S. Department of Treasury recognized the potentially serious hardships the “substantial presence test” was imposing on non-resident aliens and UTSBs stuck in the U.S.A. in the midst of the Coronavirus pandemic. CLICK HERE TO READ OUR UPDATED POST on this developing change to U.S. tax law.

The outbreak of COVID-19 (the coronavirus) has significantly disrupted and impacted the world. The global nature and dramatic lock down /stay at home orders undertaken by governments around the world have left many individuals and families dislocated. Among the victims: non-United States persons (NRAs) stricken with the disease while visiting the U.S. and unable or unwilling to return to their country of residence.

The results of this for non-U.S. persons (NRA) could have severe U.S. tax implications. Though many were not able to return home due to travel restrictions by the U.S. and their countries of origin, they were unaware that by exceeding their length of stay they could be subject to U.S. income taxes on their worldwide income and assets and severe tax penalties related to non-compliance.

For foreign visitors temporarily remaining in the U.S. due to coronavirus, the unintended-yet-significant consequences may be able to be avoided. U.S. tax liability may be avoided if a swift review of U.S. tax residency is conducted and appropriate planning is undertaken, if needed.

Why would any NRA affected while in the U.S. be concerned? They are not a citizen or resident of the U.S. so how could this possibly have any impact on their lives?

If an NRA is deemed a U.S. tax resident they will be treated as a U.S. citizen for U.S. tax purposes and will be subject to the same rules as a U.S. citizen such as:

Taxation of income from wherever sourced (worldwide income)
Reporting of worldwide assets and international business activities / and investment transactions
Potential taxation by a U.S. State. New York and California have some of the highest tax rates in the U.S.
State tax rates can be as high as 13{105615a82985984cf1704e8776ec685e1345b73ddec43811fd3f038097961455}, and would be imposed in addition to the federal income tax liability.
Potential issues of U.S. gift and estate tax could occur as a result of a status change from NRA to U.S. tax resident.

Take note: the U.S. imposes severe penalties on all taxpayers for non-reporting of worldwide financial and business activities that meet certain criteria and thresholds regardless of any income generated. The penalties start at $10,000 per transaction, activity or account per year and can be as high as $50,000 per transaction, activity, or account per year.

Estate and gift taxes can be as high as 40{105615a82985984cf1704e8776ec685e1345b73ddec43811fd3f038097961455} of the value of the asset which is transferred during life or at death.

As you can see, the severity of financial loss should be of concern to NRAs should they be deemed to be a U.S. tax resident, even if that wasn’t their intention!

Will the Current Tax Law Allow for Covid-19 Exceptions?

At this point you are probably wondering: How could such a situation put a person at risk for U.S. tax residency? This does not seem possible!

NRAs who are stuck in the U.S. due to an illness or quarantine of themselves or loved ones or due to legal or practical restrictions could unintentionally stumble over the U.S. tax residency rules and find themselves entangled in the U.S. tax system.

The tests for U.S. tax residency are in the U.S. tax code. (Title 26 of the United States Code aka the Internal Revenue Code, (“IRC)), specifically IRC §7701(b) which was enacted by the U.S. Congress in 1984.) When these rules were enacted they did not contemplate such a situation as a pandemic like the current coronavirus. This means there is no guidance except the Code itself and related regulations in relation to this current situation.

The above-mentioned law provides two tests to determine a non-U.S. citizen’s U.S. tax residency status.

The Green Card Test

The first test is generally referred to as the “green card” test which basically states that if a non-U.S. citizen has obtained permanent U.S. residency status they are treated as U.S. income tax residents. The tax rules are the same as a U.S. citizen, absent any determination of foreign residency pursuant to a tax treaty between their home country and the U.S.

The Substantial Presence Test

The second test is generally referred to as the “substantial presence test” (SPT). This test is the more relevant one in regards to the COVID-19 situation. The SPT is relevant only to NRAs who do not have lawful permanent resident status (a U.S. Green Card). It is the SPT test that must be carefully reviewed to avoid U.S. tax residency status. Under this test an NRA will be treated as a U.S. tax resident for a calendar year if the individual is present in the U.S. for at least 183 days in the current year or more during the calendar year. OR, if the NRA is present at least 31 days during the calendar year and the sum of the number of days for the current calendar year and the preceding two calendar years averages more than 121 days per year.

There is an exception to the above rule. If the person who meets the SPT is not in the U.S. for at least 183 days in the first year and they have what is defined as a “tax-home” in a foreign country they may be able to claim what is known as a “closer connection” exception to the SPT rules. However, this exception is not available if the individual has taken intentional measures to apply for a Green Card (i.e., U.S. permanent resident status). However, if the closer connection exception is not available due to the fact the person was present in the U.S. for 183 days or more, they may still avoid U.S. tax residency. If the NRA’s home country has a tax treaty with the U.S., and if under the residency rules of that treaty they can meet tests similar to that of the closer connection exception tests, they are exempted. Generally, the closer connection exception tests and tax treaties consider: the number of days spent in each of the countries where a person’s tax home (generally place of work / business) is located, where items of significance are primarily located, and their citizenship status with each country.

Exceptions to the SPT Rules

U.S. tax law also provides additional exceptions to the strict SPT rules. Such as, an NRA is not treated as being in the U.S. on any day the individual is considered a so called “exempt individual”. This includes an NRA who is a full-time student on a student visa and has not been in the U.S. more than 5 years. There are also exceptions for teachers, certain diplomats and other foreign-government related persons, professional athletes performing for charitable purposes, an NRA who is in transit to another foreign country, or is a regular commuter to and from Mexico or Canada for employment purposes. An individual can also gain exemption if they meet a medical condition exception.

It is this exception that may be most useful for some NRAs in the U.S. who have been affected by the Covid-19 situation. The rule states that if a person was struck down by the virus while in the U.S., they will generally not have to be concerned with the amount of days spent in the U.S. due to their inability to return to their home country. But unfortunately, in the absence of additional U.S. government guidance, this does not apply to individual family members who were not infected with the virus.

Hence, a family member who was not infected or diagnosed with Covid-19 but may have for practical reasons, legal matters or other practical matters had difficulty leaving the U.S., will, without further guidance, have a tough time claiming a medical exception to the U.S. tax residency rules.

It should be noted that there are separate residency rules for U.S. estate and gift taxes, and as mentioned there could also be U.S. State income tax issues resulting from being in the U.S. as a result of the Covid-19 pandemic. The States are not required to abide by any tax treaty rules established by the U.S. federal government and a foreign country.

IWTA Can Assist Non-Resident Aliens with Urgent Tax Matters

International Wealth Tax Advisors can provide assistance by calculating the number of days spent in the U.S. for purposes of the SPT, including evaluating your prospects for successfully relying on either the medical condition exception, a treaty, or the “closer connection” test provided under U.S. tax law. We can also assist in preparing any tax return required to take advantage of tax law exceptions.

For assistance or more information. please contact Jack Brister. You can book a virtual appointment here.

Update: IRS Moves Tax Filing Deadline to July 15, 2020 in Light of Coronavirus Pandemic

by Jack Brister | Mar 20, 2020 | Taxes, 2020, U.S.

Update: IRS Moves Tax Filing Deadline to July 15, 2020 in Light of Coronavirus Pandemic

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

Breaking: March 20, 2020

In today’s White House Covid-19 press briefing, it was announced that American taxpayers now have until July 15th to file their taxes without risking late filing penalties. Taxpayers are still encouraged to file ASAP if they are expecting a refund.

March 17, 2020 Announcement

Treasury Secretary Steve Mnuchin announced today that Americans who owe up to $1 million in taxes can have penalty and interest charges waived by the IRS for up to 90 days, Mnuchin encouraged Americans file their taxes by April 15. There is not yet a clear indication as to whether the IRS will officially extend the April 15^th 2020 filing deadline as well.

“If you owe a payment to the IRS, you can defer up to $1 million as an individual — and the reason we are doing $1 million is because that covers pass-throughs and small businesses — and $10 million for corporations, interest-free and penalty-free for 90 days. All you have to do is file your taxes,” said Mnuchin.

Mnuchin went on to say, “We encourage those Americans who can file later taxes to continue to file their taxes because you will get tax refunds and we don’t want you to lose out. Many people do this electronically which is easy for them and the IRS.”

Time for a Consultation

With the recent Stock Market panic and sell off, investors may be prone to making decisions that can have serious consequences to their financial well being and to their tax bill. We’re here to help you wade through the information and disinformation to make informed and careful decisions. Click here to book a consultation online.

Topics we have been discussing with clients include:

Tax Loss Harvesting
The Wash Sale Rule
Dollar Cost Averaging
Financial Plan Review
Cash Position Review
Real Estate Investment Review
Preparing your personal finances for a possible recession

Watch this space for breaking tax information as it develops!

FACTA Filing: What U.S. Citizens Need to Know About Foreign Asset Reporting

by Jack Brister | Feb 6, 2020 | Taxes, 2020, Compliance, U.S.

FACTA Filing: What U.S. Citizens Need to Know About Foreign Asset Reporting

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

The Foreign Account Tax Compliance Tax Act (FATCA) became law in 2010 and is a major development in the taxation of Americans living abroad. FATCA is a tax law that requires U.S. citizens at home and outside of the United States (U.S.) to file annual reports on any foreign account holdings. FATCA is intended to prevent tax evasion by U.S. citizens and residents via the use of offshore accounts. The FATCA rules run parallel to the withholding rules applicable to any fixed, determinable, annual or periodical (FDAP) income of a nonresident alien or foreign corporation received from U.S. sources.

Certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. In addition to that, the U.S. person is required to report foreign financial accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

FATCA also requires certain foreign financial institutions to report directly to the Internal Revenue Service (IRS). Banks and other foreign financial institutions must report information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a 10{105615a82985984cf1704e8776ec685e1345b73ddec43811fd3f038097961455} or greater interest (defined as a substantial ownership interest).

FFIs and NFFEs

To comply with FATCA, all entities need to be evaluated to determine whether they fall under the definitions of Foreign Financial Institution (FFI) and Non-Foreign Financial Entity (NFFE).

FFIs are financial institutions that are foreign entities which are not defined as a U.S. person pursuant to U.S. tax law (U.S. Code Title 26, aka as the Internal Revenue Code (IRC)).

NFFEs are foreign entities that are not financial institutions, including territory entities. FATCA mandates that FFIs participate in the information-sharing network or face a 30 percent withholding tax on U.S.-source investment income (theirs or their client’s investment account income).

Thus, FATCA withholding will be imposed on any withholdable payments made to an FFI, unless they abide by the IRC and related U.S. Treasury Regulations or an Intergovernmental Agreement (IGA) between the U.S. and the FFIs country of residence. Therefore, if you set up a new account with a foreign financial institution, they will ask you for information regarding your U.S. tax residence and for proof of U.S. tax filing compliance.

Reporting thresholds vary based on whether you file a joint income tax return or live abroad. If you are single or file separately from your spouse, you must submit a Form 8938 if you have more than $200,000 of specified foreign financial assets at the end of the year and you live abroad; or more than $50,000, if you live in the United States, If you file jointly with your spouse, these thresholds double.

Who Needs to File FBAR?

Exceptions to the reporting requirement that include:

A financial account maintained by a U.S. payor. A U.S. payor includes a U.S. branch of a foreign financial institution, a foreign branch of a U.S. financial institution, and certain foreign subsidiaries of U.S. corporations. Therefore, financial accounts with such entities do not have to be reported.
At the time of filing the required income tax return, the taxpayer was not aware that he or she had a beneficial interest in a foreign trust or a foreign estate.

With some exceptions, if specified foreign financial assets were reported on other forms then they are not required to be reported a second time on Form 8938. These include any of the following:

Transactions with foreign trusts and foreign gifts reported on Form 3520 or Form 3520-A (filed by the trust). Form 3520 A instructions.
Activity of a Controlled Foreign Corporation reported on Form 5471
Transactions with Passive Foreign Investment Companies (PFIC) reported on Form 8621. With some exceptions, a PFIC is generally a foreign investment / hedge fund.
Activity of a Foreign Controlled Partnership(s) reported on Form 8865
Transactions with a Registered Canadian retirement savings plans reported on Form 8891

Form 8938 Penalty

Non-compliance or late filing of Form 8938 is subject to a penalty of $10,000 and an additional penalty of up to $50,000 for continued failure to file after IRS notification, and a 40 percent penalty on the amount of any understated tax attributable to non-disclosed of foreign financial assets.

The statute of limitations is extended up to six years after the filing of an income tax return . There is no statute of limitations if the FACTA Form 8938 is not filed.

If you make a showing that any failure to disclose is due to reasonable cause and not due to willful neglect, no penalty will be imposed for failure to file Form 8938. Reasonable cause is determined on a case-by-case basis, considering all relevant facts and circumstances. It should be noted that the IRS will not accept as reasonable cause that the tax professional who prepared the U.S. income tax return for the person had no knowledge or a lack of understanding of the U.S. tax law if such professional is not a U.S. professional. For example, if it is claimed as reasonable cause that a Canadian tax professional or tax professional from the United Kingdom who prepared a U.S. income tax return was not aware or knowledgeable of the U.S. international tax rules, such reasonable cause is generally not accepted by the IRS.

Please consult your tax advisers. IWTA is more than happy to assist you with any international tax planning and compliance.