7 Things You Need to Know About US Gift Tax While Living Abroad or as a Nonresident Owning US Assets

One great technique to get assets out of your estate to save income taxes and to save estate taxes is to give gifts to another.  Here are seven things you need to know about US gift taxes and reporting of foreign gifts you might receive.

1. If you give any individual (resident or nonresident) less than $14,000 US during a calendar year you do not have to file a Gift Tax Return form 709.
2. If you give any individual more than $14,000 US (this includes cash and value of property, assets, intangibles, etc) you need to file a gift tax return with the IRS which is due 4/15 following end of Calendar year.  This includes gifts of assets located outside of the USA.
   
3. If your gift exceeds the $14,000, you may need to file the return but probably do not owe taxes since you have a combined lifetime gift/estate tax exclusion of $5.43  million.  The excess value of the gift above the $14,000 will be offset by this lifetime exclusion.  If you use up this exclusion on gifts while you are alive it will not be available for use by your estate after your death.
4. Contributions to IRS recognized charities are not the type of gift subject to gift tax
5. If you as a citizen or permanent resident receive $100,000  in fair market value of assets  as a gift or inheritance in one calendar year (total for year from one individual or related individuals) you must file form 3520. If the gift is from a foreign corporation or LLC .you must file that form  if the total gifts received  during the year exceeds  $15,601. If you receive any amount from a foreign trust you must file the form 3520.  The form must be filed on 4/15  following the end of the calendar year. Failure to do so can subject you to a substantial monetary penalty.
6. Nonresidents are subject to gift taxes for transfer of assets located in the USA.  Therefore best to make gifts if you are a nonresident from assets located outside of the USA. A nonresident must pay gift tax on any gift of US located property of more than $14,000 to a single person per year. This figure is an aggregate of all gifts during the year.
7. If you receive anything in return (including services, etc) it is not a gift.  Also reciprocal gifts are also disallowed for US gift tax exemption purposes ( i.e. you give $14,000 to my kid and then I will give  $14,000 in return to your kid).

There are more gift rules applicable to special situations not mentioned here such as  those covering gifts to US persons after you have surrendered your citizenship or long term green card.  You should consult an gift tax expert before you make any gift that might be subject to tax to be certain there are not special rules that may surprise you when it becomes time to report the gift to the IRS.  If you need help email us at ddnelson@gmail.com or phone (US) 949-480-1235.

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CONGRESS HAS EXTENDED YOUR TAX BREAKS - READ MORE ABOUT SOME OF THEM

Click on this link to read more about some of the more common tax laws that have just been extended by Congress.  This does not include all of the huge tax breaks given to large companies.  Let us know if you need our help.

TO DOWNLOAD A COMPLETE PDF FILE WITH ALL CHANGES INCLUDING BRIEF EXPLANATIONS PLEASE CLICK HERE. 

2015 US IRS Health Care Coverage Exemptions for Expats

Read exemptions in link below:

https://www.healthcare.gov/health-coverage-exemptions/forms-how-to-apply/

IRS CAN NOW REVOKE YOUR PASSPORT IF YOU OWE PAST TAXES

The IRS can now cause your passport to be revoked if you owe $50,000 or more US taxes. Expats and Green Card holders in this situation need to resolve unpaid taxes before returning to US or they may not be able to leave later (without a passport).

Time to consider a payment plan, offer in compromise, or offshore disclosure and streamlined programs.

Read more in article below.

http://www.forbes.com/sites/robertwood/2015/12/04/irs-power-over-passports-signed-into-law/

EIGHT IRS TAX FACTS FOR AMERICANS LIVING AND WORKING ABROAD

By. Don D. Nelson, International Tax Attorney

• Though most foreign assets are reportable on various specialized forms filed with your US tax return,. If you own foreign real estate and title is in your own name (or a Fideicomiso) and do not rent out the property, there is no reporting required on your US tax return or for that matter any other reporting due the US Government.

• Foreign mutual funds (and most foreign money market funds) require filing of another special form with your tax return. If you do not file this form and make elections to report the income each year, you are penalized with higher taxes and interest when you finally sell your foreign mutual fund. These rules were put in many years when Congress was convinced by US Mutual Fund companies that there business would be hurt unless investment in foreign mutual funds was made unfavorable for tax purposes.

• The 2015 the $100,800 US foreign earned income exclusion applies to earned income (wages or self employment) income earned abroad if you meed the physical presence test or bonafide resident test. You can see if you qualify in IRS Publication 54. It is not automatic and can only be claimed on your US tax return. The IRS can deny this exclusion if you file your return more than 18 months late. This exclusion does not apply to rental income, dividends, interest or capital gains or any income other than earned income.

• You must report your rental net income in from your Mexican real estate on your US return and you may also owe taxes on it in the country in which it is located  even if you are not a resident. The Mexican income tax can be claimed as a credit directly offsetting any US income tax you owe on the rental income. 

• If you own 10% or more of a foreign corporation you may have to file form 5471 with your US tax return if required by the rules governing that form. Failure to file that form in a timely manner may result in the IRS assessing a $10,000 US penalty for failure to file even if you owe no taxes.

• The US has a tax treaty with approximately 66 countries. It also has in the past year entered into an OECD agreements with over 36 countries who have agreed to exchange income tax information with the other. At some point in the future what you do offshore  will not stay in offshore and visa versa due to these new OCED agreements.

• If as a US Citizen you have lived and worked in abroad for a while and not filed your US tax return, the IRS currently has a “streamlined program” that may allow you to catch up by filing only the past 3 years US tax returns and past six year FBAR (foreign bank account reports). They will not penalize you under that program for failing to file FBAR forms or other foreign reporting forms. They have stated they may discontinue this program at any time. Now is the time to surface with the IRS and avoid potentially huge penalties.

• FBAR (foreign bank account reporting forms) must be filed each year with US Treasury if at any time during the calendar year your combined highest balances in your foreign financial accounts exceeds $10,000 US. This form must be filed on line. Foreign accounts include foreign pension plans, cash surrender value in foreign insurance, foreign brokers accounts, and even gold if held for you in a foreign country a custodian. Failure to file this form or filing it late can result in penalties of $10,000 US or more.

Don D. Nelson is a US tax attorney who has been assisting Americans everywhere in the World for over 25 years with their US tax returns and tax planning. He is also a partner in Kauffman Nelson LLP, Certified Public Accountants. His website is located at www.TaxMeLess.com. His tax blog has the lastest tax developments of interest to those abroad at www.usexpatrate.blogspot.com.His email address is ddnelson@gmail.com. He can be reached at his US phone number 949-480-1235.   

Expatriate Foreign Earned Income Exclusion for 2016 Increased

The foreign earned-income exclusion amount under tax code Section 911(b)(2)(D)(i) will increase in 2016 to $101,300 from $100,800, the International Revenue Service said Oct. 21 (Rev. Proc. 2015-53).

Section 911 allows qualified U.S. citizens and residents who work abroad to exclude a certain amount of their foreign-earned income and a portion of their foreign housing expenses from their gross income for U.S. tax purposes. They must meet either a physical presence test or a bona fide residence test. Taxpayers may elect the Section 911 income and housing exclusions even if no foreign taxes were paid on their foreign earnings.

Although employers generally must withhold U.S. federal income taxes from taxable wages paid to U.S. citizens and residents working abroad, the withholding requirements do not apply to wage payments subject to the foreign earned-income and housing cost exclusions claimed by expatriate employees that file Form 673, Statement for Claiming Exemption From Withholding on Foreign Earned Income Eligible for the Exclusion(s) Provided by Section 911, with the employer.

IRS Collecting $8 Billion from Offshore Tax Compliance Push

Read in Accounting Today how the IRS is collecting taxes from expatriate taxpayers.  They have over 54,000 taxpayers that have come forward in the Offshore Disclosure Programs or Streamlined Programs.  That still leaves a lot of taxpayers out there who have not yet complied with the US tax rules because there are approximately 8.3 million Americans living abroad.  Do not wait until they catch you through FATCA or through the over 36 signed OECD agreements where the US and other countries have agreed to mutually exchange tax information on their residents.

The IRS  has stressed that it remains committed to stopping offshore tax evasion wherever it occurs, and even though the agency has faced several years of budget reductions, the IRS continues to pursue cases throughout the world.

READ ARTICLE HERE

IRS Begins Sending Individual Account Information to Foreign Countries

The Internal Revenue Service has kicked off a new program under which it shares large amounts of individuals’ financial-account information with certain foreign countries, the agency said Friday.

The IRS said it received digital information about U.S. taxpayers’ foreign accounts from governments and firms around the world, and it sent information on foreigners’ U.S. accounts to government authorities in as many as 34 countries. While governments have exchanged such information in the past, the sharing wasn’t automatic and the scope was often far narrower. The deadline for the exchange to begin was Sept. 30.  Read more in the wall street journal and find out if your resident country is on the list!

http://www.wsj.com/articles/irs-begins-sending-individual-account-information-to-foreign-countries-1443810584

IRS Going After Belize Bank Accounts and Secret Belize Corporations

Dept of Justice announces here that a district court authorized the IRS "to serve a 'John Doe'” summons seeking information about U.S. taxpayers who may hold offshore accounts at Belize Bank International Limited (BBIL) or Belize Bank Limited (BBL)."  The petition, memorandum in support and declaration of the agent are here.

PUERTO RICO IS THE BEST SIMPLE OFFSHORE TAX HAVEN FOR US CITIZENS

If you are a US Citizen you already have the right citizenship.  You need to make PR your full time residence (over 183 days a year). Then under the laws (unless changed in the future should the US Congress notice this amazing tax break) your interest income, dividend income and capital gains are tax free.  If you business is a service business that can be conducted from Puerto Rico you can pay a  4% tax on your corporate net profit and the dividends from that corporation are tax free. 

You can do all of this without surrendering your US Citizenship or getting a special visa. Puerto Rico is a great tropical place to live and not that far from the USA.

Read more about the benefits in Forbes Article.   http://www.forbes.com/sites/janetnovack/2015/01/27/puerto-rico-expands-tax-haven-deal-for-americans-to-its-own-emigrants/

IRS Makes it More Difficult for Taxpayers - They will not accept Checks for $100 million US or more soon!

So the IRS will stop accepting checks of more than $99,999,999 effective Jan. 1, 2016. After that date, you'll have to send in at least 2 checks to cover your big tax bill. This is really true!

Or, says the IRS, you can still send 1 large payment if you electronically wire it to the appropriate Federal Reserve bank.

In announcing the upcoming limit on big checks in the Sept. 7 Internal Revenue Bulletin, the IRS cited an earlier memo from the Treasury's Bureau of the Fiscal Service that noted the risks of manually processing checks of $100 million or more.

"Fraudulent activity, processing errors and uncollectible funds are more likely when checks over these amounts are accepted by TGA (Treasury General Account) depositaries," wrote David M. Metler, director, over-the-counter division of the Treasury Bureau of the Fiscal Service. "No check processing equipment can handle amounts over a million dollars."

Although the manual processing kicks in at $1 million, the IRS still will take checks up to $99,999,999 million, for now.

Read more: http://www.bankrate.com/financing/taxes/irs-limits-100-million-tax-payments/#ixzz3lLZYZjgJ

List of Foreign Banks Filing Reports with US Treasury of Foreign Bank Accounts (FATCA Bank)

Wonder if your bank will be reporting your foreign account to the US Treasury.   The link below will allow you to check up to see if they are participating. New banks are joining up daily so the fact it is not there now may not mean if will not be there tomorrow.

If the IRS discovers you have foreign accounts and are not filing form 114 (FBAR) form by June 30 following the end of each fiscal year they can assess civil penalties of $10,000 US or more for each year you failed to file that form.  There is still time to file this form late but avoid penalties under certain circumstances. Contact us if you wish to know more or want help filing your forms late.

You must go back six years due to the statute of limitations governing that form.  If you did not file a correct one in past years, best to amend also to avoid potential problems.  Write us at ddnelson@gmail.com or visit our website at www.taxmeless.com 

LINK TO CHECK OUT IF YOUR  FOREIGN BANK  OR FINANCIAL INSTITUTION IS REPORTING TO IRS FATCA Foreign Financial Institution (FFI) List Search and Download Tool

US Mexico Tax Treaty Guidance

Read the USA - Mexico Tax Treaty Here.   Need help. Email us at ddnelson@gmail.com

10 LEAST TAX FRIENDLY STATES FROM KIPLINGER

http://m.kiplinger.com/slideshow/taxes/T054-S001-least-tax-friendly-states-in-the-u-s/index.html

Link To IRS Publications Covering Almost Everything

Click here to get to the publication you need.  Can't understand what the publications says, then we can help. We offer mini consultations where you can talk with an Attorney CPA with over 30 years international and expatriate tax experience to answer you specific questions on your specific situation. Email us at ddnelson@gmail.com  to make an appointment by skype, phone or email.

You can also learn more about your tax questions at our website at www.taxmeless.com 

FIVE TAX MYTHS EXPATS NEED TO KNOW

Read more at Link below from Costa Rica

http://thecostaricanews.com/money/5-myths-about-catching-up-on-u-s-tax-returns-for-expats/

Are You Guilty of Tax Perjury on your US Tax Return?

INTERNAL REVENUE CODE SECTION 7206 SAYS:

Any person who -  

(1) Declarations under penalties of perjury (this is what you sign when you sign your form 1040 tax return on page 2)

Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties  of perjury, and which  he or she does not believe to be true and correct as to every material  matter...

   shall be guilty of a felony and, upon conviction thereof, shall be fined not more than    $100,000   ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or       both, together    with the costs of prosecution.

   If you may have violated this tax law and want to discuss your exposure with an Attorney/CPA   under the protection of Attorney - client privilege email Don at ddnelson@gmail.com to set   up a consultation.

US Expats Can Still Vote for President - Here is How

The following US State Department site has all rules and forms to register to vote when you live abroad.  There is still time....over 500 days before the next Presidential election.

US State Department Link to Learn How to Vote Abroad

Arbitration Laws Are Great in Mexico and its Less Costly and Much Faster than the Mexican Court System

Mexico has  excellent arbitration laws.  If you live and work in Mexico, you should consider putting an arbitration clause in your next contract or agreement. Such a clause in the event of a dispute may save you untold amounts of legal fees and time.  It is a fact that in many parts of Mexico the courts are so backlogged that  can take 5 to 18 years to get a decision and during the entire period attorneys are charging additional fees.

If you have an arbitration clause in your agreement you can usually get a decision within 6 months to a year and have that arbitration decision entered with the court as a judgment very quickly.  It is also possible to remove legal disputes from the Mexican Courts and have them resolved with arbitration if both parties agree.  The parties may agree just so they both get a quicker decision and possibly a more knowledgeable decision.

When parties arbitrate they can pick the arbitrator with experience in the particular area of law governing the dispute. Often when disputes are litigated in Court, the judge has little or no background in the governing law and therefore the final decision can be arbitrary and not predictable.

Arbitration decisions in most situations cannot be appealed. But if you have chose a knowledgeable arbitrator (1 or 3 arbitrators can be used ), and it saves you waiting 5,10 or more years for a decision, that disadvantage may be worth ignoring

In lieu of arbitration of disputes, consider mediation.  When parties mediate a neutral mediator with experience in the applicable laws works with the two opposing parties to help them reach a mutually satisfactory resolution.  Statistics show that mediation has a 30 to 50 percent chance of success and it is significantly less expensive than arbitration or litigation in Court.

Want to know more about Arbitration or Mediation in Mexico?  Want the proper provisions included in your legal agreements and  wish to know how to arbitrate your legal dispute in Mexico?  To learn more email us at ddnelson@gmail.com.   Don D. Nelson, Attorney at Law, CPA.

DUE DATES OF CERTAIN IRS TAX FORMS CHANGED

The due date of Form 114 (FBAR) will now be April 15th following the end of each calendar year.

The due date of Form 1065 partnership returns is not March 15th for Calendar year partnerships

The due date of Corporate return form 1120 will not be April 15th for Calendar year corporations.

These changed due dates start after 2015.

Read more in this Forbes Article

Five Tax Tips about Hobbies that Earn Income

Millions of people enjoy hobbies. They can also be a source of income. Some of these types of hobbies include stamp or coin collecting, craft making and horse breeding. You must report any income you get from a hobby on your tax return. How you report the income is different than how you report income from a business. There are special rules and limits for deductions you can claim for a hobby. Here are five basic tax tips you should know if you get income from your hobby:

1. Business versus Hobby.  A key feature of a business is that you do the activity to make a profit. This differs from a hobby that you may do for sport or recreation. There are nine factors to consider when you determine if you do the activity to make a profit. Make sure you base your decision on all the facts and circumstances of your situation. Refer to Publication 535, Business Expenses to learn more. You can also visit IRS.gov and type “not-for-profit” in the search box.
2. Allowable Hobby Deductions.  You may be able to deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is helpful or appropriate. See Publication 535 for more on these rules.
3. Limits on Expenses.  As a general rule, you can only deduct your hobby expenses up to the amount of your hobby income. If your expenses are more than your income, you have a loss from the activity. You can’t deduct that loss from your other income.
4. How to Deduct Expenses.  You must itemize deductions on your tax return in order to deduct hobby expenses. Your costs may fall into three types of expenses. Special rules apply to each type. SeePublication 535 for how you should report them on Schedule A, Itemized Deductions.
5. Use IRS Free File.  Hobby rules can be complex. IRS Free File can make filing your tax return easier. IRS Free File is available until Oct. 15. If you make $60,000 or less, you can use brand-name tax software. If you earn more, you can use Free File Fillable Forms, an electronic version of IRS paper forms. You can only access Free File through IRS.gov.

You can get Publication 535 on IRS.gov/forms at any time. Have questions. Go to www.TaxMeLess.com 

US NONREPORTING TAXPAYERS WITH SWISS ACCOUNTS FACE 50% PENALTIES

See Forbes article for list of Swiss Banks Included

http://www.forbes.com/sites/robertwood/2015/07/01/swiss-accounts-facing-50-irs-penalties-balloon-to-26-banks/

FORM BE 10 DUE BY JUNE 30TH OR THERE MAY BE PENALTIES - THIS FORM MUST BE FILED IN MOST SITUATIONS WHEN YOU OWN A FOREIGN CORPORATION

Form BE 10 and its many  sub variations is not a tax form, but is now required by by another Branch of the Government and not the IRS.

As a courtesy, we are making you aware of the potential requirement. It is a survey that is required whenever a U.S. person owns 10% or more of any business enterprise overseas. The form is due June 30th. Read more about it in the following link:

http://www.bea.gov/surveys/respondent_be10.htm

Our firm does  not plan to get involved in these filings as a rule; however, if any of you need help we can see what we can do. If you are conservatively minded you should file the form to avoid any exposure to possible penalties.

IRS Videos For US Internatonal Taxpayers, expatriates and nonresidents

The following videos are now available on the IRS YouTube page for expatriates, US international taxpayers and nonresidents.

International Taxpayers-Introduction to the International Taxpayers Web Page   [Text]
Learn about the International Taxpayers section on IRS.gov and the helpful resources available to you.

International Taxpayers-Individual Taxpayer Identification Number (ITIN)   [Text]
This video helps non-U.S. citizens determine if they need an IRS-issued tax reporting number, known as an ITIN, and how to apply for one.

International Taxpayers-Filing Requirements   [Text]
Learn about the requirements for filing an individual income tax return, including income limits while living abroad.

International Taxpayers-Filing Status If Married to a Nonresident Alien   [Text]
Find out different filing status options if you are married to a nonresident alien.

International Taxpayers-Foreign Earned Income Exclusion   [Text]
Find out who is eligible, what income qualifies and how to claim the exclusion.

International Taxpayers-Foreign Tax Credit   [Text]
Find out if you can claim a foreign tax credit for the foreign tax you paid.

If you need individual assistance on any of these matters go to www.TaxMeLess.com and www.expatattorneycpa.com for attorneys and CPAs with specialized expertise in all of these matters. Email us at ddnelson@gmail.com 

 References/Related Topics

• International Taxpayer

Purchasing, Owning and Selling Real Estate in Mexico ...Almost Everything You Need to Know

Over 65 articles by experts on every aspect of purchasing, owning and selling real estate in Mexico.   http://www.mlsinbajasur.com/real-estate-articles.html

June 15th Expat Tax Return Deadline and Filing for Extensions

If you were an expat living abroad on 4/15/15, your tax return  for 2014 is due on 6/15/15.  It can be extended further by filing form 4868 by that due date. Then your return is due on 10/15/15. These same due date rules apply to nonresident US tax returns.  This extension can be filed on paper or there are some on line locations which may permit you to file this extension form. Be certain to check the box indicating your are an expat.

If you need additional time to qualify for the bonafide residence foreign earned income exclusion (form 2555) you can file form 2350 to extend your return further out until a date you have qualified for a full calendar year living abroad.

Your Form 114 (FBAR) which reports your foreign financial accounts is due on 6/30/15 for 2014 and cannot be extended any further.  Failure to timely file this reporting form can result in substantial penalties.  You can only file this form on line at http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html

Though expats get these special extension rules, any taxes owed must be paid in by 4/15/15 to avoid penalty and interest charges if any taxes are later due with the return.

Form BE10 - Form Required by Bureau of Economic Analysis of Department of Commerce for those who own 10% or more of a foreign corporation

Dear Clients,

Please see below link regarding a potential disclosure requirement for 2014 with the Bureau of Economic Analysis. As a courtesy, we are making you aware of the potential requirement. This is not a tax-related filing but is a survey that is required whenever a U.S. person owns 10% or more of any business enterprise overseas. The form is due May 29th5 but you can file an extension.  June 30.

http://www.bea.gov/surveys/respondent_be10.htm

Our firm does  not plan to get involved in these filings as a rule; however, if any of you need help we can see what we can do. If you are conservatively minded you should file the form to avoid any exposure to possible penalties.

Tax Benefits for US Expats Available for College for themselves and Children

There are credits and deductions for many expatriates and residents if they go to college or send their

children to college. Do not overlook these possible tax credits and deductions when doing your return.

READ MORE ABOUT COLLEGE EDUCATION BENEFITS FOR EXPATS AND THEIR CHILDREN HERE 

DIRECTIONS FOR FILING FBAR (FORM 114) FOREIGN FINANCIAL ACCOUNT REPORT ON LINE - THIS IS DUE 6/30/15 FOR 2014

You can download step by step directions for filing the Form 114 (FBAR) to report your foreign financial accounts HERE   If you need help filing this form or want a CPA/Attorney  to file the form for you email us at ddnelson@gmail.com.   Also if you have questions on whether or not you should file the form or need to file ones for past years (the statute of limitations is six years which means if you are required to file the form you should file the past six years) please contact us. www.usexpatattorneycpa.com 

Time Sets Forth Taxpayer Characteristic of Those Most Likely To Be Audited

Those most likely to be audited by the IRS include the following individuals:

• People who show more than $10 million in income or NO income at all!
• People who file International Tax returns and show International Activies on Their Return

The IRS is using various laws and other techniques to locate the  Seven Million Americans who live outside the US.  It appears that over half of those individuals are still not filing annual tax returns as required by law.  If you do file, you do not get doubled tax since you get credit for taxes you pay to foreign countries which directly offset your US income tax on the same income.

There are special reporting forms for US bank accounts, foreign corporations, foreign trusts, foreign partnerships, foreign mutuals funds, etc. Failing to file these forms can result in penalties of $10,000 or more and often the statue of limitations never runs out on the IRS's ability to audit your return if you fail to file these required forms.

Let us help you catch up and enter the programs which currently exist and may be terminated any day by the IRS which reduce or eliminate many penalties for failing to file or filing late.  Email us at ddnelson@gmail.com.  We offer all clients the absolute  legal privacy  of Attorney/Client privilege if required.  Don D. Nelson, Attorney at Law, CPA.

Time Magazine Article on Taxpayers Most Likely to be Audited

Americans Surrendering Their US Citizenship At an All time High

It is getting more complicated daily to surrender your US Citizenship.  It is a two step process. The legal side is with the State Department and costs $2,350 plus you must fill out their forms.  Part two requires that you file final tax returns with the IRS and file a special form that states all of your assets.  If your total net worth on surrender exceeds $2,000,000 or includes certain types of items, you may have to pay an exit tax on the current fair market value of some or all of those assets.  Also if your total assets exceed $2,000,000US you may also be subject to restrictions and conditions on visits to the US after surrender and gifts and inheritances left to US beneficiaries or relatives.

You must have filed the last five years tax returns and your  the amount of tax you have paid during those past five years on your income must be below a certain amount to qualify to get rid of your citizenship without tax penalties

Proper tax planning  will often reduce or eliminates many of these potential IRS tax problems. We have advised or assisted over 100 individual citizens or green card holders (long term ones are subject to the same rules) with the process and often saved them hundreds of thousands of dollars in taxes.Email us if you need assistance or help with the complex process and planning it out.

READ MORE ABOUT CURRENT SURRENDERS IN THE  FORBES ARTICLE HERE

IF ABROAD AND CANNOT USE US POST OFFICE - WHERE AND HOW TO SEND IN TAX RETURNS TO IRS

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Submission Processing Center Street Addresses for Private Delivery Service 

Private Delivery Services should deliver returns to only the following Submission Processing Center street addresses: (Fed Exp and UPS do not deliver to PO Boxes)

Austin - Internal Revenue Submission Processing Center	3651 S IH35,  Austin TX 78741
Cincinnati - Internal Revenue Submission Processing Center	201 West Rivercenter Blvd.,  Covington, KY 41011
Fresno - Internal Revenue Submission Processing Center	5045 East Butler Avenue,  Fresno, CA 93727
Kansas City - Internal Revenue Submission Processing Center	333 W. Pershing,  Kansas City, MO 64108
Ogden - Internal Revenue Submission Processing Center	1973 North Rulon White Blvd.  Ogden, UT 84404

Send your returns to the submission processing center designated for your type of return: Where to File Tax Returns - Addresses Listed by Return Type

PRIVATE DELIVERY SERVICES SHOULD NOT DELIVER RETURNS TO IRS OFFICES OTHER THAN THOSE DESIGNATED ABOVE

THE IRS HAS ALSO RECENTLY STATED ALL RETURNS SHOULD BE SENT IN BY UPS OR FEDERAL EXPRESS. IT IS NO LONGER RECOMMENDING YOU USE DHL DUE TO ITS CUTBACK IN US SERVICES

When if Failing to File an FBAR (form 114 - foreign account report) WillFul or Unwillful

The penalty for willfully failing to file the FBAR is the greater of $100,000 or 50% of the account balance at time of violation.  The penalty for a non-willful violation is up to $10,000.  The documents released in late 2014 by the IRS list some of the items that the IRS considers when determining whether an FBAR violation was willful:

Factors supporting a willful FBAR penalty:

• Opened the foreign bank account
• Owner of, or a financial interest in, the foreign account
• Tax non-compliance
• Did not seek advice, or relied upon the advice of a promoter, foreign banker, or other unqualified tax professional.
• Violations persist after notification of FBAR reporting requirements
• Foreign account not disclosed to return preparer
• No business reason for the foreign account
• No family or business connection to the foreign country
• An offshore entity owns the account
• Previously-filed FBARs do not include all foreign accounts
• Illegal income in the foreign account
• Participated in an abusive tax avoidance scheme

Factors not supporting a willful FBAR penalty:

• Inherited the foreign bank account
• Only signature authority over the foreign bank account
• Tax compliance
• Relied upon the advice of a tax return preparer, a CPA, an attorney, or another
  qualified tax professional.
• Full compliance after notification of FBAR reporting requirements
• Foreign account disclosed to return preparer
• Business reason for the foreign account
• Family or business connection to the foreign country
• Person owns the account in his name

This week a district court held that the $10,000 per year penalty was valid and did not result in excessive penalties or denial of due process when the taxpayer had originally marked the Schedule B with a NO stating he had no foreign bank accounts when he actually did and had them for some time.  The amount kept abroad  in foreign banks was approximately $300,000.  The Court apparently felt that marking the box on Schedule B with a NO  was not unwillful.

The FBAR statute does not define what constitutes a separate FBAR "violation."  See 31 U.S. Code § 5321(a)(5).  Therefore,  the IRS could impose multiple FBAR penalties per year.  The documents released by the IRS use the example of an individual who failed to file the FBAR for three years to report two foreign accounts.  The IRS examiner would have the discretion to assert either (i) 6 violations, one per account per year, (ii) 3 violations, one per FBAR, or (iii) one violation for the entire three year period. The document  does state that "assertion of multiple penalties and the assertion of separate penalties for multiple violations with respect to a single FBAR form should only be taken in the most egregious cases." 

IRS CRIMINAL PRIORITIES AND PROSECUTION RATE IN 2014

IRS  2014 Investigative Priorities: Criminal Investigation’s highest priority is to prosecute the following tax crimes:

  Identity Theft Fraud
  Return Preparer Fraud ; Questionable Refund Fraud
  International Tax Fraud
  Fraud Referral Program
  Political/Public Corruption
  Organized Crime Drug Enforcement Task Force (OCDETF)
  Bank Secrecy Act and Suspicious Activity Report (SAR) Review Teams
  Asset Forfeiture
  Voluntary Disclosure Program
  Counterterrorism and Sovereign Citizens FY14 Business Results:

In 2014 there were only 4,297criminal investigations initiated by the IRS and out of this there were only 3,110 criminal convictions..  This is from a total US population of approx 330 million people. Therefore, you have to be a pretty bad person or a special target for the IRS to even bother with seeking criminal prosecution.

If you are one of those pretty bad persons, email us at ddnelson@gmail.com for help.

IRS REPORTING REQUIREMENTS FOR THOSE WITH FOREIGN ASSETS

The Internal Revenue Service  today reminded U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2014, that they may have a U.S. tax liability and a filing requirement in 2015.

Most People Abroad Need to File

A filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the foreign earned income exclusion or the foreign tax credit , that substantially reduce or eliminate their U.S. tax liability. These tax benefits are not automatic and are only available if an eligible taxpayer files a U.S. income tax return.

The filing deadline is Monday, June 15, 2015, for U.S. citizens and resident aliens whose tax home and abode are outside the United States and Puerto Rico, and for those serving in the military outside the U.S. and Puerto Rico, on the regular due date of their tax return. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for details.

Nonresident aliens who received income from U.S. sources in 2014 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 15 depending on sources of income. See Taxation of Nonresident Aliens on IRS.gov.

Special Reporting for Foreign Accounts and Assets

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014 must file with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). It is due to the Treasury Department by June 30, 2015, must be filed electronically and is only available online through the BSA E-Filing System website. For details regarding the FBAR requirements, see Report of Foreign Bank and Financial Accounts (FBAR).

In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets.  Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

IRS Simplifies Reporting for Canadian Retirement Accounts

The IRS has eliminated a special annual reporting requirement that has long applied to taxpayers who hold interests in either of two popular Canadian retirement plans. This is part of an IRS change announced in October making it easier for taxpayers with these plans to get favorable U.S. tax treatment. As a result, many Americans and Canadians with registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) no longer need to file Form 8891 each year reporting details on these plans. This change does not affect any other reporting requirements that may apply, such as FinCEN Form 114 and Form 8938.

Report in U.S. Dollars

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.

Both Form 114 and Form 8938 require the use of a Dec. 31 exchange rate for all transactions, regardless of the actual exchange rate on the date of the transaction.  Generally, the IRS accepts any posted exchange rate that is used consistently. For more information on exchange rates, see Foreign Currency and Currency Exchange Rates.

Expatriate Reporting

Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the United States during 2014 must file a dual-status alien return, attaching Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service Philadelphia, PA 19255-0049, by the due date of the tax return (including extensions). See the instructions for this form and Notice 2009-85, Guidance for Expatriates Under Section 877A, for further details.

For more and help go to www.taxmeless.com.  Email  ddnelson@gmail.com

Michael Bolton sings an Emotional Song to the IRS

Go to the last 1/2 of this Video to see Michael Boltons emotional IRS song.

IRS Tax Tip 2015-57: Ways to Pay Your Tax Liability

IRS Tax Tip 2015-57: Ways to Pay Your Tax Liability  Need further expat or international us tax assistance....go to www.taxmeless.com

Expats - Retirement Costs Many Do Not Think About

Click here to see retirement costs you may not have considered in your retirement plan   If you plan to retire abroad, planning will help since every year various foreign locations become more expensive and the cost to retire may increase. Let help with your estate or retirement plan abroad (taking into account US tax and estate law) call us at ddnelson@gmail.com.

IRS International Tax Topic Index Will Answer Most Expat and International Tax Questions

The International Tax Topic Index is a gateway into IRS Tax Map specifically designed for taxpayers with international filing requirements. IRS Tax Map gathers all information about a topic in one place and contains topics from across the IRS.

You can find international topics using search or the  link below below. Use the search box on the left navigation bar to search all topics in Tax Map including international topics.

LINK TO IRS INTERNATIONAL TAX TOPICS INDEX

If you need further help with any question or assistance contact  our firm Kaufman Nelson LLP for assistance from an Attorney, CPA with over 30 years experience.  Ask for a mini consultation.  Email us at ddnelson@gmail.com 

Six IRS Tax Tips about Reporting Foreign Income

Are you a U.S. citizen or resident who worked abroad last year? Did you receive income from a foreign source in 2014? If you answered ‘yes’ to either of those questions here are six tax tips you should know about foreign income:

1. Report Worldwide Income.  By law, U.S. citizens and residents must report their worldwide income. This includes income from foreign trusts, and foreign bank and securities accounts.

2. File Required Tax Forms.  You may need to fileSchedule B, Interest and Ordinary Dividends, with your U.S. tax return. You may also need to file Form 8938, Statement of Specified Foreign Financial Assets. In some cases, you may need to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts. See IRS.gov for more information.

3. Review the Foreign Earned Income Exclusion. If you live and work abroad, you may be able to claim the foreign earned income exclusion. If you qualify, you won’t pay tax on up to $99,200 of your wages and other foreign earned income in 2014. See Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, for more details.  On top of that amount you may also be eligible for the foreign housing exclusion or deduction if you earn in excess of the foreign earned income exclusion.

4. Don’t Overlook Credits and Deductions.  You may be able to take a tax credit or a deduction for income taxes you paid to a foreign country. These benefits can reduce your taxes if both countries tax the same income.

5. Tax Filing Extension is Available.  If you live outside the U.S. and can’t file your tax return by April 15, you may qualify for an automatic two-month extension of time to file. That will give you until June 16, 2015, to file your U.S. tax return. This extension also applies to those serving in the military outside the U.S. You will need to attach a statement to your return explaining why you qualify for the extension.

6. Get  Tax Help.  Check the international services Web page for the types of help the IRS provides. 

For more on this topic refer to Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. 

If you are preparing your own return and have questions, we can provide you with the answers in a mini consultation. Or if you want your return reviewed prior to filing with the IRS, we can do that too.  And of course, we also prepare expatriate, nonresident and international tax returns.  We have over 30 years experience preparing expatriate and nonresident tax returns. We are the experts you need.

Email for assistance at ddnelson@gmail.com 

Additional IRS Resources:

• Taxation of U.S. Resident Aliens
• Publication 514, Foreign Tax Credit for Individuals
• International Taxpayers

IRS Required Withholding on Payments to Foreign Companies and Individuals

U.S. Tax Withholding on Payments to Foreign Persons U.S. source income paid to foreign individuals amounts to $140 billion each year. Most types of U.S. source income paid to a foreign person are subject to a withholding tax of 30%, although a reduced rate or exemption may apply if stipulated in the applicable tax treaty.

General Rule

In general, a person that makes a payment of U.S. source income to a foreign person must withhold the proper amount of tax, report the payment on Form 1042-S and file a Form 1042 by March 15 of the year following the payment(s).

Withholding Agent

The person making the payment is considered to be the withholding agent. You are a withholding agent if you are a U.S.or foreign person that has control of any item of income of a foreign person that is subject to withholding.

A withholding agent may be an:

• Individual
• Corporation
• Partnership
• Trust
• Association
• Nominee (under section 1446 of the Code) or
• Any other entity, including any foreign intermediary, foreign partnership, or U.S. branch of certain foreign banks and insurance companies.

 As a withholding agent, the payer is personally liable for any tax required to be withheld and which the payer fails to withhold. 

A payment to a foreign person is subject to withholding if it is from sources within the United States, and it is either:

• Fixed or determinable annual or periodical ( FDAP) income, or
• Certain gains from the disposition of timber, coal, and iron ore or from the sale or exchange ofintangible property (such as patents or copyrights)

Examples of FDAP income subject to withholding include (but are not limited to):

• Compensation for personal services
• Dividends
• Interest
• Pensions and Annuities
• Alimony
• Real property income (such as rents).
• Royalties   
• Taxable scholarships and fellowship grants

Withholding Agent Obligations

When you make a payment of U.S. source income to a foreign person or entity you are normally required to withhold U.S. income tax at a rate of 30% and report it on Forms 1042-S and 1042 by March 15 of the year following the payment(s).

The penalty for not filing Forms 1042-S and1042 when due (including extensions) is usually 5% of the unpaid tax for each month or part of a month the return is late, but not more than 25% of the unpaid tax. Additional penalties apply for failure to provide complete and correct information or if you fail to provide a complete and correct statement to each recipient. The maximum penalty is $100,000 per year.

More detailed information on this subject can be found in the links below. Contact us if you need more information for your particular situation.  ddnelson@gmail.com 

Links:    

1042   Annual withholding tax return for US Source income of foreign persons

1042-S.  Foreign persons U.S. source income subject to withholding

Non Resident Alien Withholding  Information from www.irs.gov

Publication 515   Withholding of tax on nonresident aliens and foreign entities