Current Status of Opting Out of IRS Voluntary Offshore Disclosure Program

If you have not filed required FBARs, 5471, 3520 and other foreign asset reporting forms with the IRS for past years the IRS recommends you enter the 2012 Offshore Voluntary Disclosure Program.  However, in many instances that 27.5% penalty seems excessive for the value of the assets involved.  The IRS says at any time you can opt out of the program which means your past filings or amendments will be sent immediately to audit who can assess a smaller amount of penalty or a greater amount of penalties than provided for in the Offshore Disclosure Program.

There is no written and very little reported information on what happens to those taxpayers who Opt Out of the Offshore Disclosure Program.  BNA, a leading tax publisher for tax professionals, has in the following article reported the current status of Opting Out.  READ THE ARTICLE HERE

If you need to discuss your alternatives and the possible consequences of filing past year foreign assets reporting forms and the related income we can help.  Email us at ddnelson@gmail.com

US Nonresidents Purchasing US Investment Property- IRS Tax Rules

US real estate can be a great investment and produce income as rental.  In most situations you can even obtain very favorable income tax treatment.  As a nonresident there are no restrictions on owning US real property for personal or rental purposes.

The Good Tax News:

• No restrictions on US nonresidents investing in US rental properties.  Nonresidents income tax on the investment is the same as that paid by US residents if they make the proper election to have the rental treated as doing business in the US.
• Residential rentals are depreciated over a 27.5 year period.  You must allocated the purchase price between the building (which can be depreciated) and the land which cannot be
  
  depreciated. The depreciation taken each year reduces your taxable income from the property.
• You must file form 1040NR with the IRS each year and a state income tax return if the property is located in a state with income taxes (which is most likely).
• If you wish to sell your original rental and trade into another one you are eligible to do so tax free if you qualify under the IRC 1031 tax free exchange rules. The new rental must still be located in the US.  You cannot tax free exchange into a rental property outside of the US.

The Bad News (with  possible solutions):

• If the nonresident dies while owning the property the fair market value of the property will be subject to US estate tax to the extent it exceeds $60,000.    However, the property will then have a new stepped up basis for US income tax purposes equal to the fair market value on the estate tax return.  There are ownership methods  using foreign trusts or corporations which  can be used to avoid the estate tax.

We can advise you on all the  US tax aspects  ( and most legal and financial questions) involved in the purchase of real estate or businesses in the US while you are a nonresident.  Email us at ddnelson@gmail.com or visit our website at www.TaxMeLess.com or www.expatattorneycpa.com.

US Expats and the Affordable Care Act (Obamacare) Requirements

We have had many questions from US expats whether or not they are going to have to purchase health insurance that qualifies under the Affordable Care Act (Obama care) or be penalized if they do not.

There is one safe harbor where you will not have to take any action.  If you are eligible to take the IRC 911  foreign earned income exclusion (Form 2555) either as a bonafide resident of a foreign country or under the physical presence test, you are specifically exempted from the health
insurance requirements of the Act.

Also, if you are working abroad but covered by the Group plan of your US employer or covered by medicare you are exempt from the Affordable Care Act.

Those who only work temporarily abroad for a few months and then return to the US are not exempted from the Acts requirements and must obtain health insurance or suffer penalties

Nonresidents who are not in the US long enough to become permanent residents (usually 183 days or more) are not required to obtain health coverage.

HSBC DEPOSITOR FOUND GUILTY ON FAILURE TO FILE FBARS AND SHOW TAXABLE INCOME FROM DEPOSITS

Read all details including a copy of the courts guilty verdict in the Federal Tax Crimes Blog by Jack Townsend.

Avoid these problems by catching up now. After IRS contacts you, it is too late to apply for the amnesty allowed in the Offshore Disclosure Program.  We can help

US SOCIAL SECURITY FOR THOSE OUTSIDE OF THE US AND US NONRESIDENTS

Sometimes there are problems receiving social security when you are outside the US or a nonresident of the US living in  another country.  The Social Security Administration has published a great pamphlet setting forth the rules.  They also are good at answering questions when you phone the SSA.  Their website is at www.ssa.gov.   The Pamphlet setting forth those rules can be Downloaded  HERE.

100th Anniversary of the US Income Tax

About 100 years ago in 1913 Congress and the states approved the 16th amendment  to the US constitution which created the US income tax.   Prior to that the US Supreme Court had held that the income tax was not Constitutional.

In 1913, the tax code consisted of 400 pages, but by 2012 the tax code was over 73,608 pages.  The US has gone form a simple system to a very complex unfriendly system.

But having some sort of taxation goes back to the country's beginning. From 1791 to 1802, the government was supported by tax revenue from the sale of such items as liquor, tobacco, sugar, property sold at auction and even through the sale of slaves.

The high cost of the War of 1812 saw the first sales tax on gold, silverware, jewelry and watches. But by 1817, Congress eliminated all taxes and relied on tariffs from imported goods for revenues.

It was in 1862, to fund the Civil War, that Congress enacted the first income tax. Anyone making between $300 to $10,000 a year paid a rate of 3 percent. That tax ended soon after the war.

Congress also established the Internal Revenue Service at the same time, which had much the same power and authority then as it does now.

Jumping to 1894, Congress passed the first peacetime income tax law, but a year later the Supreme Court declared it unconstitutional. The court said that taxes on rents and real estate income had to be divided among the states according to population, which the law did not allow.

But the court did make a crucial statement in its ruling. It said that Congress had the right to impose a direct income tax—and that led to the passage of the 16th Amendment on October 4, 1913.

Voluntary Regular Disclosure of Foreign Bank Accounts Goes Bad

http://www.forbes.com/sites/irswatch/2013/09/26/zwerner-answers-doj-effortsto-collect-multiple-50-percent-civil-fbar-penalties/

Disclose Your Foreign Financial Accounts or Else!

FATCA's Bleak Choices For Accounts, Income, Disclosure Read More in This Forbes Article

We have assisted, advised and represented hundreds of taxpayers disclose their foreign bank and financial accounts to the IRS.  If you need experienced attorney/CPA representation email us 

See tax reasons Why Americans Surrender Citizenship

Americans turn in passports as new tax law hits.  ~   Read the whole story here from CNN Money

Our firm has advised or represented over a hundred clients to date in this process!

Foreign Retirement Plans to Register & Report US Citizens Accounts to IRS.

Read more in Bloomberg's Business Week Article HERE

REDUCE YOUR IRS PENALTIES - Read their manual

Read the IRS Manual on Taxpayer Penalties HERE

Email us if you need experienced tax professional representation against the IRS

IRS SAYS ALL SAME SEX MARRIAGES OK FOR FEDERAL TAX PUPOSES

IRS Rules All Legal Same Sex Marriages Will Be Recognized For Federal Tax Purposes Read More Here

Better Hurry Up And Report Your Foreign Accounts!

Every American With Money Abroad--Anywhere Abroad--Is Impacted By Massive Bank Deal READ MORE HERE

FBAR NEW FILING METHOD PUZZLE?

Foreign Bank Accounts, IRS, FinCEN & Catch-22 http://www.forbes.com/sites/robertwood/2013/08/20/foreign-bank-accounts-irs-fincen-catch-22/

Expatriate ( surrender us citizenship) to save taxes

http://www.forbes.com/sites/robertwood/2013/08/12/thousands-leave-u-s-over-taxes-5-rules-if-youre-tempted/

FBAR form TDF 90-22.1 replaced by FinCen Report 114

The FBAR form TDF 90-22.1 that US taxpayers must use to report their foreign bank and other financial accounts (usually including foreign stock brokerage accounts and pension plans) has been renamed as FinCen Report 114.  It now must be filed on line and cannot be filed on paper.  The renumbering of the form will only ad to the confusion many taxpayers have concerning the filing requirements for this form and when they must file it.

DOWNLOAD THE INSTRUCTIONS ON HOW TO USE THE NEW ON LINE FORM HERE

In June, the AICPA reported that Financial Crimes Enforcement Network (FinCEN) took a big step forward and began allowing third-party preparers of FBARs to e-file on behalf of account holders.  To facilitate the e-filing of FBARs, FinCEN has released a new FBAR e-filing authorization form.  The new form, FinCEN Form 114a, Record of Authorization to Electronically File FBARs, is to be used by filers who submit FBARs jointly with their spouses, or through third-party preparers.  The form should not be filed with the FBAR but copies of it must be maintained by both the filer and the account holder and made available upon request by FinCEN or the IRS. 

FinCEN is also making technical adjustments to ease FBAR filing and allow for enhancements such as introducing new space on the form for filers to provide reasons for late filing as well as the addition of third party preparer information. In addition, an FBAR batch filing capability is now available for testing. These new capabilities and the ability for filers to test their batch files are available on the BSA E-Filing Test site. Updated FBAR Batch Filing Specifications are also located on the BSA E-Filing Test site. FinCEN anticipates the revised electronic FBAR and batch capability will be available for general use by September 30, 2013.

If you need assistance filing late FBARs (now FINCEN Form 114) please email us at ddnelson@gmail.com or visit our website at www.TaxMeLess.com 

TAX DEDUCTIONS FOR EXPAT PART TIME BUSINESSES

How Not To Run A Side Business: Navigating The Hobby Loss Rules http://www.forbes.com/sites/anthonynitti/2013/07/22/how-not-to-run-a-side-business-navigating-the-hobby-loss-rules/

WHAT IRS LOOKS AT TO DETERMINE IF IT WILL AUDIT YOUR TAX RETURN

Great flow chart graphic (see link below) showing the statistics and criteria for audit by the IRS.  Note that foreign bank accounts are one of the criteria.  The IRS has recently significantly increased teh audits of expatriates living abroad . Those audits are conducted by mail, phone, etc.  You will need written documentation to support anything they question on your return (without written documentation you will lose the deduction).

The IRS will often test your reported income by asking to see your bank statements, etc. to determine how much money is going through those statements and compare it with your reported income. Any difference must be explained.  Your lifestyle (home costs, living expenses, etc) must also be supported by your income or you may have to explain and prove where the additional funds to support it come from.

LINK TO AUDIT CRITERIA AND STATISTICS  http://www.entrepreneur.com/article/227437.

Email us if you need experienced attorney/CPA tax audit representation 

GAO: Foreign account “quiet disclosures” may be much higher than detected

Quite disclosure is when taxpayers with previously unreported foreign bank or financial accounts file amended returns to report the income and file the required FBAR forms (TDF 90-22.1) without going through the several formal IRS offshore disclosure programs.  The IRS does not approve of silent disclosure and has threatened to seek penalties against all taxpayers who try that method of filing past FBAR forms.  The Government Accounting Office has release a report which can be read below about the large number of quiet disclosures that have not yet been discovered by the IRS.

GAO: Foreign account “quiet disclosures” may be much higher than detected

4 Real Life Stories of Individuals Living Abroad who entered the IRS Offshore Disclosure Program

Marie Sapirie in Tax Analysts describes four real life scenarios of taxpayers who entered the IRS Offshore Disclosure program which includes the complications, problems and hardship suffered by these individuals. READ ARTICLE HERE

We have assisted well over a hundred expat US Citizens to date surface with the  IRS and through the complexities of the several programs available.  We can help you.  ddnelson@gmail.com  and www.expatattorneycpa.com