IF YOU CREATE OR ARE A BENEFICIARY OF A FOREIGN TRUST (AND MANY FOREIGN PENSION PLANS) YOU MUST REPORT TO THE IRS OR PAY PENALTIES

General Rules

A U.S. person includes a citizen of the United States, a domestic partnership, a domestic corporation, any estate other than a foreign estate, any trust if a U.S. person exercises primary supervision over the administration of the trust or if one or more U.S. persons have the authority to control all substantial decisions of the trust, and any person that is not a foreign person.

Tax consequences can apply to U.S. persons who are treated as owners of a foreign trust and U.S. persons treated as beneficiaries of a foreign trust, and to the foreign trust itself. There can be income tax as well as transfer tax consequences that should be considered.

In addition to tax consequences, there a number of information reporting rules that can apply to a U.S. person who enters into transactions with a foreign trust or is treated as an owner of a foreign trust under the grantor trust rules of Internal Revenue Code (IRC) sections 671-679, including information reporting on Forms 3520 and 3520-A; on Form 8938, Statement of Specified Foreign Financial Assets; and on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

This page focuses on information reporting requirements on Forms 3520 and 3520-A (under IRC section 6048), as well basic income tax considerations. 

Income Tax Consequences

• U.S. owner of a foreign trust - In general, a U.S. person who is treated as the owner of a foreign trust under the grantor trust rules (IRC sections 671-679) is taxed on the income of that trust. IRC section 679 applies specifically in the context of foreign trusts and will treat as an owner of a foreign trust a U.S. person who transfers assets to a foreign trust which has or is presumed to have a U.S. beneficiary. Each U.S. owner of a foreign trust should receive a Foreign Grantor Trust Owner Statement (Form 3520-A, page 3) from the foreign trust, which includes information about the foreign trust income they must report.
   
• U.S. beneficiary of a foreign trust – In general, a U.S. beneficiary of a foreign non grantor trust will report its share of foreign trust income.  Depending on whether the U.S. beneficiary is a beneficiary of a grantor or non grantor trust, the beneficiary should receive a Foreign Grantor Trust Beneficiary Statement or a Foreign Non Grantor Trust Beneficiary Statement, which includes information about the taxability of distributions the beneficiary has received.
   
• U.S. transferor of assets to a foreign non grantor trust - IRC section 684 requires the recognition of gain on certain transfers of appreciated assets to a foreign trust by a U.S. person.

Information Reporting

Form 3520

In general, a Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts is required to be filed when a U.S. person:

• creates or transfers money or property to a foreign trust or makes a loan to a foreign trust;
• receives distributions from a foreign trust, receives the uncompensated use of property of a foreign trust, or receives a loan from a foreign trust;
• is treated as the U.S. owner of a foreign trust under the grantor trust rules; and
• receives certain large gifts or bequests from foreign persons.

The instructions for Form 3520 include more information about:

1. who must file a Form 3520;
2. when and where the Form 3520 must be filed; and 
3. possible penalties for filing the Form 3520 late or filing incomplete or inaccurate information. 

See Form 3520 filing tips below. See also Gifts from Foreign Persons for information about reporting receipts of certain large gifts or bequests from certain foreign persons.

Form 3520-A

In addition to Form 3520, U.S. persons who are treated as owners of a foreign trust under the grantor trust rules must ensure that the foreign trust timely files a complete and accurate Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner , and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries. If a foreign trust fails to file Form 3520-A, the U.S. owner must: 

1. complete and attach a substitute Form 3520-A to a timely filed Form 3520, and
2. furnish the required annual statements in order for the U.S. owner to avoid penalties for the foreign trust’s failure to file a Form 3520-A.

The instructions for Form 3520-A include more information about: 

1. who must file a Form 3520-A or ensure that a Form 3520-A is filed; 
2. when and where the Form 3520-A must be filed; and 
3. possible penalties for filing Form 3520-A late or filing incomplete or inaccurate information. The instructions for Form 3520-A and Form 3520 also provide information about filing a substitute Form 3520-A.

Exceptions to filing Forms 3520 and 3520-A

Forms 3520 and 3520-A are not required to be filed for Canadian registered retirement savings plans (RRSPs) and Canadian registered retirement income funds (RRIFs).  See Rev. Proc. 2014-55 (PDF). In addition, Forms 3520 and 3520-A are not required to be filed for certain tax-favored foreign retirement trusts or tax-favored foreign non-retirement savings trusts, provided that the U.S. owner is an “eligible individual” and the tax-favored foreign trust meets certain requirements. See Rev. Proc. 2020-17 (PDF).  Caution: These exceptions do not affect any reporting obligations that a U.S. person may have to report specified foreign financial assets on Form 8938 or any other reporting requirement, including the requirement to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

Form 3520 and Form 3520-A filing tips to avoid penalties

• Form 3520
  • File Form 3520 by the 15th day of the fourth month following the end of the U.S. person’s tax year, or April 15th for calendar year taxpayers, subject to any extension of time to file that may apply. If you are a U.S. citizen or resident who lives outside the Unites States and Puerto Rico or if you are in the military or naval service on duty outside the United States and Puerto Rico, then the due date to file a Form 3520 is the 15th day of the 6th month following the end of the U.S. person’s tax year.
  • If an extension was filed with respect to your income tax return, be sure to check Form 3520, Box 1k, and enter the form number of the income tax return to avoid your Form 3520 being treated as filed late.
     
• Form 3520-A
  • File Form 3520-A using an Employer Identification Number (EIN) for the foreign trust on Line 1b of the form rather than the U.S. owner’s SSN or ITIN. If the foreign trust does not have an EIN, refer to How to Apply for an EIN.
  • File Form 3520-A by the 15th day of the 3rd month after the end of the trust’s tax year.  An automatic 6-month extension may be granted by filing Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns. Form 7004 must be filed under the foreign trust’s EIN.
  • If the foreign trust will not file a Form 3520-A, the U.S. owner of the foreign trust must file a substitute Form 3520-A by completing a Form 3520-A to the best of their ability and attaching it to a timely filed Form 3520, including extensions (see Form 3520 and Form 3520-A instructions for more information on filing a substitute Form 3520-A). Do not separately file a duplicate Form 3520-A if you are filing a substitute 3520-A.

Other Possible Filing Requirements

Form 1040, Schedule B, Part III, Foreign Accounts and Trusts, must be completed if you receive a distribution from, or were grantor of, or a transferor to a foreign trust.

If you transfer money or property to a foreign trust, you may be required to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

A foreign trust, which is not taxed as a grantor trust, may be required to file a Form 1040-NR, U.S. Nonresident Alien Income Tax Return  to pay U.S. tax on certain U.S. sourced income. See Publication 519, U.S. Tax Guide for Aliens and the instructions for Form 1040-NR for additional information.

You may be required to file Form 8938, Statement of Specified Foreign Financial Assets, to report your specified foreign financial assets if the total value of all the specified foreign financial assets in which you have an interest is more than certain reporting thresholds.

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account each year to the Internal Revenue Service by filing FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (FBAR).

If you need tax assistance with respect to foreign trust and pension plans from US Attorney and CPAs with the knowledge and expertise on these matters email us HERE

DRAMATIC INCREASE IN US EXPATRIATES SURRENDERING THEIR CITIZENSHIP (AND TAX FILING REQUIREMENT WITH THE IRS) -HERE ARE LEGAL RULES - THERE ARE ALSO SEPARATE AND COMPLEX IRS TAX RULES

 

 A. THE IMMIGRATION & NATIONALITY ACT  Section 349(a)(5) of the Immigration and Nationality Act (INA) (8 U.S.C. 1481(a)(5)) is the section of law governing the right of a United States citizen to renounce abroad his or her U.S. citizenship. That section of law provides for the loss of nationality by voluntarily and with the intention of relinquishing nationality: "(5) making a formal renunciation of nationality before a diplomatic or consular officer of the United States in a foreign state, in such form as may be prescribed by the Secretary of State."

B. ELEMENTS OF RENUNCIATION A person wishing to renounce his or her U.S. citizenship must voluntarily and with intent to relinquish U.S. citizenship: appear in person before a U.S. consular or diplomatic officer, in a foreign country at a U.S. Embassy or Consulate; and sign an oath of renunciation Renunciations abroad that do not meet the conditions described above have no legal effect. Because of the provisions of Section 349(a)(5), U.S. citizens can only renounce their citizenship in person, and therefore cannot do so by mail, electronically, or through agents. In fact, U.S. courts have held certain attempts to renounce U.S. citizenship to be ineffective on a variety of grounds, as discussed below. Questions concerning renunciation of U.S. citizenship in the United Statespursuant to INA section 349(a)(6) must be directed to United States Citizenship and Immigration Services (USCIS) of the Department of Homeland Security. 

 C. REQUIREMENT - RENOUNCE ALL RIGHTS AND PRIVILEGES A person seeking to renounce U.S. citizenship must renounce all the rights and privileges associated with such citizenship. In the case of Colon v. U.S. Department of State, 2 F.Supp.2d 43 (1998), the U.S. District Court for the District of Columbia rejected Colon’s petition for a writ of mandamus directing the Secretary of State to approve a Certificate of Loss of Nationality in the case because, despite his oath of renunciation, he wanted to retain the right to live in the United States while claiming he was not a U.S. citizen. 

 D. DUAL NATIONALITY / STATELESSNESS Persons intending to renounce U.S. citizenship should be aware that, unless they already possess a foreign nationality, they may be rendered stateless and, thus, lack the protection of any government. They may also have difficulty traveling as they may not be entitled to a passport from any country. Statelessness can present severe hardships: the ability to own or rent property, work, marry, receive medical or other benefits, and attend school can be affected. Former U.S. citizens would be required to obtain a visa to travel to the United States or show that they are eligible for admission pursuant to the terms of the Visa Waiver Program. If unable to qualify for a visa, the person could be permanently barred from entering the United States. If the Department of Homeland Security determines that the renunciation is motivated by tax avoidance purposes, the individual will be found inadmissible to the United States under Section 212(a)(10)(E) of the Immigration and Nationality Act (8 U.S.C. 1182(a)(10)(E)), as amended. Renunciation of U.S. citizenship may not prevent a foreign country from deporting that individual to the United States in some non-citizen status.

 E. TAX & MILITARY OBLIGATIONS /NO ESCAPE FROM PROSECUTION Persons who wish to renounce U.S. citizenship should be aware of the fact that renunciation of U.S. citizenship may have no effect on their U.S. tax or military service obligations . You must file special forms and final tax returns with the IRS to avoid having to file taxes in the future. In addition, the act of renouncing U.S. citizenship does not allow persons to avoid possible prosecution for crimes which they may have committed or may commit in the future which violate United States law, or escape the repayment of financial obligations, including child support payments, previously incurred in the United States or incurred as United States citizens abroad.

 F. RENUNCIATION FOR MINOR CHILDREN/INDIVIDUALS WITH DEVELOPMENTAL OR INTELLECTUAL DISABILITIES Citizenship is a status that is personal to the U.S. citizen. Therefore parents may not renounce the citizenship of their minor children. Similarly, parents/legal guardians may not renounce the citizenship of individuals who lack sufficient capacity to do so. Minors seeking to renounce their U.S. citizenship must demonstrate to a consular officer that they are acting voluntarily, without undue influence from parent(s), and that they fully understand the implications/consequences attendant to the renunciation of U.S. citizenship. Children under 16 are presumed not to have the requisite maturity and knowing intent to relinquish citizenship; children under 18 are provided additional safeguards during the renunciation process, and their cases are afforded very careful consideration by post and the Department to assess their voluntariness and informed intent. Unless there are emergent circumstances, minors may wish to wait until age 18 to renounce citizenship.

 G. IRREVOCABILITY OF RENUNCIATION Finally, those contemplating a renunciation of U.S. citizenship should understand that the act is irrevocable, except as provided in section 351 of the INA (8 U.S.C. 1483), and cannot be canceled or set aside absent a successful administrative review or judicial appeal. Section 351(b) of the INA provides that an applicant who renounced his or her U.S. citizenship before the age of eighteen (or lost citizenship related to certain foreign military service under the age of 18) can have that citizenship reinstated if he or she makes that desire known to the Department of State within six months after attaining the age of eighteen. See also Title 22, Code of Federal Regulations, section 50.20. See also Section 50.51 of Title 22 of the Code of Federal Regulations regarding the administrative review of previous determinations of loss of U.S. citizenship. Renunciation is the most unequivocal way by which a person can manifest an intention to relinquish U.S. citizenship. 

In addition to the legal rules set forth above, you must also separately comply with the IRS rules to achieve your goal of no longer filing US tax returns and paying US taxes. Those rules are complex and require filing the form 8854 along with a final tax return. We have counsel hundred of clients in this procedure and assisted them filing the required forms with great success for over 10 years. Contact us if you need assistance and help. We are CPAs and Attorneys and can provide you with ALL of the expertise you need.  Our next blog post will discuss the Tax requirements adn rules. EMAIL US WITH QUESTIONS FOR FOR HELP

Here’s what expat taxpayers need to know about the home office deduction

The home office deduction allows qualifying taxpayers to deduct certain home expenses on their tax return. With more people working from home than ever before, some taxpayers may be wondering if they can claim a home office deduction when they file their 2020 tax return next year.  

Here are some things to help taxpayers understand the home office deduction and whether they can claim it:

• Employees are not eligible to claim the home office deduction. 
• The home office deduction Form 8829 is available to both homeowners and renters.
•  There are certain expenses taxpayers can deduct. They include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.
• Taxpayers must meet specific requirements to claim home expenses as a deduction. Even then, the deductible amount of these types of expenses may be limited.
• The term "home" for purposes of this deduction:
  • Includes a house, apartment, condominium, mobile home, boat or similar property.
  • Also includes structures on the property. These are places like an unattached garage, studio, barn or greenhouse.
  • Doesn’t include any part of the taxpayer’s property used exclusively as a hotel, motel, inn or similar business.
•  There are two basic requirements for the taxpayer’s home to qualify as a deduction:
  • There must be exclusive use of a portion of the home for conducting business on a regular basis. For example, a taxpayer who uses an extra room to run their business can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business.
  • The home must be the taxpayer’s principal place of business. A taxpayer can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties. Therefore, someone who conducts business outside of their home but also uses their home to conduct business may still qualify for a home office deduction.
• Expenses that relate to a separate structure not attached to the home will qualify for a home office deduction. It will qualify only if the structure is used exclusively and regularly for business.
  
• Taxpayers who qualify may choose one of two methods to calculate their home office expense deduction:
  
• The simplified option has a rate of $5 a square foot for business use of the home. The maximum size for this option is 300 square feet. The maximum deduction under this method is $1,500.
• When using the regular method, deductions for a home office are based on the percentage of the home devoted to business use. Taxpayers who use a whole room or part of a room for conducting their business need to figure out the percentage of the home used for business activities to deduct indirect expenses. Direct expenses are deducted in full.
• Contact us at ddnelson@gmail.com if you need assistance or further information. We are one of the most experienced international and expatriate CPA firms and Attorneys on the Web. Visit our website at www.taxmeless.com 

IRS gives tips on filing, paying electronically and checking refunds online; 2019 tax returns and payments due July 15

The Internal Revenue Service today reminded taxpayers with a filing requirement to file an accurate tax return on time even if a balance due can’t be paid in full. The deadline to submit 2019 tax returns is July 15, 2020, for most people. Members of the military serving overseas may have more time.  An extension can be filed using form 4868 available on line.

File electronically to avoid most common errors
Filing electronically and choosing direct deposit remains the fastest and safest way to file an accurate income tax return and receive a refund. Filing electronically reduces tax return errors as the tax software does the calculations, flags common errors and prompts taxpayers for missing information.

An inaccurate tax return can delay a refund.

Some common errors to avoid include:

• Missing or inaccurate Social Security numbers. Enter each name and SSN exactly as printed on the Social Security card.
• Incorrect filing status. The Interactive Tax Assistant on IRS.gov can help taxpayers choose the correct status. Tax software also helps prevent these mistakes.
• Math errors. Tax preparation software does all the math automatically. Math errors are common on paper returns.
• Figuring credits or deductions incorrectly. Taxpayers should follow the instructions carefully, and double check the information they enter when filing electronically. The IRS Interactive Tax Assistant can help determine if a taxpayer is eligible for certain tax credits.
• Unsigned returns. Both spouses must sign if filing jointly. Taxpayers can avoid this error by filing their return electronically and digitally signing it. Exceptions may apply for military families if a spouse is serving overseas.
• Filing with an expired individual taxpayer identification number.

In most cases, tax software helps to reduce or eliminate these. Find complete details on all the benefits of filing electronically, including IRS Free File, commercial tax prep software or an authorized e-File provider from the “File” page on IRS.gov.

Checking on refunds
The IRS is processing electronic and paper tax returns and issuing refunds. The IRS normally issues most refunds in less than 21 days. Taxpayers who mailed a tax return will experience a longer wait time. There is no need to mail a second tax return or call the IRS. “Where’s My Refund?”  on IRS.gov is the most convenient way to check the status of a refund. It has a tracker that displays progress through three phases: (1) Return Received; (2) Refund Approved; and (3) Refund Sent.

All that is needed to use “Where’s My Refund?” is the taxpayer’s Social Security number, tax filing status (such as single, married, head of household) and exact amount of the tax refund claimed on the 2019 tax return. It is updated no more than once every 24 hours, usually overnight, so there’s no need to check the status more often.

Taxpayers should file now, schedule full or partial tax payments up to the July 15 due date
Taxpayers can pay online, by phone or with their mobile device and the IRS2Go app. When paying federal taxes electronically taxpayers should remember:

• Electronic payment options are the optimal way to make a tax payment.
• They can pay when they file electronically using tax software online. If using a tax preparer, taxpayers should ask the preparer to make the tax payment through an electronic funds withdrawal from a bank account.
• IRS Direct Pay allows taxpayers to pay online directly from a checking or savings account for free.
• Taxpayers can choose to pay with a credit card, debit card or digital wallet option through a payment processor. The processor may charge a fee. No fees go to the IRS.
• The IRS2Go app provides the mobile-friendly payment options, including Direct Pay and payment processor payments on mobile devices.
• Taxpayers may also enroll in the Electronic Federal Tax Payment System and have a choice of paying online or by phone by using the EFTPS Voice Response System.

Can’t pay a tax bill?
Everyone should file their 2019 tax return by the July 15 tax filing deadline regardless of whether or not they can pay in full. Taxpayers who owe and can’t pay all taxes due have options including: 

• Online Payment Agreement — Most individual taxpayers and many business taxpayers may qualify to use Online Payment Agreement to set up a payment plan. Taxpayers can setup a plan on IRS.gov/paymentplan in a matter of minutes. Setup fees may apply for some types of plans.
• Delaying Collection — If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer's financial condition improves. In light of COVID-19, IRS postponed many compliance efforts until July 15 or later under the People First Initiative.
• Offer in Compromise (OIC) — Taxpayers who qualify enter into an agreement with the IRS that settles their tax liability for less than the full amount owed.

Find more information on when, how and where to file see Tax Information for Individuals.

Need an extension of time to file a 2019 tax return?
Those who need more time to prepare their 2019 federal tax return can apply for an extension of time to file.  An extension of time to file does not grant an extension of time to pay taxes owed.  File an extension request, estimate and pay any owed taxes by the July 15 deadline to avoid possible penalties.

Individual tax filers, regardless of income, can use Free File to electronically request an automatic tax-filing extension. Filing this form gives the taxpayer until Oct. 15 to file a return. To get the extension, the taxpayer must estimate their tax liability on this form and pay any amount due

Taxpayers can also get an extension by paying all or part of their estimated income tax due and indicate that the payment is for an extension using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a credit or debit card. This way they won’t have to file a separate extension form and will receive a confirmation number for their records.

Check withholding
The IRS encourages taxpayers to do a Paycheck Checkup as soon as possible to avoid having too much or too little tax withheld this year. Too much normally results in a refund while too little lends itself to taxes owed next year. Taxpayers should check their withholding each year and when life changes occur, such as marriage, childbirth, adoption or buying a home.

The IRS Tax Withholding Estimator is an excellent tool to help people plan and make any needed tax withholding adjustments. 

Current Status of Delivery of Stimulous Payments to US Expatriates and Others

Read about the latest news on your Covid stimulous checks, the problems, how to resolve problems, how to enter your bank account number so you can have it deposited directly in your US bank account, etc. HERE FROM YAHOO NEWS 

Yes as an expat living abroad you can get this stimulous payment if you qualify.  Good luck. It may take many months to resolve all problems and for your payments to arrive. Most who have filed their 2019 return and included their US bank account number have already received their stimulous payment.  And yes, if you get the check it will included Donald Trumps name in the memo line.

Status on Covid Stimulous Payments As of Today

Note that all US tax filings normally due on April 15 or June 15 have been automatically extended to July 15 by the government.  No extension form was or is required.  FBAR filings are automatically extended to October 15.

You may be asking about your stimulus payment.  If so, you can check the status at https://www.irs.gov/coronavirus/get-my-payment and click on "Get My Payment".

We are finding that some clients who are indeed eligible for a stimulus are receiving this message when they go on the website: 

Payment Status Not Available

Acccording to information that we have on file, we cannot determine your eligibility for a payment at this time.

However, this does not mean you are ineligible for the stimulus payment.  It also does not mean you will not shortly be receiving a stimulus payment. 

We are finding that those who are in the following categories (who qualify for the stimulus) are receiving the above message - those who

-are qualifying based on their 2018 filing,

-have negative income in 2018 or 2019,

-filed their 2019 return after April 3,

-haven't received a direct deposit from the IRS before; and

-those who use a foreign address.

We expect that within a few days (perhaps by Friday) that this will have changed for those who indeed qualify, and you may receive more information.  It is expected that some payments will be released in a second or third wave of payments and/or paper checks by the government later this month.

The IRS system is supposed to allow the input of direct deposit information for those who have not utilized direct deposited in the past.  That functionality does not appear to be available yet on the IRS website.  Keep checking as the website is a work in progress.

GREAT SUMMARY OF THREE TYPES OF COVID DISASTER RELIEF LOANS FROM GOVERNMENT FOR YOUR BUSINESS

Farmers and Merchants bank has put together a great summary of the three types of Covid disaster READ THE DETAILS HERE.   If you need help applying for these loans Kauffman Nelson CPAs  may be able to help you.  These loans are generally restricted to businesses conducted in the US.  Many of our expat clients do live abroad but operate all or part of their business through US corporations, etc.
relief loans available for small businesses during these hard times. Email us HERE

COVID VIRUS BENEFIT PAYMENTS ARE COMING TO MOST TAXPAYERS ASSUMING THEY DO NOT MAKE TOO MUCH- HOW TO GET THAT PAYMENT AND ELIGIBILITY

The IRS will send out covid benefit stimulous payments to all taxpayers who filed a 2018 or 2019 tax return.  If you income decreased in 2019 you may want to file that tax return with the IRS as soon as possible since that decrease may me you eligible when previously your adjusted gross income was

too high or if you want IRS to direct deposit in your US bank account (and that information was no on your 2018 form 1040).

Determine your benefit payments and the rules, cut off for high income, etc. in the  FORBES MAGAZINE ARTICLE HERE

If you did not file a tax return you need to file it very soon. If your income was low and you were not required to file a tax return you can file a simple one now (to speed up process) or wait for the IRS to put up a website where you can register to receive it by direct deposit.

So far there is no limitation on making payments to those expats living and working abroad, though at some time in the future further rules or limitations may be anounced.  Want to file a tax reutrn now. CONTACT US TO GET YOUR TAX QUESTIONNAIRE A FEE QUOTE. 

Covid Tax Return Deadlines and Other IRS and State Covid Tax Changes

Current government and IRS pronouncements are not clear whether the automatic extension of time to file your tax returns and pay taxes without penalties apply to US expatriates living and working abroad (normal tax return due date for expatriates is 6/15/20). This may be clarified in the future, but in the interim if you are an expatriate you may want to pay all taxes by 4/15/20 to avoid interest.

The automatic extension until July 15,2020 under the COVID tax bill does not currently appear to include an automatic extension of time to file certain special reporting forms such as 5471, 3520, etc. Therefore, it is best until this is clarified that you file an IRS extension request for any returns that include these forms or the forms by the previous regular due date.

1040-NR returns which were previously due on April 15 (i.e. if there were wages paid) those returns have been extended to July 15, 2020.

The recent COVID tax bill includes outright payments of amounts to each taxpayer if their 2019 earnings (or 2018 if 2019 has not yet been filed) do not exceed certain amounts. SEE THE EXACT RULES FOR THE PAYMENT

If you have not filed your US return for 2018 and 2019 yet, you may want to file them immediately so the stimulus payment referred to in the previous paragraph will be made to you. If you have not filed for 2018, no payment will be made. If you wait too long, the stimulus might not be available. Note that if your 2019 income is lower than 2018 you may want to file in order to show eligibility.

Whether tax income limits for these cash payments apply to your expatriate income after deducting the foreign earned income exclusion or before is not certain at this time

For those who file state returns, many states including California have extended the due date your 2019 state tax return to match the July 15, 2020 federal deadline. Many also do not require payment of the taxes due until that date.

Email our tax CPAs and Attorneys for assistance and with your questions.

NEW TAX FILING DEADLINES AND RULES - COVID-19 US TAX LAW CHANGES

Dear Expat, Clients and Friends

Right now, your highest priority is the health of those you love and yourself. But if you have time to read about some non-medical but important matters related to the health crisis, here is a summary of IRS action already taken and federal tax legislation already enacted to ease tax compliance burdens and economic pain caused by COVID-19 (commonly referred to as Coronavirus).

I’ll be sending you summaries of additional developments as they take place. 

Filing and payment deadlines deferred. After briefly offering more limited relief, the IRS almost immediately pivoted to a policy that provides the following to all taxpayers—meaning all individuals, trusts, estates, partnerships, associations, companies or corporations regardless of whether or how much they are affected by COVID-19:

1. For a taxpayer with a Federal income tax return or a Federal income tax payment due on April 15, 2020, the due date for filing and paying is automatically postponed to July 15, 2020, regardless of the size of the payment owed.
2. The taxpayer doesn’t have to file Form 4686 (automatic extensions for individuals) or Form 7004 (certain other automatic extensions) to get the extension.
3. The relief is for (A) Federal income tax payments (including tax payments on self-employment income) and Federal income tax returns due on April 15, 2020 for the person’s 2019 tax year, and (B) Federal estimated income tax payments (including tax payments on self-employment income) due on April 15, 2020 for the person’s 2020 tax year.
4. No extension is provided for the payment or deposit of any other type of Federal tax (e.g. estate or gift taxes) or the filing of any Federal information return.
5. As a result of the return filing and tax payment postponement from April 15, 2020, to July 15, 2020, that period is disregarded in the calculation of any interest, penalty, or addition to tax for failure to file the postponed income tax returns or pay the postponed income taxes. Interest, penalties and additions to tax will begin to accrue again on July 16, 2020.

Favorable treatment for COVID-19 payments from Health Savings Accounts. Health savings accounts (HSAs) have both advantages and disadvantages relative to Flexible Spending Accounts when paying for health expenses with untaxed dollars. One disadvantage is that a qualifying HSA may not reimburse an account beneficiary for medical expenses until those expenses exceed the required deductible levels. But IRS has announced that payments from an HSA that are made to test for or treat COVID-19 don’t affect the status of the account as an HSA (and don’t cause a tax for the account holder) even if the HSA deductible hasn’t been met. Vaccinations continue to be treated as preventative measures that can be paid for without regard to the deductible amount.

Tax credits and a tax exemption to lessen burden of COVID-19 business mandates. On March 18, President Trump signed into law the Families First Coronavirus Response Act (the Act, PL 116-127), which eased the compliance burden on businesses. The Act includes the four tax credits and one tax exemption discussed below.

...Payroll tax credit for required paid sick leave (the payroll sick leave credit). The Emergency Paid Sick Leave Act (EPSLA) division of the Act generally requires private employers with fewer than 500 employees to provide 80 hours of paid sick time to employees who are unable to work for virus-related reasons (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The pay is up to $511 per day with a $5,110 overall limit for an employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for an employee that is a caregiver.

The tax credit corresponding with the EPSLA mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax). The credit amount generally tracks the $511/$5,110 and $200/$2,000 per-employee limits described above. The credit can be increased by (1) the amount of certain expenses in connection with a qualified health plan if the expenses are excludible from employee income and (2) the employer’s share of the payroll Medicare hospital tax imposed on any payments required under the EPSLA. Credit amounts earned in excess of the employer’s 6.2% Social Security (OASDI) tax (or in excess of the Railroad Retirement tax) are refundable. The credit is electable and includes provisions that prevent double tax benefits (for example, using the same wages to get the benefit of the credit and of the current law employer credit for paid family and medical leave). The credit applies to wages paid in a period (1) beginning on a date determined by IRS that is no later than April 2, 2020 and (2) ending on December 31, 2020.

...Income tax sick leave credit for the self-employed (self-employed sick leave credit). The Act provides a refundable income tax credit (including against the taxes on self-employment income and net investment income) for sick leave to a self-employed person by treating the self-employed person both as an employer and an employee for credit purposes. Thus, with some limits, the self-employed person is eligible for a sick leave credit to the extent that an employer would earn the payroll sick leave credit if the self-employed person were an employee.

Accordingly, the self-employed person can receive an income tax credit with a maximum value of $5,110 or $2,000 per the payroll sick leave credit. However, those amounts are decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid sick leave from an employer under the Act. The credit applies to a period (1) beginning on a date determined by the IRS that is no later than April 2, 2020 and (2) ending on December 31, 2020. 

...Payroll tax credit for required paid family leave (the payroll family leave credit).  The Emergency Family and Medical Leave Expansion Act (EFMLEA) division of the Act requires employers with fewer than 500 employees to provide both paid and unpaid leave (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The leave generally is available when an employee must take off to care for the employee’s child under age 18 because of a COVID-19 emergency declared by a federal, state, or local authority that either (1) closes a school or childcare place or (2) makes a childcare provider unavailable. Generally, the first 10 days of leave can be unpaid and then paid leave is required, pegged to the employee’s pay rate and pay hours. However, the paid leave can’t exceed $200 per day and $10,000 in the aggregate per employee.

The tax credit corresponding with the EFMLEA mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax). The credit generally tracks the $200/$10,000 per employee limits described above. The other important rules for the credit, including its effective period, are the same as those described above for the payroll sick leave credit.

...Income tax family leave credit for the self-employed (self-employed family leave credit). The Act provides to the self-employed a refundable income tax credit (including against the taxes on self-employment income and net investment income) for family leave similar to the self-employed sick leave credit discussed above. Thus, a self-employed person is treated as both an employer and an employee for purposes of the credit and is eligible for the credit to the extent that an employer would earn the payroll family leave credit if the self-employed person were an employee.

Accordingly, the self-employed person can receive an income tax credit with a maximum value of $10,000 as per the payroll family leave credit. However, under rules similar to those for the self-employed sick leave credit, that amount is decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid family leave from an employer under the Act. The credit applies to a period (1) beginning on a date determined by IRS that is no later than April 2, 2020 and (2) ending on December 31, 2020. 

...Exemption for employer’s portion of any Social Security (OASDI) payroll tax or railroad retirement tax arising from required payments. Wages paid as required sick leave payments because of EPSLA or as required family leave payments under EFMLEA aren’t considered wages for purposes of the employer’s 6.2% portion of the Social Security (OASDI) payroll tax or for purposes of the Railroad Retirement tax.

IRS information site. Ongoing information on the IRS and tax legislation response to COVID- 19 can be found here.

I will be pleased to hear from you at any time with questions about the above information or any other matters, related to COVID-19 or not. I wish all of you the very best in a difficult time.  Email us at TAX ASSISTANCE BY CPAS AND ATTORNEYS   Also visit our website at www.taxmeless.com for a wealth of information.  

IRS and International Tax Agencies Fight Global Tax Evasion

Many countries are now banding together to locate and prosecute global tax evaders through J5 and the OCED to work together to mutual catch the evaders and report to countries who may be owed taxes by the evaders.  Therefore if you are paying taxes in the country you live in but not paying taxes in another country (such as the USA) where you should, you now run the risk of being turned in to the IRS.

READ MORE HERE

For 2019 You Will Not Have to report Vitural Currency held in an Offshore Account on Form 114 - This Rule May Change in the Future

For this year the FinCEN has stated: “Currently the FBAR (Form 114) regulations do not define virtual currency held in an offshore account as a type of reportable account. For this reason, at this time, virtual currency held in an offshore account is not reportable on the FBAR.” 

However for the future you need to follow this issue since the FINCEN position on virtual currency accounts is very likely to change at some point.

You can find FinCEN’s letter of January 22, 2020 in Appendix III of the Government Accountability Office report Virtual Currencies: Additional Information Reporting and Clarified Guidance Could Improve Tax Compliance .

We can help you with your Form 114 fiing, questions and other international and expat tax questions.  Email us at ddnelson@gmail.com and go to our website at www.taxmeless.com 

Your Heirs Will be Liable to FBAR Penalties if You Do Not Resolve filing FBARS and the penalties While you Are Alive

If you do not file your Form 114 (FBAR) reporting your foreign bank and financial accounts, you can be penalized severely and so can your heirs after your death.

Read case law below about the penalty for failure to file FBARS passing on to the taxpayer heirs:

In United States v. Schoenfeld (M.D. Fla. 3:16-cv-1248-J-34PDB), by order dated 9/25/18, here, the Court held (p. 37) that the "the Court finds that the Government's claim did not abate upon Steven Schoenfeld's death."  The reasoning for the holding is found at pp. 24-36.  The first 24 pages include a short one-page introduction and then 23 pages disposing of procedural issues arising from the death of the person putatively liable that the Government sued after he had died but without knowledge of his death.  

In this case the Court holds that  that the FBAR civil willful penalty survives death.  The Court does a good job of developing and resolving the issue. 

There are procedures available that may let you file Form 114 (FBAR form) while you are still alive and avoid or reduce penalties.  Don't leave this burden to your heirs. Email us for help at ddnelson@gmail.com  and read more on our website at www.taxmeless.com.  We are an expert on this issue.

Criminal Penalites Imposed for Faiing to FIle Tax Returns as an Expatriate or Taxpayer. - How to avoid this problem

A taxpayer that willfully attempts to evade paying income taxes is subject to criminal and civil penalties. The type of fraud will determine the applicable penalty. The following are some examples of possible punishments for specific types of tax fraud. Remember a delinquent taxpayer expat or nonresident, can never be certain if the IRS will not view their actions as beyond negligent but intentional fraud. Therefore, file your past due returns before the IRS finds you first.  Filing yourself before being caught is viewed as indicative of no criminal intent.

• Attempt to evade or defeat paying taxes: Upon conviction, the taxpayer is guilty of a felony and is subject to other penalties allowed by law, in addition to (1) imprisonment for no more than 5 years, (2) a fine of not more than $250,000 for individuals or $500,000 for corporations, or (3) both penalties, plus the cost of prosecution.

• Fraud and false statements: Upon conviction, the taxpayer is guilty of a felony and is subject to (1) imprisonment for no more than 3 years, (2) a fine of not more than $250,000 for individuals or $500,000 for corporations, or (3) both penalties, plus the cost of prosecution .

• Willful failure to file a return, supply information, or pay tax at the time or times required by law. This includes the failure to pay estimated tax or a final tax, and the failure to make a return, keep records, or supply information. Upon conviction, the taxpayer is guilty of a misdemeanor and is subject to other penalties allowed by law, in addition to (1) imprisonment for no more than 1 year, (2) a fine of not more than $100,000 for individuals or $200,000 for corporations, or (3) both penalties, plus the cost of prosecution .

     Information you give your CPA and tax preparers  is not privileged and cannot be protected from the IRS or other law enforcement agencies. When you use a Attorney you get the benefit of "attorney/client" privilege and information you give your attorney is protect from the IRS and law enforcement.  If you feel you might have criminal tax problems, best to talk first with an attorney.

Get Legal Help with Your Income Tax Problems avoid these criminal consequences.  We are CPAs and attorneys with over 35 years experience with US international, expatriate and nonresident taxation. We can solve your tax  problems before it becomes necessary to hire a criminal attorney.  Email us at ddnelson@gmail.com  and visit our website at www.taxmeless.com. 

Estate Planning for US Expatriates and US Nonresidents with US Assets

If you are an expatriate with foreign assets, US assets  or a nonresident of the US with US assets you

need to look into estate planning to reduce probate costs, make certain your assets go to the heirs you desire, and  reduce possible US estate taxes.  If you have assets located outside the US, you need to have attorneys prepare a will in that country to make certain those foreign assets go to the desired beneficiaries upon your death.

We can help with your US estate planning if you are an expatriate, resident or nonresident.

READ MORE  DETAILS HERE

IRS STREAMLINED PROGRAM- CATCH UP FILING YOUR RETURNS AND AVOID MOST PENALTIES

Purpose of the streamlined procedures

The streamlined filing compliance procedures describe below are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The streamlined procedures are designed to provide to taxpayers in such situations with

• a streamlined procedure for fling amended or delinquent returns, and
• terms for resolving their tax and penalty procedure for filing amended or delinquent returns, and
• terms for resolving their tax and penalty obligations.

As reflected below, the streamlined filing procedures that were first offered on September 1, 2012 have been expanded and modified to accommodate a broader group of U.S. taxpayers. Major changes to the streamlined procedures include: 

• extension of eligibility to U.S. taxpayers residing in the United States
• Elimination of the $1,500 tax threshold, and 
• elimination of the risk assessment process associated with the streamlined filing compliance procedure announced in 2012.

Eligibility criteria for the streamlined procedures

The modified streamlined filing compliance procedures are designed only for individual taxpayers, including estates of individual taxpayers. The streamlined procedures are available to both U.S. individual taxpayers residing outside the United States and U.S. individual taxpayers residing in the United States. Descriptions of the specific eligibility requirements for the streamlined procedures for both non-U.S. residents (the "Streamlined Foreign Offshore Procedures") and U.S. residents ("Streamlined Domestic Offshore Procedures") are set forth below.

Taxpayers must certify that conduct was not willful. Taxpayers using either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, will be required to certify, in accordance with the specific instructions set forth below, that the failure to report all income, pay all tax and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22,1) was due to non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.  READ MORE DETAILS OF THE STREAMLINED PROGRAM HERE

Our firm of CPAs and Attorney have represented and assisted hundreds of individuals enter the Streamlined Program. If you wish to learn more and want help entering the program EMAIL US to set up a consultation.

IF YOU EXPECT A TAX REFUND, DO NOT WAIT TO LONG TO FILE YOUR RETURN OR AMENDED RETURN

Do not wait to long to file an amended tax return or file your original  tax return if you  expect to get a refund.  The IRS has 10 years to  collect taxes you owe but when it comes to refunding your overpayments you have a limited time.

You have  3 years  from the date of the original deadline for your tax return to claim any refund you might be entitled to. Your 2019 tax return is due on April 15, 2020, so you have until April 15, 2023 to file your 2019 tax return and still get any tax refund that's due to you. Just add three years to the filing deadline...unless you paid any taxes that were due on the tax return.

In this case, the statute of limitations would be only two years from the date you paid if this date is later than the three-year due date deadline.  Amended returns claiming additional refunds must be filed with the IRS before the three-year statute of the limitations expires, which would be Oct. 15 if you filed an extension of the prior years return. 

If you need help filing an amended return to get a refund or your original return before the short  IRS refund statute of limitations expires contact us.  We most often can prepare your return in short order before it is too late.  EMAIL US FOR HELP