Foreign Asset and Income Reporting
Are you a US citizen or Are you a green card holder? Do you have income and assets outside the United States?
Then you are liable to tax on worldwide income even if you are living outside the United States?
If you are not reporting, then the noose is tightening on you.
Do you have financial interest or signatory authority over a financial account located outside the United States?
Penalties for not reporting: You could end up surrendering 50% of your account balances or 50% of your financial asset value.
Do you own stocks, bonds, cash value of life insurances, annuities in a foreign country? Do you derive foreign income? Do you get foreign pension?
You need to report both foreign income and the foreign asset?
Did you file foreign tax returns?
You could get money back by reporting the taxes paid to the foreign country.
You could be also eligible for foreign income exclusion.
Are you s shareholder of Passive Foreign Investment Company?
If yes, you have to file separate tax returns and forms.
Penalties for not reporting: $ 10, 000 for not reporting.
Do you want to avoid withholding taxes on the returns made on investments in foreign countries or in the US?
Do you want to avoid taxes on pensions and annuities of foreign countries?
We will demonstrate how you could use tax planning strategies.
FOREIGN CORPORATIONS & PARTNERSHIP:
If you are a US Citizen or a Green Card Holder and………………..
Do you own foreign corporations and own assets in that corporation?
You must report and pay taxes.
Do you hold position of Officer or Director or Shareholder of a foreign corporation then you must report and pay taxes.
Penalty for not reporting: $ 10,000 per foreign corporation and another $10,000 continuation penalty.
Do you own more than 25 % of foreign corporation engaged in a US trade or business, then you have special filing requirements.
Penalty for not reporting: $ 10,000 per reportable transaction plus $10,000 continuation penalty.
Do you own or engage in more than 50% interest in capital or profits as a partner?
You need to file timely returns.
Penalty for not reporting: $10,000 per foreign partnership plus a $10,000 continuation penalty.
If you are a US Citizen or a Green Card Holder..........
FOREIGN TRUSTS, GIFTS AND ESTATES
Are you a grantor or a beneficiary of a foreign trust or gifts?
You need to report and file tax returns.
Penalty for not reporting: Up to 25% of the gifts and 15% of the value of the distribution.
Do you create a foreign trust? Are you an owner of a foreign trust?
You have special requirements to file from formation to distribution.
Penalty for not reporting: $ 10,000 per reportable transaction plus a $ 10,000 continuation penalty.
IF YOU ARE NON-RESIDENT (FOREIGNER, DOES NOT HAVE AGREEN CARD)
Do you own interests in the United States in the form of Royalties, Management Fees, Technical Fees, Trademark Fees…………………………………
You need to obtain Tax ID number and you have special withholding requirements and have to file special forms.
Do you buy and sell real estate property (say, in Manhattan or anywhere in the US)
You need to get Tax ID number and you have responsibility to report and pay withholding taxes.
Do you own accounts in US banks (Checking or Savings)
You need to get Tax ID number and you are subject to withholding taxes and have to file special forms.
Do you have accounts in financial institutions in the form of stocks, bonds etc.
You need to get Tax ID number and report that in separate form to the financial institutions.
What are the withholding tax rates?
Generally, The Internal Revenue Service (IRS) will deduct 30% withholding tax on all interest and dividends remitted by the foreign institution. Again you will have to forfeit the 30% money. If you want a refund then file a completed tax return declaring all the asset and income. They catch you this way too! There are special rates of 35% and 39.6% applicable in certain situations.
Note: We will plan your investments including real estate ownerships to pay the least amount of taxes besides securing your assets.
What is the current thinking of the US Government (or the Internal Revenue Service)?
Tax havens where you can hide your money do not exist any longer or are fast disappearing. Transparency is here to stay.
Swiss banks, which has been the symbol of being impenetrable (the biggest secrecy bank) has made finally bowed down and made an agreement with the United States. The other countries are following suit. The U.S is the only industrialized nation that taxes its citizens’ foreign derived income wherever they are in the world. They will follow you all the way to Timbuktu to collect taxes on any income earned there.
What is the reason that these foreign countries are coming forward in great numbers?
The reason is that IRS has started using the strong arm tactics with all foreign banks and institutions. If they do not abide by, then these institutions are told to cease operations in the United States. By winding up, these foreign institutions have a lot to lose. HSBC had to pay severe penalties to stay in the US soil.
These foreign institutions, where you have parked your funds, are now obligated (FATCA) to declare to the IRS all assets and income, generated on your behalf.
More than 77,000 Foreign Financial Institutions have signed on with the Internal Revenue Service and another 39 countries had entered into intergovernmental agreements with the United States under which they will require financial institutions to report on U.S. account holders.
Countries which signed agreements to give info
Countries which are in the various stages to eventually sign
Countries which are in dialogue
Denmark, Germany, Ireland, Japan, Mexico, Norway, Spain, Bermuda, Cayman Islands, Italy
Argentina, Australia, Belgium, Cyprus, Estonia, Hungary, Israel, S.Korea, Malaysia, Malta, New Zealand, S’pore, Sweden
India, Luxembourg, Russia, S.Africa, St. Marteen, Czech Republic, Chile, Lebanon
What choices do I have?
1. Do nothing:
Yes, do nothing and be continually noncompliant and subject to civil penalties and criminal prosecution including jail term. This option is bomb waiting to explode.
2. Report all foreign income and assets prospectively:
You can report worldwide income on all your future returns complying with the future. However this is a red flag and the IRS will used dsataminig techniques to track them. surely comeback and look for similar reporting in the past six years, at least.
3. Voluntary Disclosure Scheme: (OVDP)
If you are holding assets overseas and generating income then there is voluntary disclosure scheme. You will have to file 8 years going back and declare both income and assets. This is a huge process, however you will escape criminal investigation. You will have to pay back taxes, interest, failure to pay penalty, and miscellaneous offshore penalty.
This program involves full payment of taxes going back eight years with interest and taxes. The penalty is very steep. However, the greatest benefit in this benefit is that escape all criminal proceedings. This is great option to be considered.
4. Opting Out:
Under this option if you can indicate that you did not carry act of omission due to willful intent, then the decision to opt out of the Option 1 is a better alternative. This is a lengthy process and involves a direct interaction with the IRS agent.
The statute of limitations which is the period of audit gets extended with no limits.
5. Streamline Program:
This is special program instituted recently. Non-willful conduct MUST be certified by the agency. Other Conditions apply. Back returns to be filed are for three to six years and the penalties are considerable reduced.
6. Renounce US Citizenship:
There is a huge EXIT fees and there is a likelihood that you will never get back US residency. About 5,000 people have renounced US citizen ship in 2012.In 2014,
What should you do?
The IRS has started an audit-jihad against you. Will be able to withstand this? Are you bullet-
proofed in areas of foreign asset and income reporting? Do you have the right structure to safeguard all your assets?
Please call our office at 718-261-2090 and we will consult with you for FREE.