International Tax News

Some U.S. taxpayers living abroad may be unaware of their international tax duty to file U.S. tax returns and FBAR forms. If a taxpayer has failed in this regard, but has recently become aware of his or her obligation to make these filings, the IRS provides a special program to allow these individuals to come into compliance. The program consists of streamlined procedures for non-resident non-filers.

In recent months the number of US Department of Justice prosecutions of US persons with international tax problems involving previously unreported foreign income and assets has risen sharply. This is in large part due to numerous FATCA agreements with countries that historically acted as safe havens for hiding income and assets from the US governments. However, in August 2013, the U.S.

Applicants eligible under the Streamlined Foreign Offshore Procedures must follow particular steps to ensure that their returns are processed under the special program. If the taxpayer does not complete the process in a satisfactory fashion, the taxpayer will not be able to take advantage of the streamlined foreign offshore procedures.

If you are eligible to use the Streamlined Domestic Offshore Procedures, then you must follow particular steps. If you fail to properly comply with the steps, then your application will be rejected for the streamlined procedures. Instead, your tax return will simply be processed in the usual manner and you will not be able to avail yourself of any of the benefits of the streamlined domestic offshore procedures.

A U.S. person may have international tax reporting obligations to the IRS if he or she owns more than 10% stock in a foreign corporation. The U.S. persons who might be subject to these special reporting rules include: 1) U.S. citizens or residents who serve as director or officers of the foreign corporation; 2) U.S. citizens or residents who acquire stock in the corporation and immediately have 10% ownership of the company’s stock; 3) a person who becomes a U.S. person while owning 10% of a foreign corporation’s stock.

Certain international tax reporting requirements apply to individuals who hold “specified foreign financial assets” valued in excess of $50,000. If the aggregate value of all foreign financial assets in which an individual has an “interest” exceeds the statutory amount, then the individual must include a statement about the asset(s) with his or her income tax return (1). For these purposes, a specified foreign financial asset can refer to any stock or bond issued by a person other than a U.S.

In order to properly and completely qualify for the Offshore Voluntary Disclosure Program, you must take certain steps and provide specific information to the IRS. It is critical to realize that the disclosure of this information is already mandatory according to US law, and a failure to do so can result in severe financial penalties and criminal prosecution if the IRS learns about undisclosed income and assets through their own means.

If you have foreign bank accounts that you have never properly disclosed to the IRS, you should know that if the IRS learns about the unreported accounts the penalty is equal to 50% of the highest account balance for each year that the account went unreported. That means that any more than two years of failing to report the account will earn you penalties in excess of the total amount that ever existed in the account, as well as criminal prosecution for federal tax crimes, which means jail time.

Under international tax treaties, cooperating nations provide certain tax concessions to each other’s residents. The U.S. is a party to many bilateral income tax treaties. As a result of such agreements, a U.S. citizen residing in the United States may benefit from reduced taxation or exemption from taxation on income from foreign sources. Similarly, nonresident aliens and foreign corporations enjoy rate reductions and exemptions from U.S.

If you are a U.S. citizen, but you earn income abroad, the US tax rules that apply to your foreign income are largely similar to those that apply to your domestic income. Ignorance of US international tax laws is not a defense and can quickly get you into deep financial trouble.