Abrahm specializes in helping individuals and closely held companies navigate the complexities of the IRS and US tax laws. Matters he handles:
The IRS has a “Streamlined Program” to help taxpayers who have failed to properly report their foreign financial assets. There are two Streamlined Programs–(i) a domestic program and (ii) foreign program. The primary difference between the two program is that the taxpayer will pay penalties under the domestic program whereas under the foreign program the taxpayer will not pay any penalties. To be eligible for the foreign program, a taxpayer looks at the number of days he or she was present in the United States during each of the prior three years. If he or she was present no more than 35 days in one of the prior three years, he or she may qualify for for the foreign program.
The Streamlined Program require filing three years of tax returns and six years of FBARs. In addition, taxpayers can file reporting forms, including forms 5471 and 3520, within the Streamlined Program.
Most importantly, the Streamlined Procedures require that the taxpayer’s failure to properly report was due to non-willful conduct. The taxpayer is required to sign a non-willful statement of facts describing that the failure to properly report was due to non-willful conduct.
I have helped hundreds of taxpayers navigate through the Streamlined Program.
Many foreign individuals are unfamiliar with the US gift and state tax, which is a tax that may apply on the the transfer of US real estate by gift or inheritance. Different rules apply to lifetime gifts and to inheritances, but all foreign individuals who invest in US real estate should seek advice when investing in US real estate. If not done properly, a 40% gift or inheritance tax could apply on the value of the property.
Likewise, if a foreign person leases the US real estate to a tenant, if certain elections are not made, the rental income could be subject to a 30% withholding tax.
I strongly recommend that any US person who contemplates owning US real estate seek US tax advice.
The US estate tax is a heavy tax–currently 40% of the value of a person’s estate. Different rules apply to US domiciliaries and non-domiciliaries. If a foreign person is not a domiciliary of the United States, the US estate tax will apply to the person’s US situs assets. US situs assets include assets located inside the United States–real estate, art, planes, boats, and other tangible property located within the United States. The exemption amount is only $60,000. To illustrate the burden of this tax, assume that a foreign person purchases a condominium in the United States in his own name. Assume the condominium is worth $460,000 at the time of his death. After the $60,000 exemption, the value of the person’s US situs assets is $400,000. At a 40% tax rate, the person’s estate will be subject to US estate tax in the amount of $160,000 (40% of $400,000).
Many foreign individuals spend significant time in the United States. If a foreign person spends significant time within the United States, he or she could be considered a US income tax resident and subject to US income tax on his or her worldwide income. For example, assume an individual spends 5 months each year in the United States. Under the Substantial Presence Test, the individual will likely be considered a US income tax resident and subject to US income tax on his or her worldwide income. There are some exceptions to this test, such as the Closer Connection Exception and some relief under income tax treaties. There are also special rules for students and other individuals. It is important that foreign individuals track their days of presence in the United States and have a good understanding of these rules.
Many foreign wealthy families have at least one member of the family who is a US person. That US person member of the family often receives gifts, inheritances, or trust distributions. Those transfers are often subject to US reporting rules that if not done correctly can result in high penalties. Also, it is common that the family member owns a share of the family business, which could also trigger reporting requirements. Lastly, the US family member likely has a foreign bank account, which is also subject to US reporting.
Not only are there a number of reporting requirements for the US person family member, it is important that the family member understand the US estate tax rules. It is often the case that the person will not want to receive gifts and inheritances in his or her own name. We often structure gifts and inheritances through a trust structure to avoid future US estate tax issues.
US persons are required to report their ownership, control and signature authority over foreign bank accounts. If they have not done this, the IRS has certain program (i.e., the Streamlined Program) to help these persons correct past filing errors. I strongly recommend clients participate in these programs because penalties are high for failure to report foreign bank accounts and could include criminal issues.
I now receive many questions about crypto wallets, insurance products, and other assets and the requirement to report these assets on the FBAR. If you have these types of assets, I encourage you to seek tax advice to determine if the assets are required to be reported on an FBAR.
Many foreign families desire to do business within the United States. If they receive income, the question is whether the income is from US sources and subject to US income tax. We look at the type of income–services, sale of goods, rental, interest and other types of income. Each has its own sets of rules to determine it source for purposes of US income taxation. We also look at the activities of the company–US office, US employees, US activities–to determine the US income tax results
The IRS is currently imposing stiff penalties on the failure to report certain activities, such as gifts from non-US persons, ownership of foreign companies, LLCs wholly owned by a foreign person. The reporting requirements are often overlooked. I work with client to properly comply with the reporting requirements. I also work with clients who have received penalty notifications for failure to file these forms.
I provide assistance with establishing US companies, including limited liability companies. I help form the company with the Secretary of State, draft the LLC operating agreement, draft the company consents, obtain an IRS EIN number, and otherwise help establish the company.
Foreign clients often form foreign entities to hold US real estate to block the US estate tax. I work with service providers in the Bahamas, British Virgin Islands, and other foreign jurisdictions to form foreign company to help foreign persons limit their US estate tax exposure.
Many US citizens live and work outside the United States. I work with many clients who were born in the United States while their parents were students studying in the United States. A few months or years after their birth, they return to their home countries with their parents. They have lives most of their life in the foreign country. These individuals often relinquish their US citizenship to avoid the complicated compliance burdens of filing annual US income tax and reporting forms.
Many clients receive notices from the IRS about taxes or penalties due and owing. They do not understand why the IRS issued the notices. I handle all communication and interaction with the IRS, including IRS appeals matters. If needed, we also engaged the Taxpayer Advocate to assist on matters.
If taxpayers owe money to the IRS but cannot pay, I help these clients with IRS payment plans. I also work with the IRS to reduce the amounts due and owing through the IRS Offer in Compromise unit.
