We want to make sure that we can resolve your issues and answer your questions about our services. You will speak directly with our Managing Partner, Jason Kovan, a tax attorney and CPA. Knowing that you are speaking with a tax attorney means that your conversation is protected under client-attorney privilege.
Clients want assurances that their conversations are protected if they encounter potential legal issues. A "CPA – client privilege" relationship does not exist in U.S. Federal Courts. A CPA can be compelled to testify against their clients.
Tax attorneys provide attorney - client privilege protection and are versed in tax laws, can resolve technical and complex tax matters, and are better adept at resolving their clients' financial and tax regulation issues, negotiation settlements, analyzing state and federal tax laws, and create tax strategies that CPA's do not structure.
Tax attorneys provide tax advice, planning strategies, tax structuring, case law expertise, legal research, issuing tax opinions, and representing you in tax negotiations, litigation, and appeals, and much more. A tax attorney knows how to interpret tax law and enforcement codes.
A CPA is focused on preparing and maintaining personal and business financial and accounting records and timely filing with the IRS. A CPA will also speak with the IRS as needed.
Firstly, don’t panic. Even though the IRS wants to speak with you, you should not initiate any form of contact before speaking with your tax attorney or CPA. Call right away and discuss what you know. Your tax attorney or CPA should be the one reaching out on your behalf.
All conversations with the IRS are recorded. In the event of litigation or potential criminal proceedings, your call(s) and conversations with the IRS can be used in a court of law against you. Protect your self by using a tax attorney who can provide client privilege protection.
When you are late making tax payments, the IRS can access a penalty and charge you interest. Interest begins to accrue the moment you are late paying what you owe. The IRS provides penalty abatement if you are eligible. A qualified tax attorney can help you determine if you qualify and represent you to the IRS.
An expat tax attorney has the expertise in cross border transactions and can create a tax strategy and structure that saves on your business and personal taxes. Why overpay in taxes?
Expat tax attorneys know the specifics of the IRS tax code and U.S. Department of Treasury guidelines and how to maximize tax savings for U.S. taxpayers living and working overseas or earning foreign income.
U.S. taxpayers pay taxes on their worldwide income. Many countries have tax treaties with the United States, so you need to rely on a firm that understands how to provide you with all the tax benefits you are entitled to.
An expat tax attorney has the experience and knowledge that most tax specialists do not have. An expat tax lawyer needs to know U.S. income tax treaties, totalization agreements ((self-employment and social security payments), foreign tax credits and foreign earned income exclusion on personal income, foreign investments and business ownership, FBAR and FATCA compliance, foreign Trusts, Partnerships or Businesses, and IRS offshore disclosures.
IRS Streamlined Foreign Offshore Procedures
The streamlined procedure has two aspects: one for US taxpayers living outside the US and the other for those living in the United States. The program is designed to help individuals and businesses who were non-willful in failing to report, file, and disclose foreign income or overseas accounts to the IRS and US Treasury Department.
Non-willful means you will not be found to have acted in a manner showing intentional misrepresentation, deliberate omissions, or acted with reckless disregard.
Even if you do not owe taxes, you still need to disclose your foreign income and offshore accounts. In such a case, there is a good possibility that there will not be any penalties assessed. The IRS has established the following guidelines under which an application can be filed:
- Filing an amended or delinquent return, and
- Resolving tax and penalties for filing amended or past-due returns, and
- The terms for settling tax and penalty obligations.
- An individual or business must certify that their conduct was not willful.
- All past-due taxes, interest, and penalties previously assessed must be paid before the streamlined foreign offshore procedures application will be accepted.
The streamlined procedures first tendered in 2012 have been revised to allow more US taxpayers to qualify. The main changes include:
- Extension of eligibility to US taxpayers residing in the United States
- Elimination of the $1,500 tax threshold, and
- Elimination of the risk evaluation related to the streamlined filing compliance procedure announced in 2012.
Which should you choose: the OVDP or streamlined procedures?
If you have concerns that the IRS will determine that your conduct was willful, you should consult with a professional legal tax adviser to determine the best course of action. In some instances, it would be better to come clean under the Offshore Voluntary Disclosure Program (OVDP). The OVDP does come with certain risks, which you need to know about.
The IRS can change the terms of the streamlined procedure and include penalties at any time. If you are undergoing an audit or examination, you are automatically excluded from participation. Do not speak directly with the IRS because anything you say or disclose can and will be used against you in a court of law.
As provided by the IRS: "Once a taxpayer makes a submission under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, the taxpayer may not participate in OVDP. Similarly, a taxpayer who submits to an OVDP voluntary disclosure letter pursuant to OVDP FAQ 24 on or after July 1, 2014, is not eligible to participate in the streamlined procedures."
Reporting Overseas Financial Assets FBAR, and FATCA, Form 8938
The IRS and US Department of Treasury require FBAR disclosures and reporting of foreign currency and its equivalency if you have $10,000 or more in offshore accounts or other holdings such as cash in a brokerage account and the account itself but not the stock, security deposit, cash surrender value in life insurance, or a pension or annuity account.
The calculation to determine if you need to submit the FBAR is based on adding together all of the highest daily balances for each account. If the sum is $10,000 or more, you need to submit an FBAR. Also, there is a checkbox on your 1040 Form where you disclose having foreign bank accounts. The FBAR is for the US DOT, and Form 1040 is submitted to the IRS.
If you have a power of attorney signature, or if you have no fiduciary responsibility or financial interest but sign on a foreign account, you must report this as well. If you and your spouse file your tax returns jointly but some or all of your accounts are individual and not joint, or joint but with others, you or your spouse need to report those separately. The shared accounts are reported on both FBAR forms. Businesses must file FBARs not just by individuals. Qualifying accounts include any accounts that US Taxpayers or US businesses have control or signatory authority over, not only accounts held in their name.
Assets such as foreign real estate, gold bars, non-cash stock holding are not considered reportable on the FBAR. If you own more than 50% of a foreign company, you need to report this on the FBAR as well as all financial accounts associated with that business. The declared value of all assets is always in US dollars. Remember that the FBAR is filed with the US Department of Treasury and not the IRS.
You need to file Form 8938 (FATCA) separately with the IRS for foreign-held assets, including interests, partnerships, bank accounts, mutual funds/stockholdings, etc., when these assets are $50,000 or more at the end of the year or $75,000 or more at any time during the year. The threshold for married couples filing jointly is $100,000 at the end of the year and $150,000 or more at any time during the year. If you are a foreign resident, filing separately whether single or individually or jointly if you are married, the limits are higher.
One of the most significant differences between the FBAR and Form 8938 is that with the FBAR, you report foreign financial accounts. Form 8938 requires you to report offshore financial assets. Failure to report either the FBAR or Form 8938 can lead to significant penalties, possibly criminal proceedings, and additional tax audits.
Additional Child Tax Credit, Form 8812
Filing Form 8812 depends on your declared income and often is adjusted by the IRS from tax year to year. Form 8812 is used to calculate your child tax credit amount and is submitted along with your tax return. To apply for the "Additional Child Tax Credit," each qualifying child must have a social security number or another valid ID issued prior to the tax year being filed.
A child can also be a step or foster child, niece, or grandchild or their descendants. The child must be under 17 years old before the beginning of the tax year and not provide more than 50% of their own financial support and must have lived with you for more than half the year in which you are claiming the tax credit.
The calculations for the "Additional Child Tax Credit" can change from year to year. There are also situations in which the estimate for Form 8812 may need to be modified. It is better to speak to your expat tax professional to review current IRS guidelines.
Understanding the Foreign Earned Income Exclusion (FEIE), and Form 2555
If you live and work overseas, you may be able to exclude all or a portion of your foreign income except for dividends, interest, or capital gains, when filing your US tax return. A person must meet the Bona Fide Residence Test or the Physical Presence Test to qualify. To claim the credit, Form 2555 must be submitted with your 1040 tax filing.
If you file form 2555, you can not claim the Foreign Tax Credit (FTC) from your excluded income. But you can see if you can apply the FTC to that part of your income you did not exclude. Foreign income is decided based on where the service was performed and not how or where you were paid. Each Expat, including married couples, filing jointly, should submit their own Form 2555.
As with most types of foreign credits, a person must pass the Bonafide Residence Test or Physical Presence Test and the Tax Home Test. There are some conditions, such as "adverse" conditions, which can be applied, allowing you to be exempt from these rules.
The IRS's' definition for "tax home" is your usual or principal place of business, work, or post of duty, regardless of where you maintain your family home. You may have more than one tax home per year.
The TaxLawExpats website, pages, and posts are for informational or educational purposes only. It is neither a legal or tax advice, nor is it to be understood as such. Each person or business's circumstances is unique. You should seek legal tax advice to discuss or clarify questions you may have.