Top 10 reasons why hiring a U.S. international tax attorney who specializes in expat tax law can be beneficial for U.S. taxpayers living abroad or having an interest in a foreign business:
- Foreign Bank Account Reporting (FBAR): U.S. citizens with foreign bank accounts exceeding certain thresholds must file an FBAR. An expat tax attorney can help ensure you meet these requirements and avoid hefty penalties.
- Foreign Account Tax Compliance Act (FATCA): FATCA requires certain U.S. taxpayers holding foreign financial assets to report this information to the IRS. A tax attorney can help you understand your reporting obligations and avoid penalties.
- Tax treaty benefits: Tax treaties between the U.S. and other countries may provide benefits and relief from double taxation. An expat tax attorney can help you understand and take advantage of these provisions.
- Streamlined filing procedures: Expats who are behind on their U.S. tax filings may be eligible for streamlined filing procedures, which can help reduce penalties. A tax attorney can help determine eligibility and guide you through the process.
- Tax planning: A tax attorney can help expats develop strategies to minimize their overall tax liability, including advice on retirement planning, investments, and business structuring.
- Representation before the IRS: In case of an audit or dispute with the IRS, an experienced expat tax attorney can provide representation and advocate on your behalf.
- Peace of mind: Hiring a tax attorney who specializes in expat tax law can provide peace of mind that your tax affairs are being handled professionally and accurately, allowing you to focus on other aspects of your life abroad.
- Compliance with complex tax laws: U.S. tax laws, particularly those related to expats, can be complex and difficult to understand. A tax attorney can help ensure that you are in compliance with all applicable tax laws.
- Foreign earned income exclusion: Expats may qualify for the foreign earned income exclusion, which can result in significant tax savings. A tax attorney can help determine eligibility and maximize benefits.
- Foreign tax credit: U.S. citizens living abroad may be eligible for a foreign tax credit to offset taxes paid in another country. A tax attorney can help navigate this process and maximize the credit.
What are the advantages of hiring a tax attorney versus a CPA?
Both international tax attorneys and CPAs are valuable tax resources for individuals and businesses. However, key differences between the two can make one more advantageous than the other in specific situations. Here are some advantages of hiring a tax attorney over a CPA:
- Legal expertise: Tax attorneys have extensive knowledge of tax law and can provide legal advice on complex tax issues. CPAs are focused on accounting and tax preparation.
- Attorney-client privilege: Communications between a client and a tax attorney are protected by attorney-client privilege. This means that confidential information shared with a tax attorney cannot be disclosed without the client's permission. This privilege does not apply to communications with a CPA in Federal court.
- Representation before the IRS: Tax attorneys are licensed to represent clients before the IRS in audits, appeals, and tax litigation. While CPAs can represent clients in some situations, their scope of representation is generally limited compared to that of a tax attorney.
- Tax dispute resolution: Tax attorneys are trained in negotiation and dispute resolution, which can be particularly helpful when dealing with the IRS or state tax authorities in cases of tax controversies, such as tax evasion, fraud, or other disputes.
- Complex tax planning: For individuals or businesses with complicated tax situations, such as international tax issues, mergers and acquisitions, or estate planning, a tax attorney can provide guidance on tax-efficient strategies and help navigate the complexities of the tax code.
- Drafting legal documents: Tax attorneys are skilled in drafting legal documents, such as contracts, wills, and trust agreements, which may be necessary for tax planning purposes.
That being said, CPAs also have their own set of advantages, and the choice between a tax attorney and a CPA will depend on your specific needs and circumstances. In many cases, it may be beneficial to work with both professionals to cover all aspects of your tax and financial planning. Jason Kovan, Managing Partner at Expat Tax Law provides both.
Is an international tax attorney the same as an expat tax lawyer?
An international tax attorney and an expat tax lawyer are similar in that both deal with tax issues involving taxpayers with cross-border activities or those living in foreign countries. However, there are some differences in their scope and focus.
An international tax attorney typically focuses on tax matters that involve transactions, investments, and business operations across multiple countries. Their expertise is broader and may include areas such as:
1. Transfer pricing
2. Tax treaty interpretation and application
3. International mergers and acquisitions
4. Cross-border estate and gift tax planning
5. International tax structuring and planning for multinational corporations
An expat tax lawyer, on the other hand, focuses on tax issues faced by U.S. citizens and residents living and working abroad. They specialize in helping expats navigate the unique challenges of the U.S. tax system, which taxes citizens on their worldwide income, regardless of where they reside. Their expertise may include areas such as:
1. Foreign earned income exclusion
2. Foreign tax credit
3. Foreign Bank Account Reporting (FBAR) and Foreign Account Tax Compliance Act (FATCA) compliance
4. Tax treaty benefits for individuals
5. Streamlined filing procedures for delinquent taxpayers
While there is some overlap between the two roles, their primary focus is different. An international tax attorney generally deals with a wider range of cross-border tax issues, while an expat tax lawyer concentrates on the tax matters faced by individuals living abroad. Depending on your specific needs, you may require the services of one or both types of tax professionals.
Jason Kovan is a U.S. international tax attorney, U.S. expat tax attorney, and CPA with over 26 years of tax law and certified public accounting expertise.
What does the IRS and the U.S. Department of Treasury look for when reviewing and auditing expat tax returns for individuals and for foreign businesses owned by U.S. taxpayers?
Worldwide income reporting: Ensuring that U.S. citizens and residents report their worldwide income on their U.S. tax returns.
Passive Foreign Investment Companies (PFICs): Reviewing taxpayer's investments in PFICs and verifying proper reporting.
Controlled Foreign Corporations (CFCs): Examining the ownership and control of foreign corporations and ensuring compliance with CFC reporting requirements.
Foreign Bank Account Reporting (FBAR): Ensuring that taxpayers report their foreign bank and financial accounts if they meet the reporting thresholds.
Foreign Account Tax Compliance Act (FATCA): Verifying compliance with FATCA reporting requirements for individuals and foreign financial institutions.
Tax treaty benefits: Ensuring that taxpayers claim tax treaty benefits only if they are eligible and meet the treaty provisions.
Subpart F income: Reviewing the taxpayer's ownership interest in foreign corporations and verifying proper reporting of Subpart F income.
Global Intangible Low-Taxed Income (GILTI): Ensuring compliance with GILTI reporting requirements for U.S. shareholders of CFCs.
Transfer pricing: Examining cross-border transactions between related parties to ensure they are conducted at arm's length.
Foreign trusts: Ensuring compliance with reporting requirements for U.S. grantors, beneficiaries, and trustees of foreign trusts.
Foreign gifts and inheritances: Verifying the proper reporting of foreign gifts and inheritances received by U.S. taxpayers.
Foreign partnerships: Ensuring that U.S. partners in foreign partnerships meet their reporting requirements.
Filing status: The correct filing status for individuals, such as single, married filing jointly, or head of household, must be used.
Foreign earned income exclusion: Ensuring that the taxpayer meets the requirements for the foreign earned income exclusion, and the exclusion is properly claimed.
Foreign tax credit: Ensuring the foreign tax credit is accurately calculated, and the taxpayer is eligible to claim it.
Foreign housing exclusion or deduction: Ensuring eligibility, proper calculation, and reporting of the foreign housing exclusion or deduction.
Tax residency: Verifying whether the taxpayer is considered a tax resident of the U.S. or another country.
Deductions and credits: Verifying the accuracy and eligibility of deductions and credits claimed on the tax return.
Tax withholding and payments: Reviewing the taxpayer's tax withholding and estimated tax payments to ensure they are accurate and timely.
Accuracy and completeness: Ensuring that all required forms and schedules are completed and attached to the tax return, and the information provided is accurate and complete.
These areas of concern are not exhaustive, and the IRS and the U.S. Department of Treasury may focus on other issues based on the specific circumstances of each taxpayer.
The Internal Revenue Service (IRS) and the U.S. Department of the Treasury focus on a variety of areas when reviewing and auditing expat tax returns for individuals and foreign businesses owned by U.S. taxpayers. While the specific areas of focus may vary depending on the circumstances, below are known areas that the IRS and the Treasury may pay particular attention to:
1. Foreign income reporting
2. Foreign bank account reporting (FBAR)
3. Passive foreign investment company (PFIC) reporting
4. Foreign tax credit (FTC) claims
5. Foreign housing exclusion or deduction
6. Foreign earned income exclusion (FEIE) eligibility and calculation
7. Reporting of foreign gifts and inheritances
8. Reporting of foreign retirement accounts, such as a foreign pension or superannuation plan
9. Foreign asset reporting, such as foreign real estate or investments
10. Use of foreign tax treaties to reduce tax liability
11. Reporting of foreign business interests
12. Reporting of foreign rental property income
13. Reporting of foreign trust interests
14. Reporting of foreign life insurance policies
15. Accuracy of foreign address and foreign tax identification numbers
16. Compliance with U.S. tax obligations while residing abroad
17. Use of tax professionals and tax preparation software
18. Compliance with U.S. state tax obligations
19. Compliance with U.S. anti-money laundering regulations
20. Compliance with U.S. sanctions and export control regulations
For Foreign Businesses Owned or Have An Interest In By U.S. Taxpayers:
1. Classification of the business for tax purposes
2. Compliance with foreign tax laws and reporting requirements
3. Proper reporting of foreign source income on U.S. tax returns
4. Transfer pricing and intercompany transactions
5. Reporting of foreign bank accounts and other foreign financial assets
6. Foreign tax credits and foreign tax treaties
7. Compliance with U.S. anti-money laundering regulations
8. Compliance with U.S. sanctions and export control regulations
9. Use of tax professionals and tax preparation software
10. Compliance with U.S. state tax obligations.
11. Proper and timely filing of all relevant tax forms related to ownership, financial and P&L statements, compliance and disclosures.
It is important to note that this is not an exhaustive list and that the IRS and Treasury may focus on other areas as well, depending on the specific facts and circumstances of each case. It is always advisable to seek professional advice from a qualified international tax attorney to ensure compliance and filing with all applicable U.S. tax laws and regulations.
What percentage of U.S. expat tax returns are audited by the IRS compared to the national average of taxpayers domiciled in the U.S.?
The IRS has not published specific audit rates for U.S. expat tax returns compared to the national average for taxpayers domiciled in the U.S. Audit rates can change from year to year and are influenced by various factors, including IRS resources, audit priorities, and compliance trends.
It is generally understood that expat tax returns may be subject to a higher level of scrutiny due to their complexity and the potential for under or unreported income or assets. The IRS has increased its focus on international tax compliance in recent years, which may impact the audit rates for expats. Over 50 countries have signed bi-lateral tax treaties with the U.S. allowing the U.S. access to U.S. taxpayers’ foreign financial information. In addition, the U.S. Treasury and IRS have foreign offices located in many countries overseas where these agreements are in place.
It is important for U.S. citizens living abroad to ensure that their tax returns are accurate and complete, and to seek professional guidance if they are unsure about any aspect of their tax situation. This will help minimize the risk of an audit and potential penalties.
Ever wonder why The IRS and the U.S. Department of Treasury maintain offices in foreign countries?
1. Enhance international tax compliance: Establishing a presence in foreign countries allows the IRS and the Treasury Department to work more closely with local tax authorities and financial institutions. This collaboration helps to identify and combat tax evasion, money laundering, and other financial crimes involving U.S. taxpayers and businesses operating abroad.
2. Facilitate information exchange: Tax information exchange agreements (TIEAs) and other international tax treaties enable countries to share tax information with one another. Having offices in foreign countries allows for more efficient exchange of information, helping to improve compliance and enforcement efforts.
3. Implement Foreign Account Tax Compliance Act (FATCA): The IRS and Treasury Department work with foreign financial institutions to ensure compliance with FATCA, which requires reporting of certain U.S. account holders' financial information. Maintaining offices in foreign countries can facilitate this process.
4. Provide technical assistance and training: The IRS and Treasury Department may provide technical assistance, training, and capacity-building support to foreign tax authorities, helping them to improve their own tax administration and enforcement capabilities.
5. Promote international cooperation: Having offices in foreign countries allows the IRS and Treasury Department to build relationships and foster cooperation with international organizations, such as the Organization for Economic Cooperation and Development (OECD) and the Financial Action Task Force (FATF), on matters related to tax policy, administration, and enforcement.
Overall, maintaining offices in foreign countries enables the IRS and the U.S. Department of Treasury to address international tax issues, protect the U.S. tax base, and promote global tax compliance more effectively.