Immigration & Tax Lawyers
Immigration Tax Lawyers: When foreigners become U.S. Persons for tax purposes, the submitting of tax returns, FBAR, FATCA, and other international information returns can become very complicated. While the tax rules are always changing, the IRS has honed in on foreign accounts compliance as a key enforcement priority.
This can be even more confusing for visa holders who meet the substantial presence test, and legal permanent residents.
Our International Tax Lawyers develop tax strategies to reduce U.S. Taxes for Non-Citizens & Residents with IRS tax & reporting filing requirements, who are out-of-compliance for prior years.
When do You Need an Immigration Tax Lawyer?
That depends on your tax situation, but some of the more common questions we receive involving Immigration and Taxes, include:
- Do I pay tax on my Foreign Income?
- What if I am not a U.S. Citizen nor Green Card Holder?
- What if I already paid tax overseas?
- Do I have to report foreign accounts?
- I never reported foreign accounts, am I in trouble?
- Will I lose my U.S. Status?
- Can I be penalized?
- Will I go to jail?
Immigration & Taxes
If a person is considered a U.S. Person (U.S. Citizen, Legal Permanent Resident or Foreign National/Visa Holder who meets the Substantial Presence Test), they report and pay tax on their worldwide income.
If the individual already paid tax overseas, they still include the income on their U.S. Return, but may qualify for a Foreign Tax Credit.
The Foreign Reporting aspects is a bit more complicated.
There are many different types of accounts, income, assets, and investments that may or may not need to be reported, on many different types of forms, such as:
- FBAR (FinCEN Form 114)
- FATCA (Form 8938)
- Form 3520
- Form 3520-A
- Form 5471
- Form 8621
- Form 8865
It will depend on the value of the assets, ownership interest, and whether the reporting may be exempted, excluded or limited by an IRS rule.
Immigration Tax Law Planning
The failure to properly plan for tax related matters involving international accounts, foreign accounts, foreign income and foreign assets can have a severe impact on a person attempting to naturalize or seek legal permanent residency.
In fact, the failure to properly comply with US tax law is one of the biggest barriers for foreign national seeking to enter into the United States and/or obtain green card/legal permanent residency or naturalization.
The following is a brief case analysis of an individual who did not properly comply with tax law as well as a summary of the basic requirements:
Case Study – Manuel
Manuel relocated to the United States on a work-visa, and then became a Legal Permanent Resident.
He has been residing in Southern California and successfully owning and operating a small business.
Since Manuel was not yet able to bring his family over from the Philippines, he was maintaining accounts and other information in the Philippines so that he could provide money for his family to live while he was preparing for them to come to the United States.
Manuel had reached the point where he was getting ready to apply for naturalization, in which he must be able to show he has filed all the necessary tax returns and in compliance with US tax law.
When Manuel applied for naturalization, he identified that he had properly complied with all US tax laws.
Manuel is Audited by the IRS
Unfortunately, during the naturalization process Manuel was audited by the Internal Revenue Service.
This is not a big deal, since small-business owners get audited all the time and as long as Manuel could show that he properly complied with US tax law there would be no issue.
Unreported Foreign Income and Accounts
When Manuel was being audited, the IRS agent learned that not only had Manuel had Manuel not been properly reporting all of his US taxes but he failed to comply with necessary international tax law procedures as well.
Specifically, Manuel failed to identify and report his foreign bank accounts as well as the foreign interest he was earning on his foreign accounts and the sales of certain stocks that he had overseas.
Rejected Application for Naturalization
As a result, Manuel’s application for naturalization was rejected.
The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:
Failure to File
If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.
The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
Failure to Pay
f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.
However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
Civil Tax Fraud
If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
A Penalty for failing to file FBARs
The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
A Penalty for failing to file Form 8938
The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 3520
Penalties for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
A Penalty for failing to file Form 3520-A
The failure to file each one of these information returns or for filing an incomplete return, is a penalty the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
A Penalty for failing to file Form 5471
The penalty starts at $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 926
An unfiled form may lead to a penalty that is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
A Penalty for failing to file Form 8865
Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
Fraud penalties imposed under IRC §§ 6651(f) or 6663
Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)
Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)
If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
An Accuracy-Related Penalty on underpayments imposed under IRC § 6662
Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty
Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)
Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).
A person convicted of tax evasion
Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000. A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000. A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.