- 1 Do You Have Undeclared Overseas Income?
- 2 Worldwide Income & CBT
- 3 U.S. Citizen vs. U.S. Person
- 4 IRS Enforcement Priority
- 5 Getting Into IRS Offshore Compliance
- 6 What Type of Foreign Income do You have?
- 7 How Much Foreign Income Do You Have?
- 8 Did You Pay Foreign Taxes on the Income?
- 9 When Did you First Learn About the Foreign Income?
- 10 Have You Been Filing U.S. Tax Returns?
- 11 Golding & Golding: About Our International Tax Law Firm
Do You Have Undeclared Overseas Income?
Undeclared Foreign Income: In recent years, the IRS has made offshore compliance a key enforcement priority. This will generally include foreign accounts compliance and foreign income. The failure to be in international tax compliance with the Internal Revenue Service may lead to fines and penalties. The penalties involving undeclared foreign income may include:
- Employment Income
- Consulting Income
- Investment Income
- Bank Interest
- Life Insurance
- Foreign Business Earnings
The Internal Revenue Service has developed various tax amnesty/voluntary disclosure programs to assist taxpayers with getting back into compliance.
Worldwide Income & CBT
United States is Citizen-Based Taxation (CBT) system that follows worldwide income concepts. Boiled down to its barest, all that means that if you qualify as a US person (not necessarily a US citizen, see below) you are subject to US tax.
That does not mean you will necessarily have any tax liability, or that you even meet the threshold requirements for filing a tax return. But, it does mean that you have to at least be cognizant of the rules, and how they may impact you now and/or in the future.
U.S. Citizen vs. U.S. Person
A U.S.Citizen is usually either a person born in the United States, a person born outside the United States but otherwise meets the qualifications of a U.S. citizen (your mom is a US citizen but she resides in Costa Rica), or a person who has become naturalized.
Alternatively, a US person is pretty much anybody who meets the test of being a “US person” (sorry for the redundancy), here are the most common categories of “U.S. Persons.”
- U.S. Citizen
- Legal Permanent Resident
- Person who meets the Substantial Presence Test
- Certain corporations, partnerships, ventures, etc.
This is a very important concept to understand. That is because when a person believes that only U.S. citizens are subject to US tax, they could be in for a rude awakening down the line when the IRS wants to lien, Levy, or seize their domestic or international property due to the failure to file taxes.
*If you are a green card holder/legal permanent resident and considered a long-term permanent resident, merely moving outside of the United States and returning to the U.S. does not negate your requirement to file a tax return – you still need to expatriate properly and file a form 8854.
IRS Enforcement Priority
Unreported Foreign Income is a major enforcement priority for the Internal Revenue Service. So much so, that the penalties alone are enough to wipe out all of a person’s offshore investments, assets and income.
Commonly issued penalties may include reporting of foreign income and accounts, including:
This information is not intended to scare you, and not everybody gets hit with penalties. It is just that under the current IRS regime, the state of the law right now is for the IRS to focus its efforts on offshore compliance. The reality is that there are so many different International Tax Forms a person may be required to file, that depending on the type of assets, the number of accounts, the type of income, and facts and circumstances of each case — the IRS penalties can really stack up.
Getting Into IRS Offshore Compliance
If you have recently discovered that you are out of IRS compliance for failing to properly including foreign income on your tax return, here are 10 steps to getting into compliance quickly, safely and effectively.
What Type of Foreign Income do You have?
Not all foreign income is treated the same. Typically, foreign capital gains is going to receive the same long-term or short-term treatment under US tax return as if it was a US asset. For example, even though in India, Long-Term Capital Gain (LTCG) is 36 months, in the United States it should qualify as LTCG as long as it was held for one-year.
Moreover, depending on which country you have your assets in, if you are receiving dividends, you may be able to obtain qualified dividends (this will often depend on whether there is a treaty and/or if the stock is traded on an acceptable foreign market). If you are receiving foreign interest income (even if it is in a country such as Hong Kong and Singapore, which does not tax that category of passive income) you are still going to have to report that and pay US tax at your ordinary tax rate.
How Much Foreign Income Do You Have?
If you only have a few dollars of unreported income, your compliance method may be different than if you have tens or hundreds of thousands of dollars of unreported income. In addition, since the total amount of income you have is aggregated with your Domestic or U.S. based income (in order to determine your gross income), it is important to have a firm understanding of how much foreign income you have not reported when you first begin your research
Did You Pay Foreign Taxes on the Income?
If you already paid foreign taxes on your foreign income, either by filing a foreign tax return or having money withheld from your account abroad, then you may be entitled to a foreign tax credit in most circumstances. The purpose of the Foreign Tax Credit is to avoid or limit any double-tax on foreign income you earned abroad but already paid on, and/or have had tax withheld by the foreign government.
Unfortunately, the Foreign Tax Credit is not always a dollar-for-dollar credit. There is an equation that is applied by the IRS, and if the foreign income is going to increase your U.S. tax bracket, then depending on the amount of income and the tax rate you paid overseas, it may impact whether you will still owe tax to the IRS on your U.S. tax return — even after applying the foreign tax credit.
When Did you First Learn About the Foreign Income?
Have you known about the foreign income for many years or were you only recently clued in (either on your own, or by one of your parents or other relatives that told you that you have been listed on some of the foreign accounts, apartments or other income generating assets abroad). At Golding & Golding, IRS Offshore Voluntary Disclosure of foreign income, assets, and investments is the only area of law we practice – even though your situation may seem unique, chances are we have seen something just like, it or similar to it in our many years of Law and Tax practice
Have You Been Filing U.S. Tax Returns?
If you have been consistently filing US tax returns to report your U.S. source income (presuming you have any), that will put you in a better position and increase your offshore amnesty options when it is time for you to submit an IRS Offshore Disclosure package to the IRS, disclosing your foreign money. The IRS has developed various offshore amnesty programs to assist individuals with getting into compliance safely regarding their unreported foreign income.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Form 8938 Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.