IRS PFIC rules

IRS PFIC rules



Do you own Foreign Mutual Funds? I got some bad news --- you have some horribly expensive accounting work to do for the IRS. , I can’t say what the cleaned-up “official” reason is, but I can tell you what the real reason is: Protectionism.  PFIC language was snuck into  Section 1291 of the Tax Reform Act of 1986 as a protectionist measure for the the US-based mutual fund industry (sorry Reagan fanboys — or maybe we can blame this on his Democrat rival Tip O’Neil?) . Entrenched Wall Street interests hated the fact that offshore mutual funds had a strategic advantage over domestic funds, with lower costs and higher returns, as foreign funds do not have to jump through the (editorial content warning) expensive, asinine hoops of the Securities and Exchange Commission (SEC). So instead of getting rid of the SEC (and all those federal jobs), Congress decided to intentionally make Foreign Mutual Funds less attractive by requiring expensive, mind-bloggling PFIC accounting. So everyone wins, the person who like to invest overseas. 

IRS Fresh Start program

IRS Fresh Start program



This past weekend, I found myself in a movie theater.  Don't alarm yourself. It was intentional, I assure you. True, I have not intentionally
been in a movie theater since the release of Turk 182 (or
there-abouts), and I remarked to my wife (my lovely date) about how
things changed since the go-go days of the Reagan administration. Now
one thing I noticed, aside from and terrible absence of any John Hughes
movies, was an audio recording playing in the hallway as we were about
take to our stadium seating. And why, it wasn't music. Why, it wasn't a
movie promotion. But rather, it was an advertisement. I heard a
professional voice, with a deep, relaxed timbre of authority, tell me
"If you owe $10,000 or more to the IRS, find out if the IRS Fresh Start program can help you today. Call  888 IRS HALT*  for a free consultation right now!"

Delinquent FBAR filing procedures

Delinquent FBAR filing procedures

For US expatriates who have reported all
foreign-sourced income, or did not have any foreign income to report,
the IRS has made the delinquent FBAR filing procedures *relatively*
straight-forward and *relatively* easy to understand. But here’s where
things get ugly. This is only true for taxpayers who do not have any unreported income in the last 3 years.
Things get complicated in situations where there in no unreported
income in the last three years, but unreported income in any one of the
three years prior. In this article we will demonstrate the apparent
contradictions, and offer strategies for the not-too uncommon issue of
having unreported foreign income, not in the last 3 years, but rather,
4-6 years ago. 

Steamlined OVDP FAQs

Steamlined OVDP FAQs



The IRS published Domestic Streamlined OVDP FAQs
on October 8, 2014 — purportedly to clear the air.  The IRS is
attempting to be intelligent and foresee the questions people will ask.
 The problem is we only see more confusion.   Read more to judge for
yourself.  Commentary is interspersed with italics, to denote possible future changes, or items of inconsistency.

Understanding the Eligibility Requirements for the Streamlined Foreign Offshore Procedures

To ease the process for qualifying tax applicants, new changes have been introduced to the Streamlined Foreign Offshore Procedures. A 0% offshore penalty by default is a key benefit of the new program. In this article, we discuss about the expanded streamlined filing compliance process and the steps to find whether the taxpayer qualifies for the new streamlined program.

The Modified Streamlined Foreign Offshore OVDP Eligibility
•    Must be individual taxpayers, including estates of individual taxpayers

•    Taxpayers must certify that the failure to report foreign assets, and pay all tax on income from those assets was not a result of willful conduct.

•    Will not be eligible to use the streamlined procedures, if the IRS has initiated a civil examination or criminal investigation of a taxpayer's information returns for any tax year.

•    “Quiet Disclosures” made outside of the OVDP still eligible for streamlined procedures but any penalty assessments previously made will not be removed.

•    Must have any one of the valid Taxpayer Identification Number (TIN) - SSN or ITIN or an ITIN application for some cases.

•    Taxpayers who, AFTER July 1, 2014, submitted their intake letter/attachments cannot benefit from this new program. This is a huge thing for those who have filed a pre-clearance previously. If you want to get qualified for the Streamlined Procedure, just stay away from OVDP intake letter or disclosure. If you do, the OVDP opt-out will become the only option for you to reduce offshore penalties. Those who have submitted an OVDP submission prior to July 1, 2014, may qualify for the Streamlined Procedures pursuant to transitional rules under OVDP.

 
Non-Residency Requirements
•    Non Residency requirement for U.S. citizens and lawful permanent residents: In any one or more of the three recent years for which the tax return deadline has passed, the individual did not have a US abode and he or she was physically present outside the U.S. for minimum 330 days. "Abode" refers to one's home, habitation, or place of dwelling but it does not mean the same as "tax home".

•    For individuals who are not U.S. citizens or lawful permanent residents: If, in any one or more of the last 3 years for which the U.S. tax return due date (or a properly extended due date) has passed, the individual did not meet the "substantial presence test". For more details about this test, see IRS Publication 519.

Streamlined OVDP Procedures
1. For each of the past 3 years for US tax return due date has passed:

•    If the U.S tax return filing was not done earlier, submit a new delinquent tax return using U.S. Individual Income Tax Return Form 1040, along with other required returns even though these information returns would normally be filed separately.

•    If tax return has been filed previously, submit a complete amended tax return (using Form 1040X) together with the required information returns. Normally, information returns would be submitted separately had the taxpayer filed an accurate original return.

•    Include “Streamlined Foreign Offshore” written in RED at the top of the first page of each amended or delinquent tax return and at the top of each information return. This will ensure the returns get processed under special procedures.

Certification of non-willful conduct
Willfulness requires more than checking the incorrect or no box on a Schedule B. Willfulness is not just about non-filing of FBAR. It is highly recommended to get a legal advice from an OVDP Attorney on your non-willfulness or willfulness.

File delinquent FBARs
File delinquent FBARs (FinCEN Form 114) for each of the past 6 years for which the FBAR filing due date has passed with explanation "Streamlined Filing Compliance Procedures".