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February 9, 2016

Foreign Earned Income Exclusion (form 2555) for Pilots, Airline Crews and Sailors

Many US expatriates live abroad and work for international airlines or shipping companies.  If their planes and ships spend a lot of time traveling in International Waters (parts of the Ocean which do not belong to a country) when they attempt to claim the foreign earned income exclusion ($100,800) for their wages on their tax return they will have a surprise if they are audited.  It is probable they may get audited because the IRS makes them targets for audits when they show themselves as pilots, sailors, etc.

Time spend working on planes or ships while traveling across international waters does not count as working in a foreign country. Therefore the money earned while in International Waters is fully taxable the same as if you were living in the USA.  None of it is excludable.

If you are audited by the IRS they will want to see logs, and other proof showing how many hours were earned while over international waters and use those figures to pro-rate any exclusion you may be claiming between work in foreign countries and work over the ocean.  If you are not keeping such records you should since you as the taxpayer have the burden of proof.

Also, it would only be possible if you are a full time pilot or seaman to claim the exclusion for part of your income if you use the bonafide residence test on form 2555.  Need help with an audit or determining the rules that apply to your situation. Email us at ddnelson@gmail.com and visit our website at www.TaxMeLess.com  for more information.

February 6, 2016

IRS Filing and Payment Dates for Expatriates

Filing Deadlines
Default rule: April 15. If your “tax home” or “abode” is in the United States your filing deadline is April 15. This is the default rule.
Automatic extension: June 15. If your “tax home” or “abode” is outside the United States, your deadline for filing your income tax return is June 15. This is automatic and you do not need to file anything to get it.
Normal extension: Use Form 4868 (whether you qualify for the June 15 deadline or not) to make extend the filing deadline to October 15.
Extra extension: Another extension is possible for some people — to December 15.
Foreign Earned Income Exclusion. For people who need time in order to qualify for the foreign earned income exclusion, Form 2350 allows you to select your own filing deadline to achieve that goal.
Payment Deadlines
Default rule: The tax due on your tax return is payable on or before April 15
Some people: If you qualify for the June 15 extended deadline to file your tax return, you can pay your tax — without late payment penalties — on or before June 15. However, you will owe interest on the tax due, from April 15 until the day you pay the tax. No further extension of the payment due date is possible.
If you need help filing an extension when you need more time to complete your tax return there are several services online that will do it for you electronically. Be certain to keep the receipt. Kauffman Nelson LLP can also efile your extension as well as prepare your tax return. Email us at ddnelson@gmail.com.

February 5, 2016

IRS STREAMLINED COMPLIANCE PROCEDURES FORM 14653 NOW REQUESTS MORE INFORMATION THAN OLD FORM.

Form 14653 ( used then a taxpayer has not filed for many years forms required to report foreign  assets, bank accounts, foreign corporations, foreign trusts, etc) in which you must explain the reasons you did not willfully fail to file your tax forms reporting foreign assets has now been expanded to request much more information from applicants. Failure to use the new form asking this information may cause problems with your application which needs to be accompanied with last three year incorrect or past due returns and 6 year past  due amended or original FBAR forms (Form 1140  It now requests the following;


1. Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Include the whole story including favorable and unfavorable facts. 

2 Specific reasons, whether favorable or unfavorable to you, should include your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs.

3 Additionally, explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it. And explain your contacts with the account/asset including withdrawals, deposits, and investment/ management decisions. Provide a complete story about your foreign financial account/asset. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice.

4  If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.

If you need help catching up with past unfiled foreign asset reporting forms you may be qualified for the streamlined program.  We can help you come into compliance and reduce or eliminate some very heavy monetary penalties.  Email us at ddnelson@gmail.com or go to www.taxmeless.com 

February 4, 2016

Dept of Justice to Go After Fbar Criminals

There will be no letup in the federal government's ongoing campaign targeting U.S. taxpayers who hide foreign accounts and attempt to evade U.S. tax obligations, a key Justice Department (DOJ) official said on Jan. 29. In 2016, tax professionals will see "additional civil enforcement actions and ongoing and new criminal investigations and prosecutions," Caroline Ciraolo, acting assistant attorney general for DOJ's Tax Division, told participants at the American Bar Association's Tax Section midyear meeting. According to Ciraolo, taxpayers who have participated in IRS voluntary disclosure programs may be contacted and interviewed by the agency and DOJ as part of their ongoing cooperation. "Taxpayers who filed returns and FBARs [Report of Foreign Bank and Financial Accounts] pursuant to the streamlined filing procedures or the Delinquent International Information Return or FBAR submission procedures should be very concerned if they falsely claimed to have engaged in non-willful conduct or acted with reasonable cause," Ciraolo said. In addition, "financial institutions and individuals who have facilitated the concealment of offshore accounts and the evasion of U.S. tax obligations would be well advised to anticipate an investigation and consider voluntarily disclosing any criminal activity to the department before they become the subject of an investigation," she said. Ciraolo noted that over the past year, her division has bolstered its staffing with the addition of 80 attorneys who are receiving the appropriate training. Ciraolo's complete prepared remarks can be viewed atjustice.gov/opa/speech/acting-assistant-attorney-general-caroline-d-ciraolo-delivers-remarks-american-bar

January 24, 2016

5 Essential US Expatriate Estate Planning Steps

1. US Expatriates do need to plan for both their foreign assets and US assets in the event of their demise.  The US does look at your worldwide assets and if their values exceed approximately 5.45 million dollars you must file an estate tax return and may owe US estate taxes.

2. Also, if you give gifts of either foreign property or assets located in the US in excess of $14,000 per year per donee you must file a US gift tax return, though it is likely you may not owe any US gift taxes due to the lifetime exclusion mentioned above for estate and gift taxes.

3. In the US you may need a will, power of attorney and a trust to properly dispose of your assets locate there and void expensive and long probates. The trust in large estates may also reduce you estate taxes.

4. If you wish your children to live in the US, your US will can be used to appoint guardians for your children (while they are still minors) and guardians for their assets (this can also be done in the trust you establish).

5. Where your US estate plan documents will effectively pass on your assets located in other countries if subject to each countries laws and a local attorney in each country should be consulted to confirm whether the US documents will be honored or separate wills, etc. must be executed for each country to meet local requirements.

We can help you put together your US estate plan, and often prepare all necessary documents and assist you with coordinating your plan with counsel in your country of residence.  If you require assistance please email me at ddnelson@gmail.com


January 20, 2016

Cathay Pacific to Withhold US Taxes From Pilots Wages Paid Abroad

Foreign companies such as Cathay Pacific have now decided to comply with US IRS instructions to withhold US taxes (and remit to the IRS) from US Citizens working abroad.  Foreign companies are going to be doing this in the future to avoid penalties which could be imposed against them by the IRS if they do business in the USA.



See Article with more details  In South China Morning Post

January 18, 2016

IRS Taxpayer Service Hits All Time Low for 2016

Don't count on the IRS for help this year. Only 38 percent of phone inquiries get answered. There are 15,000 fewer employers and the organization is suffering from a huge budget cuts.  The good news is that your chance of audit is about 1 percent and with respect to expatriate and international taxes the very few IRS personnel have any expertise.

The IRS keeps coming up with new forms, new rules and new procedures. Therefore, complying with your tax filing obligations and planning is becoming more complex daily and they are no longer there to help.

So when you have questions on your nonresident, expatriate or international US taxes this year, you may want to consider asking the expert CPAs and Attorneys at our firm.  We offer a mini consultation by phone, email, whatsapp, or skype that allocates up to 1/2 hour of time to answer your questions and help you with a tax strategy for your particular situation.  Write us to request a mini consultation

READ MORE ABOUT IRS BUDGET CUTS AND POOR SERVICE

Stronger Dollar Makes It Good Time to Buy in Mexico

The Street Article on Strengthening US Dollar and Good Time to Buy Real Estate in Mexico:

http://www.thestreet.com/story/13424393/1/strengthening-dollar-makes-it-a-good-time-to-buy-in-mexico.html

December 28, 2015

7 Things You Need to Know About US Gift Tax While Living Abroad or as a Nonresident Owning US Assets

One great technique to get assets out of your estate to save income taxes and to save estate taxes is to give gifts to another.  Here are seven things you need to know about US gift taxes and reporting of foreign gifts you might receive.

  1. If you give any individual (resident or nonresident) less than $14,000 US during a calendar year you do not have to file a Gift Tax Return form 709.
  2. If you give any individual more than $14,000 US (this includes cash and value of property, assets, intangibles, etc) you need to file a gift tax return with the IRS which is due 4/15 following end of Calendar year.  This includes gifts of assets located outside of the USA.
  3. If your gift exceeds the $14,000, you may need to file the return but probably do not owe taxes since you have a combined lifetime gift/estate tax exclusion of $5.43  million.  The excess value of the gift above the $14,000 will be offset by this lifetime exclusion.  If you use up this exclusion on gifts while you are alive it will not be available for use by your estate after your death.
  4. Contributions to IRS recognized charities are not the type of gift subject to gift tax
  5. If you as a citizen or permanent resident receive $100,000  in fair market value of assets  as a gift or inheritance in one calendar year (total for year from one individual or related individuals) you must file form 3520. If the gift is from a foreign corporation or LLC .you must file that form  if the total gifts received  during the year exceeds  $15,601. If you receive any amount from a foreign trust you must file the form 3520.  The form must be filed on 4/15  following the end of the calendar year. Failure to do so can subject you to a substantial monetary penalty.
  6. Nonresidents are subject to gift taxes for transfer of assets located in the USA.  Therefore best to make gifts if you are a nonresident from assets located outside of the USA. A nonresident must pay gift tax on any gift of US located property of more than $14,000 to a single person per year. This figure is an aggregate of all gifts during the year.
  7. If you receive anything in return (including services, etc) it is not a gift.  Also reciprocal gifts are also disallowed for US gift tax exemption purposes ( i.e. you give $14,000 to my kid and then I will give  $14,000 in return to your kid).
There are more gift rules applicable to special situations not mentioned here such as  those covering gifts to US persons after you have surrendered your citizenship or long term green card.  You should consult an gift tax expert before you make any gift that might be subject to tax to be certain there are not special rules that may surprise you when it becomes time to report the gift to the IRS.  If you need help email us at ddnelson@gmail.com or phone (US) 949-480-1235.

December 5, 2015

IRS CAN NOW REVOKE YOUR PASSPORT IF YOU OWE PAST TAXES

The IRS can now cause your passport to be revoked if you owe $50,000 or more US taxes. Expats and Green Card holders in this situation need to resolve unpaid taxes before returning to US or they may not be able to leave later (without a passport).

Time to consider a payment plan, offer in compromise, or offshore disclosure and streamlined programs.

Read more in article below.

http://www.forbes.com/sites/robertwood/2015/12/04/irs-power-over-passports-signed-into-law/

October 31, 2015

EIGHT IRS TAX FACTS FOR AMERICANS LIVING AND WORKING ABROAD

By. Don D. Nelson, International Tax Attorney

  • Though most foreign assets are reportable on various specialized forms filed with your US tax return,. If you own foreign real estate and title is in your own name (or a Fideicomiso) and do not rent out the property, there is no reporting required on your US tax return or for that matter any other reporting due the US Government.
  • Foreign mutual funds (and most foreign money market funds) require filing of another special form with your tax return. If you do not file this form and make elections to report the income each year, you are penalized with higher taxes and interest when you finally sell your foreign mutual fund. These rules were put in many years when Congress was convinced by US Mutual Fund companies that there business would be hurt unless investment in foreign mutual funds was made unfavorable for tax purposes.
  • The 2015 the $100,800 US foreign earned income exclusion applies to earned income (wages or self employment) income earned abroad if you meed the physical presence test or bonafide resident test. You can see if you qualify in IRS Publication 54. It is not automatic and can only be claimed on your US tax return. The IRS can deny this exclusion if you file your return more than 18 months late. This exclusion does not apply to rental income, dividends, interest or capital gains or any income other than earned income.
  • You must report your rental net income in from your Mexican real estate on your US return and you may also owe taxes on it in the country in which it is located  even if you are not a resident. The Mexican income tax can be claimed as a credit directly offsetting any US income tax you owe on the rental income. 
  • If you own 10% or more of a foreign corporation you may have to file form 5471 with your US tax return if required by the rules governing that form. Failure to file that form in a timely manner may result in the IRS assessing a $10,000 US penalty for failure to file even if you owe no taxes.
  • The US has a tax treaty with approximately 66 countries. It also has in the past year entered into an OECD agreements with over 36 countries who have agreed to exchange income tax information with the other. At some point in the future what you do offshore  will not stay in offshore and visa versa due to these new OCED agreements.
  • If as a US Citizen you have lived and worked in abroad for a while and not filed your US tax return, the IRS currently has a “streamlined program” that may allow you to catch up by filing only the past 3 years US tax returns and past six year FBAR (foreign bank account reports). They will not penalize you under that program for failing to file FBAR forms or other foreign reporting forms. They have stated they may discontinue this program at any time. Now is the time to surface with the IRS and avoid potentially huge penalties.
  • FBAR (foreign bank account reporting forms) must be filed each year with US Treasury if at any time during the calendar year your combined highest balances in your foreign financial accounts exceeds $10,000 US. This form must be filed on line. Foreign accounts include foreign pension plans, cash surrender value in foreign insurance, foreign brokers accounts, and even gold if held for you in a foreign country a custodian. Failure to file this form or filing it late can result in penalties of $10,000 US or more.


Don D. Nelson is a US tax attorney who has been assisting Americans everywhere in the World for over 25 years with their US tax returns and tax planning. He is also a partner in Kauffman Nelson LLP, Certified Public Accountants. His website is located at www.TaxMeLess.com. His tax blog has the lastest tax developments of interest to those abroad at www.usexpatrate.blogspot.com.His email address is ddnelson@gmail.com. He can be reached at his US phone number 949-480-1235.   

October 26, 2015

Expatriate Foreign Earned Income Exclusion for 2016 Increased

The foreign earned-income exclusion amount under tax code Section 911(b)(2)(D)(i) will increase in 2016 to $101,300 from $100,800, the International Revenue Service said Oct. 21 (Rev. Proc. 2015-53).
Section 911 allows qualified U.S. citizens and residents who work abroad to exclude a certain amount of their foreign-earned income and a portion of their foreign housing expenses from their gross income for U.S. tax purposes. They must meet either a physical presence test or a bona fide residence test. Taxpayers may elect the Section 911 income and housing exclusions even if no foreign taxes were paid on their foreign earnings.
Although employers generally must withhold U.S. federal income taxes from taxable wages paid to U.S. citizens and residents working abroad, the withholding requirements do not apply to wage payments subject to the foreign earned-income and housing cost exclusions claimed by expatriate employees that file Form 673, Statement for Claiming Exemption From Withholding on Foreign Earned Income Eligible for the Exclusion(s) Provided by Section 911, with the employer.

October 18, 2015

IRS Collecting $8 Billion from Offshore Tax Compliance Push

Read in Accounting Today how the IRS is collecting taxes from expatriate taxpayers.  They have over 54,000 taxpayers that have come forward in the Offshore Disclosure Programs or Streamlined Programs.  That still leaves a lot of taxpayers out there who have not yet complied with the US tax rules because there are approximately 8.3 million Americans living abroad.  Do not wait until they catch you through FATCA or through the over 36 signed OECD agreements where the US and other countries have agreed to mutually exchange tax information on their residents.

The IRS  has stressed that it remains committed to stopping offshore tax evasion wherever it occurs, and even though the agency has faced several years of budget reductions, the IRS continues to pursue cases throughout the world.

READ ARTICLE HERE


October 4, 2015

IRS Begins Sending Individual Account Information to Foreign Countries

The Internal Revenue Service has kicked off a new program under which it shares large amounts of individuals’ financial-account information with certain foreign countries, the agency said Friday.
The IRS said it received digital information about U.S. taxpayers’ foreign accounts from governments and firms around the world, and it sent information on foreigners’ U.S. accounts to government authorities in as many as 34 countries. While governments have exchanged such information in the past, the sharing wasn’t automatic and the scope was often far narrower. The deadline for the exchange to begin was Sept. 30.  Read more in the wall street journal and find out if your resident country is on the list!
http://www.wsj.com/articles/irs-begins-sending-individual-account-information-to-foreign-countries-1443810584

September 18, 2015

IRS Going After Belize Bank Accounts and Secret Belize Corporations

Dept of Justice announces here that a district court authorized the IRS "to serve a 'John Doe'” summons seeking information about U.S. taxpayers who may hold offshore accounts at Belize Bank International Limited (BBIL) or Belize Bank Limited (BBL)."  The petition, memorandum in support and declaration of the agent are here.

September 17, 2015

PUERTO RICO IS THE BEST SIMPLE OFFSHORE TAX HAVEN FOR US CITIZENS

If you are a US Citizen you already have the right citizenship.  You need to make PR your full time residence (over 183 days a year). Then under the laws (unless changed in the future should the US Congress notice this amazing tax break) your interest income, dividend income and capital gains are tax free.  If you business is a service business that can be conducted from Puerto Rico you can pay a  4% tax on your corporate net profit and the dividends from that corporation are tax free. 

You can do all of this without surrendering your US Citizenship or getting a special visa. Puerto Rico is a great tropical place to live and not that far from the USA.