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February 26, 2012

Green Card Holders Can Now Be Deported for Tax Fraud says Supreme Court

Last week the US Supreme Court in a 6 to 3 decision stated that Green Card Holders (Permanent Residents) can now be deported and their Green Card Revoked if convicted of Criminal Tax Fraud.  In the case a Japanese restaurant holder  and his wife in Thousand Oaks, California were found to have cheated on their corporate tax return. Even though he subsequently repaid the $244,000 taxes he owed, and served 4 months in jail, and had lived in the US since 1984 with his family and children, the Court upheld the decision of  lower Court cases where ICE sought and prevailed in their request to deport him for aggravated fraud.  This decision does not apply when the IRS imposes civil penalties and does not seek criminal prosecution.

The Supreme Court and statutes state that aggravated fraud is any fraudulent act that involves $10,000 or more. It should be noted that the IRS, if almost all circumstances, can proceed with criminal tax fraud charges for almost any violation of the IRS tax code.  This decision could have consequences for all Green Card holders who fail to report their foreign bank accounts, foreign income, foreign corporations, foreign partnerships, foreign trusts, etc.


READ THE SUPREME COURTS DECISION IN KAWASHIMA ET UX. v. HOLDER, ATTORNEY 
GENERAL HERE.

February 22, 2012

Be Careful Who You Trust - They May Decide to be an IRS Informant for a Big Reward

The IRS has a Whistle Blower program which often makes those who participate wealthy.  The reward paid by the IRS can be up to 30% of the tax collected.   It is much like the Cold War Russia where they wanted everyone to inform on their friends and family. Rewards have been paid to foreign bankers who have turned in their own clients......so much for secret bank accounts.

In 2010 7,577 Cases were submitted and the IRS paid out over $18 million in rewards. The information received from Whistle blowers results in collection of more than $464 million in taxes.  Often it is wise to have an attorney represent you if you decide to inform on another taxpayer to protect your interests. Read more about the program HERE.

Expats Press Capitol Hill for Tax Reforms


A nonprofit group American Citizens Abroad representing the interests of U.S. citizens living overseas met with congressional staffers to push for a residence-based taxation system.  READ MORE HERE IN ACCOUNTING TODAY NEWS RELEASE

February 21, 2012

Quick US Tax Facts for Expatriate Business Entrepreneurs Abroad



    QUICK TAX FACTS FOR US EXPATRIATES WITH BUSINESSES ABROADBy Don D. Nelson, CPA, Attorney, International Tax Expert
Your earnings from Self employment or Wages (paid by a US employer or one abroad) may be eligible for the $92,900 Foreign Earned Income Exclusion if you qualify. The same is true for wages earned by your spouse. You can be paid a salary from your own US Corporation to work abroad and if you satisfy the requirements still use this exclusion on your personal tax return.
  • You can take a credit for foreign taxes you pay on your personal income to your foreign residence country which will in most situations offset your US tax on that income taxed on your US form 1040.
  • If you foreign financial assets exceed , you must file form 8938 each year with your US tax return or be subject to a large penalty.
  • You must file a US tax return each year on your worldwide income.
  • If you operate your business through a foreign corporation, LLC, partnership, etc. you are required to file special forms with you US tax return (5471,8865, )
  • If you are an independent contractor under the laws of the foreign country in which you work, you will have to pay US self employment tax (social security) on your net profit unless you live in one of the few countries that have a Social Security agreement with the US.
  • If the combined balances in your foreign bank accounts, financial accounts, pension plans (including cash surrender value to foreign life insurance) ever during the year exceed $10,000US you must file the FBAR form by 6/30 following the end of the calendar year or may be liable for a $10,000 penalty for late filing or non filing.
  • If you purchase a foreign mutual fund (or have substantial investments in a foreign corporation) you own a Passive Foreign Investment Company and must file a special form each year to report your income or risk adverse US tax consequences when you finally sell out.
  • Generally contributions by you or your employer to foreign pension plans (similar to US 401Ks) are taxable on your US return (unless there is a treaty exemption) and you must report the earnings each year. Also, you may have to file form 3520 and 3520A to report that pension fund to the IRS.
  • You can open a US IRA or 401k (if self employed) if your taxable earnings from employment exceed the foreign earned income exclusion amount (not to exceed your earnings that exceed that amount.
  • If you claim the foreign earned income exclusion you can deduct your housing expenses in excess of up to . This maximum ceiling amount varies by country and can go as high in Hong Kong. Housing expenses include rent, utilities, repairs, maintenance, taxes and house cleaning.
  • You can elect with respect to certain legal business entities in most countries to have that entity treated for US tax purposes as a flow through. That means the net income (or loss) of the foreign entity will flow through to your personal US tax return. This allows you to benefit from losses and avoid paying taxes twice on that income. Such an election also allows you to claim any foreign taxes paid by the foreign entity as tax credits on your personal tax return offsetting the US taxes on that income.
  • Most allowances for education, housing, transportation, etc. that are not taxable to you in many foreign countries are taxable to you on your US tax return.
  • There are no restrictions on taking money abroad, opening a business, buying real estate or bringing money back to the US so long as you file the proper reporting forms with the IRS.
  • If you are a US Citizen, per manent resident, or green card holder you assets abroad are still subject to US gift and estate taxes if applicable.
  • If you are married to a US nonresident spouse, and live outside of the USA, you do not have to include their earnings, assets, etc., on your IRS tax filings.
    · Download your 2011 US tax return questionnaire prepared expressly for Americans living in Abroad HERE.

------------------------------
 Don  D. Nelson, CPA, Attorney (Kauffman Nelson LLP) has been assisting US Citizens , Permanent Residents and nonresidents in over 40 countries around the world with their US tax planning, tax return preparation, and other tax / legal matters for 20 plus years. He offers his clients attorney-client privilege which is not available from other tax accountants. He has helped hundreds of US expatriates around the world “catch up” filing their past late returns most often with little or no tax cost to you the delinquent taxpayer. His main office is at 34145 Pacific Coast Highway #401, Dana Point, California 92629 USA.


Our Tax Services Include

  • US Expatriate and International Tax Return Preparation.
  • US Nonresident return preparation.
  • Review of IRS International Tax Forms Prepared by you or your tax preparer.
  • Preparing and filing tax returns for past years – Our “Catch Up” tax service.
  • Surrender of US Citizenship or Green Card Tax Planning and Assistance.
  • International Business Tax Planning and compliance.
  • IRS Offshore Voluntary Disclosure Reprsentation and filing.
  • IRS Audit Representation with respect to Expatriate and International Tax Issues

Mini Tax Consultations are available for you to discuss your situation with Don your personally and secure his counsel resolving your tax problems and future tax planning by phone or email. No personal visit is required. All consultations are subject to the absolut privacy and confidentiality of Attorney-client privilege. LEARN MORE HERE.


February 20, 2012

QUICK U.S. TAX FACTS FOR EXPATRIATES AND AMERICANS LIVING ABROAD



· If you are a US Citizen you must file a US tax return every year unless your income is less than
$ 9,500 (for 2011 and lower for earlier years) or have self employment-independent contractor  net income of more than $  400 US per year.  You are taxable on your world wide income and required to report it regardless of whether you filed a tax return in your country of residence.
· As an US expatriate living abroad on 4/15, your 2011 tax  return is automatically extended until 6/15 but any taxes due must be paid by 4/15 to avoid penalties.  The return can be further extended until 10/15/12 if the proper extension is filed. You may even be able to get a further extension until 12/15if you send the IRS the proper letter.
· For 2011 if you are a qualified expatriate you get a foreign earned income exclusion (earnings from wages or self employment) of $92,900, but this exclusion is only available if you file a tax return.
· If your spouse works and lives abroad, and is qualified, she can also get at $92,900 foreign earned income exclusion. A foreign housing deduction or exclusion is also available if you earn in excess of the foreign earned income exclusion. This amount varies by country.
· You get credits against your US income tax obligation for the taxes paid to a foreign country on that same income but you must file a return to claim those credits.
· If you own 10% or more of a  foreign  corporation, LLC or partnership or are a beneficiary of a Foreign Trust such as a  Fideicomiso in Mexico, you must file special IRS forms each year or incur substantial penalties which can be greater including criminal prosecution if the IRS discovers you have failed to file these forms.
· Your net self employment income or independent contractor income  is subject to US self employment tax of 15.3% (social security) which cannot be reduced or eliminated by the foreign earned income exclusion unless you work in one of the few countries the US Social Security Administration has a social security agreement with and pay social security to those countries. If you live in one of those countries you must secure a required certificate to prove your exemption from US self employment tax.
· If at any time during the tax year your combined highest balances in your  foreign bank and financial accounts such as brokerage accounts, cash surrender value of foreign life insurance policies, foreign pensions, etc. (when added together) ever equal or exceed $10,0US you must file a FBAR form with the IRS by June 30th for the prior calendar year or incur a penalty of $10,000 or more including criminal prosecution. This form does not go in with your personal income tax return and is filed separately to a different address.
· In the several past year the IRS has hired more than 2,000 new employees to audit, investigate and discover Americans living abroad who have failed to file all necessary tax forms.
· Often due to foreign tax credits and the the foreign earned income exclusion expats living abroad  when filing  all past year unfiled tax returns and end up owing no or very little US taxes.
· Beginning in 2011a new law is in effect which requires all US Citizens report all of their world wide financial assets if in total the value of those assets are $50,000 or more on form 8938. 
· Income from certain types of foreign corporations are immediately taxable on the US shareholder's personal income tax return.  If your corporation only provides your personal services to customers you may have a Foreign Personal Holding Company which would cause all income to be immediately taxable to you. Income may also be immediately taxable when the income is from investments, rents, etc. This is call “Subpart F” income.
· If you own investments in a foreign corporation or own a foreign mutual fund shares you may be required to file the IRS forms for owning part of a Passive Foreign Investment Company (PFIC) or incur additional, taxes and penalties for your failure to do so. A PFIC is any foreign corporation that has more than 75% of its gross income from passive income or 50 percent or more of its assets produce or will produce passive income.
· The IRS is now matching up your US passport with your US tax records and knows if  you  have not been filing all required US tax returns while you are living  Abroad.  The IRS will shortly start matching up information received from Foreign Banks with US tax returns and required FBAR forms. If you have not been reporting, now is the time to start.

· Download your 2011 US tax return questionnaire prepared expressly for Americans living in Abroad   HERE.
------------------------------
 Don  D. Nelson, CPA, Attorney (Kauffman Nelson LLP) has been assisting US Citizens , Permanent Residents and nonresidents in over 40 countries around the world with their US tax planning, tax return preparation, and other tax / legal matters for 20 plus years. He offers his clients attorney-client privilege which is not available from other tax accountants. He has helped hundreds of US expatriates around the world “catch up” filing their past late returns most often with little or no tax cost to you the delinquent taxpayer. His main office is at 34145 Pacific Coast Highway #401, Dana Point, California 92629 USA.


Our Tax Services Include

  • US Expatriate and International Tax Return Preparation.
  • US Nonresident return preparation.
  • Review of IRS International Tax Forms Prepared by you or your tax preparer.
  • Preparing and filing tax returns for past years – Our “Catch Up” tax service.
  • Surrender of US Citizenship or Green Card Tax Planning and Assistance.
  • International Business Tax Planning and compliance.
  • IRS Offshore Voluntary Disclosure Reprsentation and filing.
  • IRS Audit Representation with respect to Expatriate and International Tax Issues

Mini Tax Consultations are available for you to discuss your situation with Don your personally and secure his counsel resolving your tax problems and future tax planning by phone or email. No personal visit is required. All consultations are subject to the absolut privacy and confidentiality of Attorney-client privilege. LEARN MORE HERE.



February 19, 2012

HOW TO AVOID AN IRS EXPATRIATE TAX AUDIT


Though in the past very few expatriate tax returns were ever audited by the IRS, the level of audits now and in the future are going to increase significantly. Listed below are some tips you can use when you expatriate tax return is prepared which will reduce the chance it will be audited.
  • If you have any unusual items of income or expense on your return attach a footnote explaining that item. An explanation may head off the audit.
  • If you file special foreign forms such as 5471, 8865, TDF 90-22.1, etc. make certain they are filled out correctly and in full. Failure to due so will cause the IRS to inquire further.
  • Do not attach items to your return which are not required by the IRS such as earnings statements from foreign employers, investment statements, supporting bills, etc. Attaching these items may raise questions.
  • Only fill in the portions of Form 2555 that are required for the Foreign Earned Income Exclusion type you claimed.
  • Try extending your return to 10/15. Though the IRS does not admit it, many tax experts feel that returns that are extended and not filed until the last minute are not audited as often as those filed by the normal due date.
  • Report all foreign bank accounts, financial accounts, foreign income, etc. The IRS will shortly be receiving reports from foreign banks and other financial decisions which they will match with your return and the TDF 90-22.1 (FBAR) forms that you file.
  • File tax returns for all tax years even if you earning are below the minimum required for filing. This not only causes the 3 year statute of limitations to run out but avoids IRS inquiries in later years about unfiled US tax returns.
  • The foreign tax credit Form 1116 is complex. If you are not certain it is completed correctly, best to get an expert to review it to make certain there are no issues.
  • When audited it is best to retain at expatriate tax professional to deal with the IRS Agent. The IRS agent is a Tax Collector and is not your friend. You may make statements to the agent that can hurt you or expand the scope of the audit. A professional will prevent this from happening.

We can prepare your expatriate tax return for your or review your self prepared return to assure you it is prepared correctly. We have been preparing US expatriate and international tax returns for over 30 years. It is all we do and is our specialty. Please call or email for further assistance.

Don D. Nelson, C.P.A., Attorney
Kauffman Nelson LLP - CPAs
Dana Point, California 92629 USA
US Phone: 949-481-4094 US Fax 949-218-6483
Latest International Tax Developments Blog: www.usexpatriate.blogspot.com

February 18, 2012

IRS Exempts 4 countries from Foreign Earned Income Exclusion Rules Time Requirements

The IRS has exempted expats living in Libya, Yeman, Egypt and Syria from certain time requirements under the Foreign Earned Income Exclusion Rules (Form 2555 the current $92,900 earned income exclusion).  They have done this since many US expats may have had to abandon their residency due to political turmoil in those countries during 2011.

To real full details and the time parameters which apply read the Journal of Accountancy Article HERE 

Visit our website at www.TaxMeLess.com for further assistance with your US expat tax return preparation or just to learn more about the various applicable rules and regulations.


February 15, 2012

2012 Proposed New Tax Laws from the President

You can read  the 200 pages of proposed new tax laws from the President some of which will not doubt be enacted in 2012  HERE.  Better act fast to beat some of these changes which may not be favorable to you.


February 14, 2012

IRS issues housing cost allowances for those working abroad in high-cost areas in 2012

Notice 2012-19, 2012-10 IRB   This new Notice provides adjustments to the limitation on housing expenses under the Code Sec. 911 housing cost exclusion for specific locations for 2012.


SEE TABLE WITH ALLOWABLE HOUSING DEDUCTION/ALLOWANCE FOR YOUR COUNTRY OF RESIDENCE.
Background. A qualified individual may elect to exclude from U.S. gross income his foreign earned income and housing cost amount. (Code Sec. 911(a)) Under Code Sec. 911(c)(1), the maximum excludable housing cost amount is calculated by way of a complex formula.
The excludable housing cost amount is the excess, if any, of (1) the individual's allowable housing expenses for the year (i.e., the housing expense limitation) over (2) a base amount. For 2012, a taxpayer's allowable housing expenses, assuming he is eligible for the entire year, generally can't exceed $28,530; subtracting the base amount of $15,216 yields a generally applicable maximum housing amount exclusion of $13,314.
IRS may issue regs or other guidance providing for the adjustment of the maximum allowable housing expense limitation on the basis of geographic differences in housing costs relative to housing costs in the U.S. (Code Sec. 911(c)(2)(B))
Increases for high-cost areas. Notice 2012-19, makes adjustments for housing costs during 2012 in high-cost foreign areas. Specifically, it contains a table that (1) identifies locations within countries with high housing costs relative to U.S. housing costs, and (2) provides an adjusted annual maximum and daily housing expense limitation for a qualified individual incurring housing expenses in one or more specified high-cost localities in 2012 to use (instead of the otherwise applicable annual housing expense limitation of $28,530, or the prorated daily amount) in determining his housing expenses. A qualified individual incurring housing expenses in one or more of the high-cost localities identified in the table for the year 2012 may use the adjusted limit provided in the table (in lieu of $28,530 or the prorated daily amount) in determining his housing cost amount on Form 2555, Foreign Earned Income.
Illustration: A U.S. taxpayer is posted to Hong Kong, China, for all of 2012. His maximum housing cost exclusion is $99,084 ($114,300 full year limit on housing expense in Hong Kong minus $15,216 base amount).
NOTE: For some locations, the limitation on housing expenses provided in Notice 2012-19, Sec. 3, may be higher than the limitation on housing expenses provided in Notice 2011-18 (for 2011). A qualified individual incurring housing expenses in such a location during 2011 may apply the adjusted limitation on housing expenses provided in Notice 2012-19, Sec. 3, in lieu of the amounts provided in Notice 2011-18 (and as set forth in the Instructions to Form 2555 (2011)).
IRS anticipates that future annual notices providing adjustments to housing expense limits will make a similar election available to qualified individuals that incur housing expenses in the immediately preceding year. For example, when adjusted housing expense limitations for 2013 are issued, it is expected that taxpayers will be permitted to apply those adjusted limitations to the 2012 tax year.

Download our 2011 Expatriate Tax Questionnaire Here (msword format) and email or fax it back to us for a fee quote subject to your approval.

February 13, 2012

IRS KNOWN TO BE INVESTIGATING BANK AND FINANCIAL ACCOUNTS IN THE FOLLOWING NAMED COUNTRIES

Though the IRS tries to keep their investigation into offshore financial accounts held by US taxpayers confidential, it is known that they are investigating bank accounts and other financial accounts owned by US taxpayers, Citizens and Permanent Residents in the following countries:


1. Switzerland
2. Liechtenstein
3. Israel
4. India
5. Singapore
6. Hong Kong

The risk of criminal and/or substantial civil penalties grows greater as the US Internal Revenue Service (IRS) and Department of Justice (DoJ) complete more bank-investigations and as foreign banks continue to co-operate with US government officials.


February 11, 2012

The Offshore Tax Evasion Crackdown Spreads to Other Countries


5 Nations Join US In Tax Evasion Crackdown
Forbes
The law has rankled many in the international community, reaching the long arm of theIRS into foreign countries. In effect, it orders foreign banks how to behave, forcingforeign institutions to do the IRS's dirty work. See Expats Call For FATCA ....


If the IRS determines you have income and you have not filed one, they can file a Ghost Return making tax assessments you may not even be aware of until years later. That may be after they have already attached your bank account or levied other assets.  The only way to stop this from happening is to file a tax return before they file one for you.


You can download our expat tax return questionnaire for 2011 here  (msword format) and send it to us for a fee quote subject to your approval.  Do not wait until it is too late.  Also, keep in mind, the statue of limitations which allows the IRS to assess taxes against you never runs out if you fail to file a tax return for any particular tax year.

February 4, 2012

Reporting Foreign Financial Assets

For your 2011 Tax  Year you may be required to File Form 8938 to Report your foreign financial assets with your tax return. You may also be required to File Form TDF 90-22.1 to report your foreign bank and financial accounts.  Sometimes you may be required to file both forms!

CHART SETTING FOR REQUIREMENTS FOR FILING ONE FORM OR IF YOU ARE REQUIRED TO FILE  BOTH FORMS FOR 2011

DOWNLOAD FORM 8938
DOWNLOAD INSTRUCTIONS TO FORM 8938
DOWNLOAD FORM TDF 90-22.1 AND INSTRUCTIONS

If you need help with these forms, filing them out, preparation of the forms, or review of the forms you self prepared contact us at ddnelson@taxmeless.com.  We have 30 plus  years experience preparing these  and other complex international tax forms. Download our 2011 expatriate tax questionnaire HERE and send it to us by email or fax for a fee quote.