Making a Voluntary Disclosure to the IRS- Everything You Wanted to Know But Were Afraid to Ask

Making a Voluntary Disclosure to the IRS- Everything You Wanted to Know But Were Afraid to Ask

Tax Law, Uncategorized
By Anthony Diosdi On November 20, 2018, the Internal Revenue Service (“IRS”) issued a Memorandum discussing the rules for all voluntary disclosures (foreign and domestic) after the expiration of the final Offshore Voluntary Disclosure Program (“OVDP”). The Memorandum is broken down into multiple parts: background and overview, IRS Criminal Investigation (“CI”) procedures; civil processing, case development, and civil resolution framework, each of which are discussed in detail below. This article will also discuss the significant hazards of making a voluntary disclosure to the IRS.BackgroundIn 2009, the IRS opened the initial OVDP to provide a uniform mechanism to U.S. citizens and tax residents who had not otherwise disclosed foreign bank accounts, foreign situs assets and income that was used to pay for such assets. After the expiration of the 2009 OVDP,…
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Does Lori Loughlin Have an “Ignorance of the Law” a Defense to a Charge of Money Laundering?    By Anthony Diosdi

Does Lori Loughlin Have an “Ignorance of the Law” a Defense to a Charge of Money Laundering? By Anthony Diosdi

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Actress Lori Loughlin has been indicted on fraud and money laundering charges by a federal grand jury for their alleged roles in a college admission scandal. Federal prosecutors ultimately filed a superseding indictment against Loughlin alleging that she conspired to commit mail and wire fraud, honest services mail and wire fraud, and money laundering. According to the indictment Loughlin knowingly laundered bribes through charities and corporations set up by William “Rick” Singer, from outside the United States, for the purpose of promoting a fraudulent scheme. In particular, prosecutors allege that Loughlin paid Singer approximately $500,000 to get her daughters admitted to University of Southern California (“USC”) as crew recruits, even though neither daughter had previously rowed as crew. Prosecutors claim that Loughlin made payments to Key Worldwide Foundation, a non-profit…
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The U.S. Withholding Tax on a Foreign Partner’s Share of Effectively Connected Taxable Income

The U.S. Withholding Tax on a Foreign Partner’s Share of Effectively Connected Taxable Income

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By Anthony Diosdi In recent years, there has been a significant increase in business activities between U.S. persons and persons from third countries. When U.S. persons and foreign persons enters into arrangements to conduct business activities in the United States, it is not uncommon for the arrangement to be general or limited partnership, a limited liability company, or some other informal arrangement, all of which may be classified as a partnership for U.S. income tax purposes. A number of years ago, Congress was concerned that foreign persons generating profits from participating in any business arrangement that is classified as a partnership for U.S. income tax purposes were avoiding the payment of U.S. income tax. In an effort to close this potential loophole, Congress enacted legislation which in general requires that…
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Establishing a Residency Termination Date For Tax Planning Purposes

Establishing a Residency Termination Date For Tax Planning Purposes

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By Anthony Diosdi An alien individual who is a United States resident alien for income tax purposes, but who is a nonresident alien for United States income tax purposes during the following year, will cease to be a resident alien on the individual’s “residency termination date.” Generally, the residency will be the last day of the calendar year.However, the residency termination date for a resident alien will be the last day such an individual is present in the United States during the calendar year if such individual establishes that, for the remainder of the calendar year, the individual’s tax home was in a foreign country and he or she maintains a closer connection to that foreign country rather than to the United States. To qualify for this exception, a statement…
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The Branch Profits Tax and the Foreign Corporation

The Branch Profits Tax and the Foreign Corporation

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By Anthony Diosdi In general, when a domestic corporation pays a dividend to a foreign shareholder, a thirty percent (30%) tax is imposed. Recognizing that it is far more difficult for the Internal Revenue Service (“IRS”) to monitor when a foreign corporation pays a dividend, the tax law provides a mechanism to determine when funds invested in the United States in a U.S. trade or business are deemed “distributed” by the foreign corporation. This deemed “dividend equivalent” is at that time subject to a 30 percent tax- the so-called branch profits tax.The branch profits tax is imposed at 30 percent rate on a foreign corporation’s U.S. trade or business effectively connected earnings and profits (the “Earnings”). In general, the Earnings represent taxable income with adjustments to arrive at trust economic…
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Income Tax Considerations of Property Inherited from A Foreign Person

Income Tax Considerations of Property Inherited from A Foreign Person

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By Anthony Diosdi Many U.S. income tax questions arise in connection with receipt of inherited property. These questions generally include whether the recipient must include the value of such property in gross income for U.S. income tax purposes and what will be the U.S. income tax consequences of the recipient’s subsequent disposition of the inherited property. This article will briefly summarize the more relevant U.S. income tax consequences in connection with inherited property with emphasis on property inherited from a foreign individual. Anyone reading this article must be aware that the U.S. also has a transfer tax regime that could impose an estate tax upon the transfer of property of a decedent. However, the estate tax is generally imposed on the estate of a decedent and not on the recipient.…
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Did You Receive a Notice CP 508C From the IRS Stating That  Your Passport is Being Revoked? Maybe the APA Can Prevent the IRS from Taking Your Passport

Did You Receive a Notice CP 508C From the IRS Stating That Your Passport is Being Revoked? Maybe the APA Can Prevent the IRS from Taking Your Passport

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By Anthony Diosdi IntroductionI have been assisting clients with tax problems for nearly twenty years. One question that I was always asked is,’Can the Internal Revenue Service (“IRS” or “Service”) stop me from traveling abroad?’. Up until fairly recently, I advised clients that the IRS could not prevent them from traveling abroad. That all changed in 2015 with the passage of Fixing America’s Surface Transportation Act (“Fast Act”). The Fast Act requires the State Department to deny a passport application by, and authorizes it to revoke the passport of, any individual that the Service certifies as having a “serious delinquent tax debt.” See Fixing America’s Surface Transportation Act, Pub. L. No. 114-94, Section 32101(e), 129 Stat. 1311, 1732 (2015). Internal Revenue Code Section 7345 governs the IRS’ certification process and…
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Reporting Requirements for U.S. Persons Who Receive Large Gifts From Foreign Persons

Reporting Requirements for U.S. Persons Who Receive Large Gifts From Foreign Persons

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By Anthony Diosdi IntroductionThe Small Business Job Protection Act of 1996 (the “Act”) contained certain foreign gift reporting provisions. In order to facilitate compliance with the Act, the Internal Revenue Service (“Service” or “IRS”) developed Form 3520 entitled “Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.” The Form 3520 must be filed by the due date (including extensions) of the U.S. recipient’s income tax return when he or she receives certain foreign gifts.Summary of the LawIn GeneralThe Act created reporting requirements for U.S. persons (other than certain tax exempt organizations) that receive gifts (including bequests) from foreign persons (i.e. anyone other than a U.S. person) that the recipient treats as a gift or bequest (presumably, non-taxable). Generally, if the value of the aggregate annual…
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A Closer Look at the Non-Willful FBAR Penalty Associated with Not Timely Filing a FinCen Report 114

A Closer Look at the Non-Willful FBAR Penalty Associated with Not Timely Filing a FinCen Report 114

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By Anthony Diosdi I. DEFINING THE IMPORTANT TERMS EVERY U.S. INDIVIDUAL WITH AN INTEREST IN FOREIGNFINANCIAL ACCOUNT(S) NEEDS TO UNDERSTANDA. Introduction This article is designed to provide a background and overview of the laws governing the disclosure of foreign accounts on a Foreign Bank Account Report, FinCen Report 114 (“FBAR”). This article also discusses the penalties that can be assessed against individuals for not timely disclosing foreign accounts on an FBAR. Although FBAR violations can result in both criminal and civil penalties, this article focuses on civil penalties that can be assessed by the Internal Revenue Service (“IRS”) for an FBAR violation. In particular, this article analyzes the highly controversial non-willful penalty that can be assessed by the IRS against individuals who did not timely disclose foreign financial accounts on…
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The U.S. Tax Effects of Entities Used by Foreign Investors

The U.S. Tax Effects of Entities Used by Foreign Investors

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By Anthony Diosdi Introduction Foreign investors typically have the same objectives of minimizing their income tax liabilities from their real estate and businesses located in the U.S. as do their domestic counterparts. However, foreign investors are subject to an even more complicated set of tax laws than their domestic counterparts. Foreign investors must understand the difference between effectively connected income compared to not effectively connected income. Foreign investors must also understand the difference between income earned in a trade or business compared to passive income. These distinctions in income make a big difference for U.S. tax purposes. For example, if a foreign investor derives certain types of passive income from the U.S., the income typically taxed at a flat 30 percent rate (without allowance for deductions), unless an applicable U.S.…
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