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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…

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

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