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Offshore Steuer-Erklärungen USA für Amerikaner

OVDP - Streamlined Filing Compliance - Expatriation Tax

Offshore Steuer-Erklärungen USA

The U.S. is the only OECD country to tax its citizens, including an estimated 7 million expatriates, wherever they reside. For U.S. citizens or resident aliens the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether they are in the United States or abroad. Their worldwide income is subject to U.S. income tax, regardless of where they reside. The 2010 Foreign Account Tax Compliance Act (FATCA), designed to curb tax evasion by U.S. taxpayers with offshore assets, has made tax matters very complex, requiring tax expertise typically not available abroad. Our experience has shown that U.S. citizens or residents living outside the US are not always aware of the additional reporting requirements.

Penalty regimes associated with these reporting requirements are severe. Nondisclosure can result in serious consequences. Taxpayers who previously failed to comply with US tax laws may have several options available to get on par with reporting requirements at a lower penalty rate provided they meet certain conditions.

Owners of a GmbH Need to Re-Evaluate and Restructure

The Tax Cuts & Jobs Act 2017 gifted expatriate owners of a GmbH “Russian Dolls”. Two taxes U.S. expatriates who own businesses abroad are most concerned about: a one-time repatriation levy of as much as 17.5 percent on old foreign profits and an annual levy of up to 37% on GILTI-- or global intangible low-tax income -- on foreign profits going forward.

Section 965 Tax – “Repatriation” of previously untaxed foreign earning and profits -

U.S. residents, whether citizen or not, as well as U.S. citizen abroad (and not only the Apples and the Googles of this world) will pay a tax on previously untaxed foreign earnings and profits as if they had distributed them in 2017 (Section 965 Tax). This is a harsh and surprising tax, particularly for U.S. residents who are not citizen, and for U.S. citizen abroad.

Publication 5292, How to Calculate Section 965 Amounts and Elections Available to Taxpayers, is now available on IRS.gov and reflects changes the Tax Cuts and Jobs Act enacted. Publication 5292, for use in preparing 2017 returns, includes a Workbook to Assist in Calculating Section 965 Amounts. The publication also features the previously released Questions and Answers about Reporting Related to Section 965 on 2017 Tax Returns.

Please contact us for assistance before you file the 2017 income tax return. We feel your pain and are here to help you.

Guilty of GILTI – A new tax for some expatriates

Starting in tax year 2018, Global Intangible Low-Taxed Income (“GILTI”) may be taxed for expatriates owning at least 10% stake in a controlled foreign corporation (“CFC”) subject to the GILTI regulation. The tax is levied at the personal tax rate of 37%. This is not a theoretical situation. It is the actual law under the current reform. The IRS issued proposed regulations and drafted the reporting on Form 8992. You probably need to restructure your operations outside the U.S.

Be mortified and stay tuned.We are only a phone call away, +49 89 2351 3218 or +1 914 816 1115 after 15h (9 am ET).

Restructuring of Controlled Foreign Corporations (CFC)

The US Tax Cuts & Jobs Act 2017's transition tax on deferred foreign income (Section 965 Tax), the new global intangible low taxed income (GILTI) tax regime, and other changes to the rules governing controlled foreign corporations will dramatically affect the taxation of US individuals who own closely held foreign companies. The changes force the re-examination of many existing tax structures, including succession planning structures set up by non-US individuals for US beneficiaries.

We are ready to evaluate and suggest. Please contact us for support. We are only a phone call away, +49 89 2351 3218 or +1 914 816 1115 after 15h (9 am ET).

Passport Revocation – Another Arrow in the Quiver

Internal Revenue Code Section 7345 authorizes the IRS to certify to the State Department that a taxpayer has “seriously delinquent tax debt”. Once the State Department receives certification of the tax debt from the IRS it will not issue or renew the individual’s US passport, it may even revoke the passport. In the case of passport revocation, the State Department may limit the passport to return travel to the US. Having a “seriously delinquent tax debt” generally means that the taxpayer has an outstanding IRS tax bill in which (i) the IRS is owed more than $51,000 in back taxes, penalties and interest AND (ii) the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired, or the IRS has issued a levy with regard to the tax debt.

Americans abroad are at an increased risk now that foreign financial institutions and the German Fisc are sending detailed financial information to the IRS. If tax returns have not been filed or have not properly been including income, the IRS can prepare a tax return based on the information it has available. This is called a “Substitute for Return” (“SFR”) and it can be a dangerous thing. The IRS uses the SFR to assess the amount of tax owed to calculate applicable penalties and interest and to move forward with the collection process. Because the IRS will prepare the SFR without utilizing any deductions or exemptions that could otherwise have been taken by the taxpayer, the threshold of more than $51,000 in “seriously delinquent tax debt” can easily be reached.

Please contact us for assistance. The Streamlined Filing Compliance Procedure may be the solution.

Reporting Obligations for Foreign Assets and Investments

Foreign Financial Account Reporting (FBAR)

While reporting obligations have been on the books since the 1970s, reporting requirements and penalties under this regime increased in recent years. Today, U.S. taxpayers are required to disclose their financial interest in or signature or other authority over any foreign financial accounts if the combined value of their account(s) exceeds $10,000 at any time during a given calendar year.

The report can only be filed electronically. The prescribed exchange rate for 2017 is 0.8330 EUR / 1 USD (list of all exchange rates since 2001, for 2017). FINCEN Financial Crimes Enforcement Network) has issued detailed FBAR - Electronic Filing Instructions. Please contact us for assistance.

For more information about the FBAR, please click on the following link or contact us:

Additional Reporting Requirements by U.S. Taxpayers Holding Foreign Financial Assets (Form 8938)

Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer's requirement to file FBAR. A chart providing a comparison of Form 8938 and FBAR requirements, and other information to help taxpayers determine if they are required to file Form 8938, may be accessed from the IRS Foreign Account Tax Compliance Act Web page.

For more information about Form 8938, please click on the following link or contact us:

Passive Foreign Investment Companies (PFICs)

Among the most complex of IRS requirements affecting individual taxpayers are the rules for passive foreign investment companies (PFICs). Taxpayers owning interests in PFICs have a significantly higher reporting burden than U.S. taxpayers owning interests in U.S.-based mutual funds. Further complicating matters is that, unlike U.S.-based funds, foreign investments have no obligation to furnish U.S.-based investors with any tax reporting information, so the responsibility falls entirely on the shareholder to determine ownership share and tax obligations arising from that share.

U.S. taxpayers who hold certain types of investment in certain foreign entities generating mostly passive income are required to disclose them. U.S. taxpayers investing in these funds e.g. in foreign funds or ETFs are taxed even on the undistributed income the foreign investment generates. U.S. taxpayers holding this kind of investment cannot benefit from the potential tax deferral created by a systematic non-distribution of the foreign entity's income. The PFIC legislation provides options to taxpayers wanting to decrease the burden of this taxing regime.

For more information about PFICs, please click on the following links or contact us:

Foreign Pensions and Retirement Accounts

U.S. citizens who live and/or work for significant periods of time in foreign countries, as well as non-citizens who relocate to the U.S., often own some type of foreign pension or retirement account. These assets create unforeseen tax and reporting obligations.

The major concern in evaluating the taxability of ownership of foreign retirement accounts is that most overseas plans will not be considered “qualified plans” under IRC 401, which means the accounts generally do not qualify for tax-deferral treatment. In some instances, however, the Double Taxation Treaty and the Totalization Agreement may provide a reprieve, see also www.ssa.gov/international.

Taxpayers required to file a U.S. tax return may have to treat employer contributions to the foreign retirement accounts as taxable compensation, and any increase in the account’s value will be considered as taxable in the year the growth occurs.

Another major concern is the reporting obligation that ownership of foreign retirement account assets creates. Taxpayers with foreign retirement account interests often must file informational reports, such as FinCen Form 114, Report of Foreign Bank and Financial Accounts (FBAR), FATCA reporting, and IRS Form 3520.

For more information about Foreign Pensions and Retirement Accounts, please contact us.

Controlled Foreign Corporations (CFCs)

If a foreign corporation qualifies as a "Controlled Foreign Corporation", its U.S. shareholders owning 10% or more of the total combined voting power of all classes of stock entitled to vote in this corporation must include certain types of the CFC's income in their U.S. gross income.

When a U.S. shareholder holds more than 50 percent of the vote or value of a foreign corporation, the company is a controlled foreign corporation or CFC. A U.S. shareholder is a U.S. person who owns 10 percent or more of the foreign corporation's total voting power. That triggers reporting, including filing an annual IRS Form 5471. It is an understatement to say this is an important form. Failing to file it means penalties, generally $10,000 per form. A separate penalty can apply to each Form 5471 filed late, and to each Form 5471 that is incomplete or inaccurate.

The penalty can apply even if no tax is due on the return. That seems harsh, but the next rule-about the statute of limitations-is even more surprising. If you have a CFC but fail to file a required Form 5471, your tax return remains open for audit indefinitely. Normally, the statute expires after three or six years, depending on the issue and its magnitude. This statutory override of the normal statute of limitations is sweeping. The IRS not only has an indefinite period to examine and assess taxes on items relating to the missing Form 5471. In fact, the IRS can make any adjustments to the entire tax return with no expiration until the required Form 5471 is filed. You might think of a Form 5471 like the signature on your return. Without it, it really isn't a return.

And don't assume that you have no issue if there is no CFC because U.S. shareholders don't own over 50%. In fact, Forms 5471 are not only required of U.S. shareholders in CFCs. They are also required when a U.S. shareholder acquires stock that results in 10 percent ownership in any foreign company.

For more information about CFCs, please click on the following link or contact us:

Available Voluntary Disclosure Options – The 2014 Offshore Voluntary Disclosure Program (2014 OVDP)

Taxpayers who did not fully comply with U.S. tax laws always had the opportunity to disclose and solve tax issues through voluntary disclosures. At this time, the general Voluntary Disclosure Agreements are designed and used only for taxpayers not having any foreign income or any reporting requirements concerning their foreign assets. Therefore, in addition to the traditional voluntary disclosure option, the IRS instituted standardized Voluntary Disclosure Programs for tax compliance purposes (the 2009 and 2011 Offshore Voluntary Disclosure Initiatives and the 2012 Offshore Voluntary Disclosure Program, modified on June 18, 2014 - 2012 OVDP and 2014 OVDP). Since they are standardized programs, these initiatives give taxpayers who disclose under them a more precise understanding of what to expect.

The 2014 Offshore Voluntary Disclosure Program (2014 OVDP), effective for submissions made on or after July 1, 2014, comes with detailed Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers as well as Transition Rules: Frequently Asked Questions (FAQs). Because the circumstances of taxpayers with non-U.S. investments vary widely, the IRS offers the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those investments:

The IRS has simplified the process of entering the OVDP Program by issuing the following forms:

Note: You must provide specific facts on this form or on a signed attachment explaining your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Any submission that does not contain a narrative statement of facts will be considered incomplete and will not qualify for the streamlined penalty relief. In January and February 2016 the IRS revised the Foreign and Domestic certification forms for the Streamlined Procedures ( Form 14653 and  Form 14654) . Among other changes there is now a "Paid Preparer Section" for the preparer of the Certification as well as a tick box to indicate whether or not the filer permits the IRS to speak with that individual. A detailed description of the facts that the IRS deems important to include in the Streamlined statement is provided and clearly emphasizes that the taxpayer provide specific reasons for his tax noncompliance and that he tell the complete story. All this tells that the IRS is looking more deeply at Streamlined filers. The longer the time drags on before compliance is achieved, the more the IRS will be questioning if the taxpayer really was "non-willful".

The 2014 Offshore Voluntary Disclosure Program (2014 OVDP) will close on September 28, 2018

The Internal Revenue Service on September 4, 2018 reminded taxpayers they have until Sept. 28 to apply for the Offshore Voluntary Disclosure Program (OVDP).

Since the OVDP’s initial launch in 2009, more than 56,000 taxpayers have used the various terms of the program to comply voluntarily with U.S. tax laws. These taxpayers with undisclosed offshore accounts have paid a total of $11.1 billion in back taxes, interest and penalties. The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.

In March, the IRS announced the program would end on Sept. 28, 2018. The IRS will continue to hold taxpayers with undisclosed offshore accounts accountable after the program closes.

The number of taxpayer disclosures under the OVDP peaked in 2011, when about 18,000 people came forward. The number steadily declined through the years, falling to only 600 disclosures in 2017.

Since the announcement, the IRS has not received any public comments addressing a continued need for the OVDP. The IRS will maintain a pathway for taxpayers who may have committed criminal acts to voluntarily disclose their past actions and come into compliance with the tax system. Updated procedures will be announced soon.

Separately, the IRS continues to combat offshore tax avoidance and evasion using whistleblower leads, civil examination and criminal prosecution. Since 2009, 1,545 taxpayers have been indicted related to international activities through the work of IRS Criminal Investigation.

A separate program, the Streamlined Filing Compliance Procedures, for taxpayers who may have been unaware of their filing obligations, has helped about 65,000 additional taxpayers come into compliance. These streamlined procedures will continue to be available for now, but as with OVDP, the IRS has said it may end this program too at some point.

The implementation of the Foreign Account Tax Compliance Act (FATCA) and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations related to undisclosed foreign financial assets. Taxpayers who made non-willful mistakes or omissions on their tax returns should file amended returns or delinquent returns as soon as possible.

Full details of the options available for U.S. taxpayers with undisclosed foreign financial assets can be found on IRS.gov.

The Streamlined Filing Procedure – How it works

While returns submitted under the Streamlined Filing Compliance Procedures would not be subject to IRS audit automatically, the IRS points out that they may be selected for audit under existing audit selection processes applicable to any U.S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources. Thus, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate. Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the Offshore Voluntary Disclosure Program and should consult with their tax professional or legal advisers. After a taxpayer has completed the streamlined filing compliance procedures, he or she will be expected to comply with U.S. law for all future years and file returns according to regular filing procedures.

"Quiet Disclosure" – A Ticking Time Bomb: Time to Join the OVD Program?

The IRS warns against so-called "Quiet Disclosures" (amending returns without disclosing) which some taxpayers have chosen to do in the past, (see FAQ 15, Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers). The IRS is aware that some taxpayers have made "quiet disclosures" by filing amended returns, by filing delinquent FBARs, and paying any related tax and interest for previously unreported income from OVDP assets (see FAQ 35) without otherwise notifying the IRS. Taxpayers who have already made "quiet disclosures" are encouraged to participate in the OVDP by submitting an application, along with copies of their previously filed returns (original and amended), and all other required documents and information (see FAQ 25) to the IRS's Voluntary Disclosure Coordinator (see FAQ 24). Taxpayers are encouraged to avail themselves of the protection from criminal prosecution and the favorable penalty structure offered under the OVDP. Unlike a voluntary disclosure through the OVDP, quiet disclosures provide no protection from criminal prosecution and may lead to civil examination and the imposition of all applicable penalties.

"Those who still think they can hide their assets offshore need to rethink their strategy." Please call us for a confidential consultation.

Opting Out of the Offshore Voluntary Disclosure Program

If the penalty imposed upon the taxpayer under the 2012 or 2014 OVDP is considered too high, the taxpayer has the option to withdraw or to opt out of this OVDP ("OVDP Opt-Out", FAQ 51 and Opt Out and Removal Guide) at any time throughout the program and utilize the standard procedure. The OVDP Opt-Out, sometimes also called "Qualified Quiet Disclosure", is an option that offers taxpayers a way to become compliant. With this option, taxpayers can file past tax returns on their foreign accounts and pay their penalties, and still avoid the highly rigid, punitive and expensive penalties associated with the OVDP. In essence, a participant signs up for the OVDP, reports all offshore accounts, files past tax returns on those accounts, and clears themselves of suspicion. Once all the information has been disclosed to the IRS and the process is in its last stage, the participant opts out of the OVDP program. The OVDP Opt-Out offers the taxpayer constitutional protections that were removed when a taxpayer signed up for the OVDP. In addition, taxpayers can avoid the stringent and hefty penalty structure of the OVDP. With the OVDP Opt-Out, a taxpayer still has the right to protect his interests and contest penalties by the IRS.

We have guided and accompanied our clients through this process, sometimes as a first step to relinquishing the U.S. citizenship ("expatriation"). For a "Green Card" holder ("Resident Alien") choosing the OVDP Opt-Out procedures may be particularly important in view of the Kawashima case ("Supreme Court Finds Tax Crimes are Grounds for Deportation").

For more information about the OVDP Opt-Out, contact us.

Consequences of the FATCA Regime on U.S. taxpayers not in compliance with their U.S. tax requirements

As stated previously, FATCA requires taxpayers who own specified foreign assets to disclose them when they exceed certain thresholds. However, more than requiring such disclosure from the asset holders, the FATCA regime requires certain foreign institutions to disclose their US account holders (but not only). Failure to do so results in the withholding of a 30% tax on certain payments made from the U.S. to these specific foreign institutions. Since this withholding constitutes a real threat, foreign institutions are likely to try to comply with the FATCA disclosure requirements.

Most importantly, the U.S. has entered into bilateral intergovernmental agreements ("IGA") to implement the information reporting and withholding tax provisions of the FATCA regime. Through these agreements, the U.S. authorities will have access to the information of accounts held abroad by U.S. persons. That, in turn, will make it easy for the U.S. authorities to find out about any undisclosed foreign asset a U.S. person may hold.

U.S. taxpayers not in compliance with their U.S. tax requirements may want to think very seriously about coming forth under the OVDP, instead of waiting for the IRS to discover their foreign assets, and facing criminal prosecution.

Expatriation Tax – Wegzugsbesteuerung USA

We guided and piloted many of our clients through the maze of the expatriation and the expatriation tax (amerikanische Wegzugsbesteuerung).

For more information about Expatriation - Wegzugsbesteuerung USA,  please contact us. We will walk with you and explain, step by step, the expatriation rules, using the references below.

IRS on Expatriation Tax
Form 8854 - Initial and Annual Expatriation Statement
Instructions for Form 8854
IRS Publication 519 - residence rules, dual status tax return
Notice 2009-85 - the only thing the IRS has published on expatriation so far
Notice 97-19 - from the old expatriation rules
Internal Revenue Code Sections 877877A - the old and current exit tax rules, respectively
Internal Revenue Manual Section 3.21.3.74.5 - how the IRS will process your return

Proposed Regulations Under Section 2801 – Gifts and Bequests from Covered Expatriates
Other Taxes - A Trap for the Unwary