Sunday, April 15, 2012

Foreign Account Disclosure and IRS Amnesty

Any United States person, such as a US citizen or a legal permanent resident, with foreign bank accounts with an aggregate value exceeding $10,000.00 must report yearly such holdings to the IRS. This is done by filing a Report of Foreign Bank and Accounts ("FBAR"), form TD F 90-22.1.

By now, the IRS has made it clear that foreign account compliance is one of its major initiatives. The IRS previously said it was unlikely to offer amnesty following its 2009 and 2011 programs. The good news is that on January 9, 2012, the IRS reopened the Offshore Voluntary Disclosure Program ("OVDP") following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced. The OVDP eliminates potential criminal penalties and greatly reduces monetary penalties.

Thursday, March 15, 2012

Estate Tax and Domicile

As mentioned in this post, for the years 2011 and 2012, there is in effect a $5 million exemption from estate and gift tax. However, this benefit does not apply to everyone. If you are not a US citizen, you might not be able to take advantage of this tax benefit. In fact, foreigners, specifically non-resident aliens ("NRA") are limited to an estate and gift tax exemption of only $60,000.00. The IRS applies a test to determine where the non-US citizen considers his or her home or "domicile" to be. The determination of your domicile consists of an evaluation of a list of factors, including:
  1. Visa status,
  2. Location and value of other residences and real property,
  3. Location where family members and friends live,
  4. Location of personal property, especially those of value such as fine art, currency, cash, stocks, and bank accounts,
  5. Location of business interests,
  6. Location where registered to vote,
  7. Location where licensed to drive,
  8. Location of primary residence,
  9. Location intended for burial,
  10. Non-resident alien status.
The good news, however, for NRAs, is that the only assets subject to US gift and estate tax are those situated in the US.