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November 14, 2008 - Phil Hodgen

Sign of the times

Got off the phone with an unnamed Swiss gentleman who is in the banking and trust company business. Flat out refuses to touch any business involving a U.S. citizen. Reports he gets several calls a week about this.

Current political and tax trends in the United States can only be described as isolationist and protectionist in result. I am not speaking of anything overtly political. I’m just saying that capital flows are being and will continue to be hindered, to the detriment of the U.S. economy.... continue reading

Foreign Business Activities in the USA
November 12, 2008 - Phil Hodgen

Late FBAR filing and penalties

Undeclared foreign bank accounts.

It’s a common question. “I have this foreign bank account, but I haven’t been declaring it by filing Form TD F 90-22.1.? [PDF] What should I do?”

The short answer is clean it up. All of it.

First things first. Form TD F 90-22.1 is commonly known as an FBAR, for Foreign Bank Account Report.

The Treasury Department [warning: video] is announcing that it is ready to pounce. You’d be a damned fool to delay cleaning up your wreckage.

The next question is “But what about the penalties?”

Yep, the penalties are massive. And for extra spice and excitement, they can throw you in jail, too.... continue reading

Foreign Business Activities in the USA US Real Estate Investments Voluntary Disclosure
November 11, 2008 - Phil Hodgen

How nonresidents avoid generation-skipping transfer tax

A reader of my November, 2008 article in California CPA Magazine (hi, David) called me and asked a question about the article. He wanted to clarify a generation-skipping transfer tax question.

I didn’t have the space in the article to cover all of the nooks and crannies on the subject of estate taxation for cross-border families. And if there’s anything that has nooks and crannies, it’s the Internal Revenue Code. And one of the cranniest nooks is the generation-skipping transfer tax.

The question, simply put, is how you can make a foreign trust that later becomes a U.S. trust into a generation-skipping transfer tax exempt trust if you don’t allocate generation-skipping transfer tax exemption to it.... continue reading

Foreign Business Activities in the USA
October 30, 2008 - Phil Hodgen

IRS focus on international — now with more grumpy penalty assessments

Today’s Tax Notes Today has a report from the UCLA Tax Controversy Institute on October 28, 2008. For those of you spending way too much money on Lexis, the cite is 2008 TNT 211-7.

The article states:

In keeping with IRS Commissioner Douglas Shulman’s focus on international tax administration, fraud technical agents are for the first time being specially trained in the international area, said Beth Elfrey, IRS director of the Small Business/Self-Employed Division Office of Fraud/Bank Secrecy Act.

Elfrey, speaking at the October 28 UCLA Tax Controversy Institute in Beverly Hills, Calif., said foreign bank account report (FBAR) filings are up 90 percent over last year.

... continue reading
Foreign Business Activities in the USA US Real Estate Investments Voluntary Disclosure
October 24, 2008 - Phil Hodgen

The “net election” for nonresident landlords

This is for the members of my Foreign Investment in U.S. Real Estate Class earlier this week in San Francisco.

We talked about the “net election.” Here’s the detail I promised.

The law

To learn everything about this, read Treasury Regulations Section 1.871-10. (PDF).

The effect

Rental income earned by a nonresident owner of U.S. real estate (human or corporation, it doesn’t matter) is taxed harshly by default — 30% of gross rent received is the tax, with no deduction for business expenses. You know, the little things. Stuff like mortgage interest, depreciation, property tax, management fees. That kind of stuff.... continue reading

Foreign Business Activities in the USA US Real Estate Investments