Wednesday, September 16, 2015

New Rules on Gifts & Inheritances from Expats Proposed by the IRS

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We know that increasing globalization keeps us, Enrolled Agents, on our toes especially when we have to consider advising families, businesses and real property owners who have ties with the US and other countries as well. Thanks to my many clients who have business interests in other countries or still have ties/ families back in the countries they migrated from, I deal with cross-border issues quite often.  

Interestingly, this summer we did a work-up for a client who had surrendered their green-card & left the country but due to their length of stay in the country, they could be considered "covered-expatriates", the clients wanted to set up inheritances for their grand-children who are US citizens.

Under the estate and gift tax rules, a foreign person can make a gift to somebody in the U.S., and there is no gift tax as long as it’s not a U.S.-sited asset. There’s no tax consequence to the recipient. If the value of the gift is over $100,000, they need to file a 3520, but there’s no tax consequence. If you inherit property from a foreign person, and the value is over $100,000, you file a 3520, but there’s no tax consequence. You may have an 8938 filing obligation because an interest in a foreign estate is a reportable asset, but one doesn't have to do anything more.

Back in the day, before the "HEART" Act {Heroes Earnings Assistance and Relief Tax Act} of 2008, citizens and long-term residents of the US, who had expatriated to avoid US taxes, were subject to US income, estate and gift taxes under Code § 877, §2107 and §2501 respectively for 10 years after expatriation. 

§ 877A(g)(1)(A) states what a "covered expatriate is" and it is usually based on net worth on the date of expatriation or income for five years prior to expatriation. Details here in Notice 2009-85

§ 877A was introduced along with it's companion, § 2801 by the "HEART Act". Guidance had been issued by the IRS for the 877A in 2009 but there was nothing on the 2801 until now. 

What is this new component of § 2801? This new component { Prop. Reg. 28.2801-1} says that US taxpayers who receive gifts & inheritances from people who had previously expatriated are subject to  gift and/or estate taxes on the receipt of such gift or bequest. This tax is imposed on US Citizens who receive, directly or indirectly, "covered" gifts or "covered" bequests from a "covered" expatriate. 

Exceptions Applicable to Covered Gifts and Covered Bequests:  
Yes, there are exceptions. These include taxable gifts reported on a covered expatriate's timely filed gift tax return, and property included in the covered expatriate's gross estate and reported on such expatriate's timely filed estate tax return, provided that the gift or estate tax due is timely paid.

Your Responsibility if these rules were to apply to you: 
First, if you think these rules apply to you, you should consult an Enrolled Agent/ Tax Attorney/ a qualified CPA right away. They would need to determine under the proposed guidance if tax under Code Sec. 2801 is due. Under these proposed regulations, the burden is on the US Citizen/ resident to determine if the expatriate was a "covered expatriate" and hence, the gift or bequest is a "covered gift" or "covered bequest". 

Form 708 would be the new form for the calculation of tax due under § 2801. The form has not been issued yet. 

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website,

Sunday, August 16, 2015

IRA-One Rollover Per Year Rule: Breaking It Down For You!

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IRAs or Individual Retirement Accounts are a common vehicle for retirement savings, with tax-free growth or on a tax-deferred basis. There are 3 types of IRAs: Traditional, Roth and Rollover. Each of these have their own rules & regulations for contributions, eligibility, contribution limits, tax savings etc. 

So an IRA is essentially a basket in which you keep your stocks, bonds, mutual funds or other assets. IRAs are retirement accounts you can open on your own and unlike 401(k)s provided by employers, have lower contribution limits. 

What Is A Rollover?:  
A "Rollover" happens when funds from a retirement account such as a 401(k) into an IRA or from one IRA to another. A rollover is generally a non-taxable event, if you deposit a payment from one retirement account into another within 60 days. 

By rolling over a payment from an IRA, you’re not only saving for your future, your money continues to grow tax-deferred.

If you don’t roll over your payment, it will be taxable (other than qualified Roth distributions and any amounts already taxed) and you may also be subject to additional tax unless you’re eligible for one of the exceptions to the 10% additional tax on early distributions.

One Rollover Per Year Rule:
Beginning in 2015, you can only make one rollover from an IRA to another (or the same) IRA in a 12 month period. This is regardless of the number of IRAs you own. 

The IRS came out with clarifications to this rule via Announcement 2014-15 and Announcement 2014-32

According to these announcements; the limit will apply by aggregating all of an Individual's IRAs, including SEP and SIMPLE IRAs, traditional and Roth IRAs. This is effectively treating all your IRAs as one. 

Exceptions To The One Rollover Per Year Rule:

  • Direct transfers of IRA funds from one trustee to another are not affected. Revenue Ruling 78-406 does not consider this direct transfer a "Rollover". 
  • Rollovers from Traditional IRA to Roth IRA are considered "Conversions" and are not affected by the above rule either. 
  • This rule also ignores some 2014 distributions. This is called a "Transition" rule and it applies only to 2014 distributions and only if different IRAs are involved. 

Tax Consequences of the One Rollover Per Year Limit:
Unless the exceptions above apply, the tax consequences of this new rule will be:
  • You must include amounts of distribution from an IRA in your gross income, if you had made a IRA-IRA rollover in the preceding 12 months. 
  • You may be subject to the 10% early withdrawal tax on amounts included in gross income. 
  • If you put these distributed amounts into another or the same IRA, the amount maybe treated as an excess contribution and taxed at 6% per year as long as they remain in the IRA. 
Please consult with an Enrolled Agent regarding these complicated rules if you think they may apply to you. 

Bibliography: § 408(d)(3); Publication 590-A; Bobrow v. Commissioner, T.C. Memo 2014-21; Announcements 2014-15 & 2014-32. 

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website,

Thursday, August 6, 2015

New FBAR Deadline: Why This Is Great News!

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 This is what happened on the last day of July this year (2015): President Obama signed into law H.R. 3236, the Surface Transportation and Veterans Health Care Choice Improvement Act (The Act). An unlikely vehicle for deadline changes, but it did make some really important changes to Tax Law & Revenue Provisions, including: 

  1. FinCEN Form 114 (FBAR) filing and extension deadlines;
  2. Tax Filing Deadlines;
  3. Changes to consistent basis reporting between the estate and the person acquiring the property from the decedent. 
Point #3 above modifies due dates for Trust returns: Foreign trusts with US Owners and transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, which is Form 3520-A and Form 3520.  
New FBAR Extension and Due Dates: 
The Act changes the deadline for the FBAR from June 30th to the April 15th, which is the due date for an individual who is resident in the United States. In addition to this, the FBAR can be extended for a period of six months ending October 15th, just as an Individual tax return. 

For those who are not resident in the United States and have to file a US tax return, there is an automatic 2 month extension until June 15th {Under § 1.6081-5}. Under the Act now this extension is available to their FBAR filing as well. 

For those who are filing an FBAR for the first time, the Act specifically states that, "[f]or any taxpayer required to file [an FBAR] for the first time, any penalty for failure to timely request for, or file, an extension, may be waived by the Secretary." 

These due dates are applicable to those returns filed after December 31st, 2015. 

Form 3520 And Form 3520-A Deadlines: 
The due date for Form 3520-A is now generally March 15th and the maximum 6 month extension will be September 15th. Form 3520 is due with the tax returns on April 15th and the maximum extension allowed will be 6 months ending October 15th.

For those of us who work with a lot of clients who have foreign bank accounts and are constantly juggling the FBAR due date of June 30th, with no extensions allowed, this finally comes as a a bit of good news in the constant gloom and doom that is to do with FBAR regulations. 

The IRS or FinCEN need to provide further clarification on the format or forms for such extensions, which may be similar to Form 4868, which is the form for requesting extensions on Individual tax returns currently. There may also be a requirement that these extensions be filed on the BSA Website as in the case of the FBAR forms. 

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website,

Monday, July 27, 2015

Receiving Social Security Benefits While Living Abroad

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Social Security - that onerous tax we pay to work in the United States, supposedly for our own retirement but it seems to be more to fund those who are already drawing on it! I have quite a few clients who are on temporary work visas here in the US. They rightfully question whether they will be able repatriate Social Security when they are eligible to draw on it. Or there are those US Citizens who travel after they retire and may even choose to settle abroad or go back to their home country if they had migrated to the USA. 

Are You A US Citizen or Not?: 
Retirees who are U.S. citizens are entitled to continue receiving benefits for as long as they live outside the United States. However, citizens of other countries who receive Social Security may have some restrictions on how long they can receive benefits while outside the United States. 

There are some countries where the Social Security Administration (SSA) will not send social security checks. Do look for the complete list of such countries on the SSA website, if it's your plan to retire abroad. 

How Can I Actually Receive My Social Security Income and For How Long?
Like I said earlier, citizens of other countries who receive Social Security may have some restrictions on how long they can receive benefits while outside the United States. These rules are quite complicated. To get a quick overview, the SSA publication, "Your Payments While You Are Outside the United States", explains in detail what restrictions citizens of individual countries are subject to. 

Recipients of Social Security Income can have their checks directly deposited into a bank account in the United States, and this service is also available in some other countries. As you can imagine, using direct deposit avoids check-cashing and currency-conversion fees.

In many countries where there are a large number of U.S. retirees, American embassies and consulates have officers who are trained to provide Social Security services, including taking applications. Phone numbers for Office of International Operations are listed on the SSA Webpage here

Taxation of Social Security Benefits/ Income: 
If you are a US Citizen living abroad, you know you have to file a US tax return showing "world-wide" income and taxation of your social security benefits are subject to the same rules as if you were living in the US. Your total income together with your social security income determines whether and how much of your benefits are taxable. More than 85% of your Social Security Benefits cannot be taxed. This involves complicated calculations and is best left to your tax professional to determine. 

In addition to U.S. taxes, the country of your residence may tax benefits as well. If you would like to find out whether a country imposes taxes on Social Security benefits, you could contact the country's embassy in the United States.

Also, remember you will have FATCA obligations

Renunciation of US Citizenship & Consequences: 
If you have renounced your US citizenship, you are considered a non-resident alien (NRA). Now the US Social Security rules for NRAs will apply to you. It is your responsibility to notify authorities of your changed status. 

As an NRA, depending on your country of residence, you can generally continue to collect US Social Security in the long run. Bilateral agreements (or lack thereof) with the US & your country of residence, determine if your social security payments maybe be completely discontinued after more than six months outside the US or there may be only a minor tax adjustment to your social security payment.

Social Security Income and benefits in itself is an exhaustive topic and cannot be covered in one blog post. Please do contact a trained tax professional, such as an Enrolled Agent, to give you specific advice as per your requirements. 

Bibliography:; American Citizens Abroad; Social Security Lectures & Webinars. 

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website,

Saturday, July 18, 2015

New Countries on FATCA: India & UAE...What This Means For You!

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If you are a regular reader on my blog ~ you know the tax geek that I am, I write a lot about tax compliance for foreign bank account holders and the effect of the FATCA. FATCA stands for Foreign Account Tax Compliance Act. Calling a spade a "large digging instrument", we know this law is one-sided and forces other countries to enforce US tax laws. And if they fail to comply, they are effectively locked out of US markets and the US dollar ~ the "world currency" for now. 

For your reference, I wrote earlier on FATCA compliance here, here and here

Countries that sign the FATCA Agreement or Inter Governmental Agreement (IGA) are considered tax compliant. This means the banks/ foreign financial institutions (FFI) in these countries send information as demanded by the IRS to their own tax authorities which is then shared with the IRS. This is "Model 1". 

Other countries, like Switzerland, for example, leave it up to the banks/ financial institutions to come to an agreement with the IRS, this is a "Model 2" agreement. 

United Arab Emirates (UAE) jumped on board in February of this year (2015). 

If you are a US Citizen and are living in the UAE or are a US citizen living in the US and have accounts in the UAE, you should have filed FinCEN Form 114 also known as the FBAR if you have had AED (Emirati Dirham) 36732 or more which is approximately $10,000; filed Form 8938 if you have had AED 183657 or more (Single- approximately $50,000) and AED 367315 or more (filing Married & Joint- approximately $100,000) at end of the year. 

Since UAE has signed the FATCA agreement with the US, the UAE banks/ financial institutions will start to share information with the IRS regarding accounts held by US Citizens, reportedly from the 2nd quarter of 2015.

Map of India

India signed the IGA with the US early this month on the 9th of July, 2015. Nearly a 1,000 or more Indian FFIs have already signed agreements with the IRS long before, to share US Citizen information, however the official IGA came into place now. 

Hence the FBAR thresholds as described in the above would apply to you as well. The 2014 official INR or the Indian Rupee to USD conversion was Rs.63.469 to $1. 

Per the Indian press release, FATCA Compliance will cover all new accounts opened by Indian FFIs from July 1st, 2014 on wards. 

Do I Have To Be Worried If I had Financial Accounts In these Countries Before the IGA came into place? 

Undoubtedly- YES!! If you have had undeclared accounts in FFIs in India or the UAE from before these IGA dates and they exceed the FBAR limits, there are various procedures in place for you to come into tax compliance. These procedures, known as the Offshore Voluntary Disclosure Program or the Streamlined Compliance Procedures, can be used to work with the IRS. There are different penalties involved with the different programs, please talk to your tax professional to determine what is right for you. 

Picture Courtesy:

Fall Out From the FATCA IGA With Various Countries:

What we are seeing increasingly is that the USD is no longer as welcome in countries as it used to be. This is not because the FFIs do not like US Citizens any more, it is more to do with the fact that the bank/ FFI authorities do not want to have to deal with the additional paper-work involved with having US citizens as their clients. 

Not to speak of the confusion in the rules and regulations as instructions are understood and percolated down to every employee who deal with US citizens-customers. Till then, we have had to deal with misinformation and misinterpretation on the part of the authorities in these countries. 

Record number of US citizens are deciding to renounce their citizenship due to the increased pressure to report all world-wide income. The expatriation in itself is a herculean task to undertake not to mention the expatriation taxes that are due and hardship caused for any future visits/ immigration to the US by the expatriates themselves or their children. More on Expatriation Tax in my post here

The unforeseen consequences from this increased vigilance by the US tax authorities and other countries hoping for reciprocal cooperation to bring their tax evaders into tax compliance will be felt increasingly in the years to come I am sure. 

I cannot stress enough on the importance of contacting a tax professional knowledgeable in this field if you have questions regarding foreign bank account tax compliance. This is not something I would recommend venturing out as a Do-It-Yourself project. 
Bibliography: Form 8938; Form 114; FATCA News Releases

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website,

Monday, July 13, 2015

Tax Related Identity Theft

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This past year, Identity Theft has become such a buzz word, that it needs to be revisited on my blog. Between scamming crooks on the phone from off-shore based call centers, hackers believed to be from Russia raiding the IRS website and some more hackers from China getting into the national data-base & managing to steal classified information of hundreds & thousands of federal employees, protecting one's identity has become a top priority for all. 

I wrote about Protecting Your Identity here earlier.  

According to today's news, the scammer who took millions with fake IRS calls from gullible taxpayers was sentenced to 14 years in prison. To many getting a phone call from someone claiming to be IRS can set off a panic attack! It is imperative to know that the IRS does NOT initiate contact with taxpayers by email to request personal or financial information EVER. And this includes any type of electronic communication, be it, text messages or messages over social media. 

What Is Tax Related Identity Theft?: 

If a tax return is filed without your knowledge using your social Security Number to claim a refund, that is "Tax Related Identity Theft". You are not likely to find out that a fraudulent return has been filed till you (try to) file your own tax return and learn that you can't do so. 

Alarm bells should go off if: 
 1. You get a notice form the IRS that 2 returns have been filed with the same SSN. 

 2. You haven't filed a tax return but you get a notice from the IRS that you owe taxes, are getting a refund offset or there is a collection notice being taken against you. 

 3.  You get a notice from the IRS that an employer you don't know paid you wages. 

If you suspect that your Social Security Number has been compromised and you know or suspect that you are a victim of Identity theft, contact a tax professional such as an Enrolled Agent immediately. An Enrolled Agent will be able to: 

1. Help our respond to any IRS notice effectively. 

2. Help complete Form 14039, which is an Identity theft Affidavit. 

3. file your tax return and stay in touch with the IRS. 

If you have previously contacted the IRS and did not have a resolution, contact the Specialized Unit at 1-800-908-4490. 

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website,

Friday, June 12, 2015

Credit Cards: A Necessary Evil!

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This email popped up from the Credit Card Insider team just as I was having a conversation about summer jobs with my 19 year old. They asked me if I would be interested in writing a post about advising college students/ fresh graduates about credit cards & good practice.

Now, both my teens will tell you that I absolutely love advising, only, they don’t seem to agree on the term used, I think they would rather call it “lecturing” and immediately turn their ears off. (How is that humanly possible, anyway?) Naturally, I immediately shot back an answer to the email, “Serendipitous!” I said, “I would love to.”

If you are a recent college graduate and are trying to stare down a humongous college loan balance or if you are still in college, and you receive a lovely (and tempting) welcome letter from a credit card company every other day, or you are one of those lucky ducks whose parents paid for college but are out on your own now, here are my thoughts.

Get A Job:

Really, get a job- any job! If it’s a job at your college library, stacking books or if it is at a local fast food joint, or if someone is looking for a tutor in a subject you are rock at- take it! Getting a job & holding it down is a self-esteem booster like none other. And having money trickle into your bank account? That’s an awesome feeling, as long as you remember that this first job is not going to be your career for the rest of your life! We have a trio of brothers in our neighborhood who mow our lawn for $30 a pop or $250 for the whole season, and I believe they have 45 homes on their route.

Get A Credit Card:
     It’s truly scary how important your “credit” is these days. Even your landlord or your cell phone company will check your credit score to determine your eligibility. The best time to start building credit is while you are still in school. How is your credit score determined? Many things go into that but your credit history is most important. The best way to acquire credit history is to get a credit card.

    How To Get A Credit Card:
     Can you ask your parents to be authorized user on your credit card? If yes, you should. If they cannot or will not, and there is no one else with a proven credit history who can be an authorized user on your credit card, apply on your own. You can apply for a credit card on your own only if you have proof of income. If you do have a job, it is better to apply for a student credit card, as these may have lower credit requirements and low limits. When you get the card, use it very, very sparingly.  Don’t ever carry a balance, this way you will never pay a penny in interest but will build a credit history. The Credit Card Insider has some great tips for students applying for credit cards here

     Be Responsible About Your Credit: 
     Like I said earlier, do get a card but use it sparingly and always pay off the balance from month to month. If you do this for at least a year, you are on your way to building a good credit score. This means you will have to be responsible and know what your balance on your card is, do not exceed the spending limit and I can’t say this enough, pay off the balance every month. If you exceed your limit or take cash out on a credit card, be aware of the fees involved and that you will have to pay the fees in addition to the balance. Don’t forget, pay all your other bills on time as well.

Be Aware of Annual Fees:

The only time paying annual fees on a credit card makes sense is when you cannot get a   credit card otherwise. If there is an annual fee and a high interest rate on the card, it would be better not to get the card. Get a credit card that have rewards for spending but don’t charge you a dime.

Protect Your Identity:
     Do not give your Social Security Number and other private information on an un-secure website or in the open to an unknown person. Make sure the person you are talking to is indeed the authorized representative of the card company.

Do not apply for many credit cards at the same time. This will actually lower your credit   score or worse even raise a red flag. Do not agree to be a co-signer on a card for a friend/ room-mate. If the friend/ room-mate is not responsible about their credit, you will be at risk.

 It seems like it was just yesterday that my husband & I were proud owners of our first credit card which we had to get in order to establish our credit history. But we have come a long way now and I am proud to share these tips with you to get you started on your path to good credit history. 

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website,