The Chamber held a seminar on Your U.S. Tax Obligations – and OVDI, on Aug. 15, with Alan Cohen, Managing Director of US Tax & Financial Services Middle East GMBH, and Bradley Albin, International Corporate Tax Director, at the Asia House.
The seminar was aimed at U.S. citizens and residents, and green card holders, who are required to file annual income tax returns reporting worldwide income. The OVDI (Offshore Voluntary Disclosure Initiative) encourages people who have not complied with their U.S. tax reporting requirements – to do so by Aug. 31.
The following text was distributed during the presentation:
Table of contents
§ Basic US Tax Law
§ Difference in US & Israeli Tax Law
§ Voluntary Disclosure
§ What has changed & why do I need to come forward now?
§ What happens if I try to remain hidden?
§ Expatriation
§ Q&A
US Person
§ Born in the USA, whether or not you have a US passport (less than 15% of US population have passports)
§ At least 1 parent was born in the USA and lived in the USA. > 5 years after the age of 14.
§ Green card holder
§ US resident – 183 day rule
o Number of days in current year 120 120
o 1/3 of days in 1st preceding year 120 * 1/3 = 40
o 1/6 of days in 2nd preceding year 120 * 1/6 = 20
o Total days 180
US Tax Obligations
§ The cost of having US Citizenship
§ Filing US returns annually,
– Income tax returns (forms 1040 & 1040NR)
– FBARs - Report of Foreign Bank Acct (Forms 90-22.1)
– Foreign Financial Asset Reports (new for 2011 Form 8938)
– Foreign Corporate, Partnership & Trust Returns
§ Estate Tax Returns and Gift Tax Returns
US vs Israel Income Tax
US vs Israel Income Tax
§ Withdrawal after 6 years from Keren Hishtalmut
§ Tax-exempt portion of severance pay
§ Tax-exempt portion of pension distributions
§ Employer’s contributions to Keren Hishtalmut and to other pension plans
§ Differences in the treatment of income from rental properties
§ Income from non-US mutual funds or ETFs – the PFIC (Passive Foreign Investment Company) regime
Voluntary Disclosure
§ Since 1948 – Voluntary Disclosure
– Criminal Investigation Division
o They run your details through IRS/FBI/CIA database to see if you are currently being prosecuted
– Civil Division
o Reasonable Cause, request Abatement of any & all penalties
o Subject to Statutory Penalties
– Willful vs. Non-Willful Intent
– Fraud
o Subject to Full Blown Audit
Offshore Voluntary Disclosure Initiative
§ Benefits
– Criminal Prosecution is waved
– Must File 2003-2010 US Individual returns
– Penalties are limited to years 2003-2010 + Misc FBAR penalties. All other penalties imposed under IRC and potential penalties and income tax liabilities for years prior to 2003 are waved.
o 25% of the highest Aggregate value of all foreign financial assets (and other offshore assets that are related in any way to tax non-compliance) or
o 12.5% of the highest Aggregate value of all foreign financial assets, (only applicable if aggregate balance is $75,000 or less for all 8 years) or
o 5% of the highest Aggregate value of all foreign financial bank/brokerage accounts only…special break for US persons living abroad.
Optional Voluntary Disclosure Program
§ Criteria 5% penalty – US Persons living abroad
– Taxpayer lived abroad for 2003-2010; AND
– Taxpayer has made a good faith showing that he or she has timely complied with all tax reporting and payment requirements in their country of residency, AND
– Taxpayer has $10,000 or less of US source income each year.
– Additional benefit – Penalty will not apply to non-financial assets (i.e. real property, business interests) purchased with funds for which taxpayer can establish that all applicable taxes have been paid.
§ FAQ 17 - Properly filed income tax returns, but did not file FBARs
The Evolution of The Game
FATCA
§ Objective: Find US Taxpayers
§ Method: Make Foreign Entities Disclose
§ How: 30% Penalty Tax For Non-disclosure
FATCA
§ 30% Withholding Tax On:
– Interest, Dividends, Rents, Salaries, Wages, Premiums, Annuities, Compensation
– GROSS PROCEEDS From the Sale of Property That Could Produce Such Income
Summary
Expatriation Tax
§ Applies:
• US citizens/Long-term residents
• LTRs---Green Card holders for 8 of last 15 years
• Expatriation after June 2008
• Net worth in excess of $2million; or
• 5 year avg tax liability $147,000; or
• Fail to certify tax compliance for last five years.
• Exceptions
– Age 18 ½
Ø Non-resident in US for at least 10 years
– Dual citizens at birth
Ø Must still certify tax compliance
Ø Non-resident in US for at least 10 of last 15 years
Expatriation Tax
§ Income Tax
• Deemed sale of all assets
– Gain offset by $636,000
– All deferred compensation accelerated
Ø Can defer on US pension plans
§ Estate/Gift Tax
• Applies to US citizen recipients
Questions?
Office US Tax & Financial Services
Tel Aviv
Alan Cohen, CPA
Managing Director
US Tax & Financial Services Middle East GmbH
4 Berkowitz Street, 5th Floor
Tel Aviv 64238
Israel
Phone + 972 (0)77 693 5465
Fax + 972 (0)77 693 5464
Email a.cohen@ustaxonline.co.il
Offices also in London, Zurich, and Geneva
