IRS PENALTIES THAT APPLY TO NONRESIDENTS MOVING TO THE US AS PERMANENT OR LONG TERM RESIDENTS.

There are two IRS penalties that we think are particularly troublesome for nonresidents moving to the US and trying to adapt to the US tax system which will tax their worldwide income and cause them to report their foreign assets and gifts sent to them  from abroad.

1.  First, the penalty for failure to report a foreign gift or bequest. All U.S. taxpayer's have an obligation to report a Foreign gift, devise or bequest on Form 3520. There is no tax on receipt of the gift or inheritance, but the penalty for not filing a Form 3520 is 25%- 35% of the face value of the gift or inheritance. I have a case where the penalty the taxpayer is facing is close to $2 M. 

2. The second example is failure to report foreign financial account by filing a Report of Foreign Financial Account (FinCEN Form 114). The "non-willful" penalty is $10,000 per account per year for up to six (6) years. The penalty for a "willful" failure to file an FBAR is the greater of $100,000 or 50% of the High Balance in the account. That same client who failed to file a Form 3520 may also face a 50% penalty for failing to file an FBAR. Willful has been interpreted to include the failure to report an offshore account on Scheudle B of Form1040.

There are other steps you should take in advance of moving to the USA including the sale of highly appreciated assets located abroad to avoid paying US tax on the gain from those sales. Also, your ownership of foreign corporations ,etc may necessitate a restructuring prior to your US move to avoid unfavorable US tax consequences.  EMAIL US with you questions and for further assistance.

Want To Be Paul Manafort’s Cellmate?

By Don D Nelson, International Tax Attorney

One of the criminal charges against Paul Manafort involves his failure to report foreign bank
and financial accounts he controlled.  All such foreign accounts must be reported to the US
Treasury each year on form 114 (FBAR) if the combined highest balances in those accounts
are $10,000US or more.  Paul Manafort appears to have never filed that form and answered
the yes or no question on his tax return asking if he had foreign bank accounts “no.”

If you are like Manafort you too can spend five years in jail and pay a criminal fine of $500,000.
There are also civil fines that can go up to ½ of the balances you maintained in your foreign
bank and financial accounts.

There are several programs that will allow you to catch up with past unfiled foreign assets
reporting forms due the IRS which will reduce or eliminate your financial and criminal
exposure for failing to file the Form 114.  However, like Manafort, if the IRS for FBI discovers
your failure to file before you do try to catch up, you will be exposed to huge monetary penalties
and possible felony charges. Most foreign banks and financial institutions are reporting your
foreign balances to the IRS.  Best to take action now before you get to know Paul better.

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Don D. Nelson, is a US tax attorney who has been assisting Americans in Mexico with their
taxes for over 25 years. He offers his clients the absolute privacy provided by
“Attorney client privilege.” His firm has assisted over a hundred expats in Mexico catch
up with their FBAR filings and regular returns   If you have questions or wish to meet with
him email him at ddnelson@gmail.com or his Los Cabos
phone number is 624 131 5228. US phone number 949-480-1235