March 28, 2012 India Tax Update

Transcription

1 Silicon Valley March 28, 2012 India Tax Update Brian (415)

2 U.S. Tax Reporting Challenges IRS Forms Penalties 5471 Foreign Corporation $10k per year per omission 8865 Foreign Partnership $10k per year per omission 3520 Foreign Trusts 35% of value 8938 Foreign Financial Assets [New for 2011] $10,000 per year TDF Foreign Bank Account Report [FBAR] 50% x 6 yrs = 300% 50% penalty per year For 6 years Times highest balance in each year 2 You Have Undisclosed Bank Accounts: What Do You Do? (1) Overseas Voluntary Disclosure Initiative - Are you qualified? - Not currently under Audit or Investigation - Unreported income is not from criminal activities - Penalties under OVDI - Foreign bank accounts: 27.5% of highest balance [one year only] - Criminal penalties waived - Tax returns - 8 years returns to be filed and audited - Taxes due plus interest and penalties (2) Quiet-noisy tax filings - Tax Returns Initial or Amended - FBARs for prior years - Penalties if selected for audit (3) Do nothing about the past and comply with earnest going forward - Don t fire your bookkeeper - Don t brag about your offshore accounts 3

3 Holding a Green Card and also Being a Tax Resident in India Example 1 U.S. green card holder Resides in India Family and business in India (1) Resident - Taxed on worldwide income due to being a Lawful Permanent Resident - Net U.S. tax = U.S. tax less Indian taxes incurred (2) Nonresident - Article IV of U.S. - India Income Tax Treaty Tie Breaker Tests - If tie breaker test satisfied, then individual is taxed on U.S. source income only U.S. Concerns Expatriation risk if one has been resident in U.S. with green card for more than 7 years then files nonresident treaty-based return: can trigger expatriation and an exit tax. Full foreign reporting still applies even if one can file and calculate tax as a nonresident. Immigration Concerns Filing a nonresident tax return is inconsistent with intentions to be a lawful permanent resident of the U.S. 4 Foreign Trusts with U.S. Beneficiaries Example 2 Father is a Karta of Hindu Undivided Family. [HUF] Father to set up a trust for U.S. house. ALT (1) ALT (2) Foreign Father Foreign Father Karta Foreign Trust $ U.S. Trust HUF Home U.S. or India Home U.S. or India Property in India - Foreign trust reporting for U.S. every year on Form Complex re: holding title - Accumulated income in trust taxed as ordinary income tax - Generation skipping permitted - Foreign trusts in India or outside India permitted - Funding of Trust reported on Form 3520 in initial year only - U.S. Trust is taxpayer - Accumulated income rules don t apply - Generation skipping permitted 5

4 Expatriation: Exit Tax - Applies to: U.S. Citizens U.S. Green card holders over 7 of last 15 years - Exit Tax Covered person subject to Exit Tax if: - Assets > $2mm - Average tax over 5 years $151,000 (2012) Noncovered person No Exit Tax - Expatriation Action Legal action - Renouncing citizenship at consulate - Submitting green card at consulate Tax action - Filing form U.S. tax status continues until taxpayer notifies IRS - 5 years returns certified on Form Choosing Between U.S. Citizenship and $50 Million! Example 3 Father: Indian citizen and resident Mother: India resident, U.S. citizen Children: U.S. citizens Problems - Indian gifting No gift or estate tax - Prior gifts to daughter in U.S.: $40mm in Indian listed shares - Age 20, U.S. University - Giving up U.S. citizenship (by appointment) - Getting Indian citizenship (2 years) - Expatriation in 2012: - Filing Form 8938 Foreign Financial Assets High value in 2011 return - Valuation: $50mm [zero basis] - Valuation strategies with family limited partnership - Decrease by - Blocked Currency: $1mm remittance per year 7

5 Foreign Deadbeat Lured into OVDI Example 4 - Dual citizenship - Stopped filing U.S. returns OVDI program - Nonreporting of foreign entities $800k - Foreign Bank Report $7.8mm [20% of highest balance] - Actual Tax Delinquency $60,000 Alternatives (1) Pay the penalty (2) Stay outside U.S., keep money offshore (3) Withdraw from OVDI and submit to audit 8 Nobody Told Me! Example 5 - Indian citizen, Corporate CEO - Received Green Card in Gave up U.S. Green Card in 2009 Year Green card issued Moved to India stopped filing U.S. returns Turned in green card at U.S. Consulate IRS withdraws $2mm from U.S. bank account 9

6 Nobody Told Me! Example 5 (cont.) Questions (1) File returns for back years to obtain large refunds - Resident vs. Nonresident - File back years FBARs (2) Submit to OVDI program - 8 years returns audited - large penalties for nonreporting of foreign accounts 10 Grand Jury Indictment Example 6 - Financial Planner U.S. Citizen - Foreign clients well liked - Large gifts received from foreign clients - Deposited into Swiss Bank Account - Swiss Bank now under investigation - Your friend shows you letter from Department of Justice What do you advise your friend/client to do? 11

7 Brian is a CPA with 33 years of experience advising businesses and individuals on complex domestic and international income and estate tax planning. He is the founding partner of & Company LLP which is almost exclusively dedicated to businesses and investors needing both domestic and international tax and accounting services. His clients include private and public companies around the globe which consist of: U.S. and foreign institutional investors, multinational families and executives and non-u.s. investors doing business in the U.S. Mr. has advised clients in major domestic and international litigation and has also served on the boards of both privately held and publicly traded companies. Mr. has been a frequent guest lecturer at the Haas School of Business, University of California Berkeley, and at the University of San Francisco. He taught graduate courses on corporate and partnership taxation at the University of California Extension. He has been a speaker for several U.S. and international tax planning organizations, including the ITPA and STEP, in Europe, Asia and the U.S. Mr. is a frequent commentator on international tax topics of interest. He submitted proposed legislation to the U.S. Treasury in the FIRPTA arena which resulted in changes to final regulations on withholding tax on foreign partnerships with investments in U.S. Real Property. This past year he issued several commentaries that were critical of IRS procedures and policies in the FBAR amnesty program. He is member of the Tax Division of the AICPA and a past president of the San Francisco Tax Club. Mr. is a former featured columnist for Outlook, the official journal for the California Society of CPAs. He has been a contributor to the Journal of Accountancy and several international tax and investment journals. In 2005, he was profiled in the San Francisco Business Times as an entrepreneur of the accounting profession. In April 2009, his article Doing Business in China was featured on the cover of the California CPA Journal. & Company is a full service Certified Public Accounting firm that provides audit, accounting, and domestic and international tax services to individuals and businesses, both public and private. & Company has offices in San Francisco and Silicon Valley and is a member of Polaris International, a worldwide network of accounting and consulting firms. The firm is a member of the American Institute of Certified Public Accountants and is registered with the Public Company Accounting Oversight Board.