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FOREIGN INVESTMENTS - Compliance & Disclosure issues

by Moskowitz LLP 10. May 2011 01:45

As the national markets grow global, many American investors find themselves with potentially lucrative but highly complicated foreign investment opportunities.  While the investments themselves and the returns thereon may be fairly simple and straightforward, the tax treatment of those investments is anything but simple and straightforward.  While trying to catch up with the growing global economy and one of its ramifications—potential revenue loss for the IRS, the IRS and the federal government have created and continue to create a complicated set of rules, laws and programs in an attempt to tax and regulate investors.

Voluntary Disclosures and Passive Foreign Investment Companies

Two of the main legal issues regarding foreign investments are (1) voluntary disclosures, to correct past mistakes or omissions or wrong doing, and (2) Passive Foreign Investment Companies (PFIC) and their tax treatment.  In the past, the IRS did not have access to most foreign banking information and therefore could not monitor income produced, earned or stored overseas.   The US government has become aware of the problem, has instituted targeted programs for compliance enforcement, and is utilizing technology to do so.

Individuals and companies in the U.S. are required to account for income and pay appropriate taxes on foreign investments.  One way the IRS has encouraged the disclosure of overseas money is by instituting a voluntary disclosure program.  Just this year the IRS instituted the 2011 Offshore Voluntary Disclosure Initiative.  See OVDI.  Similar programs were instituted in 2009 and 2003.  Voluntary disclosure programs may be very helpful for taxpayers who want to avoid penalties and criminal prosecution, but they are complicated in procedure and result and are not for everyone.

The IRS has defined certain foreign corporations as Passive Foreign Investment Companies, also known as PFICs.  It then established an intricate set of laws and rules for their tax treatment.  Many of these rules hinge on which elections (if any) are made by U.S. shareholders   Knowing the when, how, and which, of elections is complicated for most foreign investors.  Subsequently providing the appropriate tax treatment for any income received or lost through the PFIC is also a complex matter.

Foreign Investment Expertise

While the economy is global for many investors, not all tax and legal professionals have the expertise to guide their clients through the complicated processes required for foreign investments.  Fortunately, at the Law Offices of Stephen Moskowitz, LLP our tax attorneys and CPAs have a great deal of experience handling the issues described above and more.  We routinely represent clients through the voluntary disclosure programs and their options regarding disclosure.  We prepare and organize PFICs and offer specific advice regarding the most favorable reporting methods for tax treatment.  Our tax attorneys and CPAs are even available to prepare the tax returns for PFICs and other foreign investment income.

Foreign investors may be disappointed when they begin a relationship with one attorney only to find out later that the attorney is not qualified to offer legal advice regarding their foreign investments.  At the Law Offices of Stephen Moskowitz, LLP there is no need to fear that your legal needs regarding your foreign investments, voluntary disclosures or PFICs will not be met.  An investor should never have to decline a lucrative foreign investment opportunity due to apprehension regarding any associated legal matters.

We are here to help. We work to defend your rights, your loved ones rights, and your assets.   For over thirty years we have defended individuals and businesses accused of tax and financial crimes and advised others how to legally benefit from doing business outside the United States.    If you have any questions or concerns regarding foreign income, foreign bank accounts, reporting issues, amnesty programs or any other legal issue, we urge you to call (415) 394-7200 and schedule a complimentary attorney-client privileged consultation.  

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