Expatriate Guide To Required Forms

Generally, if you are a United States citizen or permanent resident (green card holder) living outside the United States for more than one year, you are called an expatriate or “expat.”* Rather than adding to the long list of tax guides that explain the general concepts of expat taxation,** we will focus on the specific requirements to file several US international tax forms. These are forms not well known, but they carry huge penalties for excluding or screwing up.

We will give you a general understanding of the following US tax forms: 1) Treasury Form 114, Report of Foreign Bank and Financial Accounts (FBAR), 2) Form 3520/substitute 3520-A, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, 3) Form 5471, Information Return of US Persons With Respect To Certain Foreign Corporations, 4) Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, 5) Form 8858, Information Return of US Persons With Respect To Foreign Disregarded Entities, 6) Form 8865, Return of US Persons With Respect to Certain Foreign Partnerships, 7) Form 8938, Statement of Specified Foreign Financial Assets, and 8) Form 8992, U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI). We then discuss ways to comply if you haven’t filed through the Streamlined Filing Compliance Procedures, the Delinquent FBAR Submission Procedures and the Delinquent International Information Return Submission Procedures.
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National Taxpayer Advocate: Small Business Filing And Recordkeeping Requirements

There are about 57 million small businesses and self-employed taxpayers in the United States, including:

Corporations and partnerships with assets less than $10 million
-Sole proprietors
-Independent contractors
-Members of a partnership that carries on a trade or business
-Others in business for themselves, even if the business is part-time
-Gig workers (i.e., Uber/Lyft drivers, owners of Airbnb rentals, delivery services, etc.)
-The Taxpayer Advocate Service is sharing the following information with small business taxpayers to:

Help you meet their filing requirements
Share resources for information and tax return preparation
Help you file accurate returns
Small Business Filing Requirements

Generally, the federal tax forms you will need to file vary depending on the type of business:
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IRS Provides Additional Guidance For Advanced Energy Projects

WASHINGTON — The Department of the Treasury and the Internal Revenue Service issued Notice 2023-44 to provide more details for applicants seeking section 48C credit allocations in the qualifying advanced energy project credit allocation program under the Inflation Reduction Act.

On Feb. 13, 2023, the Treasury Department and the IRS issued Notice 2023-18 to establish the section 48C(e) program to allocate $10 billion in credits ꟷ not less than $4 billion of which will be allocated to projects located in certain energy communities census tracts. The notice also provided initial program guidance and announced that the Treasury Department and the IRS would issue additional program guidance by May 31, 2023. The guidance is primarily of interest to owners of clean energy manufacturing and recycling projects, greenhouse gas emission reduction projects, and critical material projects.

Notice 2023-44 updates the earlier version of Appendix A, defining qualifying advance energy projects, with clearer definitions and examples, and updates the earlier version of Appendix B, providing the Department of Energy application process, by adding technical review criteria and application content requirements. This notice also provides the process for submitting concept papers and joint applications for DOE recommendations and for IRS § 48C(e) certifications and clarifies the selection criteria used to evaluate whether a project merits a DOE recommendation.
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Citing a fuzzy definition, the American Tax Court holds that the IRS lacks authority to assess and collect after an owner of foreign companies fails to file or pay penalties. How will this play out in future cases?

The U.S. Tax Court, in Farhy v. Commissioner, has distinguished between a penalty that the IRS is authorized to issue and a penalty that has been properly assessed.

For the tax years 2003 through 2010, Alon Farhy owned 100% of Katumba Capital Inc., a foreign corporation incorporated in Belize. For the tax years 2005 through 2010, Farhy was 100% owner of Morningstar Ventures Inc., also a foreign corporation incorporated in Belize.

Farhy had a reporting requirement under Section 6038(a) to report his ownership interests in both companies: Taxpayers must usually file Internal Revenue Service Form 5471, “Information Return of U.S. Persons With Respect to Certain Foreign Corporations,” to disclose interest or ownership in a foreign corporation. Failure to do incurs penalties starting at $10,000 per form per year.

During the years at issue, Farhy participated in an illegal scheme to reduce the amount of income tax that he owed and, in February 2012, signed an affidavit describing his role in that scheme. He was granted immunity in a non-prosecution agreement that he signed that September. Four years later, the IRS notified Farhy of his failure to file the 5471s; the Tax Court has acknowledged that Farhy’s failure to file was willful and not due to reasonable cause.

In late 2018, the IRS assessed an initial penalty (under Internal Revenue Code Sec. 6038(b)) of $10,000 for each year at issue and continuation penalties totaling $50,000 per year. The IRS did comply with the written supervisory approval requirements for the penalties. A few months later, the IRS levied to collect the penalties.

Defendant’s Answer
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Are You A U.S. Citizen Living Outside The United States? You Are Subject To Worldwide Taxation!

I am guessing (actually I know for sure) that you arrived here because of some aspect of being a U.S. citizen living outside the United States. Maybe you are a Green Card holder. Perhaps you are a former U.S. resident who has just learned that you may still be subject to U.S. “worldwide taxation” even though are a “tax resident” outside the USA. I also know how you are feeling.

“U.S. citizens” and “Green Card holders” are referred to as “U.S. Persons”. So, if you are a “U.S. Person Abroad”, well, life is pretty tough. in fact living as a “U.S. Person” outside the United States is: hard, expensive, confusing and (quite frankly) unsustainable.

Some of you are NOT in compliance with the intricate and (almost) impossible to understand web of tax and reporting requirements. Non-compliance has its share of problems.
Some of you ARE in compliance (as far as you know) with the intricate (and almost) impossible to understand web of tax and reporting requirements. Compliance also has its share of problems (stress, expense, anxiety).

Whether you are in compliance or not in compliance, you have problems. This is because:
U.S. citizenship is the one citizenship in the world that affects virtually every aspect of your life. in addition to the information on this blog, I help people with the following kinds of specific problems/questions (which include):
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IRS Submits Direct File Report To Congress; Treasury Department Directs Pilot To Evaluate Key Issues

The Internal Revenue Service submitted a Report to Congress evaluating a Direct File option for taxpayers and is taking steps to begin a pilot project for the 2024 filing season following a directive from the Treasury Department.

The report to Congress, required by the Inflation Reduction Act, evaluated the feasibility of providing taxpayers with the option of a free, voluntary, IRS-run electronic filing system, commonly referred to as “Direct File.”

The report finds that many taxpayers are interested in using a free IRS-provided tool to prepare and file taxes, and that the agency is technically capable of delivering a Direct File program. It also concludes that effective execution of a Direct File program would require sustained budget investment and careful management of the potential program’s operational complexity.

The report focuses on three areas: taxpayer opinions, cost and feasibility. The report also includes an analysis conducted by an independent third party, as required by the statute. The report also lays out the potential benefits and challenges associated with the IRS implementing a Direct File program.

“The IRS is committed to delivering significantly improved services by providing taxpayers with tools, information and assistance to make it easier to comply with their tax filing obligations. Direct File – used by numerous tax jurisdictions around the world – has long been discussed as an option for improving the customer experience for taxpayers in the U.S.,” said IRS Commissioner Danny Werfel. “The IRS review looked at the potential operational and administrative requirements of such a system. Ultimately, the results show there is taxpayer interest in an optional Direct file program and such a program is technically feasible. Any path forward should start with a limited pilot to assess operational factors described in this study.”
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Bicycling And Tax Breaks

Prior to the Tax Cuts and Jobs Act made some changes to the treatment of qualified transportation fringe benefits (Section 132(f)), primarily making the employer costs non-deductible (Section 274(a)(4)), “qualified bicycle commuting reimbursement” was such a fringe benefit. That benefit was repealed for 8 years for some reason. It is not clear why it was repealed. I don’t believe its temporary repeal generated lots of revenue as it was as small fringe benefit (about $20 per month and only for 15 months per employee) and likely not offered by many employers or used by many employees.

The bicycle benefit covered the reasonable expenses of an employee for purchase of a bicycle, its improvements and repair and storage if regulary used by the employee to get from home to work and back.

Riding a bike to work isn’t an option for many workers who have long distances or unsafe routes or no biking option due to the need to use freeways to get to work. But for workers who can bike to work, isn’t that a benefit to many people? It means fewer cars on the road and less pollution. If there are already bike lanes available, better yet.

If a tax break is to be provided, why not offer a refundable credit for the purchase or a bike with reasonable cost limits and an income phase-out level?
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The World Bank is an organization dedicated to providing financing advice, and research to developing nations to aid in their economic advancement. In its 110 page Global Progress report it states ” The recent IMF/WBG Annual Meetings was aptly titled Development in Crisis highlighting the fact that today’s crises are happening all at once, and their negative repercussions are compounded by climate change. The war in Ukraine and aftershocks from the COVID-19 pandemic triggered a steep rise in food, fertilizer,and energy prices, and interest rates. Many developing countries are experiencing historically high inflation,and more than half of IDA countries are at high risk of debt distress or already in debt distress, seriously limiting fiscal space available for many developing countries to alleviate the burden on their populations with spending measures.

In all these crises, the poor and vulnerable are the hardest hit. The recently published World Bank’s Poverty and Shared Prosperity Report finds that COVID-19 dealt the biggest setback to global poverty-reduction efforts: it’s estimated that about 70 million people were pushed into extreme poverty in 2020, the largest one-year increase since global poverty monitoring began in 1990. This period also dealt the worst blow to progress on education and learning— learning poverty has increased by a third in low- and middle-income countries—which may further worsen poverty in the future.

To respond to these multiple crises, many developing economies need to spend more to protect the poor and vulnerable households, to service their debt, to reverse the learning losses and to invest in climate change mitigation and adaptation. At the same time, these countries are experiencing slower revenue recovery as their economic growth slows. Global tax revenues in 2020 declined by 12 percent in real terms, a steeper 15 percent decline in low-and middle-income countries.
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The Sales Tax Audit Series- For California And Beyond

Over the next several weeks we will post five blogs that should interest any taxpayer who is in fear of a sales and use tax audit – especially an audit that results in a “huge, unexpected liability.” These five blogs will help prepare you for all aspects of a sales tax audit by a government agency (before, during and after) and, more importantly, will help to put you on a path to owe little or nothing (you might even get a refund) – particularly if you follow the second of the five blogs, where we’ll talk about shoring up your systems before an auditor even shows up.

The advice that we will provide in these five blogs will apply to a sales and use tax audit for any state, but we will focus many specifics on our home state: the Golden State of California. California’s sales and use tax department is called the CDTFA – California Tax and Fee Administration. (The CDTFA was established in January 2018 as the successor to the State Board of Equalization or SBE.) The CDTFA is an enormous governmental agency – the size and sophistication of the CDTFA almost single-handedly dwarfs many of the U.S. states’ entire governments. The CDTFA administers 37 tax and fee programs; employs thousands of auditors and generates more than $90 billion for California and its counties, cities, and special tax districts. The CDTFA’s audits result in over $600 million of unreported tax each year. So, what can we do to help you to not be one of those taxpayers that contribute to the $600 million in audit deficiencies? It’s simple – read this blog and the next four.
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Bankruptcy Schedules: Schedule F

Continuing our series on bankruptcy schedules, Schedule F is used to list all of your general unsecured debts. General unsecured debts are those that are not secured by collateral and are not entitled to priority payment under the Bankruptcy Code. These debts are typically credit card debts, medical bills, and other similar debts. You may recall that, in our last blog – focused on Schedule E – we noticed that Schedules E and F have been combined into one schedules – cleverly labeled “Schedule E/F”. However, we also noted that, for purposes of discussion, we were breaking out the detail of Schedule E versus Schedule F.

Step 1: Gather Information About Your General Unsecured Debts

Before you can start filling out Schedule F, you’ll need to gather information about all of your general unsecured debts. This may include credit card debts, medical bills, and other debts that are not secured by collateral. Lesser known unsecured debts include deficiencies on repossessed vehicles and personal guarantees on business loans. Student loans are also unsecured debts, but they are treated separately under the Bankruptcy Code and are not generally not dischargeable under §523(a)(8) of the Bankruptcy Code. An exception is provided if excepting student loans from discharge would impose an “undue hardship” – an extremely high burden that has historically only been satisfied when a debtor is unlikely to be able to work for a living in the future.

Make sure to gather all relevant documentation, including the most recent billing statements and any other documents related to your general unsecured debts. If you believe that you may have an “undue hardship” as a result of student loans, talk to your attorney about the possibility of seeking a hardship discharge. In some cases, student loan companies may be willing to negotiate these debts based on demonstrated hardship situations.

Step 2: List Your General Unsecured Debts

Once you have all of the necessary information, you or your attorney can start listing your general unsecured debts on Schedule F. For each general unsecured debt, you’ll need to provide the following information:

-Creditor’s name and address: This is the name and address of the creditor who holds the general unsecured debt.
-Date incurred: This is the date that the general unsecured debt was incurred.
-Amount of claim: This is the amount that you owe on the general unsecured debt as of the date that you filed for bankruptcy.
-Be sure to list each general unsecured debt separately, even if you have multiple debts with the same creditor.

Step 3: Complete the Form

Once you’ve listed all of your general unsecured debts on Schedule F, you or your attorney must complete the rest of the form. This includes providing your name, case number, and other basic information, as well as signing the form to certify that the information you’ve provided is true and accurate.

Step 4: Review and File

After you’ve completed Schedule F, review it carefully to make sure everything is accurate and complete. Keep in mind that a trustee will be reviewing these forms and may ask you questions about them at the meeting of creditors. Once you’re satisfied with the form, you or your attorney will file it with the bankruptcy court, along with the rest of your bankruptcy paperwork.

As with other schedules, completing Schedule F is an important part of the bankruptcy process. By following these steps and seeking the guidance of a bankruptcy attorney if needed, you can ensure that your general unsecured debts are accurately listed, and that your bankruptcy case proceeds smoothly.


Copy of Schedule F Form
Download Schedule F Form

Have a question? Contact Greg Mitchell, Freeman Law, Texas.

Standard Mileage Deduction Rates Should Be Consistent For All Taxpayers

The IRS released a Strategic Operating Plan (SOP) outlining how it intends to use the nearly $80 billion in additional funding received as part of the Inflation Reduction Act of 2022 (IRA) to improve the taxpayer experience, modernize its information technology (IT) systems, and strengthen tax compliance programs in a fair and equitable manner.

This is a game changer to transform how the U.S. government administers the tax laws in a more helpful and efficient manner while focusing on providing the service taxpayers deserve.

However, of the nearly $80 billion in supplemental IRA funding, only $3.2 billion was allocated for Taxpayer Services and $4.8 billion was allocated for the IRS Business Systems Modernization (BSM) projects. Combined, that’s just ten percent of the total. By contrast, 90 percent was allocated for Enforcement ($45.6 billion) and Operations Support ($25.3 billion). The additional long-term funding provided by the IRA, while appreciated and welcomed, is disproportionately allocated for enforcement activities, and I believe Congress should reallocate IRS funding to achieve a better balance with taxpayer service needs and IT modernization.

As discussed in the Estimated Allocation of Funds section of the SOP, the additional resources the IRS has deployed to meet current taxpayer service needs will deplete the entire $3.2 billion IRA allocation for Taxpayer Services in less than four years if additional annual appropriations or supplemental funding is not provided. The SOP also expresses concern about the adequacy of BSM funding to modernize the agency’s antiquated IT systems.
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Mississippi Reverses Its Stance On Taxing SaaS

As businesses both utilize and develop technology product including electronically downloaded software and cloud computing or Software-as-a-service (“SaaS”), the taxability of these products continues to be varied and can be confusing.

The SaaS model continues to be a very popular method of delivering software to users. If you are a frequent reader of our blogs, you know that many states tax the SaaS revenue stream and many do not. In this article, we take a look at how the rules in Mississippi have recently become more defined in this space and the state has changed its taxability of SaaS.

The taxability of SaaS in MS largely depends on the nature of the specific software being provided to customers. The state of Mississippi, currently taxes the SaaS revenue stream. One caveat is that the SaaS product needs to be hosted on a server owned by the customer located in Mississippi.

Effective July 1, 2023, as outlined in SB 2449, Mississippi will exempt the SaaS revenue stream from sales tax. Furthermore, it will exempt remotely accessed SaaS (computer software located on a server outside of the state and accessed only via the internet) from sales and use tax. That means that SaaS subscription revenue received from Mississippi customers will not be subject to sales tax, even if the seller has met the nexus thresholds in the state.
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