The United States has one of the world’s most complicated taxation systems, and also is one of the few jurisdictions to tax its citizens – as well as permanent residents and foreigners staying in the country for an extended time – on the basis of their global income. As a result, questions frequently arise regarding tax reporting requirements and how any delinquencies should best be handled.
To deal with some of these issues, the AmCham Taipei Tax Committee invited two visiting experts from the San Francisco area to jointly make a presentation at a recent luncheon meeting. The speakers were tax attorney Christopher Karachale, a partner in the law firm of Hanson Bridgett LLP, and CPA Raymond L. Leung, managing partner of the accounting firm of Leung, Louie, Ip & Co. LLP.
The speakers noted that since a 2008 tax-evasion scandal involving more than 4,000 U.S. clients of Swiss bank UBS, the Internal Revenue Service has been paying increasing attention to the problem of unreported or under-reported income from assets overseas. The IRS’s emphasis, however, has been less on penalizing infringers than on bringing wayward taxpayers back into the system on a proper basis. To that end, it has put in place various mechanisms by which taxpayers can voluntarily disclose any delinquency by filing amended returns and paying back taxes.
Since 2009, nearly 56,000 cases have been handled under the IRS’s Offshore Voluntary Disclosure Program (OVDP), leading to the collection of almost US$10 billion in back taxes. A Streamlined Disclosure Program (SDP) was introduced in 2014, and since then approximately US$450 million in taxes, interest, and penalties have been paid under the program. To use SDP, the failure to file must not be willful.
As it is unknown how long the IRS will maintain the SDP program, the speakers encouraged anyone in a position to take advantage of it to do so “before it goes away.” They also noted that the United States is increasingly entering into cooperation with other countries and foreign financial institutions to collect information used to enforce compliance. For example, more than 100 countries, including Taiwan, have signed agreements with the United States in line with the Foreign Account Tax Compliance Act (FATCA) to provide information to the IRS regarding foreign accounts held by U.S. taxpayers.
In addition, the presenters advised anyone with potential tax problems to hire a tax lawyer, who is then likely to collaborate with a CPA, since lawyers but not accountants are protected under the law from having to divulge information about their clients.
Regarding investments in businesses or real estate in the United States, the speakers noted that conditions vary considerably depending on whether or not the investor is a U.S. expatriate (citizen or green-card holder) and on whether the investment is made directly or through a limited liability company, trust, or foreign entity.