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Today, FinCEN moved to again clarify questions surrounding the due date for filing Reports of Foreign Bank and Financial Accounts (FBARs).

The FBAR requirements (31 CFR 103.24) are part of the Banking Secrecy Act (BSA). Under the rules, each “US person” with an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in any foreign country must file an FBAR if the aggregate value of such accounts at any point in a calendar year exceeds $10,000. A “US person” generally means a citizen or resident of the United States, or a person in and doing business in the United States – it is not limited to individual taxpayers and includes partnerships and corporations.

In other words, if the total of your interests in all of the foreign accounts in which you have an interest reaches $10,000 or more at any point in the calendar year, you may need to file an FBAR. That applies even if you’ve been faithfully reporting the income on your federal income tax return and even if you’ve never, ever repatriated a single dollar to the U.S. It also applies even if the account produces no taxable income. Some exceptions apply.

FBARs are typically filed at the same time as your tax return and they are filed electronically (you don’t file them with your tax return). Taxpayers on extension have until October 15 to file.

However, this year, on October 14, 2020, FinCEN posted an incorrect message on its Bank Secrecy Act (BSA) E-Filing website that stated that there was a new filing extension until December 31, 2020 for all filers of FBARS. That is not true. The FBAR deadline was supposed to have remained October 15, 2020, except for victims of recent natural disasters as noted in FinCEN’s October 6, 2020 notice (those victims still have until December 31, 2020, to file).

FinCEN removed the message within 24 hours. However, the message caused a lot of confusion.

Today, FinCEN apologized for the error and any confusion this has caused. They have also coordinated with the Internal Revenue Service (IRS) to address the concerns of filers who may have missed their filing deadline because of the error. As a result, filers who file their 2019 calendar year FBAR by October 31, 2020, will be deemed to have timely filed.

It’s my annual Taxes from A to Z series! If you’re wondering how to figure basis for cryptocurrency or whether you can claim home office expenses during COVID, you won’t want to miss a single letter.

G is for GILTI.

GILTI – which ranks up there as one of the best tax acronyms of all-time – stands for global intangible low-taxed income.

In the days before the Tax Cuts and Jobs Act (TCJA), the United States took the position that resident taxpayers, including corporations, were subject to tax on their worldwide income. But as you well know, not all corporations paid tax on their worldwide income. With a few elections and a presence overseas – even an insignificant one – those businesses could defer tax earned by foreign subsidiaries until the funds were repatriated to the US.

You might recall some of those pre-TCJA discussions – like this one from Steve Jobs – where some companies made clear that they were happy to keep money parked overseas until the US changed its policy.

In 2017, it did. 

Now, the post-TCJA rule is that income earned by active foreign subsidiaries of US companies is typically exempt from US tax even if those funds are repatriated. But that rule applies to income earned from activities like manufacturing, not passive income. Income from passive income remains taxable.

That sounds great for those multinational companies. But the worry was that it might encourage those multinational companies with intangible assets that are easily moved – like trademarks and copyrights (remember, many of the companies making the move overseas are pharma or tech companies) – from shifting those assets offshore.

Enter new section 951A.

Under the new rules, a US shareholder of a foreign corporation must include in income its global intangible low-taxed income – or GILTI. The rules are extensive and the calculations can be confusing, but here’s the gist: those taxpayers are now subject to a 10.5% minimum tax on that income (the GILTI). Let me explain that number.

GILTI is defined as the total active income earned by a US company’s foreign subsidiaries that exceeds 10% of the company’s depreciable tangible property. Or put another way: GILTI = Net CFC Tested Income – Net Deemed Tangible Income Return (NDTIR).

  • A CFC (controlled foreign corporation) is any foreign corporation that is more than 50% owned by U.S. shareholders.
  • NDTIR = 10% x QBAI, or Qualified Business Asset Investment – Interest Expense

A corporation can generally deduct 50% of GILTI and claim a foreign tax credit for 80% of foreign taxes paid or accrued on the income. Keep in mind that the US corporate tax rate is now a flat 21%. So if the tax rate in a foreign country is 0%, the effective US tax rate on GILTI will be 10.5%, or 50% of the 21%. Make sense? With that as a baseline, the result is supposed to make tax rate shopping abroad less appealing.

The calculation changes for taxable years beginning after December 31, 2025, when the deduction changes from 50% to 37.5%, resulting in a minimum 13.125% effective US tax rate.

I know, I just lost you (and to be fair, most folks except a handful of international tax experts). But since this is meant to be a primer, here’s what you need to know: since GILTI computations can be complicated, companies must carefully consider tax planning – including location – when considering a move abroad. Without tax planning, those traditional, pre-TCJA strategies for setting up subsidiaries may no longer be tax advantageous. And that was, of course, the point of the law in the first place.

You can find the rest of the series here:

It’s my annual Taxes from A to Z series! If you’re wondering how to figure basis for cryptocurrency or whether you can claim home office expenses during COVID, you won’t want to miss a single letter.

B is for BEAT regulations.

If BEAT regulations don’t ring a bell, don’t fret. It’s a relatively new concept – and it doesn’t apply to all taxpayers. But that doesn’t mean that you should ignore it. You should still know what’s happening with respect to US taxpayers, so here are a few things you ought to know.

BEAT stands for base erosion anti-abuse tax. It was introduced as part of the Taxpayer Cuts and Jobs Act (TCJA) in 2017, and you can now find it at Internal Revenue Code (IRC) section 59A. It’s basically an additional tax on certain large US corporations that acts like a minimum tax. It’s specifically targeted to US corporations that make deductible payments to foreign-related payments to reduce their overall tax bill. Generally, it applies to corporate taxpayers with average annual gross receipts of at least $500 million over three years – so not your average small business.

The whole idea of the BEAT Regs is to stop US corporations from using certain techniques to significantly reduce their corporate tax liability. The BEAT increases taxable income by eliminating tax-favored deductions to arrive at a modified taxable income (MTI). The BEAT is then applied to the MTI, and if it exceeds the regular tax, the excess is owed as an additional tax. The BEAT is effective for tax years beginning after 2017. The tax rate is generally 5% in 2018, 10% in 2019, and 12.5% in 2026. 

If that sounds vaguely familiar, it’s a little bit like the concept of the alternative minimum tax (AMT): eliminate tax preferences, and if they exceed your “normal” tax, you pay a minimum tax.

While the law itself didn’t attract a ton of conversation, BEAT Regs have captured a lot of attention of late.

So, let’s take a step back. Regs – or Treasury Regulations – are the tax regulations issued by the Internal Revenue Service (IRS). Regulations are the Treasury Department’s official interpretations of the Internal Revenue Code. In this case, the Regs are Treasury’s direction to corporate taxpayers (and their tax professionals) about how to calculate the tax.

Section 59A is not an easy Tax Code section to understand. As a result, the IRS has taken some time to issue Regs. In fact, it took the IRS more than a year to release proposed regulations; final regs were not published at the end of 2019 (you can see them here in the Federal Register). And there’s still more to come.

With all of that, you should know that this isn’t intended to be a white paper, and there are literally volumes that have been written about the BEAT Regs. But now you know the basics – what it is, who it applies to, and the intended purpose. The next time you’re at a cocktail party and BEAT Regs come up, you’ll do just fine.

You can find the rest of the series here:

Just days ago, tax professionals were wondering whether the G20 would meet its 2020 deadline to reach an agreement on multinational taxation. We now have our answer: Treasury Secretary Steven Mnuchin has called for the suspension of the Organization of Economic Co-operation and Development (OECD) talks. 

The official statement released by Monica Crowley, Treasury’s assistant secretary for public affairs, stated: “The United States has suggested a pause in the OECD talks on international taxation while governments around the world focus on responding to the Covid-19 pandemic and safely reopening their economies.”

The talks had aimed for a solution by the end of 2020.

In December of 2019, Mnuchin sent a letter to OECD Secretary-General José Ángel Gurría raising both concern and hope that issues faced by the international community might be nearing a resolution. The letter commented on separate aspects of the OECD’s two-pillar approach, with Mnuchin expressing concerns about Pillar 1, but supporting the general concepts of Pillar 2.

Pillar 1 focuses on the allocation of taxation rights, with a focus on nexus. Nexus is a legal term for a connection and is generally the basis for imposing tax. The tricky bit of nexus is nailing down that connection in an increasingly digital world (in the US, we know this from Wayfair). Some countries want to be able to tax profits of digital companies like Facebook and Apple inside of their jurisdiction; that’s at odds with the United States’ position on these matters. Some of those countries, like France and the United Kingdom, have signaled that they will be moving ahead with plans to tax digital services. The current administration has been clear that it could retaliate with tariffs against countries that adopt unilateral digital taxes, arguing those taxes tend to disproportionately burden US companies.

Pillar 2 focuses on other base erosion and profit shifting (BEPS) issues, including solutions to stop the race to lower corporate tax rates. When companies can hop from country to country as tax rates lower – when there’s no leveling mechanism – the result can be a confusing tangle of tax-home shopping. The US has indicated that it believes that an agreement could be reached on Pillar 2.

(You can read the OECD report on these issues from 2019 – which downloads as a PDF – here.)

The G20 began in September of 1999 as a meeting of Finance Ministers and Central Bank Governors. In 2008, during the global financial crisis, the G20 included the leaders of member countries with the first G20 Leaders’ Summit taking place in Washington DC in November 2008.

Today, membership of the G20 consists of 19 individual countries and the European Union. The 19 countries are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Republic of Korea, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, and the United States. According to the organization, G20 members represent around 80% of the world’s economic output, two-thirds of the global population, and three-quarters of international trade. 

Other countries are sometimes invited to participate, including Spain (a permanent guest invitee) and, for 2020, Jordan, Singapore, and Switzerland.

The OECD is an international group focused on establishing international standards and finding solutions to a range of social, economic, and environmental challenges. There are 37 member countries (you can find a list here), but other countries are often involved in efforts to resolve global issues. The OECD is helping to guide the conversation with the G20 to resolve these key tax issues.

Since the U.S. is a crucial player in the international tax community, the Treasury’s stepping out of the talks for a bit is a big deal. 

Still, earlier today, Gurría sounded hopeful, issuing a statement that said, “Addressing the tax challenges arising from the digitalisation of the economy is long overdue.”  

There is a basis for his optimism since Mnuchin indicated he wanted to resume talks later this year. 

Gurría continued, “All members of the Inclusive Framework should remain engaged in the negotiation towards the goal of reaching a global solution by year end, drawing on all the technical work that has been done during the last three years, including throughout the COVID-19 crisis. Absent a multilateral solution, more countries will take unilateral measures and those that have them already may no longer continue to hold them back. This, in turn, would trigger tax disputes and, inevitably, heightened trade tensions. A trade war, especially at this point in time, where the world economy is going through a historical downturn, would hurt the economy, jobs and confidence even further. A multilateral solution based on the work of the 137 members of the Inclusive Framework at the OECD is clearly the best way forward.”

What’s better than one organization fighting international and transnational crime? Try five. This week, tax authorities from the United Kingdom (UK), United States (US), Canada, Australia, and the Netherlands combined forces to put a stop to the suspected facilitation of offshore tax evasion. The operation was part of a series of investigations into an international financial institution located in Central America, whose products and services may have been used in a money laundering and tax evasion scheme for customers across the globe. 

The “coordinated day of action” involved evidence, intelligence, and information collection activities such as search warrants, interviews, and subpoenas. Authorities believe that the financial institution aided clients in evading their tax obligations by using a sophisticated system to conceal and transfer wealth anonymously. Additional criminal, civil, and regulatory action is expected. 

“This is the first coordinated set of enforcement actions undertaken on a global scale by the J5 – the first of many,” said Don Fort, US Chief, Internal Revenue Service Criminal Investigation (IRS-CI). “Working with the J5 countries who all have the same goal, we are able to broaden our reach, speed up our investigations and have an exponentially larger impact on global tax administration.” 

Fort emphasized, “Tax cheats in the US and abroad should be on notice that their days of non-compliance are over.”

The Joint Chiefs of Global Tax Enforcement, called the J5, organized in 2018 to combat global crime by sharing resources. The J5 consists of criminal intelligence communities from Australia, Canada, the Netherlands, the United Kingdom, and the United States who are committed to collaboration in the fight against international and transnational tax crime and money laundering. Membership of the J5 includes the heads of tax crime and senior officials in tax agencies, including Australian Criminal Intelligence Commission (ACIC) and Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Fiscale Inlichtingen-en Opsporingsdienst (FIOD), HM Revenue & Customs (HMRC) and Internal Revenue Service Criminal Investigation (IRS-CI).

This particular investigation began as a result of information obtained by the Netherlands Fiscal Information and Investigation Service (FIOD). Hans van der Vlist, Chief and General Director for FIOD, said, “This is the first outcome of an operational collaboration between five countries on tackling professional enablers that facilitate offshore tax crime.”

Prior investigations – like those involving allegations against Credit Suisse – were multinational but conducted separately. This was a first: a combined effort.

Australian Tax Office (ATO) Deputy Commissioner and Australia’s J5 Chief, Will Day, said the operation is proof that the collaboration is working. “Today’s action shows the power of our combined efforts in tackling global tax crime, fraud and evasion. This multi-agency, multi-country activity should degrade the confidence of anyone who was considering an offshore location as a way to evade tax or launder the proceeds of crime.”

“Never before have criminals been at such risk of being detected as they are now. Our increased collaboration, data analytics and intelligence sharing mean there is no place worldwide you can hide your money to avoid contributing your obligations,” Day explained. 

The name of the targeted financial institution was not named by the J5 today, but some tax professionals believe that the investigation is linked to the Panama Papers.

Canada Revenue Agency (CRA) Chief Eric Ferron said, “I am very pleased with the role the CRA is playing in what will be the first of many major operational activities for the J5.” He then warned, “Tax evaders beware; today’s action shows that through our combined efforts we are making it increasingly difficult for taxpayers to hide their money and avoid paying their fair share.” 

Simon York, Chief and Director of Her Majesty’s Revenue and Customs (HMRC) ‘s Fraud Investigation Service, echoed those comments, saying, “Tax evasion is a global problem that needs a global response, and that is what the J5 provides.” He continued, “International tax evasion robs our public services of vital funds, undermines economies and, left unchecked, can enrich the dishonest at the expense of the honest majority.”

York concluded, “Working together, HMRC and our J5 partners are closing the net on tax criminals, wherever they are, to ensure nobody is beyond our reach. The message to them is clear – the J5 are closing in.”

The Internal Revenue Service (IRS) has issued a reminder to taxpayers with an expiring Individual Taxpayer Identification Number (ITIN) to submit renewal applications. Failing to renew an ITIN by the end of the year may cause refund and processing delays in 2020.

An ITIN is assigned to a taxpayer who is not eligible to obtain a Social Security Number (SSN). Typically, only United States citizens and those non-citizens who are authorized to work in the U.S. by the Department of Homeland Security receive SSNs.

SSNs and ITINs are intended to be used only for tax and benefits purposes, but since banks, schools and insurance companies use them as identification numbers, more folks want them for nontax purposes: Only a quarter of ITINs assigned since the program began in 1996 have been used to file tax returns. Concerns about ITIN misuse spurred changes, including a law that now allows ITINs to expire. Nearly 2 million ITINs are set to expire at the end of 2019.

(In contrast, SSNs never expire, but the number of SSN cards that you can request is limited. For more, click here.)

As part of the Protecting Americans from Tax Hikes (PATH) Act, ITINs that have not been used on a federal tax return at least once in the last three years are not valid for use on a tax return unless renewed by the taxpayer. Expirations also occur on a rotating cycle: ITINs with middle digits 83, 84, 85, 86 or 87 (like 9NN-83-NNNN) that have not already been renewed will also expire at the end of the year. ITINs with middle digits of 70 through 82 have already expired; if your ITIN has expired, you can still renew at any time.

Affected taxpayers who expect to file a tax return in 2020 should submit a renewal application as soon as possible. If you have an expired ITIN, your federal income tax return will be processed, but exemptions and certain tax credits will be disallowed. 

When you renew your ITIN, you can choose to renew your family members’ ITINs at the same time, even if those ITINs are not yet set to expire. For this purpose, family members include your spouse and any dependents residing in the United States that you will claim on your tax return.  

Remember that there is no personal exemption amount for this year through 2025. That means that spouses or dependents outside the United States who would have been claimed for this benefit—and no other benefit—do not need to renew their ITINs this year. However, if the spouse or dependent outside of the U.S. is filing a separate tax return, or qualifies for an allowable tax benefit, the federal tax return must include the taxpayer’s information and must be attached to the renewing Form W-7 application.

If your ITIN is not set to expire, or if it has already expired and you do not have a filing requirement, you do not need to take any action. Similarly, if your status has changed and you are eligible for an SSN, you should not apply for or renew an ITIN.

You can renew your ITIN by completing a federal form W-7 (downloads as a PDF) together with the required documentation. You’ll need to indicate the reason for applying for the ITIN on the form. You can mail the form to the address on the instructions, work with Certifying Acceptance Agents (CAAs) authorized by the IRS, or call and make an appointment at a designated IRS Taxpayer Assistance Center.

If you need more information, the IRS has several fact sheets available to help, including Pub 5259 (downloads as a PDF).

The IRS has also produced a video to help with the process:

Para ver un video en español sobre el programa Número de identificación de contribuyente individual (ITIN), haga clic aquí.

For more information, visit the ITIN information page on IRS.gov.

The United States may be taking a hard line on cryptocurrency, but not all countries are seeking to collect from the virtual currency boom. The Portuguese Tax & Customs Authority (PTA) has announced that buying or selling cryptocurrency in Portugal is tax-free. 

The announcement came at the same time that the Internal Revenue Service (IRS) has announced a crackdown on cryptocurrency (more on that here). However, Portugal has taken the opposite tack: it made clear that buying or selling cryptocurrencies would not be subject to capital gain taxes or value-added tax (VAT). The PTA previously clarified in 2016 (downloads in Portuguese as a PDF) that buying or selling cryptocurrency in Portugal would not be considered a taxable event which means that it’s not subject to tax. There are exceptions: the receipt of cryptocurrency in exchange for goods or services doesn’t change the tax treatment of the original transaction, and taxpayers who deal in cryptocurrency as a professional or business activity are still subject to some taxes.

A VAT is similar to a sales tax, but not quite the same thing. A sales tax is a tax typically tacked onto the end of a sale of goods or services, much like state and local sales taxes are imposed. A value-added tax is a consumption tax but, unlike a sales tax, it’s collected at every stage along the production chain. (You can read more about VAT here.)

The news was first reported in a local paper, Jornal de Negócios. The paper reviewed an official document (in Portuguese, downloads as a PDF) from the PTA in response to a company that planned to mine cryptocurrency. The tax agency cited Article 135 (1)(e) of Council Directive 2006/112/EC (downloads as a PDF) which exempts “transactions, including negotiation, concerning currency, banknotes, and coins used as legal tender, with the exception of collectors’ items, that is to say, gold, silver or L 347/28 EN Official Journal of the European Union 11.12.2006 other metal coins or banknotes which are not normally used as legal tender or coins of numismatic interest” from VAT.

That means that Portugal will treat cryptocurrency as a form of currency, making it exempt from VAT and capital gains. That’s consistent with its policy on other currencies: Portugal does not tax the gain on the value or sale of any currency.

Not all European Union (EU) countries completely agree with Portugal. For example, the PTA cited a Swedish court case, Skatteverker (Administração Fiscal Sueca) v. David Hedqvist, in which the court ruled that trading cryptocurrency was not subject to VAT. However, the Swedish Tax Administration appealed that decision and it eventually advanced to the European Court of Justice (ECJ) where it was upheld. Other EU countries have taken various positions on the taxation of cryptocurrency depending on how it was obtained and how it was used.

The U.S. has, since 2014, consistently treated cryptocurrency as a capital asset if it can be converted into cash. This means that capital gains rules apply to any gains or losses. (You can read more on the taxation of cryptocurrencies like Bitcoin according to the IRS here.)

With the announcement, Portugal has made it clear that it is – at least for now – a tax-friendly home for those who buy and sell cryptocurrency. But don’t pack your bags just yet: Remember that U.S. citizens are taxed on their worldwide income, meaning that a trip across the pond won’t be enough to slash your tax bill.

When you see a headline or come across a snippet involving federal agencies like the Internal Revenue Service (IRS) and U.S. Citizenship and Immigration Services (USCIS), don’t assume that terms are interchangeable and don’t be fooled into thinking that the same kinds of treatment apply across the board. A policy alert issued this week by the USCIS addressed requirements for residence, making clear that there is a distinction between residence and physical presence (link downloads as a PDF). But for tax purposes, residence and physical presence can mean something very different.

When it comes to tax, I’m often asked, “Where do I pay taxes?” Sometimes it comes from a person from another country who is present in the United States (U.S.) on a work or student visa. Sometimes it’s directed from a U.S. citizen living and working in a foreign country. Other times, it’s from a long-term resident in the U.S. who returns to a home country for stretches at a time. But my answer is almost always the same: It depends. And that’s not just because I’m a lawyer. It’s because the rules for tax law (which are constantly changing) don’t always line up nicely with the rules for immigration law (which are also constantly changing). 

A lot of the confusion for international taxpayers focuses on the idea of residence. Residency feels like it should be an easy thing – it’s where you live, right? But what if where you live changes? Or if where you live isn’t where you intend to remain? Or if where you live isn’t the country where you were born? On the tax side, things can get tricky. It’s complicated even more because the definitions used by the Internal Revenue Service (IRS) to describe residency aren’t necessarily the same as those used by the USCIS.

Our tax system generally starts with the premise that all U.S. citizens are taxed on their worldwide income unless otherwise excluded. That’s a pretty big net.

For tax purposes, those who are not U.S. citizens are considered aliens. Aliens are further divided into non-resident aliens and resident aliens. By default, non-U.S. citizens inside the country are considered non-resident aliens unless they meet one of two tests: the green card test or the substantial presence test. 

The green card test is precisely what it sounds like: You are a resident for U.S. federal tax purposes if you are a Lawful Permanent Resident of the U.S. at any time during the calendar year. The most obvious evidence is an alien registration card, Form I-551, which we also call a green card.

The substantial presence test is more complicated – and there’s math. To meet this test, you must be physically present in the U.S. on at least 31 days during the current year, and 183 days during the three-year period that includes the current year and the two years immediately before that, counting:

  • All the days you were present in the current year, and
  • 1/3 of the days you were present in the first year before the current year, and
  • 1/6 of the days you were present in the second year before the current year.

(Ok, it’s not just simple math: there are fractions involved.)

For tax purposes, you’re present in the U.S. for any day that you’re physically present in the country for any period of time. And typically, the longer you are here, the more likely you are a resident for tax purposes. There are some exceptions. Those exceptions include commuting days to Canada or Mexico, days you are in transit or in the country as a crew member of a foreign vessel, days that you can’t leave because of a medical condition that developed while you were in the U.S., and days that you are an exempt individual. Exempt individuals typically include folks here on certain kinds of visas (mainly government, student and teacher visas) and professional athletes here to compete in a charitable sports event.

Even if you pass the substantial presence test, you can still be treated as a non-resident alien if you have a closer connection to a foreign country in which you have a tax home than to the U.S. Some exceptions apply, but the IRS typically looks at where you and your family live, where you keep your stuff, where you conduct your business, and where you drive and vote when determining how close your connection is to a foreign country. It’s very facts and circumstances dependent.

(For more information, check out IRS Pub 519, which downloads as PDF.)

You probably assume that folks are clamoring to be considered residents, right? Not always. For U.S. tax purposes, residents are treated – and taxed – like U.S. citizens. On the plus side, that means that they’re entitled to the same tax credits and deductions as U.S. citizens. But that also typically means that they must report their worldwide income and disclose their foreign assets; perhaps not so surprisingly, that doesn’t have universal appeal.

Non-residents, on the other hand, typically only have to report and pay tax on their U.S.-sourced income. But they also do not get the benefit of most tax breaks afforded to U.S. citizens.

For tax reasons, physical presence in the country is typically (but not always, remember there are exceptions) linked to residency. The longer you stay here, the more likely it is that you are a resident. But for immigration purposes, that is not necessarily the case. In their policy alert, the USCIS purported to make clear that there is a distinction between residence and physical presence. Citing the Immigration and Nationality Act (INA), the USCIS explained: The term residence should not be confused with physical presence, which refers to the actual time a person is in the United States, regardless of whether he or she has a residence in the United States.

The policy alert was an effort to clarify the status of children who are not yet citizens and are adopted or born to U.S. service members or certain government employees overseas. The controversial statement made clear that those children would not automatically become citizens because they do not meet the residency requirements under existing immigration law. USCIS policy had previously provided that children of U.S. government employees and members of the U.S. armed forces who were employed or stationed outside of the country should be considered to be both “residing in the United States” and “residing outside of the United States” for immigration purposes. However, the USCIS has rescinded the prior policy permitting children of U.S. government employees and U.S. armed forces members stationed outside of the country to be considered “residing in” the U.S. With that, it may be necessary for affected parents to apply for citizenship on behalf of their children. 

(Again, you can find the update, which downloads as a PDF here. You can find the complete USCIS manual here.)

A key takeaway from the update is the importance of understanding that terms don’t always mean what you might think they mean, and even interpretations that you might think are settled can change over time. It also underlines that different agencies may use similar terms and yield different results. For example, for tax purposes, U.S. tax residents are largely treated like U.S. citizens. But that’s not the case for immigration purposes: lawful permanent residents may not vote in elections, and if they remain outside of the U.S. for extended periods, they may be considered to have abandoned their permanent residence. That presumption is hard to refute for immigration purposes; it’s a lot easier to prove a U.S. connection for tax purposes even if you leave the country.

It’s also complicated when the two worlds – immigration and tax – collide. Under U.S. law, immigrants can be deported if they are convicted of a crime of moral turpitude or an aggravated felony. Aggravated felonies include certain financial crimes such as those involving fraud or deceit. When it comes to tax, something as relatively minor as the failure to file a tax return is typically considered a misdemeanor – but if the violation is found to be willful, it can be treated as a felony.

For those who are not permanent residents, that could result in removal proceedings. As Jonathan Grode, an immigration attorney for Green & Spiegel, LLC, explains, “With nonimmigrant status, a crime that renders the person inadmissible – one involving a crime of moral turpitude and a sentence that carries a maximum of greater than a year – then under INA 212 the foreign national is removable from the United States.” But deportation can also extend to permanent residents – remember Joe Giudice?

As the world grows smaller, it’s clear that tax and immigration will continue to overlap and change. That doesn’t mean that the terms that apply to one apply to the others, or that the respective agencies share common guidelines. When you see words that could have dual meanings, use caution and make sure that you’re applying them in the right context. If you have questions, it’s always a good idea to check with a professional for guidance.

Earlier this month, the Internal Revenue Service (IRS) issued a reminder to taxpayers with significant tax debts that their passports could be at risk. Now, IRS Commissioner Charles Rettig has granted a reprieve for some taxpayers.

A memo (TAS-13-0819-0014) from Acting National Taxpayer Advocate Bridget Roberts has advised that there is “a temporary change” related to the revocation of passports for taxpayers working with the Taxpayer Advocate Service. According to the memo, effective July 25, 2019, all open TAS cases with a certified taxpayer will be decertified; new TAS taxpayer cases will also be systemically decertified. 

The authority to revoke passports dates back to December 4, 2015, when the Fixing America’s Surface Transportation Act, or “FAST Act,” became law. Under the FAST Act, the State Department will yank passports from taxpayers after notification from the IRS that there’s a seriously delinquent tax debt. A “seriously delinquent” tax debt is defined as “an unpaid, legally enforceable federal tax liability” greater than $50,000, including interest and penalties. The limit is adjusted each year for inflation and cost of living: for 2019, it’s $52,000. 

Taxpayers with serious debts could be excluded under some circumstances, including those accounts which are being paid on time as part of an installment agreement or under an Offer In Compromise.

(You can read more about the passport revocation program here.)

Former National Taxpayer Advocate Nina Olson has expressed serious concerns about the program, including the exclusion of taxpayers with open TAS cases. Taxpayers with TAS cases are those with tax problems that taxpayers were typically unable to resolve through normal IRS channels.

The TAS also helps address large-scale, systemic issues that affect groups of taxpayers. That’s why, in 2018, even before the passport revocation program was implemented in full, Olson issued almost 800 Taxpayer Assistance Orders (TAOs) ordering the IRS not to certify taxpayers that the TAS identified as eligible for passport certification and who had an open TAS case. Those taxpayers were not certified, and the reprieve did not extend to those with new TAS cases. Olson continued to advocate for taxpayers who were seeking assistance from TAS, but there was no formal policy in place to provide them with relief.

(You can read more about the TAS and the Taxpayer Bill of Rights here.)

Without a formal procedure, the TAS will be tasked with the continuous administrative burden of chasing the IRS for relief for affected taxpayers on a case by case basis. With a temporary stay, the TAS can focus on helping taxpayers with their underlying tax issues rather than following up on passport revocation. How that might change long term is uncertain. According to the TAS memo, official IRS guidance will follow once IRS Commissioner Rettig makes a final decision about the process.

The Internal Revenue Service (IRS) is reminding taxpayers with an expiring Individual Taxpayer Identification Number (ITIN) to submit renewal applications. Failing to renew an ITIN by the end of the year may cause refund and processing delays in 2020.

An ITIN is assigned to a taxpayer who is not eligible to obtain a Social Security Number (SSN). Typically, only United States citizens and those non-citizens who are authorized to work in the U.S. by the Department of Homeland Security receive SSNs.

SSNs and ITINs are intended to be used only for tax and benefits purposes, but since banks, schools and insurance companies use them as identification numbers, more folks want them for non-tax purposes: Only a quarter of ITINs assigned since the program began in 1996 have been used to file tax returns. Concerns about ITIN misuse spurned changes, including a law that now allows ITINs to expire. Nearly 2 million ITINs are set to expire at the end of 2019.  

(In contrast, SSNs never expire but the number of SSN cards that you can request is limited. For more, click here.)

ITINs that have not been used on a federal tax return at least once in the last three years are not valid for use on a tax return unless renewed by the taxpayer. Expirations also occur on a rotating cycle: ITINs with middle digits 83, 84, 85, 86 or 87 (like 9NN-83-NNNN) that have not already been renewed will also expire at the end of the year. ITINs with middle digits of 70 through 82 have already expired; if your ITIN has expired, you can still renew at any time.

Affected taxpayers who expect to file a tax return in 2020 should submit a renewal application as soon as possible to avoid delays. If you have an expired ITIN, your federal income tax return will be processed, but exemptions and certain tax credits will be disallowed. 

“We urge taxpayers with expiring ITINs to take action and renew the number as soon as possible. Renewing before the end of the year will avoid unnecessary delays related to their refunds,” said IRS Commissioner Chuck Rettig.

The IRS will begin sending CP48 Notice in early summer to affected taxpayers. The notice will explain the steps to take to renew your ITIN. 

When you renew your ITIN, you can choose to renew your family members’ ITINs at the same time, even if those ITINs are not yet set to expire. For this purpose, family members include your spouse and any dependents residing in the United States that you will claim on your tax return. 

(Remember that there is no personal exemption amount for tax years 2018 through 2025. That means that spouses or dependents outside the United States who would have been claimed for this benefit—and no other benefit—do not need to renew their ITINs this year.)

If your ITIN is not set to expire, or if it has already expired and you do not have a filing requirement, you do not need to take any action. Similarly, if your status has changed and you are eligible for an SSN, you should not apply for or renew an ITIN.

You can renew your ITIN by completing a federal form W-7 (downloads as a PDF) together with the required documentation. You can mail the form to the address on the instructions, work with Certifying Acceptance Agents (CAAs) authorized by the IRS, or call and make an appointment at a designated IRS Taxpayer Assistance Center.

If you need more information, the IRS has several fact sheets available to help, including Pub 5259: https://www.irs.gov/pub/irs-pdf/p5259.pdf

Commissioner Rettig notes, “To help with this process, the IRS is sharing this material in multiple languages.” In addition to English and Spanish, you can find Pub 5259 in ChineseKoreanHaitian CreoleRussian, and Vietnamese.