ABOUT THE K-3 MARRIAGE VISA
The Marriage K-3 Visa is for individuals who are already married, unlike the Fiancé K-1 Visa for couples planning to marry. Many of the procedural requirements of the marriage visa are similar to the fiancé visa, except that considerably more paperwork is required. It may be quicker and easier for you to obtain a fiancé visa if you are not yet married, particularly if you are currently living in the United States. Additionally, a marriage that takes place abroad can sometimes pose unique challenges in obtaining a K-3 visa.

To file a petition to obtain a K-3 visa for your spouse, you must be a U.S. citizen. Spouses of permanent residents cannot obtain the K-3 marriage visa. If you are planning on marrying your fiancé while he/she is in the U.S. and your fiancé is not in the states on a K-1 visa.

Children of the K-3 recipient may also qualify for the K-4 visa. A child may qualify for a K-4 visa if he/she is an unmarried minor child less than 21 years of age of a qualified K-3 visa applicant.

If you are considering a K-1 fiancée visa or K-3 marriage visa contact us for a free attorney consultation.

MARRIAGE VISA REQUIREMENTS
The primary requirements to qualify for a marriage visa are:
1. Petitioning spouse is a U.S. citizen.
2. An immediate relative petition, that is pending, must have been filed in the United States.
3. A K-3 petition must be completed and submitted by the U.S. citizen and submitted to USCIS.

VISAS FOR NURSES
There is currently a large demand for nurses in the United States. As a result, it is easier for a nurse to obtain a visa to the United States than it is for other visa applicants. Yet it is still a complex process with strict requirements. The following is a general overview of the rules applicable to foreign nurses seeking employment in the United States.

IMMIGRANT VISAS FOR NURSES
The immigrant Act of 1990 (IMMACT90) and the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRAIRA) retained professional nurses (RNs) on Schedule A, Group I, as precertified by the Department of Labor (DOL). RNs have the unique status of qualifying for Schedule A designation from the DOL, which recognizes professions that have an extreme shortage of available workers. The effect of such designation is that an employer may file an immigrant visa petition on behalf of an RN without first obtaining an approved labor certification from the DOL, a process that can often prove time-consuming. However, the employer must still comply with the PERM requirements.

For an RN to be eligible for a Schedule A designation, the RN must have a nursing license in the RN's home country and must have passed either the Commission on Graduates of Foreign Nursing Schools (CGFNS) examination or the National Council Licensure Examination (NCLEX) and one of several English proficiency tests. To further qualify for an immigrant visa, the RN must hold, at minimum, a two-year diploma in the field of nursing. Also, before an immigrant visa or adjustment of status will be granted, the RN must obtain from the CGFNS a "visa screen certificate," which ensured that the RN is proficient in English and that the RN's education, training, and licensure abroad are equivalent to the requirement for licensure as a nurse in the United States.

THE VISA SCREEN CERTIFICATE
The current law requires a Visa Screen certificate for most foreign nurses. The CGFNS verifies that the nurse's education is comparable to U.S. health care professionals. Validation of all licenses is documented, and a predictor or licensure exam (if applicable) is required. For nurses, it is the CGFNS Examination or the NCLEX-RN. Competence in oral and written English is also documented.

English Language Proficiency is done by approved examination services–Educational Testing Service, Test of English as a Foreign Language (TOEFL); Test of Written English (TWE) and the Test of Spoken English (TSE); Test of English for International Communication (TOEIC); and the International English Language Testing System (IELTS), Academic and General Module. Scores are valid for two years.
If an applicant is evaluated and determined ineligible he or she will be notified by written notification that will explain the reason for ineligibility. The notice will also detail what can be done to resolve an educational deficiency; e.g., supplemental courses.

If an applicant is evaluated and determined ineligible he or she will be notified by written notification that will explain the reason for ineligibility. The notice will also detail what can be done to resolve an educational deficiency; e.g., supplemental courses.

A VisaScreen certificate is issued after all documents have been received, reviewed, and authenticated, and comparability has been established.
The English Language Proficiency requirements are waived for nurses from certain English speaking countries such as Canada (except Quebec), the United Kingdom, Australia, etc.

PRIORITY DATES
Priority dates for employment-based visas for nurses are established when the complete petition package plus fee is received by an INS regional service center. Under the three employment-based categories created by IMMACT90, the priority date will follow the nurse. Licenses in the Country of Nursing Education

The nurse need have only the minimum requirement of nursing studies in his or her own country. Some countries offer a full, five-year Bachelor of Science in Nursing program at a university; others offer a Graduate Nurse degree after two or three years of nursing study. Still other countries may offer a nursing course through a hospital study program that leads to a diploma. There is no requirement of any specific degree. The only requirement is that the nurse is licensed in the country of nursing study.

CONCURRENT FILING
On July 31, 2002, the INS issued regulations that provide for the concurrent filing of an employment-based visa petition and an application for adjustment of status when approval of the petition would make an immigrant visa immediately available. For a nurse already lawfully in the United States, the concurrent filing of the immigrant visa petition and the application for adjustment of status is highly recommended. Such concurrent employment immediately upon being granted employment authorization for which the nurse will be eligible pending the adjudication of the adjustment application.

CONCLUSION
The above is a general overview of the rules applicable to nurses desiring striving to obtain a visa allowing them to live and work in the United States. The key point is that RN's have preferred status and can obtain a visa to the United States much easier than most other professions.
Our law office has the ability to assist employers desiring to employ foreign nurses as well as to assist foreign nurses seeking employment. We can help the U.S. employer locate a foreign nurse. Likewise, we can help the foreign nurse to locate employment in the United States. If you are an employer seeking to hire a foreign nurse, or a foreign nurse seeking employment in the United States, call us – we can help.

WHAT IS ADJUSTMENT OF STATUS?
Adjustment of status is a technical term used for immigration filings in the United States. It indicates that you are presently in the U.S. classed as a non-immigrant, but are in the process of "adjusting" your non-immigrant status to the status of a lawful permanent resident.

WHO IS ELIGIBLE FOR ADJUSTMENT OF STATUS?
The following foreign nationals with a lawful entry to the U.S.:

• Spouse of a U.S. citizen with an approved immigrant visa petition
• Parents of a U.S. citizen with an approved immigrant visa petition
• Unmarried children of a U.S. citizen with an approved immigrant visa petition

The following foreign nationals with a lawful entry to the U.S. and maintaining lawful status:

• Married sons or daughters of a U.S. citizen with an approved immigrant visa petition
• Brothers or sisters of a U.S. citizen with an approved immigrant visa petition
• Spouse of a lawful permanent resident with an approved immigrant visa petition
• Unmarried children of a lawful permanent resident with an approved immigrant visa petition
• Foreign nationals who entered the U.S. on the fiancé(e) K-1 visa and have married the U.S. citizen petitioner within the 90 day period
• Foreign nationals with an approved visa petition filed on their behalf by a U.S. employer
• Asylees and refugees with an approved immigrant petition
• Cuban nationals to acquire permanent residence one year after they have been inspected and admitted or paroled into the U.S.
• Winners of the Diversity Visa Lottery who are already in the U.S in a non-immigrant visa classification
• Foreign nationals who have been residing continuously in the U.S, since January 1, 1972 in lawful status

WHAT CONDITIONS MAKE YOU INELIGIBLE TO ADJUST STATUS?
Unless you are applying for creation of record based on continuous residence since before January 1, 1972, or adjustment of status under a category in which special rules apply (such as 245(I) adjustment, asylum adjustment, Cuban adjustment, special immigrant juvenile adjustment, or special immigrant military personnel adjustment), you are not eligible for adjustment of status if any of the following apply to you:

• You entered the United States in transit without a visa;
• You entered the United States as a non-immigrant crewman;
• You were not admitted or paroled following inspection by an immigration officer;
• You are employed in the United States without USCIS authorization or you are no longer legally in the country (except through no fault of your own or for some technical reason). This rule does not apply to you if:
• An immediate relative of a United States citizen (parent, spouse, widow, widower or unmarried child under 21 years old);
• A K-1 fiancé(e) or a K-2 fiancé(e) dependent who married the United States petitioner within 90 days of admission; or
• An H or I non-immigrant or special immigrant (foreign medical graduates, international organization employees or their derivative family members);
• You were admitted as a K-1 fiancé(e), but did not marry the U.S. citizen who filed the petition for you, or you were admitted as the K-2 child of a fiancé(e) and your parent did not marry the United States citizen who filed;
• You are a J-1 or J-2 exchange visitor who must comply with the two-year foreign residence requirement, and you have not met or been granted a waiver for this requirement.
• You have A, E or G non-immigrant status or have an occupation that would allow you to have this status, unless you complete Form I-508 (I-508F for French nationals) to wave diplomatic rights, privileges and immunities and, if you are an A or G non-immigrant, unless you submit a completed Form I-566;
• You were admitted to Guam as a visitor under the Guam visa waiver program;
• You were admitted to the United States as a visitor under the Visa Waiver Program, unless you are applying because you are an immediate relative of a U.S. citizen (parent, spouse, widow, widower or unmarried child under 21).
• You are already a conditional permanent resident.

If you are considering filing an adjustment of status or need to determine whether you are eligible or ineligible to file for an adjustment of status, please contact us for a free attorney consultation.

THE IMPORTANCE OF ESTATE PLANNING
There are very few things in life one can be certain about, but one fact we must all accept is that someday we are going to die. Often we perceive death as something that will occur far off in the distant future, not something of current importance or consideration. The truth is, we have no control over when we will pass, but we do have some control over how our affairs and assets will be handled after death.

This is what makes estate planning a step of such immediate importance in our lives. It gives you the choice, while you are still living, to determine the who, what, when, where and how of your estate. It helps to ensure that your property will go to the people you want it to go to, in the way you want it to, at the times you want it to. It allows for substantial savings when dealing with taxes, court costs and attorneys' fees; and it helps your family and friends avoid the burden of the bureaucracy and financial confusion that often occurs after the death of a loved one. Through estate planning there are legitimate planning techniques available to minimize this risk and to protect assets.

Besides reducing estate and income taxes, pre-death planning techniques can produce other benefits. They make it easier to administer the estate if death is preceded by a period of incapacitation. They allow people to spell out in advance their wishes about being kept alive with artificial life-support systems. And, to a limited extent, it's also possible to use some strategies to increase the size of the estate.

THE BASICS OF ESTATE PLANNING
Some steps estate-planning specialists suggest to ensure that a dying person's wishes are carried out, to reduce taxes and to make life easier for survivors:

• DURABLE POWER OF ATTORNEY
  The durable power of attorney is a lifetime planning toll that terminates upon your death. A durable power of attorney appoints a designated person to handle financial affairs if you are unable.


• MEDICAL DIRECTIVES: LIVING WILL, HEALTH CARE PROXY, POWER OF ATTORNEY FOR HEALTH CARE
  Creating a medical directive, which may include a number of different documents such as a health care proxy, health care decisions and a living will, are medical instructions to ensure your wishes regarding your medical care are carried out.


• LAST WILL & TESTAMENT
  A Will stipulates to whom you want to leave your assets and appoints the person or entity that will manage your estate after your death.


• TRUSTS
  There are numerous types of trusts, which when implemented appropriately can avoid probate and allows trustee to manage assets if you become incompetent.


• GIFTING
  Making gifts of up to $12,000 to children or other heirs can help save on estate taxes. You can give up to $12,000 away per year, per donee of the gift. If your spouse joins you, you can gift up to $24,000 which is not subject to gift tax or estate taxes.


• STOCKS
  If you need cash, sell "loser" stocks or high-basis stocks to benefit from the step-up low basis stocks allow for heirs. Assets that are included in your taxable estate receive a new basis equal to fair market value. For example, an asset with a tax basis of $1 is worth $10 upon your death. If your heir sells the asset for $10, then the heir will pay no income taxes because the tax basis was stepped-up to $10 upon your death.

Elder law is an area of legal expertise that combines the traditional concepts of estate planning (such as wills and trusts, with additional legal tools designed to help individuals retain personal autonomy in the event of incapacity.

With advance planning, you can take advantage of alternatives to Guardianships and maintain as much control as possible over your own legal decisions, financial decisions, and health care decisions. It helps to spare loved ones the burden and unfortunate experience of having to "take over" without guidance or adequate legal authority.

Elder Law helps to guide individuals and their families so that they may:

• Reduce Income, Gift, and Estate Taxes
• Avoid Spousal Impoverishment
• Preserve Family Assets in the Face of Potentially Catastrophic Long-term Nursing Home Costs

New laws and very old legal concepts, used together, enable you to retain autonomy in the event of decision making incapacity. These include:

• Living Trusts
• Powers of Attorney
• Health Care Proxies
• Living Wills

Other examples of tools to meet your needs are:

• Tax, Insurance, and Retirement Benefits planning
• Access to Community Resources for Assisted Living
• Home Health Care
• Special Needs Trusts for the Disabled
• Bill-paying Assistance

The right combination for any particular individual will depend on numerous factors, including marital status, age, health, the size of his or her estate, relationship (and proximity) to other family members and friends, and the individuals personal wishes with respect to legal, financial, and health care related decisions.

Eventually, all of us.

• Elderly persons concerned about what might happen if they become incapacitated.
• "Sandwich Generation" families of adult children whose own estate planning must take into account their minor children and potentially dependent parents.
• Spouses and other family members of a loved one stricken with an incapacitating illness.

Getting Medicare While Traveling or Living in the Philippines

Many U.S. retirees look forward to traveling to the Philippines, and more and more are actually retiring overseas there. But what happens to retiree's federal benefits while they are out of the country? The short answer is that although Social Security benefits are available to retirees in the Philippines, Medicare is generally not. Traditional Medicare does not provide coverage for hospital or medical costs outside of the United States (although Medicare does cover residents of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, and the Northern Mariana Islands). In rare cases, Medicare may pay for in patient hospital services in Canada or Mexico. Unfortunately, there is no exception for the Philippines.

Some Medicare Advantage (private Medicare) plans may provide coverage benefits for health care needs when enrollees travel outside the United States. (Check with your plan before traveling.) But those retiring overseas – or travelers enrolled in the traditional Medicare program or whose Medicare Advantage plan does not cover foreign travel – will need to purchase health insurance from another source.

Medicare beneficiaries who are traveling and who have no other coverage must either buy short-term travel insurance or a Medigap policy that covers foreign emergencies. Medigap plans C through J offer travel emergency coverage, but the benefit applies only during the first 60 days of any trip. This Medigap benefit covers 80 percent of emergency care administered outside the country. A $250 deductible and $50,000 lifetime maximum apply. In addition, many travel agents and private companies offer insurance plans that will cover health care expenses incurred overseas, including evacuations. The State Department's Bureau of Consular Affairs provides information on medical insurance while overseas, including a list of companies that offer travel medical insurance.

Whatever option retirees choose while abroad, if they return to the United States they will still be covered by Medicare Part A. Medicare Part A covers institutional care in hospitals and skilled nursing facilities, as well as certain care given by home health agencies and care provided in hospices. There are no premiums for this part of the Medicare program and anyone who is 65 or older and is eligible for Social Security automatically qualifies.

Medicare Part B, which covers outpatient services, charges a monthly premium. Unless retirees continue to pay the premiums while they are overseas, they will not automatically be covered by Medicare Part B when they return to the United States. Retirees who drop Part B and then move back to the United State will have to pay an enrollment penalty. Premiums increase by 10 percent for each year that an individual is no enrolled in Part B. Therefore, retirees who think they may return to the United States may find it worthwhile to continue paying Part B premiums while they live abroad.

Notice 2010-41, 2010-22 IRS Will Treat Domestic Partnership as Foreign for Certain Purposes

In a Notice, IRS has announced that it intends to issue Regulations that, under certain circumstances, will classify an otherwise domestic partnership as foreign. The classification will apply solely for purposes of identifying the U.S. shareholders of a controlled foreign corporation (CFC) that is required to include in gross income the amounts determined under Code Sec. 951(a) with respect to the CFC. The Regulations to be issued will apply to tax years of a domestic partnership ending on or after May 14, 2010

Background. Under Code Sec. 951(a), if a foreign corporation is a CFC for an uninterrupted period of 30 days or more during any tax year, then each U.S. shareholder of the corporation that owns stock in the corporation on the last day in the year on which it is a CFC must include in gross income its pro rata share of the corporation's subpart F income, as well as any amount determined under Code Sec. 956 with respect to such shareholder.

Under Code Sec. 951(b), a U.S. shareholder with respect to any foreign corporation is defined as a U.S. person (under Code Sec. 957(c)) that owns, or is considered as owning, 10% or more of the total combined voting power of all classes of stock entitled to vote of the foreign corporation. Code Sec. 957(c) generally defines a U.S. person by reference to Code Sec. 7701(a)(30), which in turn defines a U.S. person as including a domestic partnership. Under Code Sec. 7701(a)(4), the term "domestic" when applied to a corporation or partnership means created or organized in the U.S. or under the law of the U.S. or of any State unless, in the case of a partnership, IRS provides otherwise by Regulations. In addition, Code Sec. 7701(a) provides that any of its general definitions do not apply where it is manifestly incompatible with the intent of the relevant Code provision.

Transaction at issue. Late in 2008, IRS issued Notice 2009-7, 2009-1 CB 312, identifying the following transaction (and substantially similar transactions) as a transaction of interest under Code Sec. 6111, Reg. § 1.6011-4(b)(6), and Code Sec. 6112. A U.S. taxpayer (Taxpayer) wholly owns two CFCs (CFC1 and CFC2), each of which owns 50% of another CFC (CFC3) through a domestic partnership. CFC3 has amounts described in Code Sec. 951(a)(1). Taxpayer takes the position that it doesn't have an income inclusion under Code Sec. 951(a) with respect to CFC3 because the domestic partnership is the first U.S. person in the chain of ownership of CFC3.

If the general definition of a U.S. person under Code Sec. 7701(a)(30)(B) – which incorporates the general definition of a domestic partnership under Code Sec. 7701(a)(4) – applies to the facts in Notice 2009-7, the domestic partnership is the U.S. shareholder required to include in gross income the amounts determined under Code Sec. 951(a) with respect to CFC3. However, the domestic partnership's gross income inclusion may have little or no tax consequences, depending on the treatment of each partner's (CFC1 and CFC2) distributive share of such income.

As stated in Notice 2009-7, IRS believes that Taxpayer's position is contrary to the purpose and intent of Code Sec. 951. Accordingly, consistent with Code Sec. 7701(a), IRS has determined that the general definition of a domestic partnership under Code Sec. 7701(a)(4), in the case of certain partnerships owned wholly or partly by foreign corporations, is manifestly incompatible with the intent of Code Sec. 951.

Regulations to be issued. In Notice 2010-41, IRS announced that it intends to issue Regulations that, under certain circumstances, will classify an otherwise domestic partnership as foreign solely for purposes of identifying the U.S. shareholders of a CFC required to include in gross income the amount determined under Code Sec. 951(a) with respect to the CFC. Specifically, the Regulations to be issued will treat a domestic partnership as foreign if:
(1) The partnership is a U.S. shareholder of a foreign corporation that is a CFC (within the meaning of Code Sec. 957(a) or Code Sec. 953(c)); and
(2) If the partnership were treated as foreign,
 (a) that foreign corporation would continue to be a CFC; and
 (b) at least one U.S. shareholder of the CFC,
(3) A partnership would be treated under Code Sec. 958(a) as indirectly owning stock of the CFC owned by the partnership that is indirectly owned by a foreign corporation; and would be required to include an amount in gross income under Code Sec. 951(a) with respect to the CFC. The Regulations will provide similar results in the case of tiered-partnership structures.

Under the Regulations, such a domestic partnership will be classified as foreign solely for purposes of identifying the U.S. shareholders of a CFC required to include in gross income the amounts determined under Code Sec. 951(a) with respect to such CFC. Such a domestic partnership will continue to be classified as domestic for all other purposes under the Code. Also, such a partnership remains a domestic partnership for purposes of determining its information reporting obligation, including the filing of a Form 1065, U.S. Return of Partnership Income, and Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations.

Applying Regulations to Notice 2009-7. Under the Regulations, the domestic partnership described in Notice 2009-7 will be treated as foreign because the partnership would be a U.S. shareholder of a foreign corporation that is a CFC (CFC3) if the Regulations to be issued did not apply; and if the domestic partnership were treated as foreign (1) CFC3 would continue to be a CFC, and (2) under Code Sec 958(a) Taxpayer (a U.S. shareholder of CFC3) would be treated as indirectly owning the stock of CFC3 owned by the partnership that is indirectly owned by CFC1 and CFC2, and would be required to include in gross income the amounts determined under Code Sec. 951(a) with respect to CFC3. The result would be the same if the Taxpayer were a partner in the partnership (in addition to CFC1 and CFC2), or also owned directly stock of CFC3.

IRS warns that no inference is intended by the reg's May 14 effective date as to the treatment of a domestic partnership for any tax year ending before May 14, 2010. IRS may challenge the positions taken by taxpayers with respect to such transactions, including under the provisions of subpart F and subchapter K of the Code, or under judicial doctrines including the sham transaction, substance over form, and economic substance doctrines.

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CREATIVE CHARITABLE GIVEN IN THE PHILIPPINES

by

Robert L. Wolff, ESQ. and A. Edsel Tupaz, ESQ.

Your favorite charity could be the ideal partner for philanthropic United States (US) and Philippine (PH) taxpayers who would like to make charitable gifts, either directly or through the use of charitable remainder trusts, to achieve their desired charitable and eleemosynary objectives in the Philippines. The following is a belief overview of the benefits of charitable giving and the ways charitable remainder trusts can be used to achieve these benefits.

There are many reasons why charitable gifts are made, ranging from a desire to benefit a particular charitable cause, to the reduction of taxes, and many other goals in between. Regardless of the motives for making charitable contributions, donors should be aware of the tax aspects associated with such transfers. Paying proper attention to the tax law and existing implementing rules and regulations and tax opinions issued by the Bureau of Internal Revenue (BIR), as well as their counterparts of the Internal Revenue Service (IRS) of the U.S., often help to maximize tax benefits. This can result in a greater gift to the charity while simultaneously achieving the financial and estate planning goals of the donor.

Both the US and PH Internal Revenue Codes (US Code and PH Code) encourage charitable giving by granting an income and gift or estate tax deduction for the value of qualified property transferred to a charity, and also by granting an exemption from income tax to qualified charities and charitable remainder trusts. This combination of tax benefits allows a donor to benefit from the charitable deduction permitted for a contribution to a charity, and, when pre-planned, to benefit from the charity's exemption from income taxation. When combined properly, these tax benefits make direct charitable gifts and the use of a charitable remainder trust an ideal planning tool for those individuals wishing to make a charitable gift.

The US and PH Codes are similar, but there are some major differences. For example, with regard to capital gain property, the US Code allows a deduction for the full value of the property; the PH Code limits the deduction to the acquisition cost (cost basis) of the property. The US Code has a limitation on the amount of the charitable gift that can be deducted based on the taxpayer's contribution base (basically the taxpayer's adjusted gross income without regard to any net operating loss carryback to the year), the type of charitable organization the gift is made to and the type of property gifted; under the PH Code qualified gifts are fully deductible. The US Code limits the charitable deduction to the lesser of the property tax basis (cost basis) or fair market value; the PH Code bases the deduction on the property's cost basis, to mention a few of the differences between the codes. As a result, a taxpayer needs to compare which tax code will give them the best tax results when considering a charitable gift.

In the case of capital gain property, the US Code often yields the best result, but not always. Assume a taxpayer has capital gain property with a tax basis of $2,000 and fair market value of $20,000, under the US Code the charitable deduction is $20,000, the PH Code, $2,000. If the tax basis was $20,000 and fair market value was $2,000, the deduction is $2,000 under the US Code, and under the PH Code it is $20,000. Therefore, understanding the differences between the US Code and the PH Code can prove to be beneficial.

The three primary types of gifts to charities are cash, property – such as shares of stock or real property, or any other property subject to capital gains taxes – and distributions from qualified retirement accounts, such as Individual Retirement Accounts or IRAs, or 401(k) plans. Another consideration when planning a charitable gift is deciding when to make the gift, for example, should you donate during one's lifetime or after death. For lifetime gifts, the most common gift is cash under both the US and PH Code, and capital gain type property under the US Code. For gifts after the death of the donor, the best assets under the US Code and PH Code to give are distributions from qualified retirement accounts and IRAs. Hereafter, all such retirement accounts will be referred to as IRAs.

During one's lifetime, from a tax efficiency stand point, under the US Code capital gains property is the preferred asset, because the gift is based on the pre-tax value of the property. Cash is post-tax. This is because income taxes have already been paid on income earned on property sold to make the cash gift. As a result, the net amount of the gift is less, and the tax deduction is also less.

When a gift of capital gain property is made, the full value of the property is received by the charity and the tax deduction received by the donor, under the US Code, is based on the full value of the property. As a result, the charity receives a greater gift and the donor a greater tax benefit. Therefore, as a general rule, tax wise it is better to directly gift capital gain property to a charity or a charitable remainder trust rather than to sell the property and then give the cash. Under the US Code, if the choice is to gift cash or to gift capital gain property to a charity, or a charitable remainder trust, the gift of the capital gain property typically will give the donor greater tax benefits.

Not so under the PH Code. The charitable deduction is based on the asset's cost basis. Therefore, under the PH Code, the taxpayer will not get a tax deduction for the asset's appreciation. Similar to a cash gift, it is the acquisition cost of the property which is deductible.

For charitable gifts upon one's death, gifts from qualified retirement plans are typically the preferred gift, such as with IRAs. The reason for this is that the contribution to the IRA was made from pre-tax income that resulted in an income tax deduction, and the growth in the account was tax deferred. As a result, the account balance of the IRA has never been subjected to income taxation. When a distribution is made from the IRA, it then becomes subject to income taxation. The benefit of leaving the IRA to a charity or a charitable remainder trust is that neither party will pay income taxes on the amount received, thus resulting in a larger charitable gift while generating an estate tax deduction to the decedent donor's estate. In the case of a gift to a charitable remainder trust, the trust's assets are greater because the trust does not have to pay income taxes, which in turn increases the amount used to determine the beneficiary's distribution from the trust as well as the ultimate gift to the charity.

Creating a Charitable Remainder Trust. The use of trusts in the Philippines is not as clear as the use of a charitable trust in the U.S. Therefore, the focus herein is on U.S. charitable trusts. Rather than making a direct gift to a charity, a favored option of U.S. taxpayers choosing to make charitable gifts is to create a charitable remainder trust and then make the gift to the trust. Charitable remainder trusts are one of the more popular forms of charitable giving for larger gifts due to the leverage of tax benefits to the donor and the charity. In addition, a gift to the charitable remainder trust offers an efficient income and estate planning tool for the donor.

U.S. charitable remainder trusts are trusts that can be designed to maximize tax benefits derived from a charitable gift. Although strictly defined under the US Code and Treasury regulations, a charitable remainder trust can be an extremely flexible estate and financial planning tool. Properly structured, a charitable remainder trust can provide a current income tax deduction, reduce gift and/or estate taxes, provide income to the named beneficiary or beneficiaries, and, in many cases, increase the ultimate contribution to the charity.

When a charitable remainder trust is established, it creates two types of beneficiaries – non-charitable income beneficiaries and charitable remainder beneficiaries. The non-charitable income beneficiary receives distributions from the charitable remainder trust for their lives or a term of years. This payment must be in the form of either an annuity or unitrust amount. The annuity is a fixed amount of money which must be at least 5% or no more than 50% of the initial contribution to the trust. The unitrust amount must be equal to a fixed percentage which cannot be less than 5% or no more than 50% of the annual value of the trust fund. For both the annuity and unitrust, the charitable remainder interest must be valued at 10% of the value of the asset transferred. From a planning standpoint, the major difference between a Charitable Remainder Annuity Trust and a Charitable Unitrust is that a Charitable Remainder Annuity Trust provides a constant payment stream, whereas a Charitable Unitrust offers more flexibility in structuring the payment stream to the income beneficiary.

Deductible Charitable Contributions To A Charitable Remainder Trust. Under the US Code and Treasury rules, a person who creates a charitable remainder trust, as a general rule, is entitled to either an income and gift tax deduction or an estate tax deduction equal to the value of the remainder interest of the trust (which can be calculated by use of Treasury Department tables). The charitable deduction is determined by the amount contributed to the trust, the length of time the trust is expected to make payments to the income beneficiary, and the amount of the annual payment to the income beneficiary in relation to the value of the contribution to the trust. The longer the trust is expected to make income payments and the greater the annual payments, the smaller the deduction. The shorter the income payment period and the smaller the payment, the greater the deduction. To a large extent, the charitable deduction can be determined by the amount and period of the income payment.

As discussed above, the taxpayer who creates the trust is entitled to a deduction for the value of the remainder interest gifted to the charity. A substantial inducement for creating a charitable remainder trust is that the deduction is permitted when the contribution is made to the charitable remainder trust, not when it is actually received by the charity. For lifetime gifts, this allows the taxpayer to receive a charitable deduction which can offset current income taxes, rather than deferring the benefit. Subject to income limits on the deductibility of charitable gifts, this up front income tax deduction reduces the donor's taxable income, leaving the donor with more after-tax cash to reduce the actual out-of-pocket expense of making the charitable gift.

Another way to look at a life time gift to a charitable remainder trust, the donor gets four major benefits – 1) the gift removes the property from the estate, 2) the donor receives a charitable tax deduction that reduces their income tax liability, and 3) the donor or the person they select receives a stream of income for life or a term of years. Plus, at the end of the day, their favorite charity gets a gift.

Charitable gifts made after death do not generate an income deduction, but they do generate an estate tax deduction. This is why capital gain property is typically gifted during life, and IRA proceeds at death. Where IRA proceeds are gifted at death, an indirect income tax deduction is achieved, because none of the IRA proceeds are subject to income taxes. The end result is: the taxes that would have been paid on the IRA proceeds can now be shifted to the charitable remainder trust, and ultimately to the charity.

Benefit of Tax Exemption. Under U.S. rules, charitable remainder trusts are exempt from income tax unless the trust has so-called unrelated business taxable income (UBTI). Typically, charitable remainder trusts do not have UBTI and, therefore, are exempt from tax. This exemption from tax is beneficial to both the charity and the income beneficiaries. As a result, when capital gain property is contributed to a charitable remainder trust, the trust's principal from the gift is not reduced by income taxes.

These tax dollars staying inside the trust provide a larger sum of assets on which income can be generated. This can be beneficial for both the income beneficiary and the charity. When the value of the trust's assets is larger, the annual payments to the income beneficiary can be greater and when terminated, the charity ultimately receives assets that would have been reduced by income taxes. The receipt of these tax dollars results in the charity receiving a greater gift than if the gift had been made from after tax dollars. Put another way, the choice is to pay these tax dollars to the IRS, or shift them to your favorite charity.

Who Should Consider a Charitable Remainder Trust. To consider a charitable remainder trust, the individual must be willing to make a charitable contribution. If there is no interest in donating to a particular charity, then a charitable remainder trust, or any form of charitable giving for that matter, will have little appeal. For individuals who would like to donate to a select charity, the charitable remainder trust becomes an effective estate planning tool, in that it allows the donor to shift dollars otherwise paid as taxes to the charity while also benefitting him or herself, or a family member. Charitable remainder trusts typically offer the most appeal for taxpayers holding appreciated assets, such as real property or stock. Often, an individual (or sometimes a business) will fund a charitable remainder trust with highly appreciated assets that would have been subject to capital gains. If these assets were sold, capital gain taxes would be imposed upon the sale proceeds, reducing the remaining proceeds available to the seller. However, when appreciated capital gain assets are contributed to a charitable remainder trust, and then the assets are sold, typically no tax will be imposed on the gain, and a much larger sum of cash will be available to work with to generate distributions to charitable remainder trust beneficiaries and the charity when the trust terminates.

For gifts made as the result of death, the tax exemption can also be beneficial for individuals who acquired certain property when the property owner died. Although most property subject to estate taxes is entitled to an income tax free step-up in basis when the owner dies, some assets are not. This type of property is commonly referred to as "income in respect of a decedent's property," or IRD property. IRD property is not treated very favorably under the US Code because it is subject to estate taxes in the estate of the decedent, and is further subject to income taxation when received by the beneficiary, less some deduction for estate taxes paid. In other words, it is subject to double taxation.

A common example of IRD property are IRAs. Generally, IRAs are subject to both estate tax and income tax. In larger estates, this combination of taxes can result in an erosion of the IRA due to taxes. By having IRA assets paid upon death to a charitable remainder trust, estate taxes can be reduced and the income tax can be postponed. This combined tax reduction can increase the amount of assets received by the trust's beneficiary. In addition, the charity benefits by receiving more assets than would otherwise have been received if the taxes had been paid first.

Benefits to the Charity. Regardless of the benefits to the income beneficiary, eventually the property in the charitable remainder trust is passed on to a charity. Often, the amount that will pass to a charity at the end of the charitable remainder trust will be greater than the initial contribution, at least where assets have appreciated. This point is often overlooked by lifetime donors. A charitable remainder trust allows them to have income during their lives, generate an income charitable deduction, while leaving the remainder interest of the trust assets to charity upon death, which is most likely equal to or more than the original gift to the trust. For example, assume that a donor placed $300,000.00 in a charitable remainder trust which distributes 5 percent of the $300,000.00 ($15,000.00) to the donor per year for 20 years, and the initial contribution of $300,000.00 appreciates to $400,000.00, this assumes a reasonable investment return. The donor would have received an income tax deduction at the time of the contribution, which can be used to off-set income taxes, which leaves more cash in the donor's pocket, plus income distributions in the sum of $300,000.00.

At the end of the day, the charity receives $400,000.00. How can this be? Answer: the charitable remainder trust does not pay income taxes. Looking at it another way, if you did not have to pay income taxes on your income, think about how much more money you would you have 20 years from now.

Conclusion. The skinny on charitable giving is that US Code and PH Code have a gift matching program. If a taxpayer makes a qualified gift, the gift in part is matched by a tax deduction, which in essence shifts tax dollars from the US and PH government to the charity.

As a result, for many Filipino-Americans, with assets in both the U.S. and the Philippines who desire to make a charitable gift, the US Code and PH Code offer planning opportunities to carry out their charitable objectives while maximizing the tax benefits for themselves. Your favorite Philippine charity can make the ideal partner to carry out your charitable objectives in the Philippines, in addition to helping achieve your personal tax planning goals. For example, if a U.S. taxpayer desires to convert their traditional IRA into a Roth IRA, then a charitable gift can be used to offset the taxable income generated by the conversion to a Roth IRA. This helps to take the bite out of taxes resulting from the Roth conversion.

Lifetime gifts of US property under the US Code can not be made directly to a Philippine charity, whereas gifts made after death can. Property located in the Philippines can be donated directly to a Philippine charity. For lifetime gifts, if the charity is not a Philippine-based charity that is qualified to receive charitable gifts in the U.S., a gift would first have to be made to a U.S. charity, which than transfers your gift to a charity in the Philippines. Some Philippine charities have qualified themselves to receive gifts in the U.S. As noted above, charitable gifts made upon your death can be made directly to a Philippine charity.

Where a taxpayer owns property in the US and the Philippines and desires to make a charitable gift to a Philippine charity, they need to compare the US and PH Codes to determine the best tax strategy to maximize the benefits to them and to maximize the gift to the charity.

ROBERT L. WOLFF, J.D.,L.L.M. Tax, CELA, is a member of the law firm of Robert L. Wolff. Mr. Wolff focuses on the areas of International Tax and Retirement Planning, Estate Planning, Elder Law, Estate and Trust Administration, and Asset Protection. He is admitted to practice law in New York, Maryland and the District of Columbia. He has been certified as an Elder Law Attorney by the National Elder Law Foundation, member of The Society of Trust and Estate Practitioners, and designated a Chartered Retirement Planning Counselor by the College for Financial Planning. Mr. Wolff received his B.S. Degree in Finance, Magna Cum Laude, from Siena College, Loudonville, New York, earned his Law Degree from Albany Law School, Albany, New York and his L.L.M. in Taxation from Georgetown Law Center, Washington D.C. To contact Mr. Wolff directly, please email him at wolff2000@earthlink.net .

A.EDSEL TUPAZ, J.D., L.L.M., is a professor of comparative and international law at the De La Salle University – Far Eastern University Joint MBA-JD Program. He was senior counsel of the Philippine Truth Commission prior to the Supreme Court's declaration of its unconstitutionality. His expertise lies in the fields of foreign and comparative law, constitutional law, and trade and development law. Mr. Tupaz taught at the New England School of Law/ Boston, the FEU-DLSU joint J.D.-MBA program, and the Ateneo de Manila College of Arts and Sciences. He was Managing Technical Editor of the Harvard Human Rights Journal (Vol. 22). Mr. Tupaz is a graduate of the Ateneo de Manila University (A.B. Economics-Honors Program '99, cum laude), the Ateneo de Manila Law School (J.D. '03, St. Thomas More Awardee) and Harvard Law School (L.L.M. '08), and was admitted to Stanford Law School's advanced program in international legal studies (SPILS-JSM '10). Mr. Tupaz is currently a Fellow at the Harvard Law School Program on the Legal Profession. He is admitted to practice law in the Philippines and recently passed the New York Bar. To contact Mr. Tupaz directly, please email him at info@TupazLaw.com .

Dual US-Filipino Citizens Get Some Relief From The FBAR Filing Requirements

by

Robert L. Wolff, Esq.

The United States (U.S.) Internal Revenue Service ( IRS) has taken a hard stance toward taxpayers classified as U.S. persons who do not disclose offshore accounts in excess of $10,000. Although financial accounts in the Philippines may seem to be beyond the reach of the IRS, they are not. There are a numbers of ways the IRS may discover the account. If the U.S. person's undisclosed financial account in excess of $10,000 is discovered in the Philippines by the IRS, the owner may be in for an unpleasant surprise.

Background.

The term "U.S. person" is defined as a citizen or resident of the United States or a person residing in and doing business in the United States. This definition includes entities such as corporations, partnerships, etc. As a result, the application of the FBAR rules are very broad. Each U.S. person who has a financial interest in or signature or other authority over any foreign financial accounts – including bank accounts, securities, or other types of financial accounts in a foreign country – must report that status each calendar year by filing a Report of Foreign Bank and Financial Accounts Form (FBAR) if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year. The filing must be submitted to the Treasury on or before June 30th of the succeeding year. For tax year 2011, the filing date is June 30, 2012. Failure to file a FBAR notice can subject a U.S. person to both civil and criminal penalties.

The civil penalty associated with failure to file a required FBAR return is a maximum of $10,000 per negligent violation: this can be increased to a maximum of $50,000 for a pattern of negligent activity. For willful violations, the maximum penalty is the greater of $100,000 or 50% of the amount in the account at the time of the violation. The possible criminal penalties include a maximum fine of $250,000, a maximum term of imprisonment of five (5) years, or both. These penalties can be increased in certain circumstances to a fine no greater than $500,000, imprisonment no longer than ten (10) years, or both.

No FBAR penalty applies in the case of a violation that the IRS determines was due to reasonable cause, and not due to willful intent to avoid filing. Whether or not a failure to file is due to reasonable cause will typically be based on consideration of the facts and circumstances. Reasonable cause is generally granted by the IRS when a person demonstrates that he or she exercised ordinary business care and prudence in meeting his or her obligations, but nevertheless failed to meet them.

Generally, a willful violation requires the U.S. person to have had knowledge that a FBAR notice was required to be filed. The test for willfulness means determining whether or not there was a voluntary, intentional violation of a known legal duty to file the FBAR notice. The burden of establishing willfulness is on the IRS, but once established, the penalty is severe. Example: John, a U.S. retiree living in the Philippines, has a $500,000 bank account in a Philippine bank in Manila which is discovered by the IRS. He is found by the IRS to be in willful violation of the FBAR filing requirements. His penalty could be as much as $250,000 – a very costly penalty for simply failing to comply with the FBAR rules. Plus, there could be additional penalties as well.

The bottom line is: the FBAR filing requirements are not to be ignored. The world is getting smaller, and with computers it is much easier to find accounts than it once was. This holds true even in the Philippines.

Some Goods News For US-Filipino Dual Citizens Issues have been raised with the IRS concerning U.S. persons that are dual citizens. In response, the IRS has acknowledged that it is aware that there are taxpayers who are simultaneously citizens of the U.S. and a foreign country, such as the Philippines. Many of these taxpayers are compliant with the tax laws of the Philippines, but may have failed to file their U.S. FBAR notice. Once these taxpayers become aware of their FBAR filing obligations, many are afraid to come into compliance with their filing obligation due to the large penalties associated with not filing. In these cases, the IRS has offered a bit of comfort by stating that penalties will not be imposed in all cases.

The IRS appears to have relaxed the requirements to prove reasonable cause in the case of a dual citizen, which is helpful to U.S.- Filipino citizens living in the Philippines. Reasonable cause for not filing still has to be proven to avoid the FBAR penalty . But a little flexibility on the IRS's part is better than non at all.

Overview of U.S. Income Tax Return Filing Requirements U.S. persons must file a federal income tax return for any tax year in which their gross income ( provided it is subject to U.S. taxes) is equal to or greater than the applicable exemption amount and standard deduction. U.S. persons are normally required to report their worldwide income on their federal income tax return, subject to certain tax treaty exemptions and exemptions from income under the Internal Revenue Code (IRC). This means that they should analyze all income, regardless of which country is the source of the income, in order to determine whether or not it is subject to U.S. taxation.

If a U.S. person is required to file a federal income tax return and fails to do so, they may be subjected to penalty under IRC Section 6651. Unless they can show that the failure is due to reasonable cause and not due to willful neglect, it will be difficult to avoid this consequence. The penalty is 5 percent of the amount of tax required to be shown on the return. If the failure continues for more than one month, an additional 5 percent penalty may be imposed for each month (or fraction thereof) for which non-payment continues. The total penalty for failure to file cannot exceed 25 percent of the amount due.

Likewise, if the taxpayer fails to pay the amount of the tax shown in their federal income tax return, they may be subjected to a penalty under IRC Section 6651(a)(2). Once again, unless they show that the failure is due to reasonable cause and not due to willful neglect, they will be penalized. The penalty begins running on the due date of the returned (determined without regard for any extension of time for filing the return) and is½ percent of the amount of tax shown on the return. If the failure continues for more than one month, an additional ½ percent penalty may be imposed for each additional month (of fraction thereof) that the amount remains unpaid. The total failure to pay penalty cannot exceed 25 percent of the tax due.

FBAR Amnesty Programs The Internal Revenue Service has announced a third FBAR amnesty program. The first amnesty , or offshore voluntary disclosure initiative (OVDI) was offered for the period from March 2009 and October 2009, which offered immunity from criminal prosecution and limited penalties to 20 percent of the value of unpaid taxes. The FBAR penalty was reduced from 50 percent to 20 percent of the maximum amount of U.S. taxpayers undisclosed accounts over the previous six years. It drew voluntary disclosures from about 15,000 taxpayers, yielding $3.4 billion in additional tax revenue.

The second OVDI, which ran from February 2011 to October 2011, was slightly less favorable to U.S. taxpayers. The FBAR penalties were increased to 25 percent of undeclared account, and a payment of taxes plus interest going back eight years. Penalties were less for U.S. persons with modest offshore assets, or who did not realize they were liable to pay U.S. tax. To date, the second OVDI phase has generated extra tax revenues of $1 billion.

When 2011 amnesty was announced, the IRS said it was the last chance for taxpayers to get back into the system. Later, when the deadline passed, the IRS extended it by a further 90 days; although the extension was limited to U.S. persons who had not known about it, usually because they lived abroad. The IRS has done a complete about-face by opening a third OVDI program, available for an indefinite period. The aim is to satisfy continued strong interest from U.S. taxpayers after the closure of the 2011 and 2009 programs that desire the opportunity to become current with their FBAR filing requirements and related income tax obligations.

The third OVDI is similar to the second amnesty program offered in 2011 but with a few key differences. The penalty structure is the same, except that owners of overseas accounts must now pay 27.5 percent FBAR penalty, not 25 percent, of the largest amount in their offshore bank accounts during the previous eight tax years. Similar to prior OVDI programs, taxpayers will be given immunity from prosecution, except in extreme cases.

The other main difference is the lack of an announced closing date. There is no guarantee how long the third OVDI will remain open. While the third amnesty program is available, it offers taxpayers the opportunity to come current with their FBAR filing requirements, by paying a slightly higher FBAR penalty.

The Schiavo Case- A Case Study of Why The FBAR Filing Requirements Should Not Be Ignore. President Obama has made it clear he wants the IRS to crack down on individuals hiding accounts outside the U.S. Illustrating the government's tough approach on offshore account disclosure, the U.S. has criminally prosecuted a taxpayer who made a silent disclosure of his offshore HSBC account instead of using the IRS's 2009 Offshore Voluntary Disclosure Initiative (OVDI). A silent disclosure occurs when a U.S. taxpayer with an undeclared foreign account files the FBAR notice and amended returns and pays related taxes and interest for previously unreported offshore income without notifying the IRS of the undeclared amount through the OVDI.

According to a criminal information document filed in the U.S. District Court for the District of Massachusetts, Michael Schiavo, a Boston bank director, failed to report his interest in offshore accounts on FBAR notices for 2003 through 2008 tax years. The IRS alleged that Schiavo hid $99,273 in an undeclared account at HSBC Bank Bermuda. Thus, Schiavo had a FBAR filing problem.

On October 6, 2009, following news of UBS's disclosure to the IRS of undeclared accounts held by U.S. taxpayers, Schiavo made a silent (and only partial) disclosure by preparing and filing FBAR notices and amended income tax returns for the 2003 – 2008 tax years. He did not participate in the 2009 OVDI, although his disclosure was made nine days prior to the end of the amnesty period. In his October 6 disclosure, he revealed to the IRS that he had an interest in an HSBC account in Bermuda, but failed to report his income on his 2006 tax return from the partnership he had invested it in. Later, Schiavo prepared and executed a second amended return for the 2006 year where he reported the income he earned from the partnership that was ultimately deposited into his then-undisclosed HSBC account in Bermuda.

According to the Department of Justice (DOJ), a plea agreement has been reached under which Schiavo agreed to pay a civil money penalty of $76,283 – half the value of the high balance of the HSBC Bank of Bermuda account – for failing to file the FBAR Notices. He faces up to five years in prison, followed by three years of supervised release and a $250,000 fine. He was charged separately for failing to disclose a secret UBS AG bank account and is awaiting sentencing.

The lesson of the Schiavo case is that taxpayers need to file their income tax returns and FBAR notices in a timely and transparent manner. If a taxpayer is going to make a late disclosure to the IRS, they had better make a complete and truthful one. Taxpayers need to come completely clean, otherwise they are committing another crime by filing another false tax return. Although the DOJ charged Schiavo with failure to file his FBAR notices, there are other criminal charges that could have been filed against him. These include the willful attempt to evade or defeat tax under Code Sec. 7201 or the willful filing of a false tax return under penalties of perjury under Code Sec. 7206(1).

Conclusion Under the IRS's FBAR rules, any U.S. person (not necessarily a U.S. resident) who has financial interest in or signature authority, or other authority, over any financial account in the Philippines is required to file an FBAR Notice if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year. Since 2009, about 30,000 taxpayers have stepped forward to declare foreign accounts under two IRS limited amnesty programs for offshore accounts. The IRS receives 1.6 million returns from foreign addresses annually, including those from military personnel. It is estimated that more than 6 million U.S. taxpayers live overseas, excluding the military. Even after allowing for dependents and spouses who file joint returns, there is a large compliance gap which most likely includes U.S. persons living in the Philippines.

Think of Mr. Schiavo: if he had it to do over again, would he file his FBAR notices and pay income taxes on all his income? Or would he still do what he did, not disclose, and lose half of his HSBC account( $76, 283), pay a $250,000 fine and face the possibility of spending up to five years or more in jail. Plus, there may be more fines and jail time. Then there is also the other issue to consider, what will happen to his banking career?

The FBAR notice is not a complex form, nor is it difficult to prepare. However, failure to file a required FBAR notice can prove to be expensive and trigger other problems with the IRS. As seen in the Schiavo case, it is fairly common for an individual who has FBAR problems to also have other tax issues with the IRS. These issues should be taken seriously, since they can result in very large civil penalties and/or criminal penalties. The FBAR penalty can cause financial ruin, even if no tax is due.

Foot notes
Resident is not defined in the FBAR instructions, statute or regulations. Look at the Green Card test or substantial test, or determine whether the individual filed an election on their income tax return to be treated as a resident. The term 'person' includes individuals and all forms of business entities, trusts, and estates. A certificate of incorporation from a U.S. State establishes that the corporation is a U.S. person. However, a foreign subsidiary of a U.S. person is not subject to the FBAR filing requirements. The U.S. person will be considered to have a financial interest in any foreign financial account owned by its subsidiary. A corporation that owns directly or indirectly more than 50 percent interest in one or more other entities is permitted to file a consolidated FBAR. The consolidated report must include the list of entities. An authorized official of the parent corporation should sign the consolidated FBAR.

The term 'person' includes individuals and all forms of business entities, trusts, and estates. A certificate of incorporation from a U.S. State establishes that the corporation is a U.S. person. However, a foreign subsidiary of a U.S. person is not subject to the FBAR filing requirements. The U.S. person will be considered to have a financial interest in any foreign financial account owned by its subsidiary. A corporation that owns directly or indirectly more than 50 percent interest in one or more other entities is permitted to file a consolidated FBAR. The consolidated report must include the list of entities. An authorized official of the parent corporation should sign the consolidated FBAR.
Form TD F 90-22.1.
Instructions to Form TDF 90-22.1, The Report of Foreign Bank and Financial Accounts (FBAR).
Whether failure to file or failure to pay is due to a reasonable cause is based on a consideration of the facts and circumstances. Reasonable cause relief is generally granted by the IRS when demonstrating that the taxpayer exercised ordinary business care and prudence in meeting their tax obligations but nevertheless failed to meet them. In determining whether they exercised ordinary business care and prudence, the IRS will consider all available information, including:

• Their compliance history.
• The reasons given for not meeting their tax obligations.
• The length of time between their failure to meet their tax obligations and their subsequent compliance.
• Circumstances beyond their control.

Of particular interest to dual U.S.-Filipino citizens living in the Philippines, reasonable cause may be established if the taxpayer can show that he or she was not aware of specific obligations to file returns or pay taxes. Depending on that facts and circumstances, a person may have reasonable cause for noncompliance due to ignorance of the law, and could not reasonably be expected to know the requirement. On learning of a requirement to file their FBAR notices for earlier years, a dual U.S.-Filipino citizen should file the delinquent FBAR notice and attach a statement explaining why they have filed late.

For information about whether someone must file a federal income tax return for a particular tax year, including exemption amounts and standard deductions, see Publication 501(Exemptions, Standard Deduction, and Filing Information) for that year.

Note that there is no penalty if no tax is due.

Note that there is no penalty if no tax is due. Under IRS section 6651(c)(1), the failure to file penalty is reduced by the amount of the failure to pay penalty for any month in which both apply. In addition to the failure to file and failure to pay penalties, in some situations, taxpayers could be subject to other civil penalties, including the accuracy-related penalty, fraud penalty, and certain information reporting penalties. For information regarding the accuracy-related penalty and fraud penalty, see IRS Notice 746 (Information About Your Notice, Penalty and Interest). For information regarding information reporting penalties, see the instruction for the specific information reporting form. For example, see the instructions for Form 3520-A for information on the penalty for failure to file Form 3520-A.

For a more detailed discussion of the FBAR rules, see U.S. Foreign Accounts and Financial Asset Reporting Rules, The Lawyers Review, Vol. XXV, April 30, 2011. No. 4, by Robert L. Wolff, Esq. and Edsel Tupaz, Esq.

The IRS warns taxpayers that by make silent disclosures instead of using the OVDI process, they risk being criminally prosecuted for applicable years.

The court document claimed that Schiavo willfully failed to file FBAR notices disclosing his financial account in Bermuda for tax years 2003 – 2008. Additionally, for those years, he represented on his Schedule B 1040, that he did not have an interest in a foreign financial account, and he failed to report his income from the partnership and the interest that accrued on the Bermuda account.

ROBERT L. WOLFF, J.D., L.L.M. Tax, CELA, is a member of the law and financial planning firm Wolff and Associates. Mr. Wolff focuses on the areas of International Tax and Retirement Planning, Estate Planning and Estate and Trust Administration, and Asset Protection. He is admitted to practice law in New York, Maryland and the District of Columbia. He has been certified as an Elder Law Attorney by the National Elder Law Foundation, designated a Chartered Retirement Planning Counselor by the College for Financial Planning and is a member of the Society of Trust and Estate Practitioners. Mr. Wolff received his B.S. Degree in Finance, Magna Cum Laude, from Siena College, Loudonville New York, earned his Law Degree from Albany Law School, Albany, New York and his L.L.M. in Taxation from Georgetown Law Center, Washington D.C. To contact Mr. Wolff directly, please email him at wolff2000@earthlink.net.

Giving Up U.S. Citizenship And The U.S. Exit Tax

by

Robert L. Wolff, ESQ. and A. Edsel Tupaz, ESQ.

Travelers move in more than one direction. While many people around the world are trying to get into the United States (U.S.), either legally or illegally, there are many others on there way out. Individuals planning to leave the U.S. often include those who became U.S. citizens through naturalization or U.S. permanent residents (Agreen card@ holders) who have decided to return to their home countries; to places such as the Philippines. Of course, there are also native-born U.S. citizens who, for a variety of reasons, simply decide to leave the U.S. and live elsewhere. Many of those leaving are retirees, and this group will be the focus of this essay.

There are many factors that can motivate individuals to leave the U.S., such as income and estate taxes, climate, health care, family ties, etc. Whatever the reasons, once a U.S. person becomes either a resident of the Philippines or a dual U.S.-Philippine citizen, they are subject to income taxes on their world-wide income in both the U.S. and the Philippines. In addition, property owned anywhere in the world may be subject to both U.S. and Philippine estate taxes.

The U.S. - Philippine income tax treaty helps to mitigate the impact of these income taxes. The tax treaty basically provides that income earned in the U.S. is subject to U.S. income taxes. In contrast, income earned in the Philippines is subject to Philippine income taxes. However, at this point in time there is no U.S. – Philippine estate tax treaty.

Without an estate tax treaty, a retiree with property in the U.S. and the Philippines faces the complex tax situation of their property being subject to both U.S. and Philippine estate taxes. In turn, this can lead to legal and financial confusion. For example, assume a retiree owns real property, stocks, bonds, etc worth $1,500,000 in the State of Florida and has additional assets worth $1,500,000 in the Philippines. The decedent=s estate would not be subject to U.S. federal estate taxes because it does not exceed 5 million dollars in value. In this case, the decedent=s entire estate property would be subject to Philippine estate taxes.

Section 85 of the Philippine estate tax code provides that the value of the gross estate of the decedent citizen or resident shall be determined by including the value at the time of his or her death of all property, real or personal, tangible or intangible, wherever situated - i.e. anywhere in the world.

For a net estate valued at $3,000,000, the following is the calculation of the estate tax liability under Section 84 of the Philippine estate tax code:

As noted above, the decedent would not owe U.S. estate taxes, but, in this case, would owe Philippine estate taxes of $627,159. Prior to being subjected to the Philippine estate tax liability, the individual should do estate planning to reduce or eliminate his or her estate tax liability in the Philippines.

Beyond the estate tax consequences, there is also the issue concerning which country's laws will control the administration of the retiree=s estate. Most states in the U.S. have common law jurisdictions, while the Philippines has a civil law jurisdiction. A big difference between the two is that the Philippines has forced heirship rules, whereas jurisdiction based on the English common law system, such as in New York State, does not. As a result, individuals who may inherit under New York law may not be viewed as having the same right to the inheritance under Philippine law.

In most cases, the dual estate tax issues and common law/civil law issues can be dealt with through proper estate planning. The more difficult issues which have to be dealt with are the assorted penalties imposed by U.S. Internal Revenue Code (IRC). The U.S. IRC has begun to bulge with various penalties directed at U.S. persons holding trust assets, financial accounts, financial assets, and other financial interests located outside the U.S. Although at first glance many U.S. persons assume that these penalties do not apply to them, for many, this assumption is incorrect.

In the last two years, penalties have come to the forefront because they function as government revenue raisers. Backed by President Obama and the U.S. Congress, the Internal Revenue Service (IRS) has become much more aggressive. As a result, the IRS has been actively expanding and enforcing a wide variety of penalties.

Typically, when people move, they like to move their financial assets with them. This includes cash, financial accounts, etc. A retiree from the U.S. might like to open a bank account in the Philippines, maybe buy some stock on the Philippine stock exchange, or create a trust for estate planning purposes in order to hold their U.S. and Philippine property. All of these acts are innocent on the surface, but they carry substantial penalties if they have not been properly disclosed to tax authorities.

The top three penalties that retirees in the Philippines may encounter are: failure to meet the filing requirements for Foreign Bank and Financial Account (FBAR) notices; failure to follow Foreign Financial Asset Reporting (FATCA) notices rules; and failure to report transfers to a trust categorized as Foreign Trust with U.S. Beneficiaries (Form 3520).

OVERVIEW OF THE FBAR RULES The FBAR filing requirements apply to any person subject to the jurisdiction of the U.S. who has a financial interest in, signature or other authority over a bank, securities or other financial accounts in a foreign country which has an aggregate value exceeding $10,000 at any time during the calendar year. The FBAR is not a U.S. income tax return; it is an informational return. Its due date is June 30, not April 15, which is the annual due date for income tax Form 1040. Unlike the income tax Form 1040, no extensions are available for the FBAR. Also unlike the income tax return, the FBAR is not considered filed until it has been received by the IRS.

The FBAR reporting requirements evolved from the Bank Security Act (BSA) passed by the U.S. Congress on October 26, 1970. The BSA created a number of reporting requirements designed to produce a paper trail identifying currency transactions and foreign accounts. As time passed, the U.S. Internal Revenue Service (IRS) discovered that many U.S. persons subject to the disclosure requirements of BSA were failing to comply. As a result, the IRS stepped up its efforts to compel compliance.

In January of 2003, the IRS and the Financial Crimes Enforcement Network (FinCEN) announced an initiative to encourage the voluntary disclosure of unreported income by people who had improperly used offshore payment cards or offshore financial arrangements to avoid paying taxes. In April of 2003, the IRS and FinCEN announced that they had signed a memorandum of agreement to delegate the enforcement of the FBAR rules to the IRS. To assist with enforcement, the American Jobs Creation Act of 2004 revised the penalties for failure to report the existence of an account and for failure to provide all required financial information. In October 2008, the IRS expanded the scope of the foreign bank account reporting rules and the information required to be reported for 2008 and each year thereafter.

Since their creation in 1970, the FBAR reporting requirements have grown in scope regarding who may be subject to the rules, and its ever increasing penalties have reached potentially draconian levels. In the spring of 2010, to deal with the question which a U.S. person in the Philippines may be confronted, "How will they find my account in the Philippines?", the IRS announced a worldwide joint audit program to share information with foreign governments, including the Philippines.

Persons Subject To FBAR
The term 'U.S. person' includes (i) a citizen or resident of the United States and (ii) a person residing in and doing business in the United States. On February 26, 2010, the IRS announced it was suspending FBAR filing requirements for non-U.S. citizens, non-U.S. residents, and non-U.S. domestic entities (corporations, partnerships, trusts, estates, etc.) for 2009 and earlier years. The IRS also suspended FBAR filing requirements for persons who have signature authority over – but no financial interest in – a foreign financial account, allowing time until June 30, 2011 to report those foreign financial accounts.