John D. Teter Law Offices



1361 South Winchester Boulevard, Suite 113
San Jose, CA 95128
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san jose tax lawyerOver the past decade, the rates of expatriation, in which a U.S. citizen renounces their citizenship or a long-term resident of the United States ends their legal residence status, have increased significantly for a variety of reasons. Because U.S. citizens and residents are required to pay taxes on all income they earn, including income earned in foreign countries, expatriation may seem like a good option to alleviate a person’s tax burden. However, expatriation has tax consequences, and upon renunciation of U.S. citizenship or termination of residency status, a person may be required to pay taxes based on the assets they own. Failure to do so can result in significant tax penalties. Fortunately, an experienced attorney can help expatriates understand the tax laws that apply to them and ensure they are taking the correct steps to avoid penalties.

Recent Case Demonstrates the Consequences of Misreporting Income and Assets

In a recent case prosecuted by the Justice Department, the founder of a Russian bank pled guilty to committing tax fraud when he expatriated from the UnitedStates. After the bank became a publicly traded company that was worth billions of dollars, the founder renounced his citizenship. When doing so, he falsely reported that his net worth was only $300,000, and on his tax return for that year, he falsely reported an income of around $200,000. In actuality, the court found his net worth was over $1.1 billion.

The man’s false reporting led to an underpayment of taxes by more than $248 million. After he was arrested and charged with tax fraud, he pled guilty to the charges. Under a plea deal, he agreed to pay over $506 million, which included the taxes owed, statutory interest, civil tax penalties, and a fine of $250,000.


san jose tax lawyerThere are many different issues that can lead to tax penalties, including failing to file the correct forms and report certain information to the IRS. In a recent blog, we looked at the potential penalties that may apply if a taxpayer fails to file Forms 3520 and/or 3520-A. These forms are used to report transactions involving foreign trusts, and in some cases, a taxpayer may be required to pay a penalty of 35% of the amount that was transferred to or distributed from a trust. For those who have not filed these forms as required, it may be possible to mitigate this issue by using the Streamlined Domestic Offshore Procedures, which is commonly known as streamlined compliance.

What Are the Streamlined Procedures?

Individual taxpayers who meet the standards of being “U.S. persons” may use the Streamlined Domestic Offshore Procedures to fulfill all of their reporting requirements and correct any errors that may have led to an underpayment of the taxes owed. While these taxpayers will be required to pay a penalty, it will often be lower than the penalties that would apply otherwise.

The streamlined procedures will only be available for taxpayers who acted non-willfully when they failed to meet their requirements. Negligence, ignorance of tax laws, inadvertent errors, or other actions taken in good faith may be considered to be non-willful conduct. Deliberate attempts to avoid paying taxes or purposeful failure to report income or assets is considered willful conduct that will disqualify a person from using the streamlined procedures. 


california tax lawyerThe U.S. Tax Code is complicated, and it is easy for taxpayers to make mistakes when filing tax forms or reporting their income and assets to the IRS. This is especially true for taxpayers with foreign assets or income. These taxpayers will need to meet multiple types of reporting requirements, and failure to do so can result in large penalties. A taxpayer who is the owner or beneficiary of a foreign trust will need to be sure to file Forms 3520 and/or 3520-A at the appropriate times, and if they fail to do so, they may face significant penalties.

A person may hold assets in a trust that is outside the jurisdiction of the United States. Since these types of trusts may sometimes be used in tax avoidance schemes, taxpayers are required to report certain types of transactions to ensure that income taxes and any other applicable taxes will be applied correctly. These requirements may apply to the owner or grantor of a foreign trust, a beneficiary who receives distributions from a foreign trust, and a trust itself.

Form 3520

U.S. citizens, domestic corporations or partnerships, estates, and trusts that are controlled by U.S. persons are required to file Form 3520 in the following situations:


san jose tax lawyerBusiness owners may need to address a variety of tax matters, and one important issue involves the classification of workers as either employees or independent contractors. Employers who classify workers incorrectly could face penalties, or they may be required to pay certain types of employment taxes at the federal and state levels. By understanding the rules for classifying workers, business owners can be sure they are in compliance with all applicable tax laws.

Federal Worker Classification Rules

Employers will need to withhold and pay certain types of federal taxes on behalf of employees, including income taxes, Social Security taxes, and unemployment taxes. However these taxes do not need to be withheld for independent contractors. The IRS looks at three issues to determine whether a worker should be classified as an employee or independent contractor:

  • Behavioral control - If a company controls how a worker performs their job, such as the hours and locations they work and whether they can work for other companies, they will be more likely to be considered an employee.


san jose tax lawyerWhen a couple gets divorced, they will need to address a wide variety of financial issues, and they should be sure to understand how the decisions they make will affect the taxes they will be required to pay and the deductions and credits they can claim. One divorce-related tax issue that may affect people in 2021 is the Advance Child Tax Credit. Parents will need to be sure to understand how this credit will be handled during the divorce process and after their divorce has been completed.

Claiming Child Tax Credits and Receiving Advance Payments

When a parent can claim a child as a dependent, they will be able to receive a child tax credit when filing their annual tax return. In 2021, Congress passed a law that provides parents with advance payments for this tax credit. Between July and December of 2021, a parent who will claim the child tax credit for this year can receive monthly payments. The monthly payment for children under the age of 6 is $300, and the monthly payment for children under the age of 18 is $250. To qualify for these payments, children must meet the applicable age requirements on December 31, 2021. 

Parents who are married generally do not need to do anything to begin receiving Advance Child Tax Credit payments. If parents claimed a child as a dependent on their tax return for 2020 and they received a tax refund through a direct deposit to their bank account, the IRS will automatically make monthly payments to the same account.

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