here have been very few cases covering other requirements the United States must show to meet its burden of proof to impose FBAR penalties.Tax professionals should expect that to change in the future. Indeed, a recent Order from the Southern District of California serves as a reminder that the United States must show various other requirements outside the willful context. In Aroeste, the dispute between the taxpayer and the United States was an ostensibly simple one: whether a tax treaty between the United States and Mexico could serve to abrogate the definition of a “United States person” under the FBAR-reporting rules.The Meaning of “United States Person”Only “United States persons” have obligations to file FBARs. Of course, this includes those born in the United States who have not taken effective actions to expatriate. This also includes, however, “a resident of the United States,” which is defined further in the Title 31 regulations as “an individual who is a resident alien under 26 U.S.C. § 7701(b) and the regulations thereunder but using the definition of ‘United States’ provided in 31 C.F.R. § 1010.100(hhh) rather than the definition of ‘United States’ in 26 C.F.R. § 301.7701(b)-1(c)(2)((ii).”The interplay between section 7701(b) (located in Title 26 of the Code) and 31 C.F.R. § 1010.350(b) (located in Title 31 of the Code) is somewhat complex. Under section 7701(b), a non-U.S. citizen is treated as a “resident alien” if he or she is a “lawful permanent resident of the United States at any time” during a calendar year. Moreover, an individual is a “lawful permanent resident” if he or she has been “lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with immigration laws” and if “such status has not been revoked (and has not been administratively or judicially determined to have been abandoned).” In common parlance, a “lawful permanent resident” is often referred to as having a “green card.”However, section 7701 confirms th

A citizen of the U.S. may reside outside the U.S.Example:Children born of U.S. citizens living abroad are U.S. citizens despite the fact that they may never have been to the U.S.U.S. ResidentPrior to February 24, 2011, when revised regulations were issued, the FBAR regulations did not define the term “U.S. resident.”For FBARs required to be filed by June 30, 2011, or later, 31 CFR 1010.350(b) defines “United States resident” using the definition of resident alien in IRC 7701(b), but using the Title 31 definition of “United States.” The major tests of residency found in section 7701(b) are:The green-card test.

A citizen of the U.S. may reside outside the U.S.Example:Children born of U.S. citizens living abroad are U.S. citizens despite the fact that they may never have been to the U.S.U.S. ResidentPrior to February 24, 2011, when revised regulations were issued, the FBAR regulations did not define the term “U.S. resident.”For FBARs required to be filed by June 30, 2011, or later, 31 CFR 1010.350(b) defines “United States resident” using the definition of resident alien in IRC 7701(b), but using the Title 31 definition of “United States.” The major tests of residency found in section 7701(b) are:The green-card test.

eipt of Certain Foreign Gifts. Foreign trusts treated as owned by U.S. persons under the grantor trust rules set out above also must file a Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner. Failure to comply with the reporting requirements for foreign trusts can result in significant penalties.Need Answers to Foreign Trust Questions?Freeman Law is a world-renowned law firm specializing in complex tax planning and litigation. The firm represents clients of all sizes, from Fortune 100 fastest-growing companies to family-owned businesses, to individuals with estate planning questions. Freeman Law can help answer all your foreign trust questions in a language you can understand. Leave the detailed foreign trust research to the legal and tax professionals at Freeman Law.Treas. Reg. § 301.7701-4(a). Restatement (Third) of Trusts § 3(1), Comment a. (2003). Restatement (Third) of Trusts § 3(3), Comment c. (2003). Restatement (Third) of Trusts § 3(4), Comment d. (2003).I.R.C. § 7701(a)(31)(B).Id. § 7701(a)(30)(E)(i); Treas. Reg. § 301.7701-7(a)(1)(i). Treas. Reg. § 301.7701-7(c)(3)(iv).Id. § 301.7701-7(c).Id. § 301.7701-7(c)(4)(ii). I.R.C. § 7701(a)(30)(E)(ii); Treas. Reg. § 301.7701-7(a)(1)(ii). I.R.C. § 7701(a)(30); Treas. Reg. § 301.7701-7(d)(1)(i). Treas. Reg. § 301.7701-7(d)(1)(ii). Treas. Reg. § 301.7701-7(b).I.R.C. §§ 672-679.Id. § 671.Id. § 671(a).Id. § 641(b).Treas. Reg. § 1.1-1(b).SeeI.R.C. §§ 871, 881, 882.Id. § 684.Seeid. § 6048; Notice 97-34.See id. § 6677.

e Act registered entity (Exemption #14)—An entity qualifies for this exemption if either of the following two criteria apply: (i) the entity is a “registered entity” as defined in Section 1a of the Commodity Exchange Act (7 U.S.C. §1a), or (ii) the entity is one of those entities registered with the Commodity Futures Trading Commission under the Commodity Exchange Act and is also defined in the Commodity Exchange Act as: a “futures commission merchant,” “introducing broker,” “swap dealer,” “major swap participant,” “commodity pool operator,” “commodity trading advisor,” or “retail foreign exchange dealer.”Public accounting firm (Exemption #15)—The entity qualifies for this exemption if the entity is a public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. §7212).Public utility (Exemption #16)—An entity qualifies for this exemption if both of the following criteria apply: (i) the entity is a “regulated public utility” as defined in 26 U.S.C. 7701(a)(33)(A), and (ii) the entity provides telecommunication services, electrical power, natural gas, or water and sewer services within the United States.Financial market utility (Exemption #17)—An entity qualifies for this exemption if the entity is a financial market utility designated by the Financial Stability Oversight Council under section 804 of the Payment, Clearing, and Settlement Supervision Act of 2010 (12 U.S.C. §5463).Pooled investment vehicle (Exemption #18) (there are special rules for foreign pooled investment vehicles)—An entity qualifies for this exemption if both of the following criteria apply: (i) the entity is a pooled investment vehicle if either of these statements apply to the entity: (x) is an investment company, as defined in section 3(a) of the Investment Company Act of 1940 (15 U.S.C. §80a-3), or (y) is a company that would be an investment company under that section but for the exclusion provided from that definition by paragraph (1) or (7) of section 3(c) of that Ac

Act registered entity (Exemption #14)—An entity qualifies for this exemption if either of the following two criteria apply: (i) the entity is a “registered entity” as defined in Section 1a of the Commodity Exchange Act (7 U.S.C. § 1a), or (ii) the entity is one of those entities registered with the Commodity Futures Trading Commission under the Commodity Exchange Act and is also defined in the Commodity Exchange Act as: a “futures commission merchant,” “introducing broker,” “swap dealer,” “major swap participant,” “commodity pool operator,” “commodity trading advisor,” or “retail foreign exchange dealer.”Public accounting firm (Exemption #15)—The entity qualifies for this exemption if the entity is a public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. § 7212).Public utility (Exemption #16)—An entity qualifies for this exemption if both of the following criteria apply: (i) the entity is a “regulated public utility” as defined in 26 U.S.C. 7701(a)(33)(A), and (ii) the entity provides telecommunication services, electrical power, natural gas, or water and sewer services within the United States.Financial market utility (Exemption #17)—An entity qualifies for this exemption if the entity is a financial market utility designated by the Financial Stability Oversight Council under section 804 of the Payment, Clearing, and Settlement Supervision Act of 2010 (12 U.S.C. § 5463).Pooled investment vehicle (Exemption #18) (there are special rules for foreign pooled investment vehicles)—An entity qualifies for this exemption if both of the following criteria apply: (i) the entity is a pooled investment vehicle if either of these statements apply to the entity: (x) is an investment company, as defined in section 3(a) of the Investment Company Act of 1940 (15 U.S.C. § 80a-3), or (y) is a company that would be an investment company under that section but for the exclusion provided from that definition by paragraph (1) or (7) of section 3(c) of that

ears immediately preceding the taxable year of the change of residence, the individual is not a bona fide resident of the USVI;For each of the last 183 days of the taxable year of the change of residence, the individual does not have a tax home outside the relevant possession or a closer connection to the United States or a foreign country than to the USVI; andFor each of the 3 taxable years immediately following the taxable year of the change of residence, the individual is a bona fide resident of the USVI.Take-Away ThoughtsWhile taxation in the USVI ostensibly is supposed to “mirror” the federal income tax, certain provisions in the Internal Revenue Code that limit who is bona fide resident of the USVI make the process much more complicated. If you’re in a situation where you may or may not be a bona fide resident of the USVI, it may be a good idea to consult a tax professional to make sure that you get it right.48 U.S.C. § 1541(a).SeeU.S. Const. art. IV, §3, cl. 2.48 U.S.C. § 1397; 26 U.S.C. § 7701(a)(29) (“The term “Internal Revenue Code of 1986” means this title . . . .”); Danbury, Inc. v. Olive, 820 F.2d 618, 620-21 (3d Cir.1987) (“Congress create[d] a separate taxing structure for the Virgin Islands “mirroring” the provisions of the federal tax code except as to those provisions which are incompatible with such a separate tax structure.”)).Abramson Enters., Inc. v. Gov’t of V.I., 994 F.2d 140, 142 (3d Cir.), cert. denied, 510 U.S. 965 (1993).See26 U.S.C. §§ 1, 871; 26 C.F.R. §§ 1.1-1(b), 1.871-1(a). 26 U.S.C. § 7701(a)(9).See 26 U.S.C. § 1; 48 U.S.C. § 1397.26 U.S.C. § 932(a)(1), (2). 26 U.S.C. § 932(b)(1), (2)(A). 26 U.S.C. § 932(b)(2)(B). 26 U.S.C. § 932(c)(4).26 U.S.C. § 937(a). Juridical persons, including corporations, partnerships, trusts, and estates, cannot be bona fide residents of the USVI. 26 C.F.R. § 1.937-1(b)(3).See 26 U.S.C. § 937(a) (stating that the statutory conditions for bona fide residence apply “except as provided in regulations . . . .”). 26 C.F.R. § 1.937-1(

hareholder is 37-percent. However, if an individual shareholder does not materially participate in the business of the S corporation, their share of its income may also be subject to the 3.8-percent federal surtax on net investment income under IRC Sec. 1411. IRC Sec. 1367 and 1368. We assume for our purposes that the S corporation has no E&P from C corporation tax years (whether its own or the E&P of a corporation that it acquired on a “tax-free” basis). Of course, any shareholder who provides services to the S corporation should be paid a reasonable salary in exchange for such services; this salary will be subject to employment tax. An NRA is an individual who is neither a citizen nor a resident of the U.S.[xv] In general, an alien individual is treated as a resident of the U.S. with respect to any calendar year if such individual[xv] (i) is a lawful permanent resident of the U.S. at any time during such calendar year;[xv] or (ii) meets the so-called “substantial presence test.”[xv] IRC Sec. 7701(b)(1) and Sec. 7701(b)(3). IRC Sec. 1361(b). See, e.g., Reg. Sec. 1.701-2(d), Ex. 2. One has to recall that, before the introduction of the LLC, S corporations were the most popular “corporate” entity for small businesses. There are a lot of S corporations out there. These corporations cannot convert into LLCs without triggering tax liability for their shareholders. IRC Sec. 1361(e). Small Business Job Protection Act of 1996; P.L. 104-188; Sec. 1302(a), effective for tax years beginning after December 31, 1996. See Reg. Sec. 1.1361-1(m). IRC Sec. 1361(c). Sometimes referred to as a “pot trust.” IRC Sec. 7701(a)(30)(E); meaning a domestic court exercises primary supervisions over the administration of the trust, and one or more U.S. persons have the authority to control all substantial decisions of the trust. I.e., with a cost basis. IRC Sec. 1012. Once made, the election applies to the year for which it is made and all subsequent years. Compare to a QSST. IRC Sec. 1361(d). Not Polychlorinat

IRC §§ 1, 61. IRC § 7701(b). See Elkins v. Moreno, 435 U.S. 647 (1978) (individuals in the United States on a G-4 visa could be regarded as U.S. domiciliaries).

sioner or a similar official or agency of a state; and (B) has an operating presence at a physical office within the United States. See attached for more details on what constitutes an operating presence under the CTA.Commodity Exchange Act registered entity: Any entity that: (A) is a "registered entity" as defined in section 1a of the Commodity Exchange Act; or (B) is: (1) either a "Futures commission merchant," "Introducing broker," "Swap dealer," "Major swap participant," "Commodity pool operator," or "Commodity trading advisor," each as defined in section 1a of the Commodity Exchange Act; or a "Retail foreign exchange dealer" as described in section 2(c)(2)(B) of the Commodity Exchange Act; and (2) registered with the Commodity Futures Trading Commission under the Commodity Exchange Act.Accounting firm: Any public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002.Public utility: Any entity that is a "regulated public utility" as defined in 26 USC 7701(a)(33)(A), and provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States.Financial market utility: Any financial market utility designated by the Financial Stability Oversight Council under section 804 of the Payment, Clearing, and Settlement Supervision Act of 2010.Pooled investment vehicle: Any "pooled investment vehicle" as defined in the CTA that is operated or advised by a person described in exemptions 3 (Bank), 4 (Credit union), 7 (Broker or dealer in securities), 10 (Investment company or investment adviser), or 11 (Venture capital fund adviser).We will discuss the remaining five exemptions in greater detail as we expect those exemptions to be of utmost interest to all private, nonregulated business entities.Tax-exempt entity: Any entity that is: (A) an organization that is described in section 501(c) of the Internal Revenue Code of 1986 (the Code) (determined without regard to section 508(a) of the Code) and exempt from ta