Sunday, March 11, 2018

Want to be Paul Manaforts Cell Mate - Still Time to Save Yourself

By Don D Nelson, International Tax Attorney

One of the criminal charges against Paul Manafort involves his failure to report foreign bank
and financial accounts he controlled.  All such foreign accounts must be reported to the US
Treasury each year onform 114 (FBAR) if the combined highest balances in those accounts
are $10,000US or more. Paul Manafort appears to have never filed that form and answered
the yes or no question on his tax return asking if he had foreign bank accounts “no.”

If you are like Manafort you too can spend five years in jail and pay a criminal fine of $500,000.
There are also civil fines that can go up to ½ of the balances you maintained in your foreign
bank and financial accounts.

There are several programs that will allow you to catch up with past unfiled foreign assets
reporting forms due the IRS which will reduce or eliminate your financial and criminal
exposure for failing to file the Form 114.  However, like Manafort, if the IRS for FBI discovers
your failure to file before you do try to catch up, you will be exposed to huge monetary
penalties and possible felony charges. Most foreign banks and financial institutions are
reporting your foreign balances to the IRS.  Best to take action now before you get to
know Paul better.


Don D. Nelson, is a US tax attorney who has been assisting Americans in Mexico
with their taxes for over 25 years. He offers his clients the absolute privacy provided
by “Attorney client privilege.” His firm has assisted over a hundred expats in Mexico
catch up with their FBAR filings and regular returns If you have questions or wish
to meet with him email him at or his Los Cabos
phone number is 624 131 5228. US phone number 949-480-1235

Friday, January 19, 2018

Expatriates and US Citizens Abroad - Voting in 2018 Elections

Your vote counts!  Did you know that many U.S. elections for house and senate seats have been decided by a margin smaller than the number of ballots cast by absentee voters?  All states are required to count every absentee ballot as long as it is valid and reaches local election officials by the absentee ballot receipt deadline.

Follow a few simple steps to make sure that you can vote in the 2018 U.S. elections:

1.     Request Your Ballot:  Complete a new Federal Post Card Application (FPCA).  You must complete a new FPCAafter January 1, 2018 to ensure you receive your ballot for the 2018 elections.  The completion of the FPCA allows you to request absentee ballots for all elections for federal offices (President, U.S. Senate, and U.S. House of Representatives) including primaries and special elections during the calendar year in which it is submitted.  The FPCAis accepted by all local election officials in all U.S. states and territories. 

You can complete the FPCA online at  The online voting assistant will ask you questions specific to your state.  We encourage you to ask your local election officials to deliver your blank ballots to you electronically (by email, internet download, or fax, depending on your state).  Include your email address on your FPCA to take advantage of the electronic ballot delivery option.  Return the FPCA per the instructions on the website. will tell you if your state allows the FPCA to be returned electronically or if you must submit a paper copy with original signature.  If you must return a paper version, please see below for mailing options.

2.     Receive and Complete Your Ballot:  States are required to send out ballots 45 days before a regular election for federal office and states generally send out ballots at least 30 days before primary elections.  For most states, you can confirm your registration and ballot delivery online.

3.     Return Your Completed Ballot:  Some states allow you to return your completed ballot by email or fax.  If your state requires you to return paper voting forms or ballots to local election officials, you can use international mail, a courier service such as FedEx or DHL, or you may also drop off completed voting materials during regular business hours at the U.S. Consulate General in Tijuana.  Place your materials in a postage paid return envelope (available under “Downloadable Election Materials” on the FVAP homepage) or in an envelope bearing sufficient domestic U.S. postage, and address it to the relevant local election officials.

4.  New this year – email to fax service by FVAP! - the Federal Voting Assistance Program (FVAP) will provide an email-to-fax conversion service for voters who have difficulty sending election materials to States that do not accept emailed documents.  Get more information here.

Researching the Candidates and Issues:  Online Resources.  Check out the FVAP links page for helpful resources that will aid your research of candidates and issues.  Non-partisan information about candidates, their voting records, and their positions on issues are widely available and easy to obtain online.  You can also read national and hometown newspapers online, or search the internet to locate articles and information.  For information about election dates and deadlines, subscribe to FVAP's Voting Alerts (  FVAP also shares Voting Alerts via Facebookand Twitter.

Learn more at the Federal Voting Assistance Program's (FVAP) website,  If you have any questions about registering to vote overseas, please contact U.S. Consulate General in Tijuana's Voting Assistance Officer at

Wednesday, January 17, 2018


Under pre-Act law, U.S. citizens, resident individuals, and domestic corporations generally are taxed on all income, whether earned in the U.S. or abroad. Foreign income earned by a foreign subsidiary of a U.S. corporation generally is not subject to U.S. tax until the income is distributed as a dividend to the U.S. corporation.
New law. Under the Act, U.S. shareholders owning at least 10% of a foreign subsidiary generally must include in income, for the subsidiary’s last tax year beginning before 2018, the shareholder’s pro rata share of the accumulated post-’86 historical E&P of the foreign subsidiary as of the ‘‘measurement date’’ to the extent such E&P has not been previously subject to U.S. tax. The ‘‘measurement date’’ is Nov. 2, 2017, or Dec. 31, 2017, whichever date produces a greater result.
The portion of the E&P comprising cash or cash equivalents is taxed at a reduced rate of 15.5%, while any remaining E&P is taxed at a reduced rate of 8%.
At the election of the U.S. shareholder, the tax liability is payable over a period of up to eight years The payments for each of the first five years equals 8% of the net tax liability. The amount of the sixth installment is 15% of the net tax liability, increasing to 20% for the seventh installment and the remaining balance of 25% in the eighth year.
The Act provides a special rule for S corporations. Their shareholders are allowed to elect to maintain deferral on such foreign income until the S corporation changes its status, sells substantially all its assets, ceases to conduct business, or the electing shareholder transfers its S corporation stock.
The Act excludes the post-’86 historical E&P from the REIT gross income tests. In addition, REITs are permitted to elect to meet their distribution requirement to REIT shareholders with respect to the accumulated deferred foreign income over an 8-year period under the same installment percentages as apply to U.S. shareholders who elect to pay the net tax liability resulting from the mandatory inclusion of pre-effective-date undistributed CFC earnings in eight installments. (Code Sec. 965, as amended by Act Sec. 14103)


New tax laws concerning personal real estate for 2018 and beyond under the New US tax laws.

Deductible interest on personal residences and second homes is limited to that interest paid on loans secured by those properties up to $750,000 in loan amounts.

Deductions for personal home and second home  property taxes and state income taxes are limited to $10,000 per year.

You get a standard deduction of  $ 24,000  if filing jointly and $ 12,000  if filing separately. Therefore, you mortgage interest, and property taxes and state income tax, as well as medical expenses, and other allowable itemized deductions must exceed these amounts before you get any benefit from personal mortgage interest and property taxes.

These new rules for many taxpayers reduce the benefits of personal real estate ownership including personal residences and second or vacation homes.

It is also important to note that the deductions for dependents and the taxpayers have been eliminated and replaced with only the standard deduction set forth above.

Friday, January 5, 2018


By Linda Neil, Settlement Company

        Internet, blog sites,  expat groups and Mexican newspapers are full of information about the growing problem of foreigners who are renting their homes or condominiums and failing to pay Mexican taxes.  Not only is this a violation of Mexican tax law with severe penalties if discovered, but also it violates the terms of most bank trusts (fideicomisos) and could result in cancellation of the trusts.

        FOREIGNERS ARE OBLIGATED TO PAY TAXES ON INCOME GENERATED IN MEXICO no matter where the income is received..

        There are three ways to do this and be in full compliance with the laws:

I. RESIDENTS in MEXICO can obtain their taxpayer identification number, electronic signatures and file taxes monthly using a blind deduction of 35% of income and paying tax on the remainder.
  No receipts are required for this tax payer status.   An annual
declaration must be filed in addition to monthly declarations.

II. . RESIDENTS in MEXICO can obtain their taxpayer identification number, electronic signatures and file taxes monthly declaring all income and providing receipts for certain allowable deductions.  Tax on a sliding scale is assessed on the
profit.  .   An annual declaration must be filed in addition to
monthly declarations.

III. NON-RESIDENTS of Mexico may appoint a Mexican company to
declare and pay tax on their behalf.   Tax collected on the GROSS
income is declared monthly and a set percentage is charged.  NO RFC or taxpayer identification number is required. No annual declaration need be filed.

Additionally, under the NON-RESIDENT program, if the foreigner rents only occasionally, it is now possible to file only when income is received and avoid expensive monthly filing fees.

The above is for compliance with the ISR tax (the tax on income)  Additionally, on furnished properties, a tax of 16% IVA (added value tax) must be collected (from the tenant)  by the owner and declared and paid to tax authorities.

Read more on this subject  at 

US TAX.  You must report all rental income and expenses on your US tax return also. You can get a deduction or credit for taxes paid in Mexico on that rental which in most situations reduces or elimnates double taxation. Read more about US expatriate and international taxation at   This website by a US tax attorney  and US CPA firm explains all of the information you need to know about taxes abroad, including special asset reporting, etc. If you need assistance email us at 

For additional information on paying tax on rental property in
Mexico under any of these three options, please contact:,

Tuesday, January 2, 2018


An eligible entity (i.e., an entity that is not on the list of entities prohibited from electing their status) may affirmatively elect its classification by filing Form 8832 with the IRS.  iN Mexico the only type of corporation that can make this election is know as a Socidada Limitada (SRL de CV) This election effectively overrides the entity’s default classification as a corporation for US tax purposes only. It does not effect the classification as a corporation in Mexico. The election is commonly referred to as a “check the box” election, because you put a check in the box on the form next to the entity classification you have chosen for your company.
It’s important to note that the election, if not made to correspond with the company’s incorporation or creation date, can trigger U.S. tax implications. A tax advisor should be consulted if you are considering tax planning that involves a check the box election.
A foreign entity that is required to file a federal tax or information return for the taxable year for which an election is made (e.g., the company has taxable activities within the U.S.) must attach a copy of the Form 8832 to its return. If the entity is not required to file, a copy of the Form 8832 generally must be attached to the return of an owner of the entity. The failure to comply with these filing rules does not invalidate the election, but may trigger penalties.
The advantage of this election for US tax purposes is:
  • All of the corporations net income flows through to the US owners and is taxed on their personal return.
  • If the corporation pays Mexican income taxes the US owners can claim those taxes as a tax credit on their US return.
  • It avoids double taxation of the gain on the sale of any assets of the corporation.
  • Will avoid the Mexican corporation from become a personal holding company.
Email us if you have questions.

Saturday, December 23, 2017


By Kyle Lodder, CPA
President Trump has signed significant U.S. tax legislation into law today, namely the “Tax Cuts and Jobs Act”.
There are many favorable tax provisions that will benefit many taxpayers, for individuals and businesses. But there are also some quite unfavorable international tax provisions which may adversely impact business owners of non-U.S. corporations.
One specific new provision relates to U.S. persons who own an interest in a non-U.S. corporation.
Under prior law, U.S. shareholders generally are taxed on all income, whether earned in the U.S. or abroad. Foreign income earned by a foreign (non-U.S.) corporation generally is not subject to U.S. tax until the income is distributed as a dividend to the U.S. shareholder.
Under this new law, certain U.S. shareholders owning at least 10% of the foreign corporation generally must include in income starting in 2017 the shareholder’s pro-rata share of the net post-’86 historical earnings and profits “E&P” (i.e. accumulated unrepatriated earnings) to the extent it hasn’t been previously taxed in the U.S.  This is a one-time tax as the U.S. attempts to transition from a worldwide tax system to a territorial type of tax system.
The portion of the historical earnings comprising of cash or cash equivalents is taxed at a reduced rate of 15.5%, while any remaining E&P is taxed at a reduced rate of 8% (it works out to a bit higher rate in some cases). The lower tax rate is intended to recognize that non-cash assets are illiquid and/or in productive use in the business. Nonetheless, this could be a significant tax hit for this upcoming tax season, although there is an option to elect to defer the payment over eight years.
Another problem with this tax is that it’s on deemed income. There isn’t an actual dividend. Rather, it’s deemed income for U.S. purposes. In most foreign countries, this deemed income isn’t considered taxable income. The challenge then is that it’s taxed in the current year for U.S. purposes but not in the foreign country. And when the money is distributed in the future, it typically is treated as a dividend in the foreign country, but not in the U.S. It causes a mismatch and often the lack of use of foreign tax credits, resulting in true double taxation.
What to do by year-end?
If you have significant retained earnings, it’d be worth contacting us to see if there are some planning moves to be made prior to year-end. Perhaps it makes sense to withdraw money from the company before year-end to trigger an actual dividend in the U.S. and the foreign country. This will trigger income in both countries to allow for utilization of foreign tax credits. Furthermore, simply withdrawing the money by year-end will allow for us to then determine after year-end how to classify the withdrawal (as a dividend, wage or loan for example).
If there remains tax exposure after considering foreign tax credits, it could make sense to gift shares to a non-resident alien spouse before year-end to a smaller ownership percentage level to avoid this tax.
This is a very new tax concept and not a lot of time has been granted to us to plan around this matter.  Yet, it makes sense to look at this before year-end to see if any moves can be made prior to year-end to put you in a better tax position.
If you require additional information on any aspect of these complex rules, please contact Kyle Lodder CPA at 360.599.4340 or  You can also contact Don D. Nelson International Tax Attorney at or 949.480.1235. Kyle works with our firm.

The material appearing in this communication is for informational purposes only and should not be construed as legal, accounting, or tax advice or opinion provided by Lodder CPA PLLC. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although these materials have been prepared by a professional, the user should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information