ANDREA AGUILAR, ESQ. LL.M. (TAX)
The U.S. tax system is complex. So regardless of your immigration status, it’s important that you have a basic understanding of your tax obligations. For that reason, I am pleased to provide you some insight into this area of law in this month’s SPOTLIGHT INTERVIEW with tax attorney, Andrea Aguilar.
Q: Andrea, thank you for taking the time to sit with us. Please tell our readers a little bit about yourself and what types of cases you handle in your practice.
A: Hi Elina! Thanks for having me. It’s a pleasure to be here.
Well, I was born in Peru, and I grew up and studied over there. I moved to the United States after I got my bachelor’s degree in Law and Political Science. And, since it had always been a dream of mine to become an attorney, I decided to go back to school to get my J.D. While in law school, I participated in any activity that would involve applying tax rules: the Volunteer Income Tax Assistance program, tax clinic, internship with the IRS, etc. And, because I was really passionate about this practice area, after graduation I went to Georgetown University in D.C. for an LL.M. degree in Taxation. Since then, I’ve been advising many international clients in the U.S. in areas of income tax planning, tax compliance, estate & gift tax planning, pre-immigration planning, etc.
Q: And what prompted you to become an attorney?
A: My desire to help my mom with her business. I used to help her with the small business, so I thought I wanted to study business administration, but when she got audited, I changed my mind. I wanted to free her from the stress of dealing with any legal matter related to the business. So, I decided to become a lawyer and help my mom and other business owners as well.
Q: What sort of cases are you most passionate about?
A: It’s hard to choose just one, but if I must, I would say preimmigration tax planning. I think the best time to learn about the U.S. tax system and avoid falling into tax traps is before a person becomes a U.S. tax resident. In fact, we always help our clients with their specific concerns, analyze their situation, inform them of their tax obligation, and their reporting requirements, etc. But practically speaking, during the preimmigration phase there is more opportunity to learn, plan and save money.
Q: Do you encounter clients whose immigration/citizenship status has some significance to a case or transaction? If so, why so?
A: Yes, all the time. To determine what kind of tax obligations a person has, first, we must determine if he or she is a U.S. tax resident. Generally, U.S. citizen and green-card holders are U.S. tax residents. However, foreign individuals that spend a certain number of days in the U.S. may become tax residents as well. This is a result of the substantial presence test. Generally, this test is met by spending 183 days or more in the U.S. within a three-year period, counting all the days present in the current year, 1/3 of the days present in the prior year and 1/6 of the days present in the second prior year. However, there are certain type of visas that allow a foreign individual to exclude some days, for example an F-1 visa. Some exceptions may apply; for instance, a foreign individual may have a closer connection with another country. Also, citizens from countries that have signed tax treaties with the United States, may benefit from those treaty provisions.
Q: I think you can guess my next question. So, what are the tax consequences of becoming a tax resident?
A: A U.S. tax resident is subject to income tax on his worldwide income; also, he or she will be subject to a series of reporting requirements. So foreign individuals that meet the substantial presence test must pay income taxes in the U.S. for income that is earned anywhere in the world. And, don’t forget the obligations to report foreign accounts, interest in foreign entities, etc. Just to mention a couple, a very well-known reporting obligation is the Foreign Bank Account Reporting or FBAR. Here, a U.S. tax resident that has a foreign account with $10,000 may be subject to stiff penalties for failure to report their foreign account. The penalty varies depending on whether the failure to report is willful or not. A person that willfully failed to disclose their foreign accounts may be subject to a penalty of $100,000 or 50 percent of the amount, whichever is greater. And please don’t forget that each year you didn’t file is a separate violation. Now, there are other regulations that impose a reporting obligation on a U.S. tax person, for instance the Foreign Account Tax Compliance Act (FATCA). Under these rules, a tax resident must report his foreign accounts, interest in foreign companies, life insurance, etc.
Q: Are there any other challenges that foreign Individuals encounter when coming to the U.S.?
A: Another important tax that some foreign individuals ignore is the estate tax, which is a tax on the right to transfer property at the time of death. Foreign individuals have an exclusion of $60,000 before they can be subject to this tax. Therefore, if the value of their property exceeds $60,000, they can be subject to estate taxes for up to 40% of the value of these assets. We all know that death is uncertain, but if it happens, family members will be the ones dealing not only with estate taxes but with probate proceedings as well.
Q: What do you like best about your work?
A: That I get to help clients from different countries; Since I am an immigrant as well, I love the fact that I am able to help them, their families and their businesses in a variety of issues.
Q: How can our subscribers reach you for a consultation?
Thank you, Andrea, for sharing your knowledge with our subscribers. This is Elina signing off until next month’s spotlight interview. Have a great month!