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Transferring money from Iran, Iranian OFAC Sanctions Regulations and US Taxation


 

What is OFAC?

Office of Foreign Assets Control (OFAC) is a division of the US Treasury that administers the US economic sanctions programs against many countries, including Iran. 

OFAC issues specific licenses for conducting transactions in Iran, and enforces the US economic sanctions laws against persons who may violate OFAC Regulations.  

Depending on the egregiousness of violations, OFAC may refer perpetrators to the Department of Justice for criminal prosecution.


 What is an Iranian OFAC license?

An Iranian OFAC license is an authorization or permit from OFAC to engage in a transaction in Iran that otherwise would be prohibited by law. There are two types of licenses; OFAC general licenses and OFAC specific licenses.

 

Who are US persons?

US Persons are defined as US Citizens, Green Card Holders, individuals live in the US, or US legal entities such as corporations, partnerships and LLCs.

 

Who needs an OFAC specific license?

Transactions not covered under the OFAC General License, may require an OFAC specific license to sell property in Iran and transfer the related funds to the US. The following are some transactions subject to OFAC Specific License:

 

1- Selling a property in Iran acquired after becoming a US person;

2- Selling a property acquired by gift (arguably);

3- Selling a property built or developed after becoming a US person;

4- Selling an income producing asset or commercial property;

5- Closing a bank account in Iran;

6- Purchasing a property in Iran; and,

7- Engaging in employment or self-employment, subject to exceptions.

8- Note,(3), (4), and (5) above, may also require an OFAC Voluntary Self Disclosure ("VSD");

 

Important: Transfer of non-commercial family remittances such as “cash inheritance” or “cash gift” do not require OFAC licenses, however, consultation with OFAC compliance attorney is recommended to prevent potential OFAC problems. Although, most Iranian transactions appear to be covered by OFAC General License provisions, it is advisable to seek legal advice from an OFAC lawyer to prevent unintended missteps. 

 

OFAC Voluntary Self-Disclosure ("VSD")

OFAC Voluntary Self-Disclosure (VSD) refers to self-initiated notification to OFAC of an apparent violation by a person that has committed, or otherwise participated in, an apparent violation of a statute, Executive Order, or regulation administered or enforced by OFAC, prior to or at the same time that OFAC, or any other federal, state, or local government agency or official, discovers the apparent violation or another substantially similar apparent violation.

 

For these purposes, ‘‘substantially similar apparent violation’’ means an apparent violation that is part of a series of similar apparent violations or is related to the same pattern or practice of conduct.  Notification of an apparent violation to another government agency, but not to OFAC, by a Person, which is considered a VSD by that agency, may be considered a VSD by OFAC, based on a case-by-case assessment.

 

Zaher Fallahi, an Iranian OFAC Sanctions Lawyer, CPA, advises Iranian -American OFAC clients in responding to OFAC Administrative Subpoena, filing an OFAC Voluntary Self-Disclosure (VSD) petition and responding to inquiries by IRS, Criminal Investigation Division of IRS, Financial Crimes Enforcement Network (FinCen).

 

We help clients with OFAC problems

Zaher Fallahi, Iranian OFAC Lawyer, CPA, advises clients with respect to sale of property in Iran and transfer of the net proceeds to the US according to Iranian OFAC Regulations and the US tax laws. He practices as Orange County and Los Angeles Iranian OFAC Attorney in California. Zaher Fallahi has a radio program in a Los Angles Persian Language station on OFAC Regulations regarding Iran and takes questions from the public on Iranian OFAC Sanctions Regulations. As a Los Angeles and Orange County Tax Attorney, CPA, he advises clients with tax implication of OFAC related transactions.

 

It is important to know how OFAC Sanctions Regulations apply to the transactions occur in Iran before filing for an OFAC license or causing transactions in Iran that may be covered under OFAC general license. OFAC general license refers to transactions which are exempt from OFAC specific licensing requirements. General license doesn’t mean that such transactions are tax free. OFAC Sanctions Regulations do not discuss tax consequences. Most Iranian transactions covered by general license have tax implications.

 

Compliance with OFAC Regulations can prevent potential violations which may have unintended monetary cost and criminal prosecution.

 

Many OFAC cases entail one or more of the following tax issues:

1- Income Tax;

2- Capital Gains Tax;

3- Gift Tax;

4- Inheritance Tax;

5- Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts;

6- Offshore Voluntary Disclosure Program (OVDP);

7- Report of Foreign Bank & Financial Accounts (FBAR); and,

8- Foreign Account Tax Compliance Act (FATCA) and other Tax law.

OFAC History

The US Treasury Department has a long history of dealing with sanctions, dating to the War of 1812; Secretary of the Treasury Gallatin administered sanctions imposed against Great Britain for the harassment of American sailors.

 

During the Civil War (1861-1865), the US Congress enacted a law which prohibited transactions with the Confederacy; a secessionist government established in 1861 by seven Southern States who were called slave states.

 

OFAC is the successor to the Office of Foreign Funds Control (the “FFC”), which was established at the advent of World War II following the German invasion of Norway in 1940. The FFC program was administered by the Secretary of the Treasury throughout the war.

 

The FFC’s initial purpose was to prevent Nazi use of the occupied countries’ holdings of foreign exchange and securities and to prevent forced repatriation of funds belonging to nationals of those countries. These controls were later extended to protect assets of other invaded countries.

 

After the United States formally entered World War II, the FFC played a leading role in economic warfare against the Axis powers (German, Japan and Italy) by blocking enemy assets and prohibiting foreign trade and financial transactions.

 

OFAC was formally created in December 1950, following the entry of China into the Korean War, when President Truman declared a national emergency and blocked all Chinese and North Korean assets subject to U.S. jurisdiction.

 

Iranian OFAC Regulations Overview

OFAC is sister agency of the IRS and administers and enforces economic sanctions against countries and groups of individuals. The Iranian Transactions & Sanctions Regulations, Title 31 C.F.R. Part 560 (the “ITSR”), of Office of Foreign Office Assets Control (OFAC) Regulations, generally prohibit the exportation, re-exportation, sale, or supply of any goods, technology, or services directly or indirectly, from US or by a US person, to Iran or the Government of Iran.

 

These Iranian OFAC Sanctions Regulations prohibit US persons (citizens, green card holders or US businesses), from engaging in any transaction or dealing in or related to goods or services of Iranian origin, or owned or controlled by the Government of Iran, or goods or technology or services for exportation, re-exportation, sale or supply, directly or indirectly, to Iran or the Government of Iran.

 

Employment in Iran or conducting a business in Iran such as practice of medicine, law, engineering, dentistry, consulting, software development, real estate development, construction, etc.  by a US person requires an OFAC license, unless exempted by law.  And, there is a high likelihood that such request will be denied, because they may violate the Iranian OFAC Regulations.

Despite these OFAC prohibitions, a US person may still conduct some prohibited acts either by obtaining an OFAC specific license or based on an OFAC exception.  See General licenses H  Iran Nuclear Deal, BARJAM

 

Joint Comprehensive Plan of Action ("JCPOA"), Iran Nuclear Deal (BARJAM in Farsi)

Following the 2013 nuclear negotiations between Iran and the 5+1 superpower nations, resulted in lifting of certain non-US or secondary sanctions on January 16, 2016, See  Iran Nuclear Deal, BARJAM

Contrary to what was expected, most of the US sanctions against Iran remained in effect.  I receive many calls from the Persian-American community as to whether OFAC has been abolished forever.  My answer is “no”. I further explain that OFAC was not created for Iranian purposes and will not cease to exist when the Iranian sanctions are completely lifted in the future.

 

Importations from Iranian to U.S.

Goods or services from Iran may not be imported into the United States, either directly or through third countries, with the following exceptions:

 

1- Gifts valued at $100 or less;

2- Information and informational materials;

3- Household and personal effects, of persons arriving in the United States, that were actually used abroad by the importer or by other family members arriving from the same foreign household, that are not intended for any other person or for sale, and that are not otherwise prohibited from importation;

4- Accompanied luggages for personal use normally incident to travel;

5- Foodstuffs; including caviar and pistachio, effective January 16, 2016; and,

6- Persian Carpet, effective January 16, 2016. See Iran Nuclear Deal, BARJAM

 

OFAC General License

An OFAC general license authorizes a particular type of transaction for a class of persons without the need to apply for an OFAC license. Transfer of cash inheritance or cash gift are examples of general license.

 

OFAC Specific License

An OFAC specific license is a writing issued by OFAC to a particular person or entity, authorizing a particular transaction in response to a written license application, for a specific period time, generally two years. Sale of a property acquired in Iran subsequent to becoming a US person and transfer of the related funds to the US is an example of specific license.

 

Persons engaging in transactions pursuant to OFAC general licenses or OFAC specific licenses must make sure to comply with all OFAC specific license requirements. OFAC Sanctions Regulations may contain statements of OFAC’s specific licensing policy with respect to particular types of transactions.

 

Do I need an OFAC license?

Effective October 22, 2012, sale of inherited property in Iran, or property owned before becoming a US person, and transfer of the related proceeds to the US, do not require OFAC Specific Licenses.

 

Additionally, transfer of non-commercial family remittances such as “cash inheritance” or “cash gift” do not require OFAC licenses. Notwithstanding, consultation with OFAC attorney is recommended to avoid potential OFAC problems. Although, most transactions may seem to be authorized under OFAC General License provisions, it is advisable to seek legal advice from an OFAC attorney to prevent missteps.

 

It is also important to obtain tax advice from a tax attorney with knowledge of international tax laws and a counsel familiar with the laws of Bank Secrecy Act ("BSA"), as well.

 

The BSA, also known as the Currency and Foreign Transactions Reporting Act, is a legislation passed by the United States Congress in 1970 that requires US financial institutions to collaborate with the US government in cases of suspected money laundering and fraud.

Therefore, the US banks and financial institutions are cautious about their own security, and strive to prevent any potentially illegal funds being transferred through them.

 

This section of the bank issue a “Suspicious Activity Report (SAR)” when they discern a suspicion. From time to time, these financial institutions reject the incoming funds and return them to the country where they came from.

 

It is recommended to seek legal advice from an Iranian OFAC lawyer regarding documentation of the source of funds as to “gift” and “inheritance”, among other things.

 

E-2 and EB-5 visa applicants

Since October 22, 2012, the OFAC General License provisions apply to the seekers of E-2 visa and EB-5 visas. In other words, you do not need to obtain OFAC Specific License for these transfers.

 

Tax implication of E-2 and EB-5 visa holders

Holders are visas E-2 and EB-5 visas become US persons and subject the US taxation on their world wide income.

 

Goods covered by OFAC General License

Exportation of most medical devices, medicine, and food stuffs from US to Iran are also authorized by OFAC General License. Merchants exporting the above items to Iran are advised to consult Iranian OFAC attorneys and be compliant with the requirements of the Commerce Department.

 

Which one? Inheritance or Gift?

Inheritance is a property received from estate of another who has died. If your folks live in the US, property you receive from them in Iran is not inheritance, because they are still alive and the property they give you is a “gift “and may have additional tax reporting issues.

 

Gift is a property given to another person without consideration. Although, there are exceptions to the rule, generally gifts or inheritance are received from a relative or family member, not from strangers or neighbors.

 

To be prudent, obtain documents with evidentiary value to potentially substantiate the character of property that may be required by OFAC, Financial Crimes Enforcement Network (FinCen), IRS Criminal Investigation Division (CID), and other government authorities interested in the true character of your incoming money, in case circumstances arise.

 

Characterization of a property or naming it something which is not to evade compliance, is illegal and may subject perpetrators to criminal prosecution regardless of whose idea it was; a non-lawyer friend, lawyer friend, paid lawyer, accountant, CPA, neighbor or your car mechanic.

 

Carrying money in excess of $10,000 through the US Customs

Strict rules apply to transfer of funds via a financial institution or carried in a briefcase through the boarders or airports. Click below for additional information. See Carrying more than $10,000 through US Customs

 

Zaher Fallahi, Iranian OFAC Lawyer, CPA, advises Iranian-American clients in obtaining necessary evidentiary documents for properly responding to potential OFAC Administrative Subpoenas and inquiries by BSA, IRS Criminal Investigation Division (CID), FinCen, and the US Customs and Border Protection. 

 

Taxation of Money Transfer from Iran

Who is subject to U.S. taxation?

If you are a U.S. citizen or resident alien (green card holder), the applicable tax laws for filing income tax, estate tax, and gift tax returns are generally apply the same way whether you live in the United States or overseas. And your worldwide income from interests, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income, must be reported on your U.S. tax return whether they are earned within or outside the United States.

 

In addition, you are subject to requirements of the FBAR, FATCA and other International Tax Laws. See below for details.

 

Zaher Fallahi, International Tax Attorney, CPA, advises clients on US taxation throughout the world. Telephone appointments are available for clients who may not be able to meet in person.

 

Tax implication of transactions conducted in Iran are as follows:

 

Inheritance Tax

If the decedent was a US person, the estate of the decedent may be required to file an Inheritance Tax Return. For the year 2017 estates up to $5,490,000 are not taxable. However, a return may still be filed for the portability election (an election to use the deceased spouse’s unused exclusion) purposes. If the decedent was not a US person, or the estate did not file an estate tax return, the recipient may be required to report amounts in excess of $100,000 per year.

 

Gift Tax

If the donor is a US person, she or he may be required to file a Gift Tax Return, IRS Form 709 for gifts in excess of $14,000 per person per year.

 

For the year 2017 gifts up to $5,490,000 are not taxable. If the donor was not a US person, the recipient may be required to report amounts in excess of $100,000 per year. Non-compliance with the foreign gift and inheritance reporting may subject the recipient to substantial penalty. In case of failure to report foreign gifts timely, seek tax advice from a tax attorney for remedial ion.

 

Capital Gains

Transactions where the underlying assets are gift or inheritance, may be subject to Capital Gains taxes.

 

An example that I hear often is; this is my inheritance property from my deceased dad and I am told it is tax free. When I express my condolences and ask “when did your dad pass away”?, I learn that the dad had passed away twenty years ago or before the 1979 revolution or something like that.  Although, sale of such assets may be considered personal family remittances for OFAC purposes and exempt under the sanctions laws, however, they most of them result in substantial capital gains taxes.

 

Report of Foreign Bank and Financial Accounts (FBAR)

US persons defined as citizen, resident (green card holder or meeting substantial presence test) with an interest in, signature authority or other authority over financial accounts with an aggregate value in excess of $10,000, are required to e-file their “Report of Foreign Bank and Financial Accounts (FBAR)”, Form FinCEN 114 with the Financial Crimes Enforcement Network (FinCEN), See FBAR.

 

Foreign Account Tax Compliance Account (FATCA), 2010 Law

US persons with an interest in certain Foreign Financial Assets with an aggregate value of more than $50,000 (singles living in the US) are required to include “Statement of Specified Foreign Financial Assets” in their regular tax returns. See FATCA

 

The Persian-Americans living abroad are subject to the US tax laws and are required to file their annual income tax returns. They are also required to comply with the laws of US sanctions against Iran. Application of the US tax laws is independent of the laws of sanctions. See VSD above.

 

Offshore Voluntary Disclosure Program (OVDP), Amnesty

Any non-compliance with FBAR may turn into a criminal tax case and requires advice of tax lawyer with special skill must be sought. Your tax attorney may advise you on a proper course of action such as the Offshore Voluntary Disclosure Program (OVDP). See OVDP

 

Zaher Fallahi, OVDP Attorney, CPA, practices in California; Orange County and Los Angeles and advises clients on the legal and tax implication of Iranian OFAC transactions worldwide.

 


US Taxation of Iranian-Americans living in Iran

If you are a U.S. green card holder or citizen of the United States (a US person the Internal Revenue Code 7701(b)) and live in Iran, you are taxed on your worldwide income regardless where you earned it.

 

Additionally, you are subject to all the US international tax laws, including Report of Foreign Bank & Financial Accounts (FBAR), Foreign Account Tax Compliance Act (FATCA), and one potential remedy (OVDP).

 

The good news is that you may be able exclude up to an amount of your earned (compensation) income in Iran which is adjusted annually for inflation ($97,600 for 2013, $99,200 for 2014, $100,800 for 2015, $101,300 for 2016 and $102,100 for 2017), if you otherwise qualify. For example not stay in the US more than 35 days in a calendar year, under the Foreign Earned Exclusion provided under the Section 911 of the Internal Revenue Code.

 

You may deduct certain foreign housing amounts. This exclusion can only be taken by timely filing the tax return. It is important to note that this exclusion does not apply to passive or un-earned income (see below). Neither does it waive the requirements of filing the FBAR and FATCA (see above).

 

Generally, there are three categories of foreign income;

I) Earned Income;

II) Un-earned Income; and,

III) Variable Income.

I- Earned income includes:

1) Salaries & wages

2) Commissions,

3) Bonuses

4) Professional fees and tips.

II- Unearned income includes:

1) Dividends;

2) Interest;

3) Capital gains;

4) Gambling winnings;

5) Alimony, social security benefits; and,

6) Annuities.

III- Variable income; may fall in one of these categories:

1) Business income;

2) Royalties; and,

3) Rents.

The bad news is that unfortunately your employment in Iran may violate the US laws of sanctions against Iran also known as the Iranian Transactions and Sanctions Regulations (ITSR) administered and enforced by the Office of Foreign Assets Control (OFAC).

 

Of course, there are certain exceptions to the ITSR. For instance, employment at the World Bank, International Monetary Fund (IMF) or other United Nations related organizations that may be authorized. It is prudent to ask your potential employer to ensure that your employment in Iran is otherwise authorized by OFAC.

Also, your self-employment income in Iran even if were authorized by OFAC is excluded only for income tax purposes and not for Social Security or Medicare purposes.

Furthermore, you may not take a foreign income tax credit for taxes paid in Iran, due to the economic sanctions against Iran, but may deducted as an expense. Under the ITSR, a US person is not allowed to open a bank account in Iran.

It is important to note that the lifting of the Secondary-US sanctions (Europeans and South East Asian countries, etc.) effective January 16, 2016, have not altered the above referenced laws. Click here for more information; Iran Nuclear Deal, BARJAM

 

Non-willful Iranian OFAC Violations

If you have worked in Iran without the knowledge of the ITSR, and reading this article raises your curiosity as to whether you may have violated any US laws, you may seek legal advice from an OFAC attorney, including our firm.

Zaher Fallahi, Tax attorney, CPA, assists Americans living abroad with US taxes and offshore accounts; OVDP, FBAR and FATCA. As an OFAC Attorney, he guides clients on OFAC Licenses, sale of property in Iran and transfer of money from Iran to the US under OFAC Regulations. Telephones: (310) 719-1040 (Los Angeles), and (714) 546-4272 (Orange County), or e-mail to: taxattorney@zfcpa.com

 

We assist clients regarding Iranian OFAC Licenses

Zaher Fallahi, attorney at law, has been rated 10 out of 10 by Avvo:  Rated 10 of 10 .

Zaher Fallahi, tax attorney, has been named a top tax attorney:  TOP Tax Attorney

About 1.8% of the U.S. lawyers are also CPAs, and we are proudly one of them;

 

We have successfully assisted many clients with legal and tax implication of Iranian OFAC transactions

 

Need OFAC Licenses, Contact information:

(310) 719-1040 (Los Angeles)

(714) 546-4272 (Orange County)

E-mail taxattorney@zfcpa.com