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Legal and Tax Implication of Bringing Money from Iran

June 29, 2017 by  

By: Zaher Fallahi – Attorney At Law, CPA

Iranian OFAC Regulations

The Office of Foreign Office Assets Control (“OFAC”) is a division of the U.S. Treasury Department 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”), generally prohibit the exportation, re-exportation, sale, or supply of any goods, technology, or services directly or indirectly, from US or by US persons (defined as US citizens, green card holders or businesses), wherever located, to Iran. Employment in Iran or conducting a business in Iran such as practice of law, medicine, engineering, consulting, software development, real estate development, construction, etc. by a US person requires an OFAC specific 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 prohibitions, a US person may still conduct some prohibited acts either under I. OFAC exceptions, II. OFAC general license, III. OFAC specific license and IV. Iran Nuclear Deal.

 

I- OFAC exceptions to

importation from Iran

The following goods or services from Iran may be imported into the United States, either directly or through third countries:

  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; and,
  4. Accompanied baggage for personal use normally incident to travel.

 

II- OFAC General License

What is an OFAC license? An OFAC license is an authorization issued by OFAC to engage in an otherwise prohibited transaction under the law. There are two types of licenses; general license and specific license. An OFAC general license authorizes particular types of transactions for a class of persons without requiring an OFAC license. Some examples are:

  1. Exportation of US medicine to Iran;
  2. Exportation of most medical devices to Iran (some may require specific license);
  3. Transferring gift money from Iran, see below;
  4. Transferring inheritance money from Iran, see below;
  5. Sale of inherited property in Iran (31 C.F.R. Part 560.543);
  6. Sale of property acquired prior to becoming a US person (31 C.F.R. Part 560.543);
  7. Importation of Persian rugs per the “Iran nuclear deal” effective January 16, 2016; 
  8. Importation of Iranian foodstuffs per the “Iran nuclear deal” effective January 16, 2016); and,
  9. Transfer of money by E-2 and EB-5 visa applicants.

 

Note:

Notwithstanding the general license provision, transfer of money related to each transaction may be challenging, and consultation with an Iranian OFAC attorney is recommended.

 Gift and Inheritance. Inheritance is an asset that heirs receive from a decedent’s estate. If your parents live with you here in the US, property you receive from them in Iran is not inheritance, because they are still alive and the property they transferred to you is considered a “gift“. Gift is something of value someone gives you for free. Although, there are exceptions to the rule, generally gifts and inheritances are received from close relatives or loved ones, not from a stranger or neighbor.

 

Note:

Receipt of gift or inherited property in Iran may have different tax consequences for the donee or heirs, and consultation with a tax attorney is crucial.

 

III- OFAC Specific License

An OFAC specific license is a written document authorizing a particular person to engage in a particular transaction pursuant to a written request and is valid for two years. There is no pre-printed OFAC license application to be filled out; each OFAC attorney uses his or her own petition.

 When do you need an OFAC specific license? Generally, you need an OFAC specific license to cause transactions not covered by OFAC general license provision or not excepted by law. The following are some transactions need OFAC specific license:

  1. Selling property you acquired after becoming a US person;
  2. Selling property you constructed or developed after becoming a US person;
  3. Selling some income producing property;
  4. Selling some commercial property;
  5. Winding down a business;
  6. Closing a bank account (except for new comers during a grace period);
  7. Purchasing property in Iran;
  8. Hiring legal counsel or agent to litigate a case not incident to an authorized transaction;
  9. Conducting self-employment business (most likely will be denied);
  10. Employment exceptions; World Bank, International Monetary Fund, etc. When in doubt, ask them;
  11. Items 2,3,4,5, and 6, may have caused OFAC violations and require OFAC Voluntary Self Disclosure (VSD), see our Website for further information; and,
  12. Sale of civilian air craft per “Iran Nuclear Deal” at the risk of cancellation by the US administration.

 

 IV- Joint Comprehensive Plan of Action (“JCPOA”), Iran Nuclear Deal (BARJAM).

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 our expectations, most of the US sanctions against Iran have remained in effect. Under the general license H provision of this accord, there are certain opportunities for the US persons to benefit from dealing with Iran. See general license H under JCPOA in our Website. Since implementation of the JCPOA, I have received numerous inquiries from the Persian-American community as to whether OFAC has been dissolved. My answer has been “no, OFAC was not created for Iranian purposes and will not cease to exist if all the US sanctions against Iran were completely lifted in the future”. 

 

Tax Implication of

Bringing Money from Iran

United States Taxation

If you are a U.S. citizen or green card holder, you may be subject to the income tax, estate tax, and gift tax laws almost the same way whether you live in the US or overseas. For instance, 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 you earned them within or outside the US. In addition, you may be subject to requirements of FBAR and other International Tax Laws. See below or visit our Website: zflegal.com for more details. If you transfer money from Iran, some of the following tax laws may apply to you:

 

Inheritance Tax

If the decedent was a US person, the estate of the decedent may be required to file an Inheritance Tax Return, IRS Form 706. For the year 2017 estates up to $5,490,000 are not taxable. However, a return may still be filed for “portability” election purposes, to benefit from the deceased spouse’s unused exclusion. If the decedent was not a US person, or the estate did not file an estate tax return, the recipient is required to report the amounts in excess of $100,000 per year.

 

Gift Tax

If the donor is a US person, he or she is 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 is required to report the amounts in excess of $100,000 per year on the IRS Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Non-compliance with the foreign gift and inheritance reporting may subject the recipient to 25% penalty of the amount, unless waived.

 

Capital Gains

Transactions where the underlying assets are not inheritance, or inheritance but acquired long time ago, may be subject to Capital Gains or ordinary income taxes. An example that I get a lot is; this is my inheritance property from my deceased dad. When I express my condolences and ask “when did your dad pass away, I learn that the dad passed away many years ago, and some as far as 1970s. Although, sale of such assets may be considered personal family remittances and exempt from OFAC Regulation, however, they may result in substantial capital gains tax.

 

E-2 and EB-5 visa holders

Holders of E-2 and EB-5 visas are subject the US taxation on their world wide income, subject to exceptions. Depending on the facts and circumstances, E-2 visa holders may have a unique US tax situation. 

 

Report of Foreign Bank and Financial Accounts (FBAR), FinCEN 114 

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 electronically file their the “Report of Foreign Bank and Financial Accounts (FBAR.”, Form FinCEN 114, with the Financial Crimes Enforcement Network (FinCEN), See FBAR. For additional information, visit our Website zfelagl.com

 

Documentation of Transfer of Money from Iran

Because of their tax consequences, it is important to properly document categorization of an asset as “Gift”, “Inheritance” or “Property owned prior to becoming a US person”. Since the transfer of money from Iran could be of special interest to OFAC, Financial Crimes Enforcement Network (FinCen), IRS Criminal Investigation Division (CID), or any other government authorities, seeking competent legal advice from expert attorneys regarding documentation of character of your money is paramount. Do not count on the terms;” If needed, I will just tell them that this gift or inheritance”. Obtain documents with evidentiary value, now. 

The Bank Secrecy Act (BSA. also known as the “Currency and Foreign Transactions Reporting Act”, is a legislation passed by the US Congress in1970 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 concerned about their own security, and strive to prevent any potentially illegal funds being transferred through them. This section of the banks must 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 the funds came from, and/or close their long-term clients’ accounts, cancel their credit cards and severe all business dealing with such clients. Much good luck, and less taxes, with your transfer of money from Iran.

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