Zaher Fallahi
The U.S. President Joe Biden is determined to restore the 2015 nuclear deal with Iran, known as the Joint Comprehensive Plan of Action (JCPOA), or BARJAM in Farsi. There have been talks under way in Vienna, Austria, for some time how to accomplish the goal.
At the time of this writing, it is everyone’s guess what the extent and scope of a new or revised JCPOA would be, as there are different parties involved in the process with varying interests. Although possible, but unrealistic to expect in the short run all sanctions will be lifted and the relations between the two countries will return to normal. It may be prudent to surmise that our Persian American clients will be dealing with the laws of sanctions similar to the current laws for the foreseeable future.
The following are the most frequently asked questions (Qs) by our clients:
What types of Iranian transactions require OFAC Specific License
Some examples of Iranian transactions that need OFAC specific license are: (1) Sale of property purchased or developed in Iran after someone become a U.S. person; (2) Sale of income producing property such as rental, commercial or a business in Iran; (3) Closing bank accounts in Iran; (4) Purchasing property in Iran; (5) Retaining legal counsels or other agents in Iran to litigate a case not covered by OFAC general license provision; (6) Self-employment or operating any businesses in Iran; and (7) Employment in Iran, exceptions; World Bank, International Monetary Fund (IMF). Note. Items 1-3 may require OFAC Voluntary Self-Disclosure (VSD).
Do I have to pay tax on the money I received from Iran pursuant to an OFAC specific license?
Generally, most Iranian transactions subject to OFAC specific license may be “commercial” type and subject to the U.S. tax law, and you may consult an experienced international tax attorney or Certified Public Accountant (CPA) in the field.
In addition to their regular income tax implication, the above-referenced transactions may be subject to Report of Foreign Bank and Financial Accounts (FBAR), and Foreign Account Tax Compliance Act (FATCA) filing requirements. Before filing any delinquent FBARs, consult a tax attorney experienced in Offshore Voluntary Disclosure Practice (OVDP) cases. To protect the communication by the “Attorney-Client Privilege”, have the attorney hire a different tax preparer/CPA, because the original tax preparer/CPA may have been tainted, and could be subpoenaed to testify against you as a witness if the case turns criminal.
What types of Iranian transactions are covered by OFAC General Licenses?
Here are some examples of transactions covered by OFAC General License provision: (1) Exportation of U.S. foodstuffs, medicine, and medical devices to Iran, subject to exceptions; (2) Transferring cash gift or inheritance money from Iran to the U.S.; (3) Sale of property inherited in Iran and transfer of the net proceeds to the U.S.; and (4) Sale of property owned prior to becoming a U.S. person and transfer of the proceeds to the U.S. Note. Notwithstanding the above general license provision, consult an Iranian OFAC attorney and an international tax attorney knowledgeable on Bank Secrecy Act (BSA).
Isn’t it true that I do not have to pay tax on the money I receive from Iran pursuant to an OFAC general license?
Iranian transactions subject to OFAC general licenses may be categorized based on the above-mentioned examples: (1) Exportation of U.S. foodstuffs, medicine, and medical devices to Iran, if conducted by a U.S. person these are all subject to U.S. taxation.
Additionally, the underlying general license does not allow these business owners to establish businesses within Iran; (2) Transferring cash gift or inheritance, would be tax free, but may be subject to informational tax filing requirements, if given and transferred by non-resident aliens or the decedents’ estates.
If the gift or inheritance is from other U.S. persons (e.g., family members), the donors or their estates may have OFAC and tax violations, U.S. tax filing requirements and tax consequences. The recipient and the donor are advised to consult OFAC and tax attorneys before effecting the transactions; (3) Sale of property inherited in Iran, depending on the date of decedent’s death, these cases may have tax filing or informational filing requirements; and (4) Sale of property owned prior to becoming a U.S. person, most likely these would have large tax liabilities.
Q5. What should I do if I violated OFAC Regulations and tax laws?
Answer: Fortunately, OFAC has an amnesty program called Voluntary Self Disclosure (VSD) and the IRS also has an amnesty program called Offshore Voluntary Disclosure Practice (OVDP) for the violators to become compliant and may get their penalties mitigated or waived.
Because the VSD oftentimes entails violation of the U.S. International Tax Laws as well, entering the VSD should be coordinated between your OFAC Attorney and International Tax Attorney with expertise in FBAR, FATCA, and OVDP. Good luck. Zaher Fallahi, Esq., CPA.