By: Zaher Fallahi, Attorney At Law, CPA
OFAC Regulations Regarding Iran
The U.S. Treasury’s Office of Foreign Office Assets Control (OFAC) administers and enforces economic sanctions against countries, groups and individuals. The Iranian Transactions & Sanctions Regulations, Title 31 C.F.R. Part 560 (ITSR), generally prohibit the exportation, re-exportation, sale, or supply of any goods, among others, directly or indirectly, from U.S., by U.S persons to Iran. U.S, persons refer to U.S. citizens, green card holders or businesses. Conducting transactions in Iran by U.S. persons requires OFAC specific license, unless excepted or authorized by general license.
Joint Comprehensive Plan of Action (JCPOA) or Iranian Nuclear Deal (BARJAM, in Farsi)
On July 14, 2015, the P5+1 (U.S., China, Russia, Britain, France and Germany) and Iran reached JCPOA, to limit Iran’s nuclear program to peaceful purposes.On October 18, 2015, both parties began preparing for implementation of their respective JCPOA commitments. President Obama directed the U.S. agencies to take preparatory measures to ensure the implementation of the U.S. commitments upon Iran’s compliance verification by the International Atomic Energy Agency. Numerous steps were taken on both sides.
U.S. Withdrawal from the JCPOA
On May 8, 2018, President Trump withdrew U.S. from JCPOA, re-imposed sanctions against Iran, and OFAC amended the ITSR accordingly. One important item favorable to our clients was expanding the existing general license to authorize U.S. persons to sell personal property in Iran and transfer the proceeds to the U.S. Previously, this authorization only covered the sale of real property under Title 31 C.F.R. §560.543.
Conducting Prohibited Acts in Iran
Despite the above-referenced prohibitions, U.S. persons may still conduct some prohibited acts under OFAC exceptions, general license or specific license.
Exceptions to ITSR
Examples of exceptions are (1) gifts worth $100 or less, (2) information and informational materials, (3) household and personal effects of owners arriving in the U. S. and used abroad; and, (4) baggage incident to travel.
General License
OFAC general license authorizes Iran related transactions without requiring OFAC specific license. Some examples are: (1) exportation of U.S. medicine; (2) exportation of most medical devices; (3) transfer of gift and inheritance money to U.S; (4) sale of inherited property in Iran and property acquired prior to becoming a US person; and, (5) transfer of money by E-2 and EB-5 visa applicants.
Anti-Money Laundering
Notwithstanding the general license provisions, pursuant to heightened due diligence task by the financial institutions under the Bank Secrecy Act (BSA) and Financial Action Task Force (FATF), concerning money transfers from Iran, consultation with attorneys knowledgeable about BSA and ITSR is strongly recommended. Considering that the Financial Crimes Enforcement Network (FinCEN) and IRS Criminal Investigation Division (CID), actively pursue anti-money laundering leads with respect to fund transfers nationwide, not just ITSR matters, anyone transferring money should adhere to adequate defensive measures to avoid being dragged into unnecessary financial fraud allegation fray.
Specific License
OFAC specific license is a written document authorizing a person to engage in a particular transaction pursuant to a written request. Examples of Iranian transactions subject to OFAC specific license are: (1) selling property that was purchased after becoming a U.S. person; (2) selling income-producing property; (3) selling commercial property; (4) winding down a business; (5) closing a bank account; (6) purchasing property; and (7) hiring legal counsel to litigate a case not incident to an authorized transaction.
Note. Items 1, 2, 3, 4, and 5, may require legal and tax advice in entering OFAC Voluntary Self Disclosure (VSD) and IRS-CID Offshore Voluntary Disclosure Program (OVDP) or its progeny such as Streamlined Filing Compliance Procedures. For general information visit zflegal.com.
Taxation of Inheritance and Gift from Iran
Inheritance is an asset received for free from a decedent’s estate, and gift is an asset received for free from a live person. If inheritance or gift is in the form of cash, the beneficiary/donee is required to report it in the U.S. as “receipt of gift or inheritance from a non-resident alien” if the amount exceeds $100,000 per calendar year. For non-cash inheritance or gifts, the beneficiaries/donees must report their fair market value in their tax returns for mounts exceeding $100,000 per calendar year. Both items are tax free.
Note. If the donors/decedents are U.S. persons, seek advice from OFAC and international tax attorney before the money transfer.
Taxation of Property Sold in Iran
Regardless of whether a property acquired before becoming a U.S person, its sale is subject to the U.S. tax laws. Upon the sale of inherited property or property received as a gift, the beneficiaries/donees are required to include these sales in their U.S tax returns in the year of disposition. The basis for an inheritance is its fair market value at the decedent’s death and the basis for a gift is the donor’s carryover basis, subject to exceptions.
Report of Foreign Bank and Financial Accounts (FBAR), FinCEN 114, and Foreign Account Tax Compliance Act (FATCA), Form 8938
U.S. taxpayers with bank accounts in Iran, irrespective of whether those accounts were opened before they became U.S. persons, are subject to disclosure in the U.S. Also, they are subject to filing FBARs for cumulative amounts exceeding $10,000 during the year and filing FATCA Form 8938 for the amounts exceeding $50,000 and $100,000 for single and joint filers, respectively. These taxpayers maybe in violation of the U.S. sanctions laws and need to consult OFAC attorneys and international tax attorneys handling OVDP. For general information visit zflegal.com.
Record Keeping for Iranian Transactions
If required by the U.S. Treasury’s OFAC, documents substantiating the character of transactions must be maintained for five years. For potential tax consequences, it is imperative to properly retain these documents for “gifts”, “inheritance” or “your own property” at least for six years. Transfer of funds from Iran may also be of interest to FinCEN, CID. Seeking competent legal and tax advice is paramount.
Why American Banks may freeze accounts receiving funds from Iran?
The BSA requires U.S. financial institutions to assist the U.S. government in detecting any suspicious money laundering and other financial fraudulent activities. These institutions strive to prevent any illegal fund transfers through them that may have originated in Iran. If they discern any suspicion of financial fraud, banks are required to issue “Suspicious Activity Report (SAR)” and submit to FinCEN, which may subject the account holders to criminal prosecution. From time to time, these institutions may reject the incoming funds, return them to the third country they came from, close the accounts, cancel the owners’ credit cards and cease dealing with such clients. In these situations, consulting with lawyers with BSA expertise is advised. Good luck with transfer of money from Iran.