Frequently Asked OFAC Questions (FAQ) and Answers
Disclaimer: The following is intended for general information only and not legal or tax advice.
Zaher Fallahi, Attorney At Law, Certified Public Accountant (CPA), focuses on Office of Foreign Assets Control (OFAC) Regulations regarding Iran, U.S. International Tax, Undisclosed Offshore Accounts and Foreign Gifts, and represents OFAC and Tax clients nationwide. Toll Free 1-(877) 687-7558 telephone appointments are available.
The following are some Frequently Asked Question (FAQ) and Answers
Q1. What is OFAC and what does it do?
Answer: Office of Foreign Assets Control (OFAC) is a division of the U.S. Treasury that administers and enforces the U.S. economic sanctions programs imposed against many countries, including Iran. OFAC may issue specific licenses for conducting certain transactions in Iran in conformity OFAC Regulations. It also enforces the US economic sanctions laws against persons who may violate OFAC Regulations. Depending on the severity of the violations, OFAC may refer perpetrators to the Department of Justice for criminal prosecution.
Q2. Who is a U.S. Person?
Answer: The U.S. Laws of Sanctions apply to U.S. persons. A U.S. Person is one who is a:
(1) U.S. Citizen;
(2) U.S. Green Card Holder;
(3) Person who lives in the US; and,
(4) U.S. legal entity such as Corporation and LLC.
Q3.What is an OFAC license?
Answer: An OFAC license is an authorization by OFAC to undertake a transaction that is otherwise prohibited by law. There are two types of OFAC licenses; OFAC general licenses and OFAC specific licenses.
(a) OFAC Specific License
OFAC specific license is a written document, authorizing a particular person to engage in a particular transaction pursuant to a written license request. OFAC has no particular license application to be filed out; each attorney may have her or his own standard letter for a license request. If your intended transaction requires an OFAC specific license, you can engage in the transaction only after issuance of your OFAC license
(b) OFAC General License
OFAC general license authorizes particular types of transactions for a class of persons without requiring an OFAC license. You don’t need to request a general license. Be sure your desired transaction is covered by OFAC general license provisions.
Q4. Who needs an OFAC Specific License?
Answer: The following are examples of transactions for which you will need an OFAC specific license:
(1) Selling property acquired after becoming a U.S. person;
(2) Selling property constructed or developed there after becoming a U.S. person;
(3) Selling income producing property such as rental property or a business;
(4) Selling other commercial property;
(5) Winding down a business;
(6) Closing a bank account;
(7) Purchasing property;
(8) Hiring legal counsel or agent to litigate a case, subject to exceptions;
(9) Conducting your own business (self-employment);
(10) Employment in Iran, exceptions;
(i) World Bank;
(ii) International Monetary Fund (IMF); etc.
(iii) When in doubt, ask the employer; and,
(11) Items 1, 2,3,4,5, 6, and 9 may require OFAC Voluntary Self-Disclosure (VSD).
Q5. Do I have to pay tax on the money I received from Iran pursuant to an OFAC specific license?
Answer: OFAC specific license does not affect taxation of the underlying OFAC related transaction. Taxation of OFAC related transactions are subject to the U.S. Tax law and you may have tax consequences on those transactions.
Q6. What transactions are covered by the OFAC General License?
Answer: Here are examples of transactions covered by OFAC General License provisions:
(1) Exportation of U.S. medicine to Iran;
(2) Exportation of most medical devices to Iran (some may require specific license);
(3) Transferring gift money from Iran;
(4) Transferring inheritance money from Iran;
(5) Sale of inherited property in Iran and transfer of the net proceeds to the U.S.; and,
(6) Sale of property acquired prior to being a U.S. person and transfer of the proceeds to the U.S.
Notwithstanding the above general license provision, consultation with an Iranian OFAC attorney and counsel with Bank Secrecy Act (BSA) expertise is highly recommended.
Q7. How did the 2012 OFAC Regulations affect sale of property in Iran?
Answer: Section 560.543 provides that U.S. persons can sell their property in Iran and transfer the net proceeds to the US without further authorization from OFAC, either the property was:
(1) Acquired prior to becoming a US person; or,
(2) Inherited from persons in Iran.
Q6. Do I have to pay tax on the gift or inherited money I received from Iran?
Answer: Receipt of cash gift or inheritance from a non-resident alien in Iran, is not taxable in the US. However, for amounts in excess of $100,000 per year, you are required to “informational reporting” and file a return with the IRS.
Q7. There is no prelateship between U.S. and Iran, how would they find out about my violations?
Answer: You are right, currently there is no diplomatic relationship between the two countries and they do not exchange information with one another. However, as a lawyer, I explain the law and the consequences of its violations. Some of the persons who may disclose your violations:
(1) Divorcing spouses with violations, both OFAC and IRS disclosure;
(2) Businesses affiliates with violations;
(3) Commonly, both (1) and (2) above implicate and incriminate themselves, as well;
(4) When a bank freezes the incoming money on basis of suspicion, an attempt to unfreeze it may disclose the owner’s violations. Therefore, you may avoid such attempt, and should consult an OFAC and tax lawyer; and,
(5) Business competitors may report each other.
Q8. What Documents Should I Obtain for the Property Received in Iran?
Answer: Because most of these properties have legal and tax consequences, it is important to obtain necessary documents to prove the character of your asset. You may consult an OFAC and tax attorney to substantiate proper classification of the following assets acquired in Iran:
(1) Cash Gift from a U.S. Person in Iran;
(2) Cash Gift from Non-US persons;
(3) Real Property, Business Assets, Securities, etc.
(4) Inherited Cash;
(5) Inherited Rental Property, Stocks and Bonds, etc.; and,
(6) Property owned prior to becoming a U.S. person.
Q9. What may cause my money be frozen by the U.S. banks or seized by the government?
Answer: Due to heightened scrutiny over the transactions initiated in Iran, your money transfer may be of special interest to OFAC, Financial Crimes Enforcement Network (FinCEN), IRS Criminal Investigation Division (CID), other government authorities and U.S. banks. Therefore, it is crucial to seek legal advice from OFAC attorneys, international tax attorneys and attorneys knowledgeable in BSA, before arranging for the transfer of money from Iran.
The Bank Secrecy Act (BSA), also known as the Currency and Foreign Transactions Reporting Act, requires U.S. financial institutions to collaborate with the U.S. government in identifying suspected money laundering and financial fraud. The U.S. 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 bank must issue a “Suspicious Activity Report (SAR)” when it discerns a suspicion.
From time to time, these U.S. financial institutions freeze or reject the incoming foreign funds and return them to the country where they came from. As a result, client’s other accounts in the bank, or accounts in other banks, may be frozen and credit cards be cancelled. At that point, it could be very costly and time-consuming to resolve the problem that the client had nothing to do with.
Zaher Fallahi, Attorney At Law, CPA, has assisted hundreds of clients with their OFAC licenses and transfer of money from Iranian.
Zaher Fallahi, Attorney, has been rated 10 out of 10 by Avvo.
Zaher Fallahi, Tax Attorney, has been named a Top Tax Attorney.
About 1.8% of the U.S. lawyers are CPAs, and we are proudly one of them.
(877) 687-7558 Nationwide Toll Free
(310) 719-1040 (Los Angeles)
(714) 546-4272 (Orange County)E-mail firstname.lastname@example.org