Taxation of Persian-Americans living in Iran
If you are a U.S. citizen or a Green Card Holder of the United States (a US person the Internal Revenue Code 7701) and Live in Iran, you are taxed on your worldwide income regardless where you earned it.
In addition, you are subject to all the US international tax laws including Report of Foreign Bank & Financial Accounts (FBAR), see here.
Foreign Account Tax Compliance Act (FATCA), see here and other applicable tax laws.
The good news is that you may be able exclude up to an amount of your earned (compensation) income earned in Iran that is adjusted annually for inflation ($97,600 for 2013, $99,200 for 2014 and $100,800 for 2015), if you otherwise qualify. For example not live in the US more than 35 days in a calendar year.
This is according to 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 (June 15, but tax laibilities must be paid by April 15) filing the tax return. It is important to note that this exclusion doesn’t apply to un-earned income (see below). Neither does it waive the requirements for filing the FBAR and FATCA (see above). Generally, the foreign income may be classified to three categories:
- Earned Income
- Un-earned Income
- Variable Income.
Earned income includes salaries & wages, commissions, bonuses, professional fees and tips. Unearned income includes dividends, interest, capital gains, gambling winnings, alimony, social security benefits, and annuities. Variable income may fall into either one of these categories under the circumstances and includes business income, royalties and rents.
The bad news is that unfortunately your employment ( investing or renting a property) in Iran may violate the US laws of sanctions against Iran known as Iranian Transactions and Sanctions Regulations(ITSR) administered and enforced by the US Treasury Office of Foreign Assets control (OFAC). There are certain exceptions to the ITSR.
For instance, employment at the World Bank, International Monetary Fund (IMF) or other United Nations related entities may be authorized. It is advisable to ask your potential employer to ensure that your employment in Iran is otherwise authorized by OFAC. In addition, 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. Also, you may not take a foreign tax credit for taxes paid in Iran, due to the economic sanctions against Iran, but may deduct them as an expense.
Under the ITSR, a US person is not allowed to open a bank account in Iran. In case you have worked in Iran, and reading this article raises your curiosity as to whether you may have violated any US laws, you may seek legal advice from our firm or another OFAC attorney. For additional information on OFAC see here.
Zaher Fallahi, OFAC attorney and Tax attorney and a CPA, advises clients with transfer of money from Iran to the US in conformity with the ITSR, tax preparation, tax planning, IRS representation, and resolving tax controversy with respect to unreported foreign bank accounts and foreign trusts.
We may be reached at (310) 719-1040 (Los Angeles), (714) 546-4272 (Orange County), or e-mail to: [email protected]