Taxation of Persian-Americans living in Iran
If you are a green card holder or citizen of the United States:
- US person the Internal Revenue Code 7701
- and live in Iran
then you are taxed on your worldwide income regardless of where you earned it.
The good news is that you may be able exclude up to certain amount of your compensation earned in Iran, which 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 (subject to some exceptions), under the Foreign Earned Exclusion provided under Section 911 of the Internal Revenue Code. You may deduct allowable foreign housing expenses.
This exclusion can only be taken by timely 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
Earned income includes salaries & wages, commissions, bonuses, professional fees and tips.
- Un-earned Income
Unearned income includes dividends, interest, capital gains, gambling winnings, alimony, social security benefits, annuities, etc.
- Variable Income
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 in Iran may violate the US laws of sanctions against Iran also known as the Iranian Transactions and Sanctions Regulations (ITSR) administered and enforced by the US Treasury Office of Foreign Assets control (OFAC).
There are exceptions to the ITSR
For instance, employment at the World Bank, International Monetary Fund (IMF) or any other United Nations related organizations may be authorized.
It is advisable to ask your potential employer to ensure that your employment in Iran is otherwise authorized by OFAC Regulations. Your self-employment income in Iran even if authorized by OFAC, is excluded only for income tax purposes only and not for Social Security or Medicare purposes. Because Iran doesn’t have particular tax treaty called Totalilzation Agreement with the US.
In addition, you may not take a foreign tax credit for taxes paid in Iran, due to the US Economic Sanctions against Iran, but may be able deduct them as expenses. 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 review other parts of our website for general information, and seek legal advice from our firm or another OFAC Attorney and Tax Attorney. For additional information on OFAC see OFAC.
Important: The January 16, 2016, US Sanctions Relief applies to Non-US persons and doesn’t apply to Persian-Americans no matter where they reside. Generally, these changes have very little effect on the Laws of Sanctions applied to us as Persian-Americans. Click here for my article on the subject. US Sanctions Lifted
How can we help
Zaher Fallahi, OFAC Attorney, Tax attorney and Tax CPA, advises clients with respect to transfer of money from Iran to the US in conformity with
- the ITSR
- tax preparation
- tax planning
- IRS representation
- resolving tax controversy with respect to unreported foreign bank accounts and foreign trusts: FBAR, FATCA and OVDP.
We may be reached at (310) 719-1040 (Los Angeles), (714) 546-4272 (Orange County), or e-mail to: [email protected]