Taxation of Persian-Americans living in Iran
If you are a U.S. green card holder or citizen of the United States (a US person the Internal Revenue Code 7701(b)) and live in Iran, you are taxed on your worldwide income regardless where you earned it. Additionally, you are subject to all the US international tax laws, including Report of Foreign Bank & Financial Accounts (FBAR), Foreign Account Tax Compliance Act (FATCA), and one potential remedy (OVDP).
The good news is that you may be able exclude up to an amount of your earned (compensation) income earned in Iran which is adjusted annually for inflation ($97,600 for 2013, $99,200 for 2014, $100,800 for 2015, $101,300 for 2016 and $102,100 for 2017), if you otherwise qualify. For example not stay in the US more than 35 days in a calendar year, under 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 filing the tax return. It is important to note that this exclusion does not apply to passive or un-earned income (see below). Neither does it waive the requirements of filing the FBAR and FATCA (see above).
Generally, there are three categories of foreign income;
I) Earned Income;
II) Un-earned Income; and,
III) Variable Income.
I- Earned income includes:
1) Salaries & wages
4) Professional fees and tips.
II- Unearned income includes:
3) Capital gains;
4) Gambling winnings;
5) Alimony, social security benefits; and,
III- Variable income; may fall into either one of these categories:
1) Business income;
2) Royalties; and,
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 certain exceptions to the ITSR. For instance, employment at the World Bank, International Monetary Fund (IMF) or other United Nations related organizations that may be authorized. It is prudent to ask your potential employer to ensure that your employment in Iran is otherwise authorized by OFAC.
Also, 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.
Furthermore, you may not take a foreign income tax credit for taxes paid in Iran, due to the economic sanctions against Iran, but may deducted 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 without the knowledge of the ITSR, and reading this article raises your curiosity as to whether you may have violated any US laws, you may seek legal advice from an OFAC attorney. For additional information on OFAC, See https://www.zflegal.com/services/the-us-treasury-office-of-foreign-assets-control-ofac/
It is important to note that the lifting of the non-US sanctions (Europeans and South East Asian countries, etc.) effective January 16, 2016, have not altered the above referenced laws. Click here for more information; Iran Nuclear Deal, BARJAM
Zaher Fallahi, Tax attorney, CPA, assists Americans living abroad with US taxes and offshore accounts; OVDP, FBAR and FATCA. As an OFAC Attorney, he guides clients on OFAC Licenses, sale of property in Iran and transfer of money from Iran to the US under OFAC Regulations. Telephones: (310) 719-1040 (Los Angeles), and (714) 546-4272 (Orange County), or e-mail to: email@example.com