Law Offices of Lana Zolon & Associates, PLLC

On April 9, 2010 an American adoptive mother from Tennessee, Tory Ann Hansen, sent Russian-born Artyom Savelyev to Moscow with a one-way ticket and a note relinquishing parental rights due to the child’s violent and psychopathic behavior. These events caused an uproar with the Russian government and a temporary suspension of U.S.-Russia adoptions until the U.S. government enters into a bilateral agreement to regulate the Intercountry adoption process. As of April 20, 2010 no official notification of a ban has been issued, although the adoption process has been delayed for many families. Andrei Nesterenko, Russian Foreign Ministry spokesperson, said that Intercountry adoption would “only be permitted within a framework of bilateral agreement with the United States.”[1] Such an agreement would set forth additional obligations of adoptive American parents to insure further transparency and support throughout the process, most likely with increased supervision by Russian Officials. In the case of failed adoptions, the problem could arise at a variety of stages due to inadequate evaluation and information regarding the child’s mental and or physical state, lack of preparatory training for the adoptive parents, poor screening of prospective families, and deficiencies in post-placement services.

An estimated 750,000 Russian children are currently housed in orphanages[2]. Throughout the history of Intercountry adoption with Russia over 50,000 children have found homes in the Unites States[3]. 1,600 Russian children adopted into the United States just last year[4]. It seems to all parties can agree that punishing these children, who are in need of homes, is not the answer. Instead governments should focus on restructuring the adoption process to better safeguard against similar tragedies in the future. Internationally adopted children have inherent special needs due to post-birth institutionalization. First, Russian Orphanages and international adoption agencies should provide more accurate reports of children’s conditions so that parents may seek professional advice and properly asses their willingness and capabilities to deal with those circumstances.  Furthermore, home study reports should be more thorough in order to ensure that parents are properly equipped to deal with the demands of the child. Post-adoption services, including post-placement visits, translators, educational guidance, respite care and telephone hotlines should be made available, and in certain situations, mandatory for adoptive parents. A case of individual abuse or maltreatment should not cause Intercountry adoption to shut down; rather it should provide a framework for the protection of children and families suffering similar issues.

A delegation from The Unites States Department of State is scheduled to visit Russia on April 29, 2010, led by Ambassador Michael Kilroy. Thus far Russian-U.S. adoption is not suspended as long as the U.S. plans to enter into the bilateral agreement.  Mr. Astakhov, a Russian legal official has stated “Adoptions will continue. We only want guarantees for the lives and the safety of our children abroad. Because we are giving to American families the most precious thing for us: our children.”[5]

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[1] Russia Halts U.S. Adoptions After Boy Sent Home (New York Times)

[2] Russia Seeks Ways to Keep Its Children (New York Times)

[3] U.S. Department of State Intercountry Adoption

[4] Born to Be Refused (Russiaprofile.org)

[5] Russia Seeks Ways to Keep Its Children (New York Times)

A primary concern in structuring foreign investment in U.S. Real Property is the tax obligation that will be the responsibility of the investor. Foreigners must contemplate the implications of U.S. tax rates on capital gains, taxes on disposition of the property (FIRPTA), and U.S. Reporting requirements. United States Real Property Interest (USRPI) is defined under IRC section 897(c)(1)(A) as a direct interest in real property (land, buildings, mines, wells, crops, or timber) located in the U.S., certain personal property (machinery and equipment) associated with the use of real property, and an interest (other than an interest solely as creditor) in any domestic corporation that constitutes a U.S. real property holding corporation[1] (USRPHC).

Establishing Residence

United States Residents and domestic corporations are taxed on their net income similarly to US Citizens. U.S. Corporate income taxes range from 15% to 35% and individual income tax rates from 10% to 39.6%. An individual is considered a resident for taxation purposes according to the following tests:

Green Card Test: If at any time during the year you are issues permanent resident status by the USCIS

Substantial Presence Test: physical presence in the US for 31 days during calendar year and 183 days in past 3 years.

Effectively connected Income

Nonresident aliens, those that do not meet the criteria for residency and foreign corporations are only liable for taxes on U.Ss Income that is (a) effectively connected with a U.S. trade or business (ECI) and (b) U.S. Source Income. Effectively connected income is taxed on a net basis at graduated rates (like a US Citizen) whereas non-ECI is taxed at 30% rate, also known as the “withholding tax”, unless otherwise reduced in a US tax treaty, usually collected at the source (when foreigner receives income).

Real Property Rental income

In connection to real property concerns, rental income and gains from disposition of property located in the United States is considered to be U.S. Source Income. Rental Income can be taxed through withholding or without withholding on a net-basis as effectively connected income (ECI).

Not Effectively Connected with U.S. Trade or Business

Ownership of property for personal use or income generated by property rents on a passive net least basis[2] is not taxed as ECI, but with a flat 30% of gross income withholding rate (or as reduced by US tax treaty). This requires IRS filing of form 1042-S Foreign Persons U.S. Source Income Subject to Withholding” And 1042 “Annual Withholding Tax Return for U.S. Source Income of Foreign Person

Effectively Connected with U.S. Trade or Business

The active management, development, and operation of real estate property or rental income that is considered to be effectively connected income will be taxed at graduated rates. Expenses such as maintenance, mortgage interest and depreciation may be subject to deductions from taxable income. IRS Forms 1120-F for Foreign Corporations and 1040-NR for nonresident aliens must be filed.

 A U.S. Property investor can elect to treat income from property as effectively connected in order to avoid the withholding tax on rents and deduct expenses, such as depreciation. The foreign investor must file form W-8ECI Certificate of Foreign Person’s Claim for Exemption From Withholding on Income Effectively Connected with the Conduct of Trade or Business in the United States. However, such an election cannot be made for interest income on debt collection, rental from personal property or if property is not producing income.

 

Real Property Disposition

FIRPTA, the Foreign Investment in Real Property Tax Act of 1980, subjects an income tax on foreign owners of Unites States real property interest when the property is disposed. FIRPTA is applicable to nonresident aliens and foreign corporations with United States Real Property Interest. This included U.S. real estate and shares in a U.S. real property holding corporation. According to Treasury Regulations any “transfer”, including sales, gifts, exchanges, changed in interest etc., is considered a disposition of property. If the property is held for over 12-months is it taxed as a long-term capital gain at 15% for individuals and between 15%-35% for corporations. FIRPTA requires that the foreign owned U.S. Property purchaser withhold 10% of the purchase price at closing and subsequently remit it to the IRS. The IRS Provides forms 8288 U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests” and form 8288-A Statement of Withholding in Dispositions by Foreign Persons of U.S. Real Property Interests. The foreign seller then completes U.S. Income Tax and is credited for the withholding tax. The FIRPTA withholding tax does not apply if the foreigner has received a withholding certificate by the IRS, after filing form 8288-B Application for Withholding Certificate for Dispositions by Foreign Persona of U.S. Real Property Interests, or if the USRPI are shares of a U.S. Real Property holding corporation that is traded on a stock exchange. Furthermore, the withholding tax is not applicable if the purchased property is to be used as a residence and is under $300,000. Domestic U.S. Corporations are not subject to FIRPTA’s withholding tax. Another method to avoid FIRPTA taxation is by the IRC 1031 exchange which allows the owner to defer tax payments on capital gains and use the earnings to replace the property under specified conditions.

US Real Estate Investment Vehicles
USRPI	Advantage	Disadvantage
Nonresident Alien	Simple structure Lower Income Tax Rate Deductions where debt connected to US trade or business	Full legal liability FIRPTA withholding on sale US Estate and Gift Tax
Foreign Corporation	Income Tax rate + state income tax No US Estate or Gift Tax Limited liability	FIRPTA Withholding of 30% or treaty rate Interest Stripping limitation Foreign Person Guarantee rule Branch profits Tax- Reinvestment Issues
Foreign Corporationà US Corporation	Income Tax rate + State income tax No US Estate or Gift Tax No Branch profits Tax Limited liability No FIRPTA Withholding on Sale Limited liability	Possible Double Taxation Interest Stripping limitation Foreign Person Guarantee rule and interest-stripping limitations Tax Withholding
Us Corporation	Income tax rate + State Income No US Gift Tax No Branch Profits Tax No FRPITA Withholding Limited liability	US Estate Tax Possible Double Taxation Interest Stripping limitation Foreign Person Guarantee rule and interest-stripping limitations Tax Withholding
Limited Liability Corporation (LLC)	Pass=through individual Federal Tax rate if classified as partnership instead of entity	US Estate Tax & US Gift Tax 1445 Withholding

 

-       Foreign corporations that operate a branch are subject to a Branch Profits Tax, in addition the U.S. Corporate Tax, on their effectively connected Income. Corporations that do not engage in a US trade or business are not subject to this tax. However, if the corporation is selling US Real Property Interest is will be subject to the additional BPT. 26 U.S.C. § 884

-       U.S. Estate Tax IRC section 2103 & Treasury Regulations § 20,2104-1(a)(1)

-       U.S. Gift Tax IRC section 2511(a) & Treasury Regulations § 25.2511-1(b)

-       Tax Withholding 26 U.S.C. § 1441/1442

-       Foreign Person Guarantee rule and interest-stripping limitations IRC § 163(j)

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[1] USPRHC: a corporation who’s USRPI makes up at least 50% of the total value of its real property interest and business assets.

[2] Definition of net lease: Where the renter/ individual paying the lease pays rents, taxes, expenses, repairs, principal on mortgage and insurance premiums connected with property (IRS)

There are multiple ways to acquire a Green Card for permanent Residence in the United States according to the United States Immigration and Nationality Act Sec. 203. [8 U.S.C. 1153], Allocation of Immigrant Visas. This article will provide basic descriptions of for such methods; green cards by way of Family, Job, Refugee or Asylum status and the Diversity Visa Lottery.

Family- based

U.S. citizens or permanent residents are able to formally request permanent residence for family members by filing Form I-130 “Petition for Alien Relative” with the U.S. Citizenship and Immigration Services.

 If the petitioner is a U.S. citizen he or she can complete the form on behalf of an immediate relative (a child who is under 21 years old and unmarried, a spouse, or the parent of the U.S. citizen), a family member (a child, a married child of any age, or a sibling of the U.S. citizen). Furthermore, a U.S. citizen can choose to file form I-129F “Petition for Alien Fiancé(e). The foreign spouse can receive a nonimmigrant K-3 Visa (and their children a K-4 Visa) in order to reside in the U.S. while the visa process is taking place. The I-129 is also available for a fiancé(e) when a marriage will take place in the United States within the 90 day fiancé(e) status period, after which the spouse is able to apply for permanent residency.

If the petitioner is a permanent resident the form may be filed on behalf of a spouse or unmarried child. If the marriage is valid for less than 2 years the spouse will be granted conditional permanent residence.

For the filing of immigration documents a spouse is defined as” a legally wed husband or wife” by the U.S. Department of State. Common-law marriages are recognized in accordance to the statues of the country in which they are formed.

Job-based

A Job offer can result in the issuance of a green card for a foreign worker under certain conditions. In order for employers issuing a Job offer to a foreign worker to offer permanent residence they must first receive certification  from the U.S. Department of Labor through ETA Form 9089 “Application for Permanent Employment Certification”  and then file form I-140 “Immigrant Petition for Alien Worker” with the USCIS. This petition can be filed on behalf of an internationally recognized professor or researcher, an alien performing executive functions, an alien holding an advanced or baccalaureate degree and/or with incomparable abilities in their field, a skilled worker, or an unskilled worker necessary to perform a certain labor in the U.S. Foreigners with substantial U.S. investments and self-petitioners of extraordinary demonstrable ability may also be eligible to receive green cards. In addition individuals can receive green cards by filing form I-360 “Petition for Amerasian, Widow(er), or Special Immigrant” if they meet specific conditions or partake in certain professions such religious worker or an employee of an international organization.

Refuge and Asylum Status

Individuals admitted into the U.S. under the classification of Refugee may apply for green cards within one year by filing form I-485 “Application to Register Permanent Residence or Adjust Status” for each family member. While individual who came to the U.S. seeking Asylum do not need to apply for a green card, they are courage to do, using the same form, to avoid future legal trouble should the Asylum qualification change according the laws of their native country.

 

The Diversity Immigrant Visa Program

The Diversity Visa Lottery (DV) grants 50,000 visas each year to participating countries. In 2010 The Kentucky Consular Center, the authority responsible for the programs registration, received 13.6 million qualified entries, 102,800 of which are selected to complete the visa application. For the 2010 Diversity Visa Lottery, 5,499 applicants were registered from the Ukraine and 1, 912 from Russia according the U.S Department of State website. Of the 102,800 registered, only 50,000 individuals will receive visas. If the individual is selected he or she may file Form I-486, Application to Register Permanent Residence or Adjust States” with the Department of Homeland Security for lawful permanent residency in the U.S. in the form of a green card.

For more information visit the websites of The U.S. Department of State at http://travel.state.gov/ and Th e U.S. Citizenship and Immigration Services at http://www.uscis.gov/portal/site/uscis.

1 EARNER	2 PEOPLE	3 PEOPLE	4 PEOPLE*
$46,320	$57,902	$69,174	$82,164

*For cases filed on or before March 31, 2010, add $6,900 for each individual in excess of 4.
   For cases filed on or after April 1, 2010, add $7,500 for each individual in excess of 4.

The age-old question, does the end justify the means? When this question pertains to the recently passed United States health care reform, signed into law by President Obama on March 23, 2010, the answers may be difficult to ascertain.

The End: 2.7 million New Yorkers and 32 million Americans, who are currently uninsured, will be able to obtain more affordable coverage. Insurance companies will no longer be able to impose lifetime limits on coverage or arbitrarily drop coverage. In other words, insurance companies will not be able to deny coverage to individuals with preexisting medical conditions. The Reform will require insurance companies to cover many free preventative care services without requiring copayment or deductibles, such as cancer screenings and mammograms. Seniors Citizens, who are Medicare beneficiaries, will receive free recommended preventative services, pay lower premiums, and receive discounts for prescription drugs if they fall into the gap in Part D drug coverage, known as the “doughnut hole”[1]. For a complete list of changes to insurance coverage visit www.healthreform.gov

The Means: Controversy surrounding the means can be broken into two parts. (a)  Expediting the legislative process by using a budget reconciliation bill and (b) the mandate requiring individuals to purchase health insurance, in order to bring the public the benefits mentioned above.

(a)     Use of the Budget reconciliation Bill[2]

The process by which the White House and Congressional Democrats passed the recent health care legislation, or specifically, the procedural shortcuts that allowed the Bill to bypass strong Republic opposition, has raised significant concern among those in opposition to the health care reform. Indeed, President Obama signed the final health care legislation that included the budget reconciliation after it was passed by the Senate and the House. The ”simplified” formula is as follows: take the Bill passed by Senate on December 24, 2010, add a Budget Reconciliation Bill, used to rectify certain provisions in the senate  bill related to fiscal objectives that are disapproved by Congress, and hold a single vote for the Amended Bill . This particular budget reconciliation addresses issues such as Medicare payroll taxes, changes that allow insurance coverage to close the “doughnut hole” in Medicare, and provisions that extended the time young adults are able to stay covered by their parents’ insurance policies. Implementation of a budget reconciliation bill is favorable to Democrats, the majority party, who sought to streamline the process by treating every senate vote equally and allowing the health care legislation to be passed using a simple majority vote instead of affording the minority Republicans an opportunity to stop the bill. Although similar reconciliation measures were widely used throughout policy-making history, some remain skeptical due to the high profile nature of such a major legislative effort.

(b) The constitutional soundness of Federal Mandates set forth by the health care reform

Another source of controversy surrounding the “means” has been raised by way of two lawsuits brought to federal Courts by 14, predominantly Republican, state attorneys generals[3]. The leader is Republican Bill McCollum, state attorneys general from Florida, and the leading issue is twofold; first, the right to requiring Americans to purchase health insurance or else pay a penalty in the form of a tax, and second, the inherent infringement upon state sovereignty that arises when the federal government obligates state governments to expand Medicaid Programs, thereby increasing their costs.

The attorneys generals filing this suit maintain that federal authority cannot mandate individuals to purchase a good or service. In response, the Bill’s supporters note that consumers are not specifically required to [4]purchase health insurance from private enterprises. Instead individuals can choose to forgo the purchase and instead pay a tax to a health insurance subsidy program (what some deem a “penalty”).  Supporters of implementing a tax on those who refuse to purchase health coverage  reference Article 1 Section 8 of U.S. Constitutional Law which states that Congress has the power to collect taxes that promote the general welfare of society and those that are “necessary and proper” for the implementation of legislation. Since the health coverage of millions of Americans aims to promote general welfare, the Bill’s supporters consider it within the realm of Constitutional Law and rights of Congress. The tax is also said to be necessary in order for insurance companies to guarantee the issuance of health insurance coverage to those with preexisting medical conditions. According to this reasoning, insurance companies must exist in a market where some individuals pay premiums and don’t use their benefits. In other words, insurers need a mechanism to acquire funds to provide such costly services by preventing consumers from seeking treatment last minute and thus causing significant increases in premiums to be paid by consumers. 

The claim concerning the constitution right of the federal government to require States to increase Medicare programs is rebutted by referring to the nature of Medicare as voluntary by nature. The State government can technically withhold participation.[5] Kathleen Sebelius Secretary of the Department of Health and Human Services has said “there are some new costs in insurance expansion borne by the state. But I would argue that those costs are far balanced by new benefits to states.”[6] Examples include less on compensated care and increased federal resources for covering children. The debate of “ends” and “means” will continue to be debated as news of the lawsuit continues to emerge. For now, Ms. Sebelius remains steadfast in maintaining the legality of the health care reform. She states: “in consultation with our legal team and their consultation with the Justice Department, first of all, we are confident that the law is on solid constitutional ground, on firm grounds.”[7]

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[1] Doughnut hole is a gap in insurance coverage of prescription drugs to Medicare beneficiaries under Medicare Part D, a Federal Subsidy program enacted in 2006. According the plan beneficiaries pay a 25% coinsurance until drug cost amount to $2,700 after which coverage is ceased until consumer expensed have reached $4350 resulting the spending gap. (www.healthreform.gov)

[2] Budget Reconciliation

[3] The Legal Assault on Health Reforms, New York Times 3/10/2010

 

[5] Is Health Care Reform Unconstitutional, New York Times 3/28/2010

[6] Nicholas Ballasy  for  CNN 4/7/2010