December 22, 2009
November 17, 2009
November 6, 2009
New Tax Law Increases Penalties for Late Filing Partnership (1065) and Subchapter S Corporation Returns (1120S)
Civil penalties apply for failure to file a partnership and S corporation returns. The penalty is $89 times the number of partners or shareholders for each month (or fraction of a month) that the failure continues, up to a maximum of 12 months for returns required to be filed after Dec. 31, 2008.
New law. Under the just enacted law, the base amount on which a penalty is computed for a failure with respect to filing either a partnership or S corporation return for a tax year beginning after Dec. 31, 2009, is increased to $195 per partner or shareholder. (Code Sec. 6698(b)(1) and Code Sec. 6699(b)(1), as amended by Act Sec. 16)
RIA observation: Over the fiscal period 2011 to 2019, this provision is projected to raise $642 million (partnership penalties) and $587 million (S corporation penalties).
November 3, 2009
Forbes has determined the 10 best places in the world to retire outside of the USA. Factors they consider were not limited to taxes. They considered quality of life, health care, and other factors. Some of the countries include France, Australia, Austria, Italy, Thailand, Malaysia, Canada and Panama. Click here to read the article and more about their favorite countries.
October 31, 2009
We often are asked where is the best country to live and work in to reduce foreign taxes. Wikepedia has a chart showing the various income tax rates for individuals and corporations in various countries. Check it out here. Of course you can always consider Dubai which has no taxes.
Remember, so long as you are a US Citizen or permanent resident you still must file your US form 1040 with the IRS each year and report your worldwide income. Failure to file timely special forms required for foreign financial accounts, foreign corporations, partnerships and trusts, and other related forms can also result in substantial penalties.
Mr. Schulman is pictured. He is the Commissioner in charge at the INTERNAL REVENUE SERVICE and is primarily responsible for the dramatic increase in international tax regulation at that agency.
October 27, 2009
RS Commissioner Doug Shulman's remarks before the AICPA's National Conference on Federal Taxation in Washington, D.C., on Oct. 26, 2009
October 16, 2009
Published: October 14, 2009
More than 7,500 American taxpayers have voluntarily disclosed secret offshore accounts to the Internal Revenue Service, which is cracking down on overseas tax evasion, the agency said on Wednesday.
Those who have come forward have provided information about accounts holding from $10,000 to $100 million since the I.R.S. extended a Sept. 23 deadline for participating in the voluntary disclosure program, said Doug Shulman, the I.R.S. commissioner.
People who come forward voluntarily can avoid criminal prosecution and their identities will remain a secret under federal law requiring tax records to be kept confidential.
The partial amnesty ends Thursday and will not be extended a second time, he said.
Americans with undeclared offshore accounts have been under growing pressure since Switzerland agreed Aug. 19 to hand over data to the authorities in the United States on as many as 4,450 UBS accounts. The move was to settle a lawsuit in which the United States had sought information on as many as 52,000 accounts.
“We’re going to be scouring the 7,500 disclosures to identify financial institutions, advisers and others” who helped taxpayers skirt their obligations, Mr. Shulman said in a conference call. “This entire effort is not just about UBS and a single country.”
It is not yet known how much overlap might exist between the names that UBS will eventually provide and the 7,500 people who have come forward to the I.R.S., Mr. Shulman said.
The I.R.S. will open offices in Beijing, Panama City and Sydney in connection with the investigation, which has revealed accounts held in 70 countries and on every continent except Antarctica, he said. The agency also intends to add about 800 employees in the next year and add staff to eight existing overseas offices, including Hong Kong and Barbados.
October 1, 2009
September 21, 2009
BLOOMBERG, AP AND NY TIMES CLAIM IRS HAS EXTENDED OFFSHORE VOLUNTARY DISCLOSURE PROGRAM UNTIL 10/15/09
August 28, 2009
August 15, 2009
August 12, 2009
August 10, 2009
The Treasury Department intends to issue regulations clarifying the FBAR filing requirements. The administrative relief granted by Notice 2009-62 provides time for the Treasury Department to consider comments, that are solicited in the Notice, on specific issues related to such filing requirements. Please access a copy of Notice 2009-62
August 5, 2009
More on the offshore disclosure program
More on the offshore disclosure program
A lot of Gringos living and working in Mexico have not been filing their US Income Tax Returns as required by U.S. Tax law. The Brits, Canadians and many those from many other countries in world, the U.S. Requires you file returns yearly no mater where you live or work in the world so long as you are a U.S. Citizen.
Some have put off their returns so long, that they are now afraid to surface and file them. Often that is an unfounded concern since due to the US foreign earned income exclusion and foreign tax credits, when many years past due returns are filed, no tax is found to be due anyway.
To try to bring U.S. Expatriates out of the closet, in March the IRS announced the Offshore Voluntary Disclosure Program which allows those who have not filed returns or who have filed returns and not included their foreign source income to correct these errors and have some certainty of what might happen when they do file those returns. Entering this program will avoid criminal action and will also set a predetermined limit on the amount of penalties which may be imposed.
Though the IRS envisions the program will mostly be used by wealthy taxpayers hiding assets and income abroad, unfortunately due to the its requirements it does immediately affect the average American working or operating a small business in Mexico.
The program is extremely complex and therefore cannot be fully explained with this article, but we will try to cover some of the major points. More details are available using the internet links set forth later below.
The general requirements:
File last six years previously unfiled tax returns or amend your last six years tax returns to include all foreign source income.
These returns should include all previously unfiled foreign tax forms required under us tax law such as those for foreign bank and financial accounts (TDF 90-22.1), foreign corporations (Form 5471), foreign partnerships, foreign LLCS, foreign investment companies, and foreign trusts or fideicomisos (Form 3520 and 3520A)(Mexican real estate trusts required by Mexican law). There are other US foreign tax forms too numerous to mention which also have high penalties for non filing.
Pay all taxes, penalties and interest due on unpaid taxes
Follow certain filing procedures requiring an anouncement you plan to participate in the program.
In lieu of paying the extremely high penalties for failure to file the special foreign tax forms mentioned above, pay a penalty of 20% of the highest balance in all foreign bank and financial accounts during the year with the highest combined balances during that 6 year period. This is often much less than the year penalty for failing to file the form. For example the penalty for failure to file the foreign bank and financial account form (TDF 90-22.1) is $10,000 per year or more.
If you have reported all foreign income (including interest, dividends, corporate income, rents, etc) in your previously filed your tax returns for the past six years, but failed to include all of the special foreign forms (some of which are mentioned above) you are required to now file those forms with an amended return, and also include a reasonable excuse for your failure to file those forms and in most situations no penalties or additional taxes will be imposed. The IRS has failed to define what an acceptable reasonable excuse would be.
If your foreign activities have produced no taxable income during the past six years and you now file all required foreign forms that were previously omitted with amended returns for those years, no additional tax or penalties will be charged if you attach a reasonable excuse for failing to file the required foreign bank account report, foreign corporation report, foreign trust form (fideicomiso), etc.
Also if you failed to file your tax returns, but need to file returns for the period you lived and or worked abroad, and due to the nature of your income and activities have none of the special foreign income tax forms previously mentioned or on the the complete list are required to be filed, you can now file without any fear of the 20% penalty. All that would be owed is any tax due plus normal penalties and interest on that tax due. Form 2555 (to claim the foreign earned income exclusion) and form 1116 (Foreign tax credits) do not trigger the 20% penalty if filed late. However, in certain situations, the IRS can disallow the foreign earned income exclusion if a tax return is filed more than 18 months late and taxes are due with that return.
The IRS has indicated that it is possible after the 9/23/09 deadline for the Program, it will impose all civil, monetary and full criminal penalties against those who have not filed the required foreign income forms or who have failed to report their foreign source income by that deadline. Anyone who thinks they might have problems with nonreported foreign source income, unfiled returns, or unfiled special foreign tax forms should immediately consult with their legal and tax advisors to determine whether they should be participating in the Voluntary Disclosure Program or to file all past unfiled returns.
It should be noted that the IRS has currently been very successful with their program to force foreign banks and other financial institutions to disclose the names, etc. and all US citizens who have accounts. It is presumed they will be matching that data against the tax returns filed by those citizens.
Relevant Web Links:
Wall Street Journal Article:http://online.wsj.com/article/SB124804796387763807.html
Frequently Asked Questions: http://www.taxmeless.com/IRS%20Disclosure.htm
Don D. Nelson, Attorney, C.P.A has been assisting US Citizens living abroad with their U.S. Income taxes for the past 20 years. His email is firstname.lastname@example.org. His website includes a lot more information on the Offshore Disclosure Program and is located at www.TaxMeLess.com . His blog which includes the most current expat developments is at www.usexpatriate.blogspot.com. US phone number is 949-481-4094.
July 2, 2009
June 19, 2009
In late March, 2009 the IRS instituted an offshore voluntary disclosure program and procedures limiting penalties that may be imposed if you have failed to report your offshore corporation, bank accounts, financial accounts, offshore trusts, or other offshore activities that require the filing of special IRS forms. This program will only remain in effect until September 23, 2009 which gives expatriates and others who have not reported foreign income, or filed the necessary IRS forms, a chance to come out into daylight and pay their taxes. If taxpayer fails to follow this procedure they may be liable for much higher penalties, and potential criminal prosecution.
Further descriptions of this program and how to comply are included in the recently released IRS "Frequently asked questions". You must file the last six years tax returns or amend the existing past six years returns if you have failed to report any foreign income on the returns you did file. You must also file the applicable forms including 5471 (foreign corporation), TDF 90-22.1 (foreign financial accounts), Forms 3520 and 3520A (foreign trusts), 926 ( Transfers to foreign corporations) and other forms involved in foreign income.
April 22, 2009
IRS Determines Countries In Which Early Departure Will Not Cause Disallowance of Foreign Earned Income Exclusion
April 17, 2009
US Merchants and Others Using Offshore Credit Card Accounts - Department of Justice is Gunning for You.
The Justice Department has filed a “John Doe” summons with a federal court seeking the credit card records of U.S. merchants hiding money in offshore bank accounts.
The DOJ asked a Denver federal court to approve the summons on one of the nation’s largest payment card processors, First Data Corp. U.S. District Court Judge Robert Blackburn approved the request Wednesday. The Internal Revenue Service claims that First Data active marketed and sold the offshore services to U.S. merchants and their financial advisors to help them hide the proceeds of both brick-and-mortar and Internet sales in offshore bank accounts.
"John Doe" summonses allow the IRS to obtain information about U.S. taxpayers whose identities are not yet known. The information expected in response to the summons will be used by the IRS to identify merchants who use offshore accounts to evade their U.S. tax liabilities.
The petition alleges that the merchants have opened bank accounts in offshore jurisdictions and directed their payment card processor, in this instance First Data, to deposit the proceeds from their debit or credit card transactions directly into the offshore accounts.
The courts have previously approved numerous John Doe summonses on credit card companies and third-party credit card processors, allowing the IRS to identify individuals who were using debit and credit cards issued by offshore banks to evade their taxes. The IRS is also using John Doe summonses to get information on tens of thousands of customers of Swiss bank UBS.
April 2, 2009
Highlights of the offer. As explained in a memorandum written by Linda E. Stiff, Deputy Commissioner for Services and Enforcement and addressed to the Commissioners for the Large and Mid-Size (LMSB) and Small Business/Self-Employed (SBSE) Divisions, the tax liabilities related to offshore issues of taxpayers that make “voluntary disclosure requests'” will be settled as follows:
... Taxes and interest due going back 6 years will be assessed. The taxpayer must file or amend all returns, including information returns, and Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts (FBAR)).
... IRS will assess either an accuracy or delinquency penalty for all years (no reasonable cause exception will be applied).
... In lieu of all other penalties that may apply (including FBAR and information return penalties), IRS well assess a penalty equal to 20% of the amount in foreign bank accounts/entities in the year with the highest aggregate account/asset value. The penalty is reduced to 5% if, with respect to the accounts or entities formed: (a) the taxpayer did not open them or cause them to be opened or formed; (b) there has been no activity during the period the accounts/entities were controlled by the taxpayer; and (c) all applicable U.S. taxes have been paid on the funds in the accounts/entities (where only the earnings have escaped U.S. taxes).
The above terms will apply only to taxpayers that “fully cooperate with the IRS both civilly and criminally,” for all voluntary disclosure requests that are submitted to IRS, and are not yet resolved. The terms will remain in effect only for six months from Mar. 23, 2009 (the date that the Deputy Commissioner for Services and Enforcement released the memorandum on voluntary disclosure requests). IRS Commissioner Doug Shulman says that after that time, IRS will reevaluate all of its options, and warned that for those “who continue to hide their heads in the sand, the situation will only become more dire.”
Related memoranda to the SBSE and LMSB Directors describe various penalties that may apply in offshore cases, revoke the “Last Chance Compliance Initiative” as of Mar. 23, 2009, and explain how voluntary disclosure cases are to be routed within IRS.
Those coming forward will avoid criminal prosecution. IRS Commissioner Doug Shulman's Statement on Offshore Income says that those taxpayers who hid money offshore can avoid criminal prosecution by timely complying with the terms of the offer.
March 12, 2009
They can qualify for the physical presence foreign earned income exclusion of $91,400 (for 2009) if the live and work in the foreign country for a full 12 month fiscal year and are present in that foreign country for 330 days out of that 12 month fiscal year period. This is called the "physical presence test." It is almost impossible for a private employee or contractor working in a combat zone such as Iraq or Afghanistan to qualify as a bonafide resident in order to secure the foreign earned income exclusion. AM2009-003
February 25, 2009
“Making Work Pay” credit. The new law provides an individual tax credit in the amount of 6.2 percent of earned income not to exceed $400 for single returns and $800 for joint returns in 2009 and 2010. The credit is phased out at adjusted gross income (AGI) in excess of $75,000 ($150,000 for married couples filing jointly). The credit can be claimed as a reduction in the amount of income tax that is withheld from a paycheck, or through a credit on a tax return. Under the credit, workers can expect to see perhaps $13 a week less withheld from their paychecks starting around June. Next year, the extra take-home pay will go down to around $9 per week.
Economic recovery payment. The new law provides for a one-time payment of $250 to retirees, disabled individuals and Social Security beneficiaries and SSI recipients receiving benefits from the Social Security Administration and Railroad Retirement beneficiaries, and to veterans receiving disability compensation and pension benefits from the U.S.Department of Veterans' Affairs. The one-time payment is a reduction to any allowable Making Work Pay credit.
Refundable credit for certain federal and state pensioners. The new law provides a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. This one-time credit is a reduction to any allowable Making Work Pay credit.
Unemployment compensation exclusion. A provision temporarily suspends federal income tax on the first $2,400 of unemployment benefits received by a recipient in 2009.
Expanded earned income tax credit. The new law provides tax relief to families with three or more children and increases marriage penalty relief. The changes apply for 2009 and 2010.
Expanded child tax credit. A measure increases the eligibility for the refundable child tax credit in 2009 and 2010 by lowering the threshold to $3,000 (from $8,500 in 2008).
Expanded and revised higher education tax credit. The new law creates a $2,500 higher education tax credit that is available for the first four years of college. The credit is based on 100% of the first $2,000 of tuition and related expenses (including books) paid during the tax year and 25% of the next $2,000 of tuition and related expenses paid during the tax year, subject to a phase-out for AGI in excess of $80,000 ($160,000 for married couples filing jointly). Forty percent of the credit is refundable. The new credit temporarily replaces the Hope credit.
Computers as an education expense. A provision permits computers and computer technology to qualify as qualified education expenses in 529 education plans for tax years beginning in 2009 and 2010.
Expanded first-time credit for first-time home buyers. Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10% of the purchase of a home (up to $75,000) by first-time home buyers. The provision applied to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit were required to repay any amount received under this provision back to the government over 15 years in equal installments (or earlier if the home was sold). The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The new law enhances the credit by eliminating the repayment obligation for taxpayers that purchase homes on or after January 1, 2009. It also extends the credit through the end of November 2009, and bumps up the maximum value of the credit from $7,500 to $8,000.
Tax break for new car purchasers. The new law allows taxpayers to deduct State and local sales taxes paid on the purchase of a new automobile, including light trucks, SUVs, motorcycles, and motor homes. The tax break phases out starting with taxpayers earning $125,000 per year ($250,000 for joint returns). The deduction is allowed to both those who itemize their deductions as well as to nonitemizers. However, the deduction cannot be taken by a taxpayer who elects to deduct State and local sales taxes in lieu of State and local income taxes.
Alternative minimum tax (AMT) patch. To hold the number of taxpayers subject to the AMT at bay, the new law increases the AMT exemption amounts for 2009 to $46,700 for individuals and $70,950 for joint returns, and allows the personal credits against the AMT.
Don D. Nelson is an Attorney and CPA who has assisted US Citizens with real estate, businesses, and residences in Los Cabos for the last 20 years. He is an expert on expatriate and international taxation. He assists hundreds of clients in Mexico with tax planning, and return preparation. He can be reached at (949) 481-4094 or emailed at email@example.com. His website is located www.TaxMeLess.com and contains a lot of valuable tax planning information.
February 1, 2009
The form is due yearly on the extended due date of your US. Income tax return. It is filed with your personal return and includes information on the foreign corporation's ownership, formation, income and expenses, and assets and liabilities. Usually it will not result in any additional tax due with your personal return, but that is possible if it has Subpart F income.
In most situations (unless the flow through election is made as explained below) the form 5471 does not result in any additional tax on your US tax return. However, if the foreign corporation has a sufficient amount of investment income, income from the sole owners personal services, or income from reselling goods made by an affiliate in the US, its income may become immediately taxable to you the shareholder. Subpart F income is complex which means a careful analysis of the sources of the corporations income must be made to determine if it is immediately taxable to its shareholder. If another owner of the foreign corporation files the form, you just need to identify data on that owner in an attachment to your tax return.
If the corporation owns real estate, and possible for other reasons, it is advisable that it is formed a a Sociedad de Responsibilidad Limitada (SRL). You as the owner of the SRL can make an election for US income tax purposes to treat it as a flow through entity on the US return of its owner. (This is the same as the treatment of an LLC or partnership for US tax purposes.) This means all of its income or losses flow through to you on your personal tax return and becomes a part of your US taxable income each year. It also allows you to take a foreign tax credit on your personal return for any taxes the foreign corporation pays in Mexico on its income. This election also stops any possibility of double taxation or converting capitals gains into ordinary income on your US income tax return.
If the IRS discovers you filed late or you should have been filing this form and did not the penalty is $10,000 per year for each unfiled form. There is a tax treaty between Mexico and the U.S which allows both countries access to the other countries records. Your US passport is included with other documents in the bureau where your Mexican corporation is is registered in Mexico.
We recommend to you that you file this form each year if you have the requisite stock ownership in a Mexican Corporation. Failure to file could result in extreme IRS penalties if they discovered you failed to file.