Enron Whistleblower Scores $1.1M Reward from IRS

The Internal Revenue Service has paid a $1.1 million reward to an anonymous whistleblower for information that exposed an alleged tax fraud scheme by Enron, Bankers Trust and others before the company collapsed. Many of these schemes involved use of offshore accounts and entities to avoid US taxation.

It is one of the few whistleblower rewards the new IRS Whistleblower Office has made since Congress created the IRS Whistleblower Office and a new tax whistleblower program in 2006. The IRS made the award under the previous whistleblower program (known as the IRS 211 program), which allowed the IRS to award whistleblowers nothing or up to 15 percent of the tax funds the IRS recovered as a result of the whistleblower’s information.

The whistleblower, a Wall Street banker who has chosen to remain anonymous to protect his job and career, received the maximum reward of 15 percent. 

This same program is being used to catch expatriates living and working abroad with unreported foreign income and assets.  Your foreign banker, investments advisor, friend, neighbor or accountant can decide it is more profitable to turn you in to the IRS, than to remain loyal to you. Be careful out there!

IT IS YOUR OBLIGATION TO KEEP IRS INFORMED OF YOUR CURRENT ADDRESS

Many  US expats who have moved abroad call us after learning of tax liens and other IRS change, letters, etc and state they never received them.  They want to use that as an excuse for their failure to respond or to get  additional taxes, penalties and interest abated.  That does not work.

It is your obligation as a US Taxpayer to keep the IRS Informed of your current mailing address. If you do not, you are solely responsible for any adverse consequences, not the IRS.  If the mail delivery is poor in the country you plan to live, it is best to use a friend or relative's address in the US so you are certain you will receive all IRS communications.

 Change Your IRS Address Records  You can change your address on file with the IRS in several ways:

• Write the new address in the appropriate boxes on your tax return;
• Use Form 8822, Change of Address, to submit an address or name change any time during the year.  It can be downloaded at www.irs.gov;
• Give the IRS written notification of your new address by writing to the IRS center where you file your return. Include your full name, old and new addresses, Social Security Number or Employer Identification Number and signature. If you filed a joint return, be sure to include the information for both taxpayers. If you filed a joint return and have since established separate residences, each spouse should notify the IRS of their new address.

MEXICO RENTAL INCOME…………….PAYING TAX IS NOW EASIER THAN EVER AND WITH STATESIDE BENEFITS!!

by Linda Jones Neil

Those who have rental properties in Mexico can now rest easy. SAT, Mexico’s Uncle Sam, has provided a straightforward and relatively simple way to declare and pay taxes on rental income for those foreigners who have long wished to be in compliance but did not know the way to do so.

As of February 2010, SAT eliminated the requirement for a taxpayer identification number (RFC) which had previously been obtained only through extreme efforts,

Now the foreign taxpayer has two options: One to obtain the taxpayer identification number (RFC), file monthly declarations whether there is income or not, and enjoy a deduction of expenses. This is Option One.

Option Two provides for the taxpayer to make a declaration when income is received, pay a flat tax and obtain a receipt to take to the tax authorities in his/her tax residence, for credit or deduction of taxes in the home country.

On any rental the owner, or his/her property managers, are responsible for collecting the IVA tax (the added value tax) which is 11% on the Baja Peninsula and the Yucatan peninsula and 16% elsewhere. Owner or property manager must also collect the state hospitality tax which is 2 to 4% of the rental amount. These taxes must be delivered to the federal and local governments, as applicable.

It is important for the foreign person with rental property in Mexico to make arrangements for payment of these taxes since penalties can be high in Mexico for non-payment and, additionally, these same tax payments and expenses can be deducted or credited against income in taxpayer’s home country.

The next part of the equation for the US taxpayer has been deciding how to declare this income and enjoy the deductions in their US returns.

Don Nelson, Attorney and Certified Public Accountant located in California reports the following regarding tax treatment for U.S. taxpayers:

• If the Mexican rental property owned in an individuals name or through a Fideicomiso, all rental income and expenses are reported on Schedule E of the form 1040.
• Allowable rental expenses are the same as for a US property.
• Management fees, interest, property taxes, utilities, repairs, maintenance, association dues, insurance…ALL are deductible!
• Depreciation on a Mexican property is 40 years straight line
• Taxpayer can take a Foreign Tax Credit against the US income tax paid on the net rental income for income taxes paid in Mexico on that income.
• IVA (added value tax) collected from the renter must be included in rental income, but then deducted out so no double taxation.
• The special Vacation Home rules applicable to US rental property occupied part time by the owner is also apply to Mexican rental property.
• IN A SALE OF THE PROPERTY, net gain is taxed in the US at the applicable lower capital gains rates and Mexican ISR paid is a credit against that US tax on that profit.

For further information on the Rental Payment Program for Mexican properties, please contact: Lic. Quirino Parra: quirino.parra@settlement-co.com.

For further information on the payment of US taxes when Mexican income is involved, please contact attorney and CPA Don D. Nelson: ddnelson@gmail.com . His website is at www.taxmeless.com.

Author Linda Neil is the founder of The Settlement Company. It is the first escrow company in Mexico, and is dedicated to counseling buyers and sellers, processing the trusts and title transfers of Mexican real estate for foreign buyers and sellers for properties located ANYWHERE in Mexico and, now, for payment of taxes on rental income for foreigners with properties in Mexico.. Ms. Neil is also licensed as a Real Estate Broker in California, is an Accredited Buyer Representative through NAR, and has over thirty five years of hands on experience in all aspects of Mexican real estate. She holds membership in AMPI, NAR and FIABCI and PROFECO Certificate 00063/96.

E-Mail; linda.neil@settlement-co.com Web Site: http://www.settlement-co.com.

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copyright 2011, Consultores Phoenix, S.C., reproduction prohibited without permission.

Offshore Potential Employers Are Doing Credit Checks of Potential Employees

We have recently learned that foreign companies hiring US expatriates abroad are now having pre-employment credit checks done before hiring those US expats.  US companies as well have been doing this type of credit check on potential employees for some time.

Those pre-employment credit checks will reveal the existence of IRS and state tax liens if you have not filed all required US returns or have unpaid taxes in the US.  If the credit report shows unpaid US taxes,  those offshore employers are choosing not to employ the US expatriate.

To avoid this problem, US expatriates need to keep current on current IRS tax filing requirements and file any past tax returns that are in arrears.  If there are any IRS and state tax liens outstanding, it is best to pay them off or get assistance with the resolution of any liens you dispute.  Let us know if you need help with past returns or resolving past tax liens.

COLLECTING SOCIAL SECURITY WHEN RETIRED ABROAD

You can still get US social security

If you are a U.S. citizen, you may receive your benefits in most foreign countries, usually by check or direct deposit. If you are not a U.S. citizen, the answer is more complicated, with certain rules applying to certain countries. For specifics, see the Social Security publication "Your Payments While You Are Outside the United States." 


You generally must pay into social security for ten years to get benefits. Many US expats who work for foreign employers do not pay into US social security and therefore may not have enough credits to collect benefits.  You cannot receive it just because you are a US Citizen if you did not pay into the system. Read more at www.ssa.gov

IRS Announces 2011 Voluntary Offshore Disclosure Program (new program)

The IRS TODAY announced a New 2011 Voluntary Offshore Disclosure Program which will be available through August 31, 2011. It gives taxpayers who are hiding assets abroad, or not disclosing those assets on their tax returns as required by tax law , or those who failed to  file the required forms disclosing their assets abroad a second chance to come out of the closet. The new program will give participants  reduced penalties from those they would have paid if they did not enter the program. The new program's penalties however are in many circumstances higher than those charged participants in the 2009 Offshore Voluntary Disclosure Program which ended 10/15/09.  Over 15,000 taxpayers participated in the original program and over 3,000 taxpayers have  since that time have filed to  disclose foreign bank accounts which had not previously been disclosed to the IRS.

Read more about the program here.  Our firm counseled and represented many  clients involved in the previous IRS Offshore Disclosure program with great results. Please contact us if you need assistance of an Attorney CPA with this New program. Anything you tell us is totally confidential under the attorney-client privilege rule.

2011 IRS Voluntary Offshore Disclosure Program Frequently Asked Questions and Answers

Associated Press Says American Taxes are the Lowest since 1950

By STEPHEN OHLEMACHER, Associated Press 

WASHINGTON – Taxes too high? Actually, as a share of the nation's economy, Uncle Sam's take this year will be the lowest since 1950, when the Korean War was just getting under way. Read More of the Story

IRS INDIVIDUAL TAX RETURN STATISTICS

The IRS now published extensive table showing information and statistics from individual tax returns that have been filed.  You can use this information to determine just how rich or poor you are compared with other taxpaying Americans. You can also use this information to see if your income and deductions are in line with other taxpayers who have similar incomes.  The IRS in some way uses these tables to determine which taxpayers to audit. The IRS Individual Taxpayer Statistics Page Can be accessed here.

IRS Releases Foreign Housing Expense Limitations for 2011

The IRS has provided the inflation-adjusted limitations on foreign housing expenses for 2011 (Notice 2011-8).

Under IRC § 911(a), a qualified individual can elect to exclude from gross income his or her foreign earned income and housing costs. Section 911(c)(1) provides a formula for determining the excludible amount of the individual’s foreign housing costs. Generally, under section 911(c)(2)(A), a qualified individual will be limited to maximum housing expenses of $27,870 in 2011.

If you are an expat you can deduct
your foreign housing expenses

However, the IRS can adjust the maximum limitation based on geographic differences in housing costs relative to housing costs in the United States, and since 2006 it has issued annual notices adjusting the limitation for qualified individuals who live in countries with high housing costs compared to U.S. housing.

Notice 2011-8 provides a table of more than 400 foreign locations for which the IRS is allowing an increased limitation on housing expenses. Some of the highest limitations for 2011 are for Bermuda ($90,000 for the full-year limitation); Hong Kong ($114,300); Paris ($84,800); Tokyo ($118,500); and Moscow ($108,000). 

In locations where the amount has increased from the amount in 2010 (listed in Notice 2010-27), the notice also allows taxpayers who incurred housing expenses in 2010 to elect to apply the 2011 limitation amount to the 2010 year.

US IRS TAX RULES YOU MUST FOLLOW WHEN YOU OWN AND RENT OUT PROPERTY LOCATED IN A FOREIGN COUNTRY

By Don D. Nelson, Attorney, CPA

with over 20 years experience helping clients living and working abroad

When you are renting out your real property in a foreign country, as a US Citizen or permanent resident, you must not only comply with all tax requirements of that foreign country, but you must also report all rental information on your US income tax return.. The rules are almost the same as those for rental property located in the US, but with some variations.

• If you own the Mexican rental in your individual name, you report all of your rental income and expenses on Schedule E of your Form 1040. All of the allowable expenses are the same as for US property.
• Expenses you can deduct include management fees, interest, property taxes, utilities, repairs, maintenance, association dues, insurance, depreciation, and other miscellaneous expenses.
• Unlike property located in the US, you must depreciate the property (amount allocatable to the structure) over a 40 year period rather than shorter times sometimes allowed for US property.
• You can take a credit against your US federal income tax for income taxes paid to the foreign country on your net rental income after deducting all expenses. That credit is limited to the amount of US Federal tax you paid on that rental income on your tax return. Any unused foreign tax credit can be carried over to future year. Most US states do not allow any credit for income taxes paid foreign countries.
• Any Value Added Tax (VAT) or occupancy tax collected from the renter should be included in your rental income, but then you can deduct out those taxes so you do not have to pay any tax on those items.
• The same restrictions and limited allowable deductions for “vacation homes” apply when you have occupied the property yourself part of the time and rented it out to third parties at other times.
• When the property is sold (if it is held in your individual name ) your net gain is taxed in the US at the applicable lower capital gains rates, and you can claim a credit against your US tax on the sale for the foreign capital gains or income taxes paid on that profit to Mexico.

If the property was used for the 2 years during the previous 5 years prior to sale as your personal primary residence (you must actually live in it full time during that period), you may be able to exclude up to $500,000 of the gain from your US income taxes under the exclusion allowed for sales of personal residences. If the property was rented out part of that time, some of the gain on sale will be subject to US income tax.

If your foreign real property is held through a foreign corporation, there can be adverse US tax consequences while renting out the property and upon sale on your US tax return. With the proper type of foreign corporation, certain elections can be made with the IRS which will negate almost of these US tax problems. These elections are only made for US tax purposes and do not in any way affect the way your foreign corporation is taxed under the tax laws of its country of location.

Other US Tax Forms That May be Required:

Form 8865: If you own your foreign rental in a foreign partnership (if you own 10% or more) or LLC you must filed this form each year with your personal tax return to report the details of its income, expenses, etc.

Forms 3520/3520A: If you own your foreign rental property or personal residence in a foreign trust, you must file both of these forms each year. They are not filed with your personal tax return. One form is due 3/15 after the end of the calendar year and the other is due on the extended due date of your personal tax return. Failure to file these forms can result in extreme penalties.

Form 5471: If your Foreign real estate is held in a Foreign corporation, you must file this form each year if you own 10% or more of the shares (actually or constructively) in the corporation. This form is due on the extended due date of your personal return. The IRS can impose a $10,000 per year penalty for filing this form late or not at all.

Form TDF 90-22.1: This form reports your ownership in foreign bank and other financial accounts. It would include any accounts where your property manager or accountant is using to collect rents or pay foreign taxes and rentals. If the highest total of all of your foreign financial and bank accounts when combined together equal or exceed at any time $10,000 US per year, you must file this form to report details of all accounts. It is filed separately from your tax return and is due on June 30^th following the end of each calendar year. The due date cannot be extended. The IRS can impose a $10,000 penalty for filing the form late or not at all.