The CPA Insider has an excellent article by Janice Eiseman on the possible FBAR penalties that might be imposed a taxpayer that chose not to participate in the 2011 Voluntary Disclosure Program or opts out and just files the forms outside of that program. It appears based on case law and IRS procedures often the penalty for non willfully failing to file can be less that the $10,000 the IRS suggests it might be. Click here to read the article.
US IRS rules, regulations and laws, for US Citizens, Americans, green card holders, and nonresidents living abroad or moving to the US or out of the US.... valuable information on IRS rules concerning U.S. expatriates and their tax returns, and tax planning.... by an experienced International Tax Attorney
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September 20, 2011
September 19, 2011
IRS Voluntary Disclosure after 9/9/11
September 15, 2011
CURRENT IRS PROGRESS COMBATING INTERNATIONAL TAX EVASION
WASHINGTON — The Internal Revenue Service continues to make strong progress in combating international tax evasion, with new details announced today showing the recently completed offshore program pushed the total number of voluntary disclosures up to 30,000 since 2009. In all, 12,000 new applications came in from the 2011 offshore program that closed last week.
The IRS also announced today it has collected $2.2 billion so far from people who participated in the 2009 program, reflecting closures of about 80 percent of the cases from the initial offshore program. On top of that, the IRS has collected an additional $500 million in taxes and interest as down payments for the 2011 program — a figure that will increase because it doesn’t yet include penalties.“By any measure, we are in the middle of an unprecedented period for our global international tax enforcement efforts,” said IRS Commissioner Doug Shulman. “We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion.”
Global tax enforcement is a top priority at the IRS, and Shulman noted progress on multiple fronts, including ground-breaking international tax agreements and increased cooperation with other governments. In addition, the IRS and Justice Department have increased efforts involving criminal investigation of international tax evasion.
The combination of efforts helped support the 2011 Offshore Voluntary Disclosure Initiative (OVDI), which ended on Sept. 9. The 2011 effort followed the strong response to the 2009 Offshore Voluntary Disclosure Program (OVDP) that ended on Oct. 15, 2009. The programs gave U.S.taxpayers with undisclosed assets or income offshore a second chance to get compliant with the U.S. tax system, pay their fair share and avoid potential criminal charges.
The 2009 program led to about 15,000 voluntary disclosures and another 3,000 applicants who came in after the deadline, but were allowed to participate in the 2011 initiative. Beyond that, the 2011 program has generated an additional 12,000 voluntary disclosures, with some additional applications still being counted. All together from these efforts, taxpayers came forward and made 30,000 voluntary disclosures.
“My goal all along was to get people back into the U.S. tax system,” Shulman said. “Not only are we bringing people back into the U.S. tax system, we are bringing revenue into the U.S. Treasury and turning the tide against offshore tax evasion.”
In new figures announced today from the 2009 offshore program, the IRS has $2.2 billion in hand from taxes, interest and penalties representing about 80 percent of the 2009 cases that have closed. These cases come from every corner of the world, with bank accounts covering 140 countries.
The IRS is starting to work through the 2011 applications. The $500 million in payments so far from the 2011 program brings the total collected through the offshore programs to $2.7 billion.
“This dollar figure will grow in the months ahead,” Shulman said. “But just as importantly, we have changed the risk calculus. Americans now understand that if they try to hide assets overseas, the chances of being caught continue to increase.”
The financial impact can be seen in a variety of other areas beyond the 2009 and 2011 programs.
- Criminal prosecutions. People hiding assets offshore have received jail sentences running for months or years, and they have been ordered to pay hundreds of thousands and even millions of dollars.
- UBS. UBS AG, Switzerland's largest bank, agreed in 2009 to pay $780 million in fines, penalties, interest and restitution as part of a deferred prosecution agreement with the U.S. government.
Expatriates Living Abroad Can Request An Additional Extension of time to December 15th.
If you are an expat living abroad on 4/15, you receive an automatic extension of time until June 15th to file your income tax return return with the IRS.
If you cannot file your return within the automatic 2-month extension period, you generally can get an additional 4 months (using form 4868) to file your return, for a total of 6 months. The 2-month period and the 6-month period start at the same time. You have to request the additional 4 months by the new due date allowed by the 2-month extension.
The additional 4 months of time to file (unlike the original 2-month extension) is not an extension of time to pay. You must make an accurate estimate of your tax based on the information available to you. If you find you cannot pay the full amount due with Form 4868, you can still get the extension. You will owe interest on the unpaid amount from the original due date of the return.
You also may be charged a penalty for paying the tax late unless you have reasonable cause for not paying your tax when due. Penalties for paying the tax late are assessed from the original due date of your return, unless you qualify for the automatic 2-month extension. In that situation, penalties for paying late are assessed from the extended due date of the payment (June 15 for calendar year taxpayers).
Additional extension of time for taxpayers out of the country. In addition to the 6-month extension, taxpayers who are out of the country can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers).
To request this extension, you must send the Internal Revenue Service a letter explaining the reasons why you need the additional 2 months. Send the letter by the extended due date (October 15 for calendar year taxpayers) to the following address:
Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301-0215
Internal Revenue Service Center
Austin, TX 73301-0215
You will not receive any notification from the Internal Revenue Service unless your request is denied.
September 14, 2011
How U.S Tax Policy Is Forcing 5 Million Americans Abroad To Reconsider Citizenship
Read the article in the Business Insider about the onerous US tax policy on US expatriates and green card holders that is forcing millions to consider giving up their US Citizenship or Residency status by CLICKING HERE. We can help you surrender your US Citizenship or Permanent Resident status including preparing all applicable required special tax forms. Read about the procedures and requirements HERE. Contact us if you wish assistance via email at US Expatriation. To date we have advised or assisted over 30 previous green card holders or citizens surrender their US status and in most situations never have to file any US tax returns again.
September 9, 2011
Foreign Earned Income Exclusion - Seaman & Ships Employees
Benefits under section 911 (Foreign Earned Income Exclusion of $92,900 for 2011) are conditioned upon the taxpayer being present or residing in a foreign country. A ship employee’s presence or residence aboard a ship does not qualify as presence or residence in a foreign country for purposes of section 911 even though the ship is of a foreign registry or is in international waters. The regulations have consistently defined the term "foreign country" as " any territory under the sovereignty of a government other than that of the United States." See Treas. Reg. section 1.911-2(h). It includes the territorial waters of the foreign country as determined in accordance with the laws of the United States. In Revenue Ruling 67-52, 1967-1 C.B. 186, cited in L.R. Martin, 50 T.C. 59 (1968), the Service ruled that the Antarctica region is not under the sovereignty of any government and, therefore, is not considered a foreign country for purposes of section 911. Also, in Revenue Ruling 73-181, 1973-1 C.B. 347, the Service ruled that physical presence on a fishing boat in international waters, adjacent to the territorial waters of a foreign country, does not satisfy the presence requirement of Section 911(d)(2). In Souza, 33 T.C. 817 (1960), the court held that a U.S. registered fishing vessel operating off the coast of Peru beyond the 3 mile territorial waters limit but within the 200 mile limit recognized by Peru as its territorial waters does not constitute presence in a foreign country for purposes of section 911. The court ruled, the fact that a vessel is of U.S. or foreign registry should have no effect on the determination of whether its crews members are present or resident in a foreign country. Consequently, the high seas and Antarctica are not considered a foreign country for purposes of section 911. See also, Balestries, 47 BTA 241.
September 7, 2011
Amercian Citizens Abroad Call for Repeal of Foreign Bank Account Reporting on US Taxpayer Offshore Accounts
American Citizens Abroad (ACA) is advocating for the repeal of the draconian IRS rules requiring foreign banks withhold and report on foreign bank and financial accounts held by US taxpayers located outside of the USA. Read the Forbes Magazine Article by clicking on this link.
August 31, 2011
2011 Foreign Earned Income Exclusion Increases
For 2011, the foreign earned income exclusion for wages earned while working and living abroad will be $92,900. That is a $1,400 increase from that allowed for 2010. If both spouses work abroad, each can exclude their earned income from US taxes up to that amount. One spouse cannot use the other spouses unused portion of that exclusion.
If your are married and live abroad with your spouse, consider making her an employee or starting her own business since she will also receive a foreign earned income exclusion for 2011 of of $92,900 to be applied against her taxable income on her US income tax return.
You can also claim a deduction for foreign rental expenses, utilities and maintenance above a certain amount up to a maximum amount which varies per the country you in which you are living and working.
If your are married and live abroad with your spouse, consider making her an employee or starting her own business since she will also receive a foreign earned income exclusion for 2011 of of $92,900 to be applied against her taxable income on her US income tax return.
You can also claim a deduction for foreign rental expenses, utilities and maintenance above a certain amount up to a maximum amount which varies per the country you in which you are living and working.
August 27, 2011
Quiet or Silent Disclosure May Not be Best Way to Go With Respect to Foreign Financial Accounts, Foreign corps, trusts, and partnerships
Forbes Magazine Article Does not recommend that taxpayers try "silent or quiet" disclosure to reveal their offshore bank accounts, financial accounts, foreign corporations, foreign partnerships or foreign trusts. The IRS says they are looking for individuals who are attempting to file past special foreign asset reporting forms and will hit them with the maximum penalties and possible criminal prosecution. Click Here to Read Article.
The IRS has extended the deadline for entering the 2011 Voluntary Offshore Disclosure Program to 9/9/11 from the original deadline of 8/31/11. This will avoid the possible huge penalties which can be incurred if a taxpayer attempts to silently or quietly disclose.
The IRS has extended the deadline for entering the 2011 Voluntary Offshore Disclosure Program to 9/9/11 from the original deadline of 8/31/11. This will avoid the possible huge penalties which can be incurred if a taxpayer attempts to silently or quietly disclose.
August 26, 2011
IRS Extends 2011 Voluntary Offshore Disclosure Filing Deadline to September 9, 2011
Note: Though you may have missed the program which ended 9/9/11, you still can file all past unfiled tax returns including forms 5471, 8865, 3520, FBAR, etc., under the regular IRS disclosure program which has always existed. Coming forward and entering this program in most situations will avoid any possible criminal prosecution and you can negotiate with the IRS to attempt to reduce the penalties they might try to impose for filing late offshore reporting tax forms. See our website at www.taxmeless.com to learn more about this procedure.
If you have entered the 2011 Program, and are representing yourself, our firm can provide you with guidance and advice if you wish to continue your self representation, or we can step in and act as your representative before the IRS. We can also help you if you are not satisfied with your current representative. If you tax representative is an Attorney, they can provide you with the privacy and confidentiality of Attorney-Client privilege which is not available from a CPA or EA.
IRS Statement: OVDI Deadline Extension(Aug. 26, 2011)
If you have entered the 2011 Program, and are representing yourself, our firm can provide you with guidance and advice if you wish to continue your self representation, or we can step in and act as your representative before the IRS. We can also help you if you are not satisfied with your current representative. If you tax representative is an Attorney, they can provide you with the privacy and confidentiality of Attorney-Client privilege which is not available from a CPA or EA.
IRS Statement: OVDI Deadline Extension(Aug. 26, 2011)
Due to the potential impact of Hurricane Irene, the IRS has extended the due date for offshore voluntary disclosure initiative requests untilSeptember 9, 2011. For those taxpayers who have not yet submitted their request and any documents, the following actions are necessary by September 9, 2011:
- Identifying information must be submitted to the Criminal Investigation office. This includes name, address, date of birth, and social security number and as much of the other information requested in the Offshore Voluntary Disclosures Letter as possible. This information must be sent to:
Offshore Voluntary Disclosure Coordinator
600 Arch Street, Room 6404
Philadelphia, PA 19106.
- Send a request for a 90-day extension for submitting the complete voluntary disclosure package of information to the Austin campus. This request must be sent to:
Internal Revenue Service
3651 S. I H 35 Stop 4301 AUSC
Austin, TX 78741
ATTN: 2011 Offshore Voluntary Disclosure Initiative
August 25, 2011
WHEN ARE FOREIGN PENSION PLAN CONTRIBUTIONS TAXABLE ON US TAX RETURNS?
US expatriates working for foreign employers may participate in foreign pension plans. These plans normally have beneficial tax treatment under local law. Unfortunately, these foreign arrangements generally do not meet the US "qualification rules". As a result, the beneficial treatment under local law is often not available to US citizens working abroad..
US QUALIFIED DEFERRED COMPENSATION
US employer sponsored pension plans qualify for special tax treatment under the Internal Revenue Code: tax deductible contributions for the employer; earnings in the plan are tax exempt; and the employee is not taxed until the benefits are received upon retirement or withdrawal of those pension funds. These tax benefits are not available unless the plan meets the specific requirements of the Internal Revenue Code.
NON-QUALIFIED DEFERRED COMPENSATION
The determination of when amounts deferred under a non-qualified deferred compensation arrangement are includible in the gross income of the taxpayer depends on the facts and circumstances of the arrangement and which Code section applies to those facts.
IRC § 402(b) Plans
Employer sponsored non-qualified funded deferred compensation plans are generally governed by the provisions of IRC § 402(b). US employees who participate in such a plan are taxed on the amount of the contributions made by the employer (once the benefits are vested or not subject to a substantial risk of forfeiture). If the employee is a "highly compensated" (compensation exceeds $105,000 or part of the top 20% of employees) the employee is taxed on both the contribution and the growth in the plan each year (to the extent the benefits are vested. (Non-Highly compensated employees are not taxed on the growth in the plan, but are taxed when the benefits are distributed.)
IRC § 409A
The provisions of IRC § 409A apply to deferred compensation plans not covered by IRC § 402(b), plans covered by a tax treaty or foreign pension plans that are available on a broad base to the employer's employees (but only to the extent of non-elective deferrals and employer contributions as limited by US rules).
Under IRC § 409A, if the deferred compensation arrangement does not meet the requirements of IRC § 409A, the employee will be subject to normal income tax, a 20% penalty tax and an interest charge. To meet the rules of IRC § 409A, the plan must provide that distributions from the deferred compensation plan are only allowed on separation from service, death, a specified time (or under a fixed schedule), change in control of a corporation, occurrence of an unforeseeable emergency, or if the participant becomes disabled.
The plan may not allow for the acceleration of benefits, except as provided by regulations. The plan must provide that compensation for services performed during a tax year may be deferred at the participant's election only if the election to defer is made no later than the close of the preceding tax year, or at such other time as provided in regulations.
The actual time and manner of distributions must be specified at the time of initial deferral.
INCOME TAX TREATY-PENSIONS
The normal US income tax rules may be altered by applicable treaty provisions; for example, the United States and the United Kingdom Income Tax Treaty. While the treaty does not specifically provide that each country's qualified plans will be treated as qualified plans by the other country, the treaty effectively provides for such a result with tax deferrals and tax reductions, but subject to certain limits.
In the context of a US citizen employed in the UK and participating in a pension plan established by the UK employer, the rules are that the employee may deduct (or exclude) contributions made by or on behalf of the individual to the plan; and benefits accrued under the plan are not taxable income. The Treaty further provides that the deduction (or exclusion) rule only applies to the extent the contributions or benefits qualify for tax relief in the UK and that such relief may not exceed the reliefs that would be allowed in the US under its domestic rules.
With respect to distributions the general rule under the Treaty is that a pension received by a resident of one country is only taxable by the country of residence. For Lump Sum payments, the general rule is that only the country of the situs of the pension plan may tax the distribution. However, as in most US treaties, the US retains the right to tax its citizens as if the treaty were not in force; with the result that the US retains its right to tax its citizens on both periodic distributions as well as lump sum distributions. Double taxation is avoided through the use of the foreign tax credit rules.
HOW TO TREAT CONTRIBUTIONS TO YOUR FOREIGN PENSION PLAN
Where a US citizen employee participates in a foreign pension plan, it is likely that the plan will not have met the US qualification rules. Thus, the employee will be subject to US tax on the contributions to the plan and the growth in the plan. For employees that live in a jurisdiction that imposes an income tax at rates higher than the US rate, it is likely that the employee will have generated a pool of "excess foreign tax credits". These credits may be used to offset the US tax on foreign sourced income and therefore may be used to reduce (or eliminate) the US tax that may currently arise on the deferred compensation.
If the employee has "excess foreign tax credits", (and provided the deferred compensation is "foreign sourced income"), the current US tax on such income may be partially or fully offset. Another possibility is for the US taxpayer to make a claim under an applicable treaty (if the country of employment has a Tax Treaty with the US).. If there is a treaty with proper pension provisions, and the contributions to the plan have not exceeded the US plan limitations, the contributions to the plan and the growth in the plan should not be subject to current US income tax. If there is no treaty with the country the expat is living in, then there is no deferral of pension contributions by a foreign employer.
An expat taxpayer has the choice of using excess foreign tax credits or invoking an applicable tax treaty to avoid having to pay current US income tax on contributions and the growth in the foreign deferred compensation scheme. Whether to use excess credits or to invoke the treaty will depend on a number of factors such as which may vary each particular situation.
TAX REPORTING:
There are a number of reporting requirements that may apply in addition to the individual's income tax return. This may include certain foreign trust reporting returns (form 3520 and 3520A), as well as the Treasury report on Foreign Bank and Financial Accounts which is form TD F 90-22.1. This report must be filed when your foreign accounts(when combined together at their highest balances during the year) exceed $10,000 and covers not only bank accounts but arrangements outside the US that are virtually any type of financial account. This form must be filed by June 30 of each year, and there are no extensions. Substantial penalties (including criminal penalties) may apply.
US expatriates working for foreign employers may participate in foreign pension plans. These plans normally have beneficial tax treatment under local law. Unfortunately, these foreign arrangements generally do not meet the US "qualification rules". As a result, the beneficial treatment under local law is often not available to US citizens working abroad..
US QUALIFIED DEFERRED COMPENSATION
US employer sponsored pension plans qualify for special tax treatment under the Internal Revenue Code: tax deductible contributions for the employer; earnings in the plan are tax exempt; and the employee is not taxed until the benefits are received upon retirement or withdrawal of those pension funds. These tax benefits are not available unless the plan meets the specific requirements of the Internal Revenue Code.
NON-QUALIFIED DEFERRED COMPENSATION
The determination of when amounts deferred under a non-qualified deferred compensation arrangement are includible in the gross income of the taxpayer depends on the facts and circumstances of the arrangement and which Code section applies to those facts.
IRC § 402(b) Plans
Employer sponsored non-qualified funded deferred compensation plans are generally governed by the provisions of IRC § 402(b). US employees who participate in such a plan are taxed on the amount of the contributions made by the employer (once the benefits are vested or not subject to a substantial risk of forfeiture). If the employee is a "highly compensated" (compensation exceeds $105,000 or part of the top 20% of employees) the employee is taxed on both the contribution and the growth in the plan each year (to the extent the benefits are vested. (Non-Highly compensated employees are not taxed on the growth in the plan, but are taxed when the benefits are distributed.)
IRC § 409A
The provisions of IRC § 409A apply to deferred compensation plans not covered by IRC § 402(b), plans covered by a tax treaty or foreign pension plans that are available on a broad base to the employer's employees (but only to the extent of non-elective deferrals and employer contributions as limited by US rules).
Under IRC § 409A, if the deferred compensation arrangement does not meet the requirements of IRC § 409A, the employee will be subject to normal income tax, a 20% penalty tax and an interest charge. To meet the rules of IRC § 409A, the plan must provide that distributions from the deferred compensation plan are only allowed on separation from service, death, a specified time (or under a fixed schedule), change in control of a corporation, occurrence of an unforeseeable emergency, or if the participant becomes disabled.
The plan may not allow for the acceleration of benefits, except as provided by regulations. The plan must provide that compensation for services performed during a tax year may be deferred at the participant's election only if the election to defer is made no later than the close of the preceding tax year, or at such other time as provided in regulations.
The actual time and manner of distributions must be specified at the time of initial deferral.
INCOME TAX TREATY-PENSIONS
The normal US income tax rules may be altered by applicable treaty provisions; for example, the United States and the United Kingdom Income Tax Treaty. While the treaty does not specifically provide that each country's qualified plans will be treated as qualified plans by the other country, the treaty effectively provides for such a result with tax deferrals and tax reductions, but subject to certain limits.
In the context of a US citizen employed in the UK and participating in a pension plan established by the UK employer, the rules are that the employee may deduct (or exclude) contributions made by or on behalf of the individual to the plan; and benefits accrued under the plan are not taxable income. The Treaty further provides that the deduction (or exclusion) rule only applies to the extent the contributions or benefits qualify for tax relief in the UK and that such relief may not exceed the reliefs that would be allowed in the US under its domestic rules.
With respect to distributions the general rule under the Treaty is that a pension received by a resident of one country is only taxable by the country of residence. For Lump Sum payments, the general rule is that only the country of the situs of the pension plan may tax the distribution. However, as in most US treaties, the US retains the right to tax its citizens as if the treaty were not in force; with the result that the US retains its right to tax its citizens on both periodic distributions as well as lump sum distributions. Double taxation is avoided through the use of the foreign tax credit rules.
HOW TO TREAT CONTRIBUTIONS TO YOUR FOREIGN PENSION PLAN
Where a US citizen employee participates in a foreign pension plan, it is likely that the plan will not have met the US qualification rules. Thus, the employee will be subject to US tax on the contributions to the plan and the growth in the plan. For employees that live in a jurisdiction that imposes an income tax at rates higher than the US rate, it is likely that the employee will have generated a pool of "excess foreign tax credits". These credits may be used to offset the US tax on foreign sourced income and therefore may be used to reduce (or eliminate) the US tax that may currently arise on the deferred compensation.
If the employee has "excess foreign tax credits", (and provided the deferred compensation is "foreign sourced income"), the current US tax on such income may be partially or fully offset. Another possibility is for the US taxpayer to make a claim under an applicable treaty (if the country of employment has a Tax Treaty with the US).. If there is a treaty with proper pension provisions, and the contributions to the plan have not exceeded the US plan limitations, the contributions to the plan and the growth in the plan should not be subject to current US income tax. If there is no treaty with the country the expat is living in, then there is no deferral of pension contributions by a foreign employer.
An expat taxpayer has the choice of using excess foreign tax credits or invoking an applicable tax treaty to avoid having to pay current US income tax on contributions and the growth in the foreign deferred compensation scheme. Whether to use excess credits or to invoke the treaty will depend on a number of factors such as which may vary each particular situation.
TAX REPORTING:
There are a number of reporting requirements that may apply in addition to the individual's income tax return. This may include certain foreign trust reporting returns (form 3520 and 3520A), as well as the Treasury report on Foreign Bank and Financial Accounts which is form TD F 90-22.1. This report must be filed when your foreign accounts(when combined together at their highest balances during the year) exceed $10,000 and covers not only bank accounts but arrangements outside the US that are virtually any type of financial account. This form must be filed by June 30 of each year, and there are no extensions. Substantial penalties (including criminal penalties) may apply.
August 23, 2011
Will Canada Revenue Agency Help the IRS Collect the Penalties for Various Unfiled Foreign Reporting Forms?
Click here to visit the link to recent article in the Vancouver Sun about Canada Revenue Agency Opinion. on enforcing IRS penalties for not filing FBARS, Foreign corporation and partnership forms, etc. It appears they will not help the IRS collect such penalties if assessed.
Ninth Circuit finds Fifth Amendment (self incrimination) inapplicable to offshore banking records
M.H. v. United States; No. 11-55712 (8/19/2011)
The Ninth Circuit recently held that the Fifth Amendment privilege against self-incrimination may not be used by a taxpayer under grand jury investigation for the use of his undisclosed Swiss bank accounts.
Facts. An unamed taxpayer was the target of a grand jury investigation to determine whether he used undisclosed Swiss bank accounts to evade paying federal taxes. Records indicating that the taxpayer had transferred assets from an account at UBS AG to an account with UEB Geneva in 2002 was disclosed to the U.S. under a 2009 deferred prosecution agreement between the U.S. Department of Justice and UBS.
District Court. The U.S. District Court for the Southern District of California granted a motion to compel the taxpayer to provide his records pertaining to his foreign bank accounts under the Required Records Doctrine. Under the doctrine, records that are required to be maintained by law fall outside the scope of the Fifth Amendment privilege, when certain conditions are satisfied.
The taxpayer argued that the information requested could conflict with other information he may have provided to the IRS. Thus, production of the requested records would be self incriminating. Moreover, the taxpayer argued that the denial of maintaining such evidence would also be self incriminating because the failure to maintain such documentation is a felony.
Circuit Court. The Ninth Circuit affirmed the lower court's decision, finding that under Grosso v. U.S., 390 U.S. 62 (1968) documents that are regulatory, customarily kept and have some public aspects apply to documents that must maintained under the Bank Secrecy Act.
The decision can be viewed at http://www.ca9.uscourts.gov/ datastore/opinions/2011/08/19/ 11-55712.pdf.
August 22, 2011
Delinquent U.S. Foreign Information Returns: Is Filing Under the 2011 OVDI Appropriate?
Read more about whether or not you should enter the OVD program in the following article form the AICPA Tax Advisor publication. Click here to read the article: .
August 19, 2011
IRS updates list of treaties qualifying foreign dividends for preferential rates
Notice 2011-64, 2011-37 IRB
A new notice updates the list of U.S. tax treaties that meet requirements for dividends from foreign corporations to qualify for preferential rates. The notice also clarifies the requirements for treatment as a qualified foreign corporation.
Background. A noncorporate taxpayer's adjusted net capital gain is taxed at a maximum rate of 15% or, to the extent it would have been taxed at a rate below 25% if it had been ordinary income, at a maximum rate of 0%. (Code Sec. 1(h))
Adjusted net capital gain is net capital gain for the tax year (i.e., the excess of net long-term capital gains over net short-term capital losses for a tax year):
- less the sum of specified types of long-term capital gain that are taxed at a maximum rate of 28% (gain on the sale of most collectibles and gain on the unexcluded part of Code Sec. 1202 small business stock) or 25% (unrecaptured section 1250 gain, i.e., gain attributable to real estate depreciation),
- plus qualified dividend income.
Qualified dividend income—generally, dividends received during the tax year from domestic corporations and “qualified foreign corporations,” subject to holding period requirements and specified exceptions—is effectively treated as adjusted net capital gain, and therefore taxed at the same rates that apply to adjusted net capital gain. (Code Sec. 1(h)(11))
Subject to certain exceptions, a qualified foreign corporation is any foreign corporation that is either (i) incorporated in a U.S. possession (Code Sec. 1(h)(11)(C)(i)(I)), or (ii) eligible for benefits of a comprehensive income tax treaty with the U.S. that IRS determines is satisfactory for purposes of this provision and that includes an exchange of information program (the “treaty test”). (Code Sec. 1(h)(11)(C)(i)(II)) A foreign corporation that does not satisfy either of these two tests is treated as a qualified foreign corporation with respect to any dividend paid by it if the stock on which the dividend is paid is readily tradable on an established securities market in the U.S. (Code Sec. 1(h)(11)(C)(ii))
A qualified foreign corporation does not include any foreign corporation that for its tax year in which the dividend was paid, or the preceding tax year, is a Code Sec. 1297 passive foreign investment company. (Code Sec. 1(h)(11)(C)(iii)) A dividend from a qualified foreign corporation is also subject to the other limitations in Code Sec. 1(h)(11). For example, a shareholder receiving a dividend from a qualified foreign corporation must satisfy the Code Sec. 1(h)(11)(B)(iii) holding period requirements.
Updated list. Notice 2011-64 updates the list to add two U.S. income tax treaties that entered into force after the publication of Notice 2006-101: the U.S. income tax treaties with Bulgaria (which entered into force on Dec. 15, 2008) and Malta (which entered into force on Nov. 23, 2010). (Notice 2011-64, Sec. 2)
Other requirements. Notice 2011-64 also clarifies that a foreign corporation must be eligible for benefits of one of the U.S. income tax treaties listed in the Appendix in order to be treated as a qualified foreign corporation under Code Sec. 1(h)(11)(C)(i) 's treaty test. Accordingly, the foreign corporation must be a resident under the relevant treaty and satisfy any other requirements of that treaty, including the requirements under any applicable limitation on benefits provision. For purposes of determining whether it satisfies these requirements, a foreign corporation is treated as though it were claiming treaty benefits, even if it does not derive income from sources within the U.S. (Notice 2011-64, Sec. 3)
Effective date. Notice 2011-64 is effective with respect to: (1) Bulgaria for dividends paid on or after Dec. 15, 2008; (2) Malta for dividends paid on or after Nov. 23, 2010; (3) Bangladesh for dividends paid on or after Aug. 7, 2006; (4) Barbados for dividends paid after Dec. 19, 2004; (5) Sri Lanka for dividends paid on or after July 12, 2004; and (6) all other U.S. income tax treaties listed in the appendix for tax years beginning after Dec. 31, 2002. (Notice 2011-64, Sec. 4)
August 15, 2011
Tax Havens in Zug Switzerland and Ireland
The popular news show 60 MINUTES has done an excellent piece on the tax havens being used by large US Corporations to shelter untold amounts of income from US high tax rates. The two places mentioned are Zug, Switzerland and Ireland. Read the article here.
The tax rates they are paying in these two locations are about 16-18 percent.
Individual entrepreneurs may be able to do the same (assuming they structure their business correctly) if they have an operating business that sells goods or services and those sales are to international customers. It will not work with respect to some types of income if the foreign corporation put in place has certain types of income call Subpart F income.
The tax rates they are paying in these two locations are about 16-18 percent.
Individual entrepreneurs may be able to do the same (assuming they structure their business correctly) if they have an operating business that sells goods or services and those sales are to international customers. It will not work with respect to some types of income if the foreign corporation put in place has certain types of income call Subpart F income.
August 11, 2011
FBAR filing rules and Chart of Potential Civil and Criminal Penalties for non filing or late filing
Possible Civil and Criminal Penalties that can be imposed by the IRS for failure to file FBAR (TDF 90-22.1) forms or filing those forms late as well as other rules concerning that form are can read at the link to the following IRS webpage: FBAR Rules, Civil and Criminal Penalties
The penalties may be reduced if you enter the 2011 IRS Offshore Voluntary Disclosure Program prior to its deadline of 8/31/11.
The penalties may be reduced if you enter the 2011 IRS Offshore Voluntary Disclosure Program prior to its deadline of 8/31/11.
August 9, 2011
1,470 Millionaires Didn’t Pay Income Taxes in 2009
The IRS data showed there were 235,413 taxpayers making $1 million or more in 2009, of whom 1,470 paid no federal income taxes. Among the possible reasons, according to ABC News, could be write-offs for charitable deductions, investments in tax-exempt state and municipal bonds, or foreign tax credits.
In contrast, the average income for taxpayers fell that year in the wake of the financial crisis by $3,516 to $54,283, a drop of approximately 6.1 percent, according to the Huffington Post.
August 8, 2011
IRS Reminds Taxpayers that the Aug. 31 Deadline Is Fast Approaching for the Second Special Voluntary Disclosure Initiative of Offshore Accounts
WASHINGTON — U.S. taxpayers hiding income in undisclosed offshore accounts are running out of time to take advantage of a soon-to-expire opportunity to come forward and get their taxes current with the Internal Revenue Service.
The IRS today reminded taxpayers that the 2011 Offshore Voluntary Disclosure Initiative (OVDI) will expire on Aug. 31, 2011. Taxpayers who come forward voluntarily get a better deal than those who wait for the IRS to find their undisclosed accounts and income. New foreign account reporting requirements are being phased in over the next few years, making it ever tougher to hide income offshore. As importantly, the IRS continues its focus on banks and bankers worldwide that assist U.S. taxpayers with hiding assets overseas.
“The time has come to get back into compliance with the U.S. tax system, because the risks of hiding money offshore keeps going up,” said IRS Commissioner Doug Shulman. “Our goal is to get people back into the system. The second voluntary initiative gives people a fair way to resolve their tax problems.”
The 2011 OVDI was announced on Feb. 8, 2011, and follows the 2009 Offshore Disclosure Program (OVDP). The 2011 initiative offers clear benefits to encourage taxpayers to come forward rather than risk detection by the IRS. Taxpayers hiding assets offshore who do not come forward will face far higher penalties along with potential criminal charges.
For the 2011 initiative, there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. Some taxpayers will be eligible for 5 or 12.5 percent penalties in certain narrow circumstances.
Participants also must pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. All original and amended tax returns must be filed by the deadline.
The IRS has made available the 2011 OVDI information in eight foreign languages for those taxpayers with undisclosed offshore accounts. The agency took this step to reach taxpayers whose primary language may not be English. These translations include the following languages: Chinese (Traditional andSimplified), Farsi, German, Hindi, Korean, Russian, Spanish and Vietnamese.
The IRS decision to open a second special disclosure initiative was based on the success of the first program and many more taxpayers coming forward after the program closed on Oct. 15, 2009. The first special disclosure initiative program closed with about 15,000 voluntary disclosures regarding accounts at banks in more than 60 countries. Many taxpayers came in after the first program closed. These taxpayers were deemed eligible to take advantage of the special provisions of the second initiative.
Further details about this initiative are provided in a series of questions and answers.
July 27, 2011
Tax Frauds You Should Be Wary About
Here are five year-round scams every taxpayer should know about.
1. Hiding Income Offshore The IRS aggressively pursues taxpayers involved in abusive offshore transactions and the promoters who facilitate or enable these schemes. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks and brokerage accounts, or by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans.
In February, the IRS announced a second voluntary disclosure initiative to bring offshore money back into the U.S. tax system. The new voluntary disclosure initiative will be available through Aug. 31, 2011.
2. Phishing Scam artists use phishing to trick unsuspecting victims into revealing personal or financial information. Scams take the form of e-mails, phony websites or phone calls that offer a fictitious refund or threaten an audit or investigation to lure victims into revealing personal information. The IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Phishers use the information to steal the victim’s identity, access their bank accounts and credit cards or apply for loans. Please forward suspicious scams to the IRS at phishing@irs.gov. You can also visitwww.irs.gov, keyword phishing, for additional information.
3. Return Preparer Fraud Dishonest tax return preparers cause trouble for taxpayers by skimming a portion of the client’s refund or charging inflated fees for tax preparation. They attract new clients by promising refunds that are too good to be true. To increase confidence in the tax system, the IRS now requires all paid return preparers to register with the IRS, pass competency tests and attend continuing education. Taxpayers can report suspected return preparer fraud to the IRS on Form 3949-A, Information Referral.
4. Filing False or Misleading Forms The IRS continues to see false or fraudulent tax returns filed to obtain improper tax refunds.
Scammers often use information from family or friends to file false or fraudulent returns, so beware of requests for such data. Don’t claim deductions or credits you are not entitled to and never willingly allow others to use your information to file false returns. If you participate in such schemes, you could be liable for financial penalties or even face criminal prosecution. The IRS takes refund fraud seriously, has programs to aggressively combat it and stops the vast majority of incorrect refunds.
5. Frivolous Arguments Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. The IRS has a list of frivolous legal positions that taxpayers should avoid on www.irs.gov. These arguments are false and have been thrown out of court repeatedly.
For the full list of 2011 Dirty Dozen tax scams or to find out how to report suspected tax fraud, visit www.irs.gov.
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