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Monthly Archives: May 2016

U.S. Citizen's Capital Gains Taxable Under U.S.-Israel Treaty According to US Tax Court

The Tax Court has concluded that a "pro se" taxpayer who was a U.S. citizen and permanent Israel resident was taxable on his capital gains.

Although the taxpayer argued that such gain was excluded from U.S. tax under one provision of the U.S.-Israel income tax treaty, it was nonetheless taxable under the treaty's “saving clause.” Cole, TC Summary Opinion 2016-22.

Article 15, paragraph 1, of the Convention between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, U.S.-Israel, Nov. 20, 1975 provides that “[a] resident of one of the Contracting States shall be exempt from tax by the other Contracting State on gains from the sale, exchange, or other disposition of capital assets.”

The U.S.-Israel income tax treaty includes a “saving clause” Article 6, paragraph 3, of the treaty provides that “[n]otwithstanding any provisions of this Convention except paragraph (4), a Contracting State may tax its residents and its citizens as if this Convention had not come into effect.”

After moving to Israel in 2009, Elazar Cole, a U.S. citizen, became a permanent resident of Israel in 2010. As a result of moving to Israel, he qualified for a 10-year Israeli “tax holiday,” which exempted him from Israeli tax on non-Israeli-source capital gain income.

Mr. Cole purchased 3,000 shares of stock in Neogen Corporation (Neogen), a Michigan incorporated entity. In 2010, he sold this stock and realized $114,947 of long-term capital gain.

On his 2010 Form 1040, U.S. Individual Income Tax Return, Mr. Cole reported the $157,012 of proceeds from the sale of Neogen stock on Schedule D, Capital Gains and Losses. However, he did not include any of the proceeds in his taxable income. On audit, IRS determined a $13,212 deficiency and a $2,642 accuracy-related penalty under Code Sec. 6662(a).

The Tax Court held that Mr. Cole had to recognize the $114,947 long-term capital gain of attributable to his sale of Neogen stock. He wasn't entitled to exclude the proceeds from his sale of this stock from U.S. taxation under Article 15, paragraph 1, of the U.S.–Israel income tax treaty. The Court found that the proceeds were subject to U.S. federal income tax under the U.S.-Israel income tax treaty's saving clause.

The Court stated that the saving clause did not nullify the treaty; it only nullified the benefits provided by certain provisions to current citizens and certain former residents and citizens. The U.S.–Israel income tax treaty provided that certain of its Articles took precedence over the saving clause—but Article 15 wasn't among them.

In addition, the saving clause applied only to current citizens and certain former residents and citizens of a Contracting State who currently resided in the Other Contracting State.

Have a Tax Problem?  




 
Contact the Tax Lawyers at
Marini & Associates, P.A.
 for a FREE Tax Consultation Contact US at
or Toll Free at 888-8TaxAid (888 882-9243).
 
 


 

Read more at: Tax Times blog

European Group Discloses The Role Of The US As A “Tax Haven” & The Implications For Europe

On February 23, 2016, we posted US The New Tax Haven? where we discussed that some international families are moving their assets out of traditional offshore jurisdictions and into trusts in certain states of the US.

We also discussed that some level of secrecy is still available in the US because Washington has not signed up to the OECD Common Reporting Standard (CRS) for international information exchange, preferring instead its own Foreign Account Tax Compliance Act (FATCA).

By resisting new Global Disclosure Standards,
the U.S. is creating a Hot New Market,
becoming the Go-To Place to
Stash Foreign Wealth.

 

Everyone from London lawyers to Swiss trust companies are getting in on the act, helping the world's rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota.
 
Some advisors discuss what type of trust can avoid both FATCA and GATCA reporting, including
GATCA reporting if the US is treated as a Participating Jurisdiction and the assets do not even have to be located in the US. Since this structure requires a US-resident trustee, the trust could also be structured to avoid US taxation.

The Economist adds that America seems not to feel bound by the global rules being crafted as a result of its own war on tax-dodging. It is also failing to tackle the anonymous shell companies often used to hide money.
 
The Tax Justice Network, a lobby group, calls the United States one of the world’s top three “secrecy jurisdictions”, behind Switzerland and Hong Kong. No one knows how much undeclared money is stashed offshore. Estimates range from a couple of trillion dollars to $30 trillion. What is clear is that America’s share is growing.  
  

Now The Greens-European Free Alliance (EFA) group, a small political group in the European Parliament, has commissioned a new report The Role of the US as a Tax Haven and the Implications for Europe which also describes why the U.S. is “becoming the biggest tax haven on the planet.”

The report claims that U.S. loopholes allow anonymous companies in certain states and that the U.S. has not joined the trend to implement the multilateral automatic exchange of information under the Common Reporting Standard (CRS), but instead, has implemented the Foreign Account Tax Compliance Act (FATCA).
 
The report the claims that: 
  1. The U.S. is becoming one of the biggest tax havens, precisely because its legislation has loopholes when it comes to knowing who owns and control companies. The U.S. is a major financial centre but the transparency of its legal framework is not consistent with the responsibility involved in being a major financial hub.
    • Indeed, an investigation in 2012 found that creating an anonymous shell company is easier in the U.S. than in the rest of the world and states like Wyoming, Delaware and Nevada are among the most likely to supply untraceable shell companies to foreign clients.
    • Incorporation of companies in the U.S. is governed by state law and requires the filing of a corporate governance document.

      • However, many states promoting the creation of corporations by non-residents do not require filing even basic ownership information.
      • Arkansas, Mississippi, Colorado, Missouri, Delaware, New York, Indiana, Ohio, Iowa, Oklahoma, Maryland, Pennsylvania, Michigan, and Virginia do not require to identify either shareholders or managers.
    • New measures announced by President Obama last week to increase financial transparency are not ambitious enough (and will – for some – require Congress’ approval) to close the current gaps in US laws, which allow bad actors to deliberately use U.S. companies to hide money laundering, tax evasion and other illicit financial activities. 
  2. In addition to these loopholes, the U.S. hasn’t fully committed to automatic exchange of tax information with other countries, according to the new international standards developed by the Organisation for Economic Cooperation and Development (OECD).
    •  Instead, the U.S. decided to sign a series of bilateral agreements with namely European countries but the exchange of tax information is not done through an equal partnership.
    • EU countries have to provide more tax information to the U.S. than this country is sending to Member States. This can create a strong incentive for those trying to hide from tax authorities to move their assets to the U.S., with less chance to be reported to EU authorities. 
  3. In 2015, the U.S. was ranked the third top jurisdiction of the Tax Justice Network's Financial Secrecy Index, which analyses the legal framework of jurisdictions in terms of banking secrecy, ownership registration of companies, trusts, foundations and partnerships, compliance with international anti-money laundering recommendations, etc.
    • According to the Index, the U.S. holds almost 20% of the global market share of financial services for non-residents. Foreign assets in the U.S. amounted to $16,745 billion in 2013, almost double than the U.K. (second highest). In 2014 foreign direct investment in the U.S. reached $2.900 billion with almost 60% coming from the European Union (EU) ($325 billion of these EU-originating investments corresponded to depositary institutions, finance and insurance).
  4. The U.S. will receive the maximum scope of information from the EU and from many other countries (pursuant to IGAs), but will only send limited information to most EU countries, and no information whatsoever to Austria, Bulgaria, Switzerland and many other countries that either signed a Model 2 IGA, Model 1 B or that did not manage to sign a IGA 1 A at all (like Argentina, which did sign the MCAA).
    • Even though the U.S. signed more than 100 IGAs, U.S. experts disagree on the validity of IGAs pursuant to U.S. domestic laws.
Need International Legal Advise? 

 

Contact the Tax Lawyers at
Marini & Associates, P.A.

for a FREE Consultation
Toll Free at 888-8TaxAid (888 882-9243).
 

 

    Read more at: Tax Times blog

    EU's Says Tax Avoidance Advisers Must Be Punished – Does That Apply to US Advisors?

    EU's Tax Body Says Tax Avoidance Advisers Must Be Punished preview imageAs US advisors this provision doesn't appear to apply to us. However, if your providing advice on using Ireland as a financing strip out vehicle for European investment or using Luxembourg as a royalty strip out vehicle for European sales; then this provision could very well apply to you!

     

    A European Parliament tax committee is calling for sanctions against banks, lawyers and other advisers who assist with aggressive tax planning, in addition to blacklisting and penalizing tax havens that don’t comply with international tax reforms, according to a draft report released Tuesday.

    The Special Committee on Tax Rulings said that information contained in the Panama Papers on how offshore shell companies can be used to escape tax liabilities highlights an “urgent need” for the European Union to fight tax evasion and avoidance.

     Have a Tax Problem?  

    


     
    Contact the Tax Lawyers at
    Marini & Associates, P.A.
     for a FREE Tax Consultation Contact US at
    or Toll Free at 888-8TaxAid (888 882-9243).
     
     

     
     

    Read more at: Tax Times blog

    Revised Offer in Compromise Procedures – Not Current on ALL Tax Filings No OIC

    The IRS is taking a close look at the Offer in Compromise program recently.
     

    On March 30, 2016 we posted IRS Revises Offer in Compromise Booklet and Application  where we discussed that the 2016 revision to Offer in Compromise Booklet Form 656-B will is available for download. The booklet contains necessary forms and instructions for submitting an Offer in Compromise. Use of earlier versions may result in a delay in the processing of Offer applications.

    Now the IRS has released its new policy that effective immediately, the IRS will return newly filed Offer in Compromise (OIC) applications in cases where the taxpayer has not filed all required tax returns (e-News for Tax Professionals 2016-19- May13, 2016). Any fees included with the OIC will also be returned. 

    This new policy does not apply to current year tax returns if there is a valid extension on file. 

    In the past, pursuant to Internal Revenue Manual 1.2.14.1.18 and Policy Statement 5-133, enforcement of delinquency procedures was applied for not more than six (6) years of unfiled returns. Enforcement beyond such period was not undertaken without prior managerial approval. The IRM 1.2.14.1.18 is still not updated since 08/04/2006. Whether this new policy requires an update to this IRM remains to be seen, since the update only concerns Offer in Compromise procedures.
     
    An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability, or doing so creates a financial hardship. The IRS considers your unique set of facts and circumstances including:

    • Ability to pay;
    • Income;
    • Expenses; and
    • Asset equity.

    The IRS generally will approve an offer in compromise when the amount offered represents the most that the IRS can expect to collect within a reasonable period of time. Explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone.

    Please make sure your or your clients have filed ALL required tax returns before attempting to submit an OIC package. 

    The IRS reminds Taxpayers
    that if they hire a Tax Professional
    to help them file an Offer in Compromise,
    Be Sure to Check their Qualifications!

    Make sure you are eligible

    Before the IRS can consider your offer, you must be current with all filing and payment requirements. You are not eligible if you are in an open bankruptcy proceeding. Use the Offer in Compromise Pre-Qualifier to confirm your eligibility and prepare a preliminary proposal.

    the IRS is in the process of making modifications to the Pre-Qualifier Tool application. If you use this tool, please consider making the following adjustments to your displayed results.

    • If you enter an amount on Screen 3 Assets, Line 1 which reads "Total bank Balances," you may reduce this amount by $1000. The result may not be less than zero.
    • If you enter an amount on Screen 3, Vehicle 1, you may reduce this amount by $3450. The result may not be less than zero.
    • If you enter an amount on Screen 3, Vehicle 2, and you are making a joint offer with a spouse or other party, you may also reduce this amount by $3450. The result may not be less than zero.  
    Have a Tax Problem?
     

     Want to Know if you Qualify for an Offer?
     
     

    Contact the Tax Lawyers at
    Marini & Associates, P.A.
     
     for a FREE Tax Consultation Contact US at 
    or Toll Free at 888-8TaxAid (888 882-9243).

     

    Read more at: Tax Times blog

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