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Monthly Archives: September 2011

U.S. campaign to catch tax cheats snaring Canadians

As U.S. tax authorities move to crack down on citizens living abroad, many living in Canada have been caught up in fear of massive penalties.

Esther Thompson, 70, and her sister Betty, 69, both married to retired farmers living near Prince Albert, Sask., are among those who have come unhappily forward to the U.S. Internal Revenue Service under a voluntary disclosure program.

Unlike Canada, the United States requires its citizens, not just residents, to file tax returns and report their worldwide income.

Both Thompson sisters share joint accounts with their husbands and worry that penalties will be assessed on the days in which the accounts held significant sums after a big grain sale, for example, despite the fact that they were quickly drained to pay bills.

What’s more, the U.S. Foreign Account Tax Compliance Act (FATCA) will require Canadian financial institutions to disclose information about U.S. citizens who hold Canadian financial accounts or risk withholding taxes of 30% on all payments out of the United States. The FATCA requirements will kick in in 2014 and mean that many more Canadians will be identified to the U.S. authorities and could face harsh penalties on money they may no longer even have.

Yet, there are many Canadians with connections to the United States. Some estimates say there are 1 million living in the country. More than 316,000 people listed American as their “ethnic origin” in the 2006 census.

Read more at: Tax Times blog

IRS Official Stresses January Due Date for Estate Carryover Election

Taxpayers will not be given any extensions to file Form 8939 that is due in January for the estate tax carryover basis election, an Internal Revenue official said Sept. 21.

Taxpayers who want to make the tax code Section 1022 election and not opt for the estate tax for 2010 should fill out Form 8939 in a timely manner before it is due Jan. 17, 2012, said Catherine Hughes, estate and gift tax attorney-adviser with the Treasury Department, at a panel for the D.C. Bar Taxation Section Estate Planning Committee. The Economic Growth and Tax Relief Reconciliation Act of 2001 gave estates of individuals dying in 2010 a choice between paying estate tax on property transferred to a beneficiary or having the modified carryover basis rules apply.

Earlier in September, IRS released guidance announcing the January date for filling out the form to elect into the carryover basis regime. Taxpayers cannot revoke the form or file for the first time after that date, Hughes said. Taxpayers who want to change or make an allocation on the form can do so as long as it is done before the due date, Hughes said. After that date, there will be no extensions and relief will be limited, she said.

Read more at: Tax Times blog

IRS Tells Examiners to Step Up Scrutiny of Captive Foreign Insurance Subsidiaries

The Internal Revenue Service Sept. 19 told its examiners to more closely scrutinize captive foreign insurance subsidiaries during excise tax audits of foreign insurance companies.

The new memorandum (SBSE-04-1811-070) is the latest development in a continued crackdown on the use of these subsidiaries to avoid taxes.

In the Aug. 9 document, released on the web Sept. 19, IRS told agents to check whether captive subsidiaries have engaged in closing agreements with the service and whether there is additional information relating to controlled industry cases.

The guidance outlined a detailed list of other issues agents must look for. It follows a series of other documents unveiled by IRS over the past year indicating the agency is not only looking closely at such subsidiaries, but may be auditing them individually.

Text of SBSE-04-1811-070 is available at http://op.bna.com/dt.nsf/r?Open=vmar-8lvtms.

Read more at: Tax Times blog

Eight offshore banks are under federal grand jury investigation

Bloomberg - By Carla Main - Sep 21, 2011 8:05 AM ET

Eight offshore banks are under federal grand jury investigation for facilitating tax evasion by U.S. citizens as part of a probe the Justice Department said has dealt “fabled Swiss bank secrecy a devastating blow.”

The department disclosed the probes on a section of its website detailing the Tax Division’s Offshore Compliance Initiative. In 2009, prosecutors charged UBS AG, the largest Swiss bank, with aiding tax evasion by U.S. clients. UBS avoided prosecution by paying $780 million, admitting it fostered tax evasion, and giving the U.S. Internal Revenue Service data on more than 250 accounts. It later turned over data on another 4,450 accounts.
Prosecutors opened 150 grand jury investigations of offshore-banking clients, charging 30 people, and indicting 13 other people who facilitated the hiding of assets offshore, according to the website.

Read more at: Tax Times blog