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Monthly Archives: January 2012

Another Exception To Disregarded Entity Treatment

January 16, 2012

A new exception now has been added to the list.

Under final regulations issued under Section 881, the IRS can treat a disregarded entity in a financing structure as a person separate from its owner (that is, as a non-disregarded entity), in determining whether a financing arrangement exists that should be recharacterized under the multiple-party financing rules of Code §7701(l) and Treas. Regs. §1.881-3.

These rules allow the IRS to disregard the participation of one or more intermediate entities in a financing arrangement and recharacterize the financing arrangement as a transaction directly between other parties. It will often be applied where intermediate entities are employed by taxpayers to obtain treaty or other tax benefits that would not be available if a financing transaction was directly conducted between the ultimate lender and borrower.

T.D. 9562, 12/08/2011; Reg. § 1.881-3

Rubin on Tax 

Read more at: Tax Times blog

Moving Accounts To Non Complying Banks -2012's Loophole?

January 13, 2012



Great article by Dick Harvey on FATCA. Will taxpayers defeat FATCA by moving their foreign accounts to foreign banks which don’t care if they can’t sell US securities? They may decide not to cough up the names and SSN’s of their “U.S. persons.” Those banks will be known as NP-FFI’s: non-participating foreign financial institutions.

Offshore Accounts: Insider’s Summary of FATCA and its Potential Future

Abstract: 

Since its signing by President Obama on March 18, 2010, the Foreign Account Tax Compliance Act (FATCA) has been criticized by many in the financial community. As one of the architects of FATCA, the purpose of this article is to: (i) describe my perception of the origins of FATCA, (ii) discuss selected issues, and finally (iii) make recommendations that may ultimately be helpful to insuring FATCA’s success in both the short and long-run.

The article is written for several audiences. The entire article should be of interest to students and academics. For tax professionals and my former colleagues in government, the recommendations in Section 4 should be of most interest.

Since 2007 the US has made significant progress in addressing offshore accounts through a combination of tools, including the threat of FATCA. FATCA was a bold, unilateral action by the US intended to ultimately provide transparency surrounding offshore accounts of US taxpayers. However, FATCA will take time to successfully implement and there will be growing pains.

The long-term success of FATCA may depend upon whether the US can convince other countries to adopt a similar system, or better yet, join with the US in developing a multilateral FATCA system. Thus, as the IRS and Treasury implement FATCA they need to focus on the long-term goal. In the short-run various compromises will need to be made to ease the initial implementation of FATCA. Some of those potential compromises are discussed in this article. In addition, a multilateral FATCA system and the related benefits are discussed.

Finally, financial institutions worldwide should seriously consider attempting to help forge an international consensus. Although financial institutions will clearly incur substantial costs from FATCA, those costs may pale in comparison to the future costs that could be incurred over the next 5 to 20 years as other countries implement their own specific systems. It would be substantially cheaper for financial institutions if there is one global standard, rather than ultimately building separate FATCA type systems for each country.

Number of Pages in PDF File: 27
Keywords: FATCA, Offshore Accounts, Foreign Account Tax Compliance Act, Qualified Intermediary, and Voluntary Compliance Initiative

Read more at: Tax Times blog

Tax Court: State Law Protects Spouse Who Has Funds Seized From Joint Account

January 12, 2012

A Massachusetts woman whose joint bank account was seized by the Internal Revenue Service is entitled to an innocent spouse relief refund because state law says she owns half of the funds in the account, the U.S. Tax Court held Jan. 11 (Minihan v. Commissioner, T.C., No. 26595-09, 138 T.C. No. 1, 1/11/12).

Writing for the court, Judge David Gustafson explained that under Massachusetts law, petitioner Ann Marie Minihan had a half ownership interest in the joint account with her then spouse, John Minihan Jr., and she had a right to bring a post-seizure action under Internal Revenue Code Section 6015(g)(1) to establish her rights in the seized property and seek a judgment against the seizing creditor for the amount of the joint account that she owned.

Gustafson ruled Ann Marie's “refund claim is a post-levy assertion of her rights in the levied property and an avenue for her to recover what may belong to her.” He said “[t]he money in the joint account came from the sale of the couple's long-time marital house, in which they had made a home together during almost two decades of marriage.”

Read more at: Tax Times blog

Tax Evasion Sharpen IRS Focus on International Issues

January 12, 2012

The Internal Revenue Service is increasing its efforts to tackle international issues involving employee benefit plans as more business is done globally and as tax evasion through the use of offshore accounts grows, speakers said Jan. 11 at a benefits conference.

“Experts estimate that Americans now have $1 trillion—trillion with a ‘t'—in assets offshore and illegally evade $40 [billion] to $70 billion in U.S. taxes each year [through] offshore tax dodges,” said Monika A. Templeman, director of IRS employee plans examinations, Baltimore. “That, in conjunction with all the legitimate business that's happening globally, makes international a very pressing area,” she said.

Other issues that have arisen as the global economy continues to grow include noncompliance and confusion, Templeman said. “There are language issues and all sorts of things that have barriers that we need to overcome to make sure we really have that transparency, and the fast pace of the global economy really requires us to have a fast pace of change servicewide,” she said.

The panelists spoke during the Washington update session at the American Society of Pension Professionals and Actuaries' Los Angeles Benefits Conference.

Read more at: Tax Times blog

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