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Monthly Archives: February 2012

Administration's Proposed New Tax on Family Trusts.

Each 90 years, trusts will pay the new 45 percent estate tax.  The tax is on the value of its assets.   Trust funded before this law is passed are exempt. You need to move fast.

The Administration hasissued a 200-page report with new tax laws including this law. While many new loopholes and tax breaks are included, estate planners must work quickly to rescue their clients.  

This law is effective for every trust funded at the date of enactment.

Read more at: Tax Times blog

Treasury, IRS Issue Proposed Regulations for FATCA Implementation

WASHINGTON — The Treasury Department and the Internal Revenue Service today issued proposed regulations for the next major phase of implementing the Foreign Account Tax Compliance Act (FATCA).

Enacted by Congress in 2010, the law targets non-compliance by U.S. taxpayers using foreign accounts.

The regulations lay out a step-by-step process for U.S. account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, and U.S. withholding agents.

“FATCA strengthens U.S. efforts to combat offshore noncompliance. In doing so, we understand it creates a significant undertaking for financial institutions." said IRS Commissioner Doug Shulman. "Today's proposed regulations reflect our commitment to take into account the implementation challenges of affected financial institutions while allowing for a smooth and timely roll-out of the law."

The proposed regulations implement FATCA’s obligations in stages to minimize burdens and costs consistent with achieving the statute’s compliance objectives. The rules and implementation schedule are also adjusted to allow time for resolving local law limitations to which some FFIs may be subject.

FATCA was enacted in 2010 by Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires FFIs to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

In order to avoid being withheld upon under FATCA, a participating FFI will have to enter into an agreement with the IRS to:

  • Identify U.S. accounts,
  • Report certain information to the IRS regarding U.S. accounts,
  • Verify its compliance with its obligations pursuant to the agreement, and
  • Ensure that a 30-percent tax on certain payments of U.S. source income is withheld when paid to non-participating FFIs and account holders who are unwilling to provide the required information.

Registration will take place through an online system which will become available by Jan. 1, 2013. FFIs that do not register and enter into an agreement with the IRS will be subject to withholding on certain types of payments relating to U.S. investments.

Treasury and IRS will continue to work closely with businesses and foreign governments to implement FATCA effectively. Updates and further information on FATCA can be found by visiting the FATCA page on this website.

Written or electronic comments must be received by April 30, 2012. Requests to speak and outlines of topics to be discussed at the public hearing scheduled for May 15, 2012, at 10 a.m. must be received by May 1, 2012.

Read more at: Tax Times blog

The Tresury and European Governments Agree to Pursue Framework for Implementing FATCA

The Treasury Department has reached an agreement with the governments of France, Germany, Italy, Spain, and the United Kingdom for designing a framework to implement the information reporting and withholding provisions by foreign financial institutions under the Foreign Account Tax Compliance Act (FATCA).

According to Treasury's news release, the governments expressed their “mutual intent to pursue a government-to-government framework for implementing FATCA—an important step toward addressing legal impediments to financial institutions' ability to comply with the regulations.”

The news release and joint statement were issued in conjunction with Internal Revenue Service proposed regulations (REG-121647-10) related to information reporting and withholding provisions by foreign financial institutions.

Read more at: Tax Times blog

“RELIANCE” DEFENSE WAIVES WORK PRODUCT & ATTORNEY-CLIENT PRIVILEGE PROTECTION

In litigation, the work-product doctrine and the attorney-client privilege protect materials and communications from discovery by an adversary in litigation. The work-product doctrine excludes from discovery materials prepared in anticipation of litigation because discovery of such materials would hamper the orderly prosecution and defense of legal claims in adversary proceedings.

The attorney-client privilege extends to communication between a taxpayer and a “federally authorized tax practitioner” with respect to tax advice, to the extent the communication would be privileged if it were between a taxpayer and an attorney. 
Many tax penalties will not apply if the taxpayer had reasonable cause for its tax position. At times, reliance on the advice of counsel in adopting a tax position constitutes reasonable cause.

The reliance on counsel defense has saved many a taxpayer from penalties. It is unknown if the taxpayer in this case knew that by using that defense it would be forfeiting the above evidence protections – perhaps the benefits of the defense outweighed the negatives relating to the disclosure of the subject items and thus was intentional.

Just a reminder to litigating taxpayers that a reliance on counsel “reasonable cause” defense may result in a waiver of protections otherwise available under the work-product doctrine and the attorney-client privilege.

(See Rubin's comment regarding SALEM FINANCIAL, INC v. U.S., 109 AFTR 2d 2012-XXXX, (Ct Fed Cl 01/18/2012)).


Read more at: Tax Times blog

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