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Monthly Archives: July 2012

New FAQs for Offshore Voluntary Disclosure Program

July 10, 2012

The IRS said Tuesday that it has collected more than $5 billion in its offshore voluntary disclosure programs (IR-2012-64), the third of which was announced in January this year. At the same time, it also released 55 questions and answers updated for the 2012 program.

This program handles penalties the same way the 2011 program did, except that the penalty on the highest aggregate account balance in the taxpayer’s foreign bank accounts during the years at issue is increased from 25% in the 2011 program to 27.5% in the new program. Individuals with offshore accounts or assets of less than $75,000 in any calendar year covered by the new initiative will qualify for a 12.5% penalty rate. Some taxpayers will qualify for a 5% rate, but only in narrow circumstances, including in the case of foreign residents who are unaware that they are U.S. citizens.
Also, as in the 2011 program, participants must file all original and amended returns for the affected years and pay back taxes and interest for up to eight years and pay accuracy-related and/or delinquency penalties.
In the latest release, the IRS noted that it had closed what it called a “loophole” in the current program. Under existing law, a taxpayer who challenges a disclosure of tax information in a foreign court is required to notify the U.S. Justice Department of the appeal. If a taxpayer fails to disclose this, he or she is ineligible for the disclosure program.
Under the 2012 program, the IRS may also announce that certain taxpayer groups that have (or have had) accounts at specific financial institutions will be ineligible for the disclosure program because the U.S. government is taking actions in connection with those financial institutions. With this release, the IRS put taxpayers on notice that their eligibility for the disclosure program could be terminated in these circumstances.
The IRS announced a new option to help some U.S. citizens and others residing abroad who haven’t been filing tax returns to provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes. The IRS is promising to release more details, but under the new procedure, taxpayers would be required to file delinquent returns for the past three years and delinquent FBARs (Forms TD F 90-22.1, Reports of Foreign Bank and Financial Accounts) for the past six years and to pay any related federal tax and interest due. After reviewing the returns, the IRS may not assert penalties or pursue follow-up actions, if it deems the taxpayer to present a “low compliance risk.” The new rules will go into effect on Sept. 1, 2012.
There are also new procedures for taxpayers who have foreign retirement plans (such as Canadian Registered Retirement Savings Plans) to resolve certain issues. In some circumstances, under tax treaties these plans qualify for income deferral if a timely election is made. The “streamlined procedures” help taxpayers who failed to make the election (IR-2012-65, see also OVDP FAQs 54–55).
If you have UNREPORT FOREIGN INCOME, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

Read more at: Tax Times blog

Tax amnesty offered to Americans in Canada

July 9, 2012

The U.S. Internal Revenue Service said it will waive potentially massive penalties for certain “low compliance risk” tax payers who opt to come clean.

Shulman announced the IRS will provide a new option to help some U.S. citizens and others residing abroad who haven’t been filing tax returns and provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes. The newprocedure will go into effect on Sept. 1, 2012.

To qualify, individuals must submit three years of back taxes, six years of bank reporting forms – so-called Report of Foreign Bank and Financial Accounts, or FBARs – and a signed letter explaining why they haven’t filed.

The IRS defines low risk as people who have “simple” returns and owe less than $1,500 a year in taxes, based on the past three tax years. To owe less than $1,500 in US Tax, assuming a Single Filing Status and 1 Personal Exemption, your combined income would have to be less than $22,650.

Estimated Tax Analysis
Gross income $22,650
Qualified plan contributions - $0
Adjusted gross income = $22,650
Standard/Itemized deductions - $5,950
Personal exemptions - $3,800
Taxable income = $12,900
Tax liability before credits $1,500
Child tax credits - $0
Estimated tax liability = $1,500

This really only helps americans who retire in Canada and Canadians who pay Canadian Taxes on their World Wide Income and who use a US "Foreign Tax Credit" to reduce their US Tax to $1500.
Example: A US Citizen can earn interest of between 1% – 3%, on principle of between $755,000 – $2,265,000 and still qualify for this US amnesty (see chart below); even where this income may not have be subject to Canadian taxation.

Rate of Interest Principle Income
0.01 $2,265,000 $22,650
0.015 $1,510,000 $22,650
0.02 $1,132,500 $22,650
0.025 $906,000 $22,650
0.03 $755,000 $22,650

The United States is unique among developed countries in requiring all citizens, including dual Canadian-Americans, to file taxes with the IRS every year, regardless of where they live.

There are roughly a million Americans in Canada – many with little or no ties to the United States. An increasingly onerous U.S. crackdown on Americans who hide money offshore is forcing many of them out of the shadows.

Canadian Tax experts said the measures go a long way to resolving an issue that has caused a wave of angst among Americans in Canada and a flood of business for lawyers and accountants.

It’s a good start and it’s particularly good for about 90 per cent of Americans in Canada, most of whom will fall into the low risk category.

But individuals who don’t owe much tax, but have closely held partnerships, investment companies or trusts aren’t likely to benefit.

The IRS initially promised details of the amnesty late last year. But U.S. officials have struggled internally over whether people who haven’t filed for years deserve any special leniency.

The IRS also announced special “streamlined” procedures for reporting certain foreign retirement accountant, mentioning specifically Canadian Registered Retirement Savings Accounts. Individuals will be allowed to retroactively elect to defer income in those accounts.

Without the amnesty, Americans who haven’t filed their taxes and other IRS forms face penalties totalling tens of thousands of dollars per year and risk criminal prosecution. See IR-2012-64 for more details.

If you would like to avail yourself of this new Amnesty, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).


Read more at: Tax Times blog

Fiduciaries Held Liable For Estate & Gift Tax under Federal Priority Statute

July 9, 2012

Fiduciaries (trustees, executors, personal representatives) normally are not personally liable for the obligations of the trusts and estates they administer. As mentioned here previously, a major exception to this is the federal priority statute (a/k/a the federal claims statute) under 31 USC §3713(b)/Code § 6901(a)(1)(B). This little gem can create personal liability for a fiduciary that pays out estate or trust assets (including by reason of a distribution to beneficiaries) with knowledge that there are existing federal liabilities (such as taxes) that are unpaid, if the estate or trust is unable to later satisfy those liabilities.
This is not an abstract risk, but a very real liability for fiduciaries, as two fiduciaries learned in a recent case in Texas. In that case, the IRS asserted that a decedent did not pay gift taxes during lifetime, attributable to gifts indirectly made to the decedent. That is, the original donor did not pay the gift taxes on gifts to the decedent, so the decedent was liable for the gift taxes as a transferee. Both the executor of the decedent’s estate, and the trustee of his revocable trust, were knowledgeable of the IRS’ claim but nonetheless paid out funds without making provision for the payment of the gift taxes.
The case is illustrative of various aspects of the statute.
A. The executor was liable for personal property that was distributed to beneficiaries.
B. The executor was liable for rent payments made by the estate. Such payments are subordinate in priority to the federal claim for taxes.
C. The executor was NOT liable for funeral and last illness expenses.
D. The trustee of a revocable trust got caught up in the statute because the trustee was deemed to be the equivalent of a representative of the estate due to the obligation of the trust to pay the decedents debts.
E. The fiduciaries had taken income tax charitable deductions for over $1.1 million that had been set aside to fund charitable bequests. Such bequests were subordinate to the federal claim, so the fiduciaries were held personally liable for those set-aside amounts because the court found that the funds were beyond the reach of the IRS.
F. The fiduciaries were liable for legal and other expenses they paid for the charities.
G. The fiduciaries do not have to receive formal notice or a claim from the IRS, to be on notice for purpose of the statute.
H. The fact that the fiduciaries did not believe the IRS’ claim was valid, or that they relied on their professionals, did not relieve them of liability.
United States v. Macintyre (S.D. Tex., 2012) CIVIL ACTION H-10-2812
For more on this matter go to Charles (Chuck) Rubin

Read more at: Tax Times blog

Inter-agency cooperation against tax crimes and other financial crimes is the future.

July 5, 2012

A report by Organisation for Economic Co-operation and Development (OECD) has concluded that International co-operation is essential in the fight against tax and other financial crimes.

This report which, was release on June 14, 2012, aims at improving the understanding and use of international co-operation mechanisms. After describing the different agencies involved in the fight against financial crimes, the report provides an overview of the international instruments available and summarises current initiatives to improve inter-agency co-operation.

The core of the report is a catalogue describing the basic features of the main instruments for international co-operation in combating financial crimes.

If you have an International Tax Problem, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

Read more at: Tax Times blog

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