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Yearly Archives: 2012

Trouble for Offshore Bank Account Owners at Liechtensteinische Landesbank AG (LLB)

August 6, 2012

According to a spokesman for LLB quoted in the article, changes in Lichtenstein law allow the IRS to make group requests without providing the names of the specific individuals that the IRS is seeking. The spokesman also stated that in the Liechtenstein group request, U.S. authorities are also targeting lawyers, accountants, financial advisers, asset managers and those responsible for professional asset protection, who "conspired "with U.S. taxpayers to commit tax evasion, or other crimes. Apparently the IRS may be seeking information all the way back to 2001.

Liechtensteinische Landesbank AG (LLB) is Lichtenstein's second largest bank. Tax problems for offshore bank account holders in Lichtenstein date back to 2008 when information stolen from LGT Group was used by German authorities to prosecute tax fraud.

The fallout extended to U.S. depositors at LGT who were investigated by the IRS. Since then the IRS has promoted several voluntary disclosure initiatives to attempt to convince U.S. persons who failed to file FBARs to settle up with the IRS. To date those programs have resulted in over 30,000 individuals making voluntary disclosures of the offshore bank accounts to the IRS. These programs have been accused by some tax lawyers as being too much stick, and not enough carrot.

U.S. owners of these offshore accounts have difficult choices to make in a short period of time. Should they enter the IRS' Offshore Voluntary Disclosure Program (OVDP), before it's not too late? Should they appeal the turnover of information by LLB through the Lichtenstein court system? Should they wait and do nothing?

Each of these solutions has its own set of risks and rewards. Entering the OVDP will be expensive. Penalties of 27.5% of the offshore account balances can be expected. In addition, other non-financial assets may also be subject to the 27.5% penalty. In addition, back taxes must be paid, generally going back to 2004. On top of that expect additional penalties, and interest.

On the other hand not entering the OVDP can lead to FBAR penalties equaling 300% of the foreign bank account balances, as well as possible criminal tax evasion charges. The bottom line is that everyone's situation is different, and only consultation with a tax lawyer experienced in these offshore issues will begin to help in coming to the right personal decision.

If you have undisclosed Offshore Financial Accounts, contact the 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

No FBAR Penalty Exceptions for Voluntary Disclosure and Plea Bargins

August 6, 2012

What a difference one court case makes. Gone is the believe that it was almost impossible for the IRS to get the BIG FBAR penalty (of half the value of the offshore bank account for each and every unreported year). United States Court Of Appeals for The Fourth Circuit reversed a district court opinion in favor of the taxpayer.

The Government brought its action seeking to enforce civil penalties assessed against J. Bryan Williams for his failure to report his interest in two foreign bank accounts for tax year 2000, in violation of 31 U.S.C. § 5314. Following a bench trial, the district court entered judgment in favor of Williams.

The Government appealed. Because the Court of Appeals concluded that the district court clearly erred in finding that the Government failed to prove that Williams willfully violated § 5314, it reversed the non-guilty verdict.

The key evidence is the CPA’s tax organizer and the plea bargain statement.

Relevant to this appeal, Williams completed a “tax organizer” in January 2001, which had been provided to him by his accountant in connection with the preparation of his 2000 federal tax return. In response to the question in the tax organizer regarding whether Williams had “an interest in or a signature or other authority over a bank account, or other financial account in a foreign country,” Williams answered “No.” J.A. 111.

Thus, we are convinced that, at a minimum, Williams’s undisputed actions establish reckless conduct, which satisfies the proof requirement under § 5314. Safeco Ins., 551 U.S. at 57. Accordingly, we conclude that the district court clearly erred in finding that willfulness had not been established.

For the foregoing reasons, we reverse the judgment of the district court and remand this case for proceedings consistent with this opinion. REVERSED

If you have Unreported Bank Accounts, call the 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).

For more on this go to: 4th DCA Reverses DC - Intent to Evade Taxes Does Not Makes sequent Violations of FBAR Rules Willful - Willful Blindness Does. United States v. J.Bryan Williams; No. 10-2230

Read more at: Tax Times blog

House Passes a Blueprint for Tax Reform – Top Rate 25%

August 3, 2012

The House of Representatives, on August 2, approved H.R. 6169, the Republican-backed “Pathway to Job Creation througha Simpler, Fairer Tax Code Act of 2012.”

The bill would provide expedited procedures to enable lawmakers in both the House and Senate to overcome technical hurdles that might cause a “comprehensive tax reform” bill to languish during the legislative process.
Comprehensive tax reform would be defined as a bill that:
(1) consolidates the current six individual income tax brackets into not more than two brackets of 10% and not more than 25%;
(2) reduces the corporate tax rate to not greater than 25%;
(3) repeals the alternative minimum tax;
(4) broadens the tax base to maintain revenue between 18% and 19% of the economy; and
(5) changes from a worldwide to a territorial system of taxation.

In the House, the bill would provide that if the Rules Committee fails to provide for consideration of an applicable tax reform bill within 15 days after the Ways and Means Committee reports the tax reform bill, a process for floor consideration of the bill, similar to an open rule, will automatically be put in place. In the Senate, the bill would provide that any applicable tax reform bill would not be subject to a cloture vote on a Motion to Proceed or on individual amendments. A cloture vote may still be required to end consideration of the bill. The expedited procedures also require that amendments be relevant to the underlying bill.
If you need Tax Planning Advise, 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

Father’s Transfer of Business to Children Through Gifts of Stock Followed by Redemption of Father’s Shares is Approved by IRS.

July 31, 2012

PrivateLetter Ruling 201228012 - The IRS issued a private letter ruling allowing a father to transfer his corporate business to his two children through the use of gifts and stock redemption. This transaction results in favorable tax consequences to the father, his children and the corporation.

The facts of this ruling are: A father owns all of the outstanding stock of a C corporation which has earnings and profits. The father is a director and president of the corporation and his two children are also directors of the corporation.
The father wants to retire and cede management and control of the corporation to his two children. In order to accomplish this, he devises a plan to gift some of his shares of stock in the corporation to each of his two children and then immediately thereafter have the corporation redeem his remaining shares of stock for cash and a promissory note for the total redemption price, as determined by a third-party appraisal. The promissory note is payable by the corporation over a period of time in monthly installments of principal and interest at the applicable federal rate.

The father made the following representations to the IRS:
  • The promissory note will not be subordinated to the claims of general creditors of the corporation.
  • The stock redemption price is not contingent on future earnings of the corporation, nor is it contingent on working capital being maintained at a certain level.
  • In the event of a default on the promissory note, no shares of the corporation will revert to or be received by the father or any entity related to him, nor will the father or any entity related to him be permitted to purchase the stock at public or private sale.
  • No shareholder of the corporation has been or will be obligated to purchase any of father’s shares of stock to be redeemed.
  • The redemption is related to the gifts of shares to the children.
  • None of the shares to be redeemed was acquired by father within the 10-year period from a family member whose stock would be attributed to father under the family stock attribution rules.
  • After the redemption, father will not have any interest in the corporation (including an interest as officer, director or employee), other than an interest as a creditor.
  • Father will execute and file the agreement and information required to be filed with the IRS.
  • Father will not hold any obligation of the corporation except for the promissory note.
  • Father will not enter into any contract or agreement, or have any other business relationship with the corporation.
  • The stock redeemed from father is not Section 306 stock. 
Based on this information, the IRS issued the following rulings:
  • The proposed gifts of shares by the father to his children do not have as one of their principal purposes the avoidance of federal income tax.
  • Provided that father files the required agreement with the IRS, referenced above, in accordance with the Tax Regulations and assuming that the conditions stated in the Tax Code (which were included in the representations made by father to IRS) are satisfied, the stock redemption will qualify as a complete termination of father’s interest in the corporation and will be treated as a sale of father’s stock to the corporation. This would result in gain recognition by father measured by the difference between the stock redemption price and the father’s tax basis in the shares redeemed. Such gain will be capital gain provided that the stock is a capital asset to father.
  • Father may report the gain on the redemption of his stock using the installment method of accounting.
  • The corporation will not recognize gain or loss on the distribution of the promissory note in redemption of father’s stock.
  • Provided that the stock redemption is not performed in satisfaction of a primary and unconditional obligation of either of father’s two children to acquire the stock of the corporation held by father, the redemption will not cause any dividend income to be constructively received by the children.
  • The interest paid by the corporation on the promissory note is deductible, subject to any applicable restrictions.
  • There is no imputed interest with respect to the promissory note.
While the above-referenced ruling is not binding authority, it is encouraging to note that the IRS did not treat the father’s gifts of his shares to his children immediately prior to the stock redemption transaction as having tax avoidance as one of its principal purposes. Otherwise, the stock redemption would not have qualified as a sale of father’s stock in the corporation and, instead, would have been taxed as a dividend to father to the extent of the corporation’s earnings and profits, without reduction for his basis in the stock.
The IRS viewed the father’s gifts of his shares to his children as part of an integrated plan to facilitate the father’s retirement from the business and allow him to cede management and control of the corporation to his children which the IRS apparently agreed was undertaken for proper business purpose.

Although this transaction could have been structured as a stock sale and achieved capital gain treatment, structuring this transaction as a stock redemption allows the corporation’s earnings and profits to be used to fund the stock redemption payments to father without creating any taxable dividends to the father or to the children.

If you desire to Transfer Your Business to your Children, 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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