Monthly Archives: July 2013

                    
Mickelson capped a dominant fortnight in Scotland by shooting a final round 66 to come from behind and win The Open Championship. He also won the Scottish Open the previous week. For his two weeks of play, earned £1,445,000, or about $2,167,500. 

Under the Tax Reform Act of 1986, U.S. partnerships are required to withhold income tax on "effectively connected taxable income" deemed allocable to foreign partners.

The U.S. partnership must file a Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, to show the amount of effectively connected taxable income and the total tax credit allocable to the foreign partner for the partnership's tax year.

Foreign partners must attach this form to their U.S. income tax returns to claim a withholding credit for their shares of the Section 1446 tax withheld by the partnership.

 

 Source:

IRS Issue Number:    2013 - 9

Petitioner challenged the IRS's determination that the gross income petitioners reported in 2003 and 2004 based on their ownership of a controlled foreign corporation should have been taxed at the rate of petitioners' ordinary income rather than the lower tax rate they had claimed.

At issue was whether amounts included in petitioners' gross income for 2003 and 2004 pursuant to 26 U.S.C. 951(a)(1)(B) and 956 (collectively, "section 951 inclusions") constituted qualified dividend income under 26 U.S.C. 1(h)(11).

The court concluded that section 951 inclusions did not constitute actual dividends because actual dividends required a distribution by a corporation and receipt by a shareholder and these section 951 inclusions involved no distribution or change in ownership; Congress clearly did not intend to deem as dividends the section 951 inclusions at issue here; and petitioners' reliance on other non-binding sources were unavailing.

Accordingly, the court affirmed the judgment of the tax court. View "Rodriguez, et al. v. Commissioner of Internal Revenue" on Justia Law

 

Credit Suisse and Zurich Cantonal, have obtained government approval to send the US Department of Justice (USDoJ) lists of American clients who have moved assets out of their accounts to another bank.  

The so-called 'leaver lists' do not identify clients but do name the destination banks, which the USDoJ will then pursue with further disclosure notices.  

The Swiss government announced a new approach allowing banks to hand over data to U.S. authorities in a bid to solve a dispute over undeclared assets and forestall further indictments by the Department of Justice. 

Client data isn’t covered by the authorization, according to the government. That information can only be handed over in response to a request for administrative assistance by the U.S. under existing double-taxation agreements, it said.

The Swiss government recently announced it is negotiating individual agreements with each bank to allow them to pass on this information, which would otherwise be a gross breach of Swiss privacy laws. However, these agreements will not allow the banks unrestricted powers of disclosure. In particular, the so-called 'leaver lists' will not identify clients by name. But they will give details of the assets moved, and crucially they will name the destination banks.

The official reason cited for disclosing leaver analysis information to the US authorities is that it will help them assess the size of the penalties to be imposed on each bank.  

However, some observers, such as Geneva lawyer Douglas Hornung, have a different theory. They believe the USDoJ will assume that the destination banks for these asset switches have deliberately solicited them in order to help the clients keep their untaxed assets hidden. These banks will thus become new targets for so-called group disclosure requests issued by the USDoJ, and will in turn be exposed to further criminal investigations. 

In order to frame good group requests, the US authorities need to be able to identify the Swiss banks involved. 

With the leaver list information, they could identify the banks who actively promoted US tax evasion and thus who should be targets for additional group requests and perhaps even criminal prosecution in the US. 

This strategy has already worked once, when UBS was forced to yield up a leavers' list under heavy US pressure. The money trail derived from this list appears to have revealed that much of the departing funds went to Bank Wegelin, which immediately became a target for US investigators. Wegelin had to pay the US authorities a USD58 million penalty and as a result was forced to cease operations earlier this year.

 

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