Monthly Archives: January 2016

FinCEN is concerned that all-cash purchases – i.e., those without bank financing – may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures. To enhance availability of information pertinent to mitigating this potential money laundering vulnerability, FinCEN will require certain title insurance companies to identify and report the true "beneficial owner" behind a legal entity involved in certain high-end residential real estate transactions in Manhattan and Miami-Dade County.

With these GTOs, FinCEN is proceeding with its risk-based approach to combating money laundering in the real estate sector. Having prioritized anti-money laundering protections on real estate transactions involving lending, FinCEN’s remaining concern is with the money laundering vulnerabilities associated with all-cash real estate transactions. This includes transactions in which individuals use shell companies to purchase high-value residential real estate, primarily in certain large U.S. cities.

"We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium U.S. real estate to secretly invest millions in dirty money," said FinCEN Director Jennifer Shasky Calvery. "Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering. But cash purchases present a more complex gap that we seek to address. These GTOs will produce valuable data that will assist law enforcement and inform our broader efforts to combat money laundering in the real estate sector."

Under specific circumstances, the GTOs will require certain title insurance companies to record and report to FinCEN the beneficial ownership information of legal entities purchasing certain high-value residential real estate without external financing. They will report this information to FinCEN where it will be made available to law enforcement investigators as part of FinCEN’s database.

The information gathered from the GTOs will advance law enforcement’s ability to identify the natural persons involved in transactions vulnerable to abuse for money laundering. This would mitigate the key vulnerability associated with these transactions – the ability for individuals to disguise their involvement in the purchase.

FinCEN is covering certain title insurance companies because title insurance is a common feature in the vast majority of real estate transactions. Title insurance companies thus play a central role that can provide FinCEN with valuable information about real estate transactions of concern. The GTOs do not imply any derogatory finding by FinCEN with respect to the covered companies. To the contrary, FinCEN appreciates the assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors.

The initiative is part of a broader federal effort to increase the focus on money laundering in real estate. Treasury and federal law enforcement officials said they were putting greater resources into investigating luxury real estate sales that involve shell companies like limited liability companies, often known as L.L.C.s; partnerships; and other entities.

The Treasury’s program will affect billions of dollars in real estate transactions. In Manhattan, the initiative requires buyers in sales of more than $3 million to be reported; in Miami-Dade County, it requires reporting on sales of more than $1 million. In Manhattan, 1,045 residential sales cost more than $3 million in the second half of 2015, worth some $6.5 billion in aggregate, according to PropertyShark, a real estate data company.

 

 

 

 Contact the Tax Lawyers at 
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The New York Times 

The OECD in October released its final recommendations under its project to combat tax base erosion and profit shifting, which included a plan for having companies file reports in their home jurisdictions detailing their business activities such as taxes accrued, profits and number of employees.

The IRS has now proposed rules requiring large companies to report information for each country of operation including the amount of revenue, profit or loss, capital and accumulated earnings, consistent with OECD recommendations designed to combat base erosion and profit shifting. The rules (REG-109822-15) would apply to U.S. parent companies with at least $850 million in annual revenue for the preceding annual accounting period, for the taxable year beginning on or after the rules are made final, ensuring that, for most companies, they won't take effect before Jan. 1, 2017.

The proposed regulations affect U.S. persons that are the parent of a MultiNational Enterprise (MNE) group, with annual revenue for the preceding annual accounting period of $850 million or more.
The ultimate parent of a U.S. MNE group is a U.S. business that controls a group of businesses, at least one of which is organized or is a tax resident outside of the United States, that are required to consolidate their accounts for financial reporting purposes under U.S. generally accepted accounting principles (GAAP), or that would be required to consolidate their accounts if equity interests in the U.S. business were publicly traded on a U.S. securities exchange.

Under the proposals, a business is generally considered a tax resident when the business is liable for tax based on place of management, place of organization or another similar criterion. A business will not be considered a tax resident if it is liable for tax solely on income from sources or capital situated within the jurisdiction. The proposed regulations also provide rules for determining the tax jurisdiction of residence of a business that is resident in more than one tax jurisdiction or that is a permanent establishment.

The regulations require the parent to report for each constituent entity, the entity’s resident tax jurisdiction, the tax jurisdiction in which the entity is organized or incorporated (if different from the resident tax jurisdiction), the main business activity or activities of the entity and each entity’s tax identification number.

The information included in the reports will be exchanged with other jurisdictions to give tax administrators a clearer idea of risks posed by companies' transfer pricing practices and other strategies.

The regulations require the parent to report the following information for each tax jurisdiction in which a constituent entity is resident:

1. Revenues generated from transactions with other constituent entities of the U.S. MNE group;
2. Revenues not generated from transactions with other constituent entities of the U.S. MNE group;
3. Profit (or loss) before income tax;
4. Income tax paid on a cash basis to all tax jurisdictions, including any taxes withheld on payments received;
5. Accrued tax expense recorded on taxable profits (or losses), reflecting only the operations in the relevant annual accounting period and excluding deferred taxes or provisions for uncertain tax positions;
6. Stated capital;
7. Accumulated earnings;
8. Number of employees on a full-time equivalent basis in the relevant tax jurisdiction; and
9. Net book value of tangible assets other than cash or cash equivalents.

The information for each tax jurisdiction must be presented as an aggregate from all of the constituent entities that are resident in the same tax jurisdiction. In addition, the required information must be reported, in the aggregate, for any constituent entity or entities that have no resident tax jurisdiction.

The proposed regulations also contain provisions to implement the exchange of information with foreign jurisdictions without running afoul of taxpayer confidentiality rules in the tax code.

The OECD has said that it wants multinational companies to file the reports beginning with their 2016 tax years. The group has also recommended that companies be required to file a so-called master file providing a blueprint of their financial activities and a local file on transfer pricing transactions, but government officials have said the U.S. may not adopt those provisions.

The BEPS project is seen by some as a way for OECD countries to tax a larger share of U.S. multinationals' 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.

Sources

BNA
CCH