Fluent in English, Spanish & Italian | 888-882-9243

call us toll free: 888-8TAXAID

Monthly Archives: February 2016

Treasury Announces Release of 2016 U.S. Model Income Tax Treaty With Info Sharing!

February 17, 2016

Today February 17, 2016, the Treasury Department issued a newly revised U.S. Model Income Tax Convention (the “2016 Model”), which is the baseline text the Treasury Department uses when it negotiates tax treaties.  The U.S. Model Income Tax Convention was last updated in 2006. 

“The 2016 Model is the result of a concerted effort by the Treasury Department to further our policy commitment to provide relief from double taxation and ensure certainty and stability in the tax treatment of treaty residents,” said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack.  “The 2016 Model includes a number of provisions intended to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance,” he added.

Many of the 2016 Model updates reflect technical improvements developed in the context of bilateral tax treaty negotiations and do not represent substantive changes to the prior model. 

The 2016 Model also includes a number of new provisions intended to more effectively implement the Treasury Department’s longstanding policy that tax treaties should eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance. 

For example, the 2016 Model does not reduce withholding taxes on payments of highly mobile income—income that taxpayers can easily shift around the globe through deductible payments such as royalties and interest—that are made to related persons that enjoy low or no taxation with respect to that income under a preferential tax regime.  In addition, a new article obligates the treaty partners to consult with a view to amending the treaty as necessary when changes in the domestic law of a treaty partner draw into question the treaty’s original balance of negotiated benefits and the need for the treaty to reduce double taxation.  The 2016 Model also includes measures to reduce the tax benefits of corporate inversions.  Specifically, it denies reduced withholding taxes on U.S. source payments made by companies that engage in inversions to related foreign persons. 

The Treasury Department has been a strong proponent of facilitating the resolution of disputes between tax authorities regarding the application of tax treaties.  Accordingly, the 2016 Model contains rules requiring that such disputes be resolved through mandatory binding arbitration.  The “last best offer” approach to arbitration in the 2016 Model is substantively the same as the arbitration provision in four U.S. tax treaties in force and three U.S. tax treaties that are awaiting the advice and consent of the Senate.

The 2016 Model reflects comments that the Treasury Department received in response to the proposed model treaty provisions it released on May 20, 2015.  The Treasury Department carefully considered all the comments it received and made a number of modifications to the proposed model treaty provisions in response to those comments.

The Treasury Department is preparing a detailed technical explanation of the 2016 Model, which it plans to release this spring.  The preamble to the 2016 Model invites comments regarding certain situations that should be addressed in the technical explanation for the so-called “active trade or business” test of Article 22 (Limitation on Benefits).  See the preamble page 5.  The deadline for public comments on this subject is April 18, 2016.


Article 26 would be broadened to allow information that is received from another State to be used for non-tax purposes.  In fact, the provision now would allow such information to be used for other purposes allowed under an MLAT in force between the two Contracting States that allows for the exchange of tax information.   

Article 26

EXCHANGE OF INFORMATION AND ADMINISTRATIVE ASSISTANCE

 1. The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Convention or the domestic laws of the Contracting States concerning taxes of every kind imposed by a Contracting State to the extent that the taxation thereunder is not contrary to the Convention, including information relating to the assessment or collection, or administration of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, such taxes. The exchange of information is not restricted by paragraph 1 of Article 1 (General Scope) or Article 2 (Taxes Covered).

2. Any information received under this Article by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic law of that Contracting State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment, collection, or administration of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes referred to in paragraph 1 of this Article, or the oversight of such functions. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. Notwithstanding the preceding sentences of this paragraph, the competent authority of the Contracting State that receives information under the provisions of this Article may, with the written consent of the Contracting State that provided the information, also make available that information for other purposes allowed under the provisions of a mutual legal assistance treaty in force between the Contracting States that allows for the exchange of tax information.

3. In no case shall the provisions of paragraphs 1 and 2 of this Article be construed so as to impose on a Contracting State the obligation:

a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;
b) to supply information that is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; or
c) to supply information that would disclose any trade, business, industrial, commercial, or professional secret or trade process, or information the disclosure of which would be contrary to public policy.
4. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other Contracting State may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3 of this Article but in no case shall such limitations be construed to permit a Contracting State to decline to supply information solely because it has no domestic interest in such information.

5. In no case shall the provisions of paragraph 3 of this Article be construed to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.

6. If specifically requested by the competent authority of a Contracting State, the competent authority of the other Contracting State shall provide information under this Article in the form of depositions of witnesses and authenticated copies of unedited original documents (including books, papers, statements, records, accounts, and writings).

7. Each of the Contracting States shall endeavor to collect on behalf of the other Contracting State such amounts as may be necessary to ensure that relief granted by the Convention from taxation imposed by that other Contracting State does not inure to the benefit of persons not entitled thereto. This paragraph shall not impose upon either of the Contracting States the obligation to carry out administrative measures that would be contrary to its sovereignty, security, or public policy.

8. The requested Contracting State shall allow representatives of the requesting Contracting State to interview individuals and examine books and records in the requested Contracting State with the consent of the persons subject to examination.

9. The competent authorities of the Contracting States may develop an agreement upon the mode of application of this Article, including agreement to ensure comparable levels of assistance to each of the Contracting States, but in no case will the lack of such agreement relieve a Contracting State of its obligations under this Article View the 2016 Model and accompanying preamble here.

Tax Transparency is Here!
 
 
 
Are Your Tax Secrets Not So Secret Anymore?
 
 
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

The Swiss Bank Program is Over So What Countries are in the DoJ Sites Now?

February 17, 2016

On January 28, 2016 we posted DOJ Swiss Bank Program is Over After Netting $1.36 Billion! where we discussed that the Department of Justice announced on January 27, 2016 that it reached its final non-prosecution agreement under Category 2 of the Swiss Bank Program, with HSZH Verwaltungs AG (HSZH).  

The department has executed agreements with 80 banks, since March 30, 2015, when it announced the first Swiss Bank Program non-prosecution agreement with BSI SA.  By our count it is 94 banks - see our post 93 Swiss Banks Are Turning Over Your Names To The IRS - What Are Your Waiting For?, plus HSZH, but who's counting?

Swiss Bank Program demonstrates that foreign financial institutions with potential U.S. criminal tax liability can greatly mitigate their exposure by taking immediate actions, such as making voluntary disclosures of potential illegal activity to the Tax Division and implementing compliance measures to avoid further violations of U.S. tax law. In our post DoJ is Following The Money Trail Disclosed By Swiss Bank's to Singapore and Israel! we quoted Chief Richard Weber of IRS-Criminal Investigation, 
 
“With each Additional Agreement, 
the World where Criminals can Hide Their Money 
is Becoming Smaller and Smaller. 
 
 
Those Who Circumvent Offshore Disclosure Laws
Have Little Room to Hide.”


Bloomberg reports that the flood of information is now giving U.S. investigators intelligence to try to build new cases against individuals and institutions in other countries, said Caroline Ciraolo, the Justice Department’s top tax prosecutor.
“The Money is Moving out of Switzerland to a Variety of Jurisdictions,” said Ciraolo, an acting assistant attorney general.
 
“We’re Following Leads and Following the Money, wherever that leads us.”

The data coming directly from Swiss banks are supplementing a separate trove the IRS gathered from 50,000 U.S. taxpayers who disclosed their offshore accounts and paid $7 billion in back taxes, fines and penalties since 2009. Many US taxpayers disguised their money in entities set up in tax havens outside of Switzerland. Of 54 banks that settled:
 
  • 18 held assets in corporations, foundations or trusts in Liechtenstein;
  • 15 in Panama;
  • 11 in the British Virgin Islands, and
  • 4 in Hong Kong.
The DOJ is getting some very valuable information served up on a silver platter as a result of the OVDP program and its non-prosecution agreements with Swiss banks. 
 

Following the success of the Swiss Bank Program, the Justice Department is now looking beyond Switzerland to financial institutions in other countries that may be havens for secret offshore accounts or undisclosed assets. Investigators are pursuing the wealth of leads generated through the Swiss Bank Program, and following those leads to countries such as:

 

  • Belize,
  • the British Virgin Islands,
  • the Cayman Islands,
  • the Cook Islands,
  • India,
  • Israel,
  • Liechtenstein,
  • Luxembourg,
  • the Marshall Islands,
  • Panama and
  • Singapore 

Non Swiss Foreign banks and financial institutions that serve U.S. customers are well-advised to heed the lessons of the Swiss Bank Program and other Justice Department enforcement actions commenced to date. Not to mention a little thing like 30% FATCA withholding for noncompliant foreign banks!

 
For US taxpayers with undeclared income from foreign accounts, only those taxpayers that request pre-clearance before their bank is discovered by the IRS and listed, will get the 27 1/2% OVDP penalty. The 50% penalty applies to all taxpayers with accounts at financial institutions or with facilitators which are named, are cooperating or are identified in a court filing such as a John Doe summons.
 
Do You Have Undeclared Income From the Foreign Bank?
 

 
 
 Want to Know if the OVDP Program is Right for You?

 
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

National Taxpayer Advocate Delivers Annual Report to Congress – Focuses on IRS’s Future Plans for Taxpayer Service

February 15, 2016

On January 6, 2016 National Taxpayer Advocate Nina E. Olson today released her 2015 annual report to Congress, expressing concern that the IRS may be on the verge of dramatically scaling back telephone and face-to-face service it has provided for decades to assist the nation’s 150 million individual taxpayers and 11 million business entities in complying with their tax obligations.  In 2015, the IRS answered less than half of the calls that came into its practitioner priority service line, and average wait times on the line grew to longer than 45 minutes, according to the report. That is a drastic reduction in service since 2011, when 80 percent of calls were answered and the average wait time was only about 13 minutes, it said.

The report reiterates a recommendation the Advocate made in June that the IRS release its “Future State” plan documents, provide additional detail about their anticipated impact on taxpayer service operations, and solicit comments from the public.  The report also recommends that Congress conduct oversight hearings on the plan.

1. The Future State Plan.  Since 2014, the IRS has invested substantial resources to develop a Future State plan, which has involved significant participation by virtually all IRS business units and the engagement of management consultants, at a cost of several million dollars.  To date, the IRS has chosen not to make the plan public.

The Advocate’s report says there are many positive components to the plan, including the stated goal of creating online taxpayer accounts through which taxpayers will be able to obtain information and interact with the IRS.  The report also acknowledges that cuts to the IRS budget – about 19 percent in inflation-adjusted terms since fiscal year (FY) 2010 – have forced the IRS to explore cheaper service options.

2. Reduced Service Levels.  The Advocate expresses particular concern about IRS intentions regarding what is not stated in the plan.  “Implicit in the plan – and explicit in internal discussion – is an intention on the part of the IRS to substantially reduce telephone and face-to-face interaction with taxpayers,” the report says.  “The key unanswered question is by how much. . .It is incumbent upon the IRS to be much more specific about how much personal taxpayer assistance it expects to provide in its ‘future state.’”

The report says the IRS appears to presume taxpayer interactions with the IRS through online accounts will address a high percentage of taxpayer needs, enabling it to curtail existing taxpayer services without significantly impacting taxpayers.  The Future State plan also calls for expanding the role of tax return preparers and tax software companies in providing taxpayer assistance – an approach that likely would increase compliance costs for millions of taxpayers who now obtain that assistance from the IRS for free.

The IRS Future State plan could transform the role the agency has long played in helping taxpayers comply with their tax obligations, the report says.  The IRS historically has maintained a robust customer service telephone operation that, in every year since FY 2008, has received more than 100 million taxpayer telephone calls, as well as a network of nearly 400 walk-in sites that, in every year for over a decade, has provided face-to-face assistance to more than five million taxpayers.

Online accounts are likely to reduce taxpayer demand for telephone and face-to-face interaction to some degree but are unlikely to be useful in addressing complex account-specific matters, the report says. “This is true for several reasons, including that millions of taxpayers do not have Internet access, millions of taxpayers with Internet access do not feel comfortable trying to resolve important financial matters over the Internet, and many taxpayer problems are not ‘cookie cutter,’ thus requiring a degree of back-and-forth discussion that is better suited for conversation.”  Last year, more than 9 million taxpayers either received post-filing IRS notices proposing to adjust their tax or experienced refund delays, all matters that are account-specific.

Technology improvements often do not reduce demand for personal service to the extent expected, the report says. For example, the IRS over the past decade has increased the individual tax return e-filing rate from 54 percent to 85 percent, enhanced the Where’s My Refund?tool, and added substantial content to IRS.gov, yet the number of taxpayer calls to its customer service lines has increased by 59 percent.  Similarly, the report cites a recent Federal Reserve survey in which 72 percent of mobile banking customers reported they had visited a branch and spoken with a teller an average of two times within the preceding month. The report says customers often use online service as a supplement to, rather than a substitute for, personal service, particularly for complex matters.

In recent years, the IRS has already begun to reduce taxpayer services, including by declaring all but simple tax-law questions “out of scope” for the IRS to answer during the filing season; declaring it will not answer any tax-law questions after the filing season (including questions from millions of taxpayers with proper extensions of time to file); eliminating preparation of tax returns in its walk-in sites; and eliminating an online program that allowed taxpayers to submit questions electronically.

3. Need for Transparency.  “We believe it is critical that the IRS share its plans in detail with Congress and outside stakeholders and then engage in a dialogue about the extent to which it intends to curtail or eliminate various categories of telephone service and face-to-face service, whether it will provide sufficient support for taxpayers – and how – as it transitions to its future state, and whether it has an adequate ‘Plan B’ if taxpayer demand for telephone and face-to-face service remains higher than the IRS anticipates,” the report says.

In releasing the report, Olson emphasized that Congress has repeatedly shown support for high-quality taxpayer service.  In the IRS Restructuring and Reform Act of 1998, Congress directed the IRS to “review and restate its mission to place a greater emphasis on serving the public and meeting taxpayers’ needs.”  Added Olson:  “The fact that Congress just last month provided the IRS with an additional $290 million in funding for taxpayer assistance and codified the provisions of the Taxpayer Bill of Rights, including The Right to Quality Service, demonstrates that Members of Congress continue to believe taxpayer service should be strengthened, not reduced,” Olson said.


4. “Pay to Play” Tax System.  Olson characterized the combination of reductions in personal service and the IRS’s plans to direct taxpayers with questions to preparers and other third parties (along with the expansion of user fees, discussed below) as creating a “pay to play” tax system, where only taxpayers who can afford to pay for tax advice will receive personal service, while others will be left struggling for themselves.

5. Data Security Concerns.  Olson also warned about the consequences of giving tax return preparers more access to taxpayer accounts.  “When you give that access to unregulated preparers or to other third parties, I have significant concerns.  We already see the problems in this population of preparers relating to the Earned Income Tax Credit (EITC), where certain unregulated, untrained preparers prey on vulnerable taxpayers.  Why would we want to give these preparers even more access to taxpayer information?  And yet, if we don’t provide these preparers access to taxpayer accounts, it is very likely the tens of millions of taxpayers who use these preparers won’t be able to or won’t want to utilize their own online accounts, thereby carving a big hole in the IRS’s online strategy.  Thus, through a single-minded emphasis on online accounts, the IRS creates a situation where it will face enormous pressure to open up taxpayer account access to unregulated return preparers.”

6. Need for More Details and Public Discussion.  Because the contemplated reductions in service are significant yet undefined, Olson called on the IRS in her FY 2016 Objectives Report to Congress to release its plans and solicit taxpayer comments.  The new report again recommends that the IRS immediately publish its plan and seek public comments.  “U.S. taxpayers pay the bills for our government.  U.S. taxpayers deserve a say in how the tax collection agency will treat them,” the report says.

The report also recommends that Congress hold hearings on the future state of IRS operations so it can obtain more specific information about the IRS’s plans and have an opportunity to weigh in.

Said Olson:  “This has been a difficult report to write because while the intent to reduce telephone and face-to-face service has been a central assumption in the Future State planning process, little about service reductions has been committed to writing.  Therefore, it is impossible to describe the scope of contemplated reductions with specificity.  If there is good news here, it is that the IRS has not formally committed itself to the service reductions we understand to be contemplated.  I am hopeful the IRS will make the plan public, present its perspective on tradeoffs, seek public comments, and ultimately make a commitment to continue to maintain existing telephone and face-to-face services for the millions of U.S. taxpayers who rely on them.”

7. National Taxpayer Advocate to Hold Public Hearings on Taxpayer Service Needs.  “For the IRS to do its job well, it must start from the perspective of what government is about – namely, it is of the people, by the people, and for the people,” Olson wrote.  “The government is funded by taxes paid by the people.  Therefore, the future state vision of the IRS needs to be designed around the needs of the people.”  To assist the IRS in developing a plan that is responsive to the needs of U.S. taxpayers, Olson announced plans to conduct public hearings around the country in the coming months to which she plans to invite groups that represent the interests of individual taxpayers (including elderly, low income, disabled, and limited English proficiency taxpayers), sole proprietors, and other small businesses as well as Circular 230 practitioners and unenrolled tax return preparers to describe what they need from the IRS to help them comply with the tax laws.  

 

Have A 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

IRS issues Final Form 8971 & Instructions on How To Report the Final Estate Tax Value of a Property Transfered to Beneficiaries

February 15, 2016

For many years the IRS has had a problem verifying the basis of assets received by an heir from an estate. Within the last three or four years, the IRS has required brokerage houses and banks to supply it with the cost basis so that it could determine that the capital gain or loss on securities was correctly calculated. 

There was no such parallel form within the estate tax forum. Section 1014 of the IRC gives the heirs a basis equal to a value reported on an estate tax return. Later, if an heir sells the inherited property, there is no transitional method for the IRS to verify whether the basis claimed by the taxpayer on his personal tax return is correct.

Now, to rectify this situation, the IRS has created a form 8971 along with the schedule A which requires anyone who must file a form 706 or form 706NA to compel the executor/personal representative/administrator to file this form 8971+ schedule A with the Internal Revenue Service. Each heir/beneficiary is to be supplied with a copy of schedule A to inform him of his basis in the assets inherited from the estate. This filing requirement is limited to estates which must file a 706 or 706NA. The upshot of this is that estate tax returns filed merely to achieve portability are exempt from this filing requirement. 

The Form 8971 is due for all 706/706NA's filed after July 31, 2015. It must be filed by the executor with the IRS office in Cincinnati within 30 days of the filing of the 706. 


Failure to file a correct 8971 by the due date or to provide correct Schedules A to beneficiaries will result in penalties pursuant to sections 6721 and 6722 where reasonable cause is not demonstrated. 

Conceptually the idea is good but as usual, Congress has not thought through all the potential permutations created by this requirement. In a simple estate with few assets, it should certainly not pose a problem. How about an extremely large estate whose assets are being distributed to numerous heirs, sometimes around the world. It is rare that the administration of a an estate of a substantial volume is completed within 10 months or even 15 months of the date of death. What if there is litigation amongst the heirs as to who gets what? Such litigation can go on for a number of years. I am currently involved in an estate tax matter where the widow and the children of the first marriage have been in prolonged litigation for eight years. Until this litigation is resolved, no one knows who will inherit the US assets of the estate. 

What of heirs outside the United States who receive assets from the estate? The IRS requires such beneficiaries to obtain an SSN by filing form SS – 5.  How many heirs outside the United States who are not US taxpayers will bother or even care about obtaining an SSN?  The instructions also tell us that if at the time the 8971 is due it is not certain who will receive what, we are to list all the assets that each heir might receive on his schedule A and amended later. 

Even more vexatious is imposing this requirement on form 706NA filings. These decedents rarely have a US Social Security number. The first time one learns what this number might be is when they receive correspondence, generally a closing letter, from the IRS. In the interim there is no identification number to put on the 8971. Therefore, trying to track the assets from the estate to the beneficiaries can never be achieved. 

Like I said, conceptually this is a very good idea but I am afraid that the implementation by the tax preparers and the heirs is going to lead to a whole host of new problems which will become readily apparent as the numbers of these forms required to be filed increases over the years. Congress created this mess, let them figure out a way to simplify it or make it implementable.

Have a US Estate Tax Problem?
 


Estate Tax Problems Require
an Experienced Estate Tax Attorney
Contact the Tax Lawyers at
Marini & Associates, P.A.
 for a FREE Tax Consultation Contact US at
or Toll Free at 888-8TaxAid (888 882-9243).

Robert S. Blumenfeld  - 
 Estate Tax Counsel

Mr. Blumenfeld concentrates his practice in the areas of International Tax and Estate Planning, Probate Law, and Representation of Resident and Non-Resident Aliens before the IRS.

Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International.

While with the IRS, he examined approximately 2,000 Estate Tax Returns and litigated various international and tax issues associated with these returns.As a result of his experience, he has extensive knowledge of the issues associated with and the preparation of U.S. Estate Tax Returns for Resident and Non-Resident Aliens, Gift Tax Returns, Form 706QDT and Qualified Domestic Trusts.





  

 

Read more at: Tax Times blog

Live Help