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Monthly Archives: March 2016

FinCEN's Luxury Real Estate Reporting Rules – Exceptions!

On February 1, 2016 we posted US Real Estate Investments & Anonymous Entities Again in Spotlight for US Money Laundering!, where we discussed that the Financial Crimes Enforcement Network (FinCEN) on January 13, 2016 issued a Geographic Targeting Orders (GTO) that will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies used to pay "all cash" for high-end residential real estate in the Borough of Manhattan in New York City, New York, and Miami-Dade County, Florida.

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.

The key findings from the investigation are:

  • Lawyers from 12 of the 13 firms we visited suggested using anonymous companies or trusts to hide the minister’s assets. All but one of these firms recommended using American companies.
  • One of the lawyers was the President of the American Bar Association at the time.
  • Several lawyers suggested using their law firms’ own bank accounts to help prevent U.S. banks realizing whose money it really was, or to have the lawyer act as a trustee of an offshore trust and use this position to open a bank account.
  • While most of the lawyers asked for some information about the minister, and his source of funds, only one lawyer refused to provide assistance during the meeting itself.
The regulations implementing this new procedure
which went into effect on March 1, 2016
apply to real estate transactions exceeding:
$3 million in New York City
and $1 million in Miami.

According to Law360, loopholes continue to allow sophisticated individuals to sidestep the attention of regulators.

Title Insurance Companies

The new rules, for example, limit the reporting requirements to Title Insurance Companies. Title insurance is usually required by a lender, typically a bank providing a mortgage, for protection against risks originating from flaws in the real property's title. Purchases completed without outside lenders, however, generally negate the need for title insurance and therefore eliminate the only party, a title insurance company, required to report the transaction.

The GTOs, however, specifically target purchases made without a bank loan or other similar forms of financing. In other words, by exempting those transactions that would most likely include title insurance, FinCEN has exempted from its reporting requirements most transactions likely to involve a title insurer, the rule’s mandated reporter.


Another category of transactions exempt from the reporting requirements are those involving a mortgage. Admittedly, FinCEN drafted the new rules in an effort to track what it perceives to be potentially the highest-risk category of real estate purchases: all-cash transactions. If an individual or an entity, including a limited liability company, finances the deal with a small mortgage, the transaction is exempt from the rules' disclosure requirements.

25% Ownership

The FinCEN rules require title insurance companies to identify the beneficial owners, defined as “each individual who, directly or indirectly, owns 25 percent or more of the equity interests” of the legal entity purchasing the real estate. This definition leaves the door open for buyers who splinter their ownership among multiple individuals, such as family members or attorneys, to avoid the 25 percent regulatory threshold.

Offshore Trusts or Foundations

Similarly, beneficial owners could utilize offshore trusts or foundations to benefit an individual, the trust's beneficiary, without conferring the legal status of "owner." These offshore entities are targeted frequently by financial regulators, which have long recognized that individuals have used these vehicles to conceal the origin of illegal proceeds. In using a nominee to control the funds of a trust or foundation, a beneficial owner is able to shield his or her identity from the scrutiny of regulators. Foreign bank secrecy laws barring and even criminalizing disclosure of banking information likewise serve to assist in the concealment.

Wire Transfers

Real estate purchases funded solely through wire transfers also may sidestep the reporting requirements. The FinCEN rules are triggered by purchases made using currency, a cashier’s check, a certified check, a traveler’s check, or a money order. Payment of the purchase price through a wire transfer therefore serves to exempt a transaction from the rules’ requirements. It should be noted that regulators have already targeted lackluster due diligence efforts in connection with foreign transfers. In the last several years, HSBC and Commerzbank have paid combined penalties in excess of $750 million partly for failing to properly scrutinize wire transfers.

The loopholes in these rules, allow sophisticated real estate purchasers to continue buying in these areas largely unimpeded. A savvy financier could easily navigate these rules to circumvent their purpose of curtailing the flow of dirty money.

The rules are timed to expire in August, 2016. However FinCEN may be using the next six months to gather information and assess the efficacy of the measures. In other words, after studying the loopholes and other shortcomings to the rule, FinCEN may reissue or even expand the rules, shoring up the present regulatory gaps.


Need Experience Legal Advice for
Your US Real Estate Investments?


 Contact the Tax Lawyers at 
Marini & Associates, P.A.

for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888)882-9243.


Read more at: Tax Times blog

Budget Cuts to IRS Business Cause Audits to Plummet!

Preview of the share imageThe Internal Revenue Service’s audits of business tax returns have declined steeply in recent years, thanks to successive rounds of budget cuts, according to a new analysis.

Syracuse University’s Transactional Records Access Clearinghouse, or TRAC, analyzed the IRS’s records from fiscal year 2010 through fiscal year 2015 and found revenue agent hours aimed at corporations with $250 million or more in assets have declined 34 percent, while unreported taxes uncovered by IRS that would otherwise have been lost to the government dropped 64 percent.

The declines were even steeper for the largest corporations, those with $20 billion or more in assets. 

Even more recent data through February of 2016 indicate that business audits of large companies are running 22 percent lower this year than for the same period last year.

To

Have a Tax Problem?

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).

Read more at: Tax Times blog

What to do When You Receive an IRS Notice?

The IRS  sends many, many, many, letters and correspondence before they levy or garnished any Taxpayer's wages, bank accounts, or other assets. Many taxpayers take the ostrich approach and ignore the problem, in hopes that it will go away.
If you’re facing an IRS Problem, appropriate action can go a long way towards resolving it!
1. Respond Quickly to All Inquiries and Notices
The IRS will send a notice or letter if:
  • You have a balance due.
  • You are due a larger or smaller refund.
  • They have a question about your tax return.
  • They need to verify your identity.
  • They need additional information.
  • They changed your return.
  • They are notifying you of delays in processing your return.

2. Read the Entire Notice or Letter Carefully.

Typically, the IRS only needs a response if you don’t agree with the information, the IRS needs additional information, or you have a balance due. If the IRS changed your tax return, compare the information the IRS provided in the Notice or Letter with the information in your original return. If the IRS receives a return that they suspect is identity theft, the IRS will ask you to verify your identity using the web address provided in the letter.

When you get a notice in the mail from the IRS, it will have a file/case/claim or other reference
number on the document. You’ll also notice the document likely arrived days (or weeks) later
than the date on the letter/notice.

3. Contact the IRS if You Have Questions or Disagree With the Notice.

The IRS provides their contact phone number on the top right-hand corner of their correspondence.

Call the that phone number as soon as possible upon receipt of the notice to make certain the IRS is aware you are “pending action.” Be sure you have your tax return and any related documentation available when you call. Alternatively, you can write to the IRS at the address in the correspondence to explain why you disagree. If you write, allow at least 30 days for their response.

4. Respond Within the Required Time Frame.

If the IRS ask for a response within a specific time frame, you must respond on time to minimize additional interest and penalty charges or to preserve your appeal rights if you don’t agree.

5. Document all communications with the IRS
If you mail communications to the IRS, send them as certified mail to guarantee arrival and receipt. If you communicate with the IRS by telephone, the responding agent will give you his/her name and ID
number. Be certain to write it down along with the date/time/subject of your call and any answers or information the agent provides. If you do not get a name and ID number, be sure to ask and/or confirm before the end of your call. That way if there are any disputes, there is a record of your communications.
6. Turn Over the Right Paperwork
Inexperienced taxpayers often think that the more paperwork they turn over, the better. The IRS
may even encourage this by stating that they can help you resolve your tax problem. While this may be true, IRS Revenue Agents can and often do make additional adjustments based upon the information and paper work which you supply. Only provide the information that is needed to resolve the problem at hand, not that which may open up a whole new set of problems.

6. Contacting an Experience Tax Attorney Can Help

When you respond quickly to notices and requests for information, you’re likely to find that the
situation can be resolved successfully on your own. But when audits or multiple issues arise, it is advisable to have an Experienced Tax Attorney on your side. 

When you have IRS tax problems, it is very important to handle them very carefully. IRS tax matters are very technical and sensitive; therefore a slight mistake in the process can cost you dearly in the form of loss of money, loss of time and general frustration. The tax laws and procedures involved in settling  your IRS taxes can be very complex and you may not completely understand it.

Dealing with IRS involves navigating the complicated maze of U.S. tax law. A Tax Attorney has the knowledge of tax law and expertise needed to negotiate with the IRS on your behalf to reduce Tax debt & IRS Problems.

The Internal Revenue Service has an army of employees and tax attorneys representing them

and as a taxpayer, you should have the same benefits which result from hiring an Experienced Tax Attorney to represent You, your Business & your Family.

Have a Tax Problem?

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).

Read more at: Tax Times blog

Tax Court Holds That FBAR Penalties Aren't Included in $2 million Whistleblower Threshold.

The Tax Court has concluded, Whistleblower 22716-13W, (2016) 146 TC No. 6, that penalties for failing to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (Foreign Bank Account Report or FBAR) under 31 U.S.C. sec. 5321(a) are not “additional amounts” for purposes of the $2,000,000 nondiscretionary award threshold under Code Sec. 7623(b)(5)(B). Accordingly, FBAR payments must be excluded in determining whether the $2,000,000 amount in dispute requirement has been satisfied. Whistleblower 22716-13W, (2016) 146 TC No. 6.

Under Code Sec. 7623(a), IRS has discretionary authority to pay awards to informants/Whistleblowers the sums it considers necessary for the detection of tax underpayments, or for the detection, trial, and punishment of tax law violators.

Under Code Sec. 7623(b), individuals are entitled to receive an award of 15% to 30% (or lower amounts in cases of less substantial contribution) of the collected proceeds resulting from an action based on information provided by the whistleblower in any action:

  • . . . against any taxpayer, but in the case of any individual taxpayer, only if such individual's gross income exceeds $200,000 for any tax year subject to such action, (Code Sec. 7623(b)(5)(A)) and
  • . . . if the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2 million. (Code Sec. 7623(b)(5)(B))

Therefore, a whistleblower is eligible for a nondiscretionary award under Code Sec. 7623(b) only “if the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000.”

The Whistleblower ("WB") filed Form 211, Application for Award for Original Information, with the IRS Whistleblower Office (Office). On the application, "WB" asserted that he was cooperating with the Department of Justice and the IRS Criminal Investigation Division in connection with the ongoing investigation of two Swiss bankers, Martin Lack and Renzo Gadola, and that his cooperation had led to, and would lead to more, information about these bankers' involvement in tax evasion by U.S. persons having undeclared offshore financial accounts.

"WB" filed another claim for an award after he learned that a taxpayer who dealt with Gadola had agreed to pay a substantial penalty in conjunction with a guilty plea for filing a false tax return, an FBAR penalty substantially in excess of $2,000,000, and restitution. This taxpayer admitted that Gadola had helped him open Swiss bank accounts to conceal his income and assets from U.S. authorities.

"WB" claimed entitlement to an award based upon the aggregate amount paid by the taxpayer, including the FBAR penalty, given his alleged involvement in Gadola's arrest, which allegedly led to the taxpayer's arrest.

The IRS informed "WB" that it had received a legal opinion from the IRS Office of Chief Counsel concluding that FBAR penalty payments, because they are made pursuant to Title 31 rather than Title 26 of the U.S. Code, are not collected proceeds eligible for a nondiscretionary award under Code Sec. 7623(b)(1).

The Tax Court held that the term “additional amounts” as used in Code Sec. 7623(b)(5)(B) means the civil penalties set out in chapter 68, subchapter A, of the Internal Revenue Code, captioned “Additions to the Tax and Additional Amounts.” Rejecting the argument that the term “additional amounts” as used in Code Sec. 7623(b)(5)(B) means, “other sums of money,” the Court noted that it has consistently held that “additional amounts,” particularly when it appears in a series that also includes “tax” and “additions to tax,”  is a term of art that refers exclusively to the civil penalties enumerated in chapter 68, subchapter A.

Accordingly, the Tax Court concluded that FBAR civil penalties aren't “additional amounts” within the meaning of Code Sec. 7623(b)(5)(B). Such amounts aren't “assessed, collected...[or] paid in the same manner as taxes” under Code Sec. 6665(a)(1). As a result, FBAR payments must be excluded in determining whether the $2,000,000 amount in dispute requirement has been satisfied.

Want a Reward of Between 15- 30% of Underpaid IRS Tax Liabilities for
Blowing the Whistle on a Tax Cheat?

Contact the Tax Lawyers at
Marini & Associates, P.A.
for a FREE Tax Consultation
or Toll Free at 888-8TaxAid (888 882-9243).


Read more at: Tax Times blog