Monthly Archives: April 2016

According to a FIBA Florida International Bankers Assoc. blog post entitled  U.S. Plans to Require Banks to Identify Owners of Shell Companies, the United States government is close to issuing a rule that will for the first time require banks and other financial institutions to find out the identities of people hidden behind shell companies.
 The rule is meant to close a major loophole in the American banking system that enables the sorts of secretive financial maneuvers that were thrust into the spotlight this week with the leak of millions of documents from a law firm in Panama.

That firm, Mossack Fonseca, is one of the largest incorporators of shell companies in the world. The trove of leaked documents, analyzed by more than 100 news organizations worldwide, revealed offshore companies tied to 143 politicians, their families and close associates.

The documents also showed scores of shell companies doing business with major international banks, including UBS, Credit Suisse and HSBC, that rely on access to the American banking system.

 

 

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)

 

 

We have been receiving a lot of calls from businesses who have recently received penalty notices regarding late filed or non-filed Form 5472's. 

The reason that US taxpayers are currently receiving these automatic assessments is that the IRS updated its IRM 20.1.9, Penalty Handbook, International Penalties on March 21, 2013 to now include and Automatic Assessment of this $10,000 Penalty for Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.

The Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business (Under Sections 6038A and 6038C of the Internal Revenue Code), is filed as an attachment to the U.S. income tax return by the due date of that return, including extensions. If the reporting corporation’s income tax return is not timely filed, Form 5472 nonetheless must be timely filed at the campus where the return is due. When the income tax return is ultimately filed, a copy of Form 5472 must be attached.

The IRM 20.1.9, Penalty Handbook, International Penalties also provides:

1. Pattern Letter for Failure to File Form 5472 ( Form Letter) See Exhibit 20.1.9-8     
2. Penalty Assertion   (20.1.9.5.3) (03-21-2013) An initial penalty is asserted on Form 8278 using PRN 625 when the examiner determines that a U.S. corporation that is 25 percent foreign-owned during a taxable year has had transaction(s) with a related party and:   
• Has failed to timely file Form 5472,
• Has filed a Form 5472 which is inaccurate or incomplete, or
• Has failed to maintain records of transactions with related parties.
3. Penalty Computation (20.1.9.5.4) (03-21-2013) Initial Penalty—The initial penalty is $10,000 for each failure during a taxable year of a reporting corporation to:                    
• Timely file a separate Form 5472 with respect to each related party with which it had a reportable transaction during such taxable year,
• Maintain the required records relating to a reportable transaction, or
• In the case of records maintained outside the U.S., meet the non-U.S. record maintenance requirements.
4. Continuation Penalty—If any failure continues more than 90 days after the day on which the notice of such failure was mailed to the taxpayer (90-day period), additional penalties will apply. The continuation penalty is $10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of the 90-day period. These additional penalties are also asserted on Form 8278 using PRN 701 (prior to January 2013, PRN 619 was used for this continuation penalty).       

Reasonable Cause     

Our Experienced Tax Attorneys at M&A have extensive experience with obtaining waivers of penalty based upon "Reasonable Cause" and have been able to get such automatic assessments of the $10,000 Penalty for Form 5471's, waived after their assessment; either by the issuing IRS Service Center or at Appeals!

 

Other Defenses

 

Depending on the facts in your case, there are other defenses, both legal and factual, which also will result in the taxpayer obtaining a waiver of this $10,000 form 5472 late filing penalty.

 

Has  Your Company  Been Assessed an
Automatic $10,000 Penalty for a Late Form 5472?

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)

 

 

 

As originally announced by IRS in May 2015, in Rev Rul 2015-13, 2015-22 IRB, the due date for returns for which the due date would otherwise be April 15, 2016 will instead be April 18, 2016 or April 19, 2016 for residents of Maine and Massachusetts.

Based on the reasoning in an example in Rev Rul 2015-13 and on the instructions to 2016 Form 1040-ES, Estimated Tax for Individuals, the due date for the first 2016 estimate for individual taxpayers will be Monday, April 18, 2016, regardless of your state of residence.

The Administration and Treasury Department released a joint report titled “The President's Framework for Business Tax Reform: An Update,” which is an updated version of their 2012 proposal. In addition to providing the President's vision for tax reform, the report includes recent figures to demonstrate the urgent need for such reform, including statutory vs. effective tax rates, effective rates broken down by industry, and global corporate tax rate trends.

• the increased number of corporate inversions occurring over the past couple years
• the global problem of base erosion and profit shifting (BEPS), currently being tackled by the Organization for Economic Cooperation and Development (OECD).

The report states that “[i]n the face of these challenges, inaction is not an option.”

• Reduce the top corporate tax rate from 35% to 28%.
• Eliminate the corporate alternative minimum tax (AMT).
• Revise current depreciation schedules that generally overstate the true economic depreciation of assets. (The report notes that many other large countries have scaled back depreciation allowances as a way of paying for rate-lowering corporate tax reform.)
• Limit the deductibility of interest.
• Cut the top corporate tax rate on manufacturing income to 25% and to an even lower rate for income from advanced manufacturing activities. This would be accomplished by reforming the Code Sec. 199 domestic production activities deduction to: focus more on manufacturing activity; increase the credit to 10.7%; and increase it even more for advanced manufacturing.
• Eliminate tax breaks for specific industries “with the few exceptions that are critical to broader growth or address certain externalities.” Specifically, the President's framework would: eliminate last-in, first out (LIFO) accounting; eliminate tax breaks for the oil and gas industry; reform the treatment of the insurance industry and products; and reform the measurement and character of gains, including modifications to the rules for like-kind exchanges.
• Provide reforms specific to the financial sector, including imposition of a financial fee (i.e., a tax on large financial institutions based on the amount of their liabilities), increase certain transaction fees, close the “carried interest” loophole, and modernize the taxation of certain financial products to prevent tax arbitrage.
• Promote innovation by expanding and simplifying the now-permanent research credit.
• Consolidate, enhance, and permanently extend key tax incentives to encourage investment in clean energy while repealing fossil fuel subsidies.
• Effectively cut the top corporate tax rate on manufacturing income to 25% by reforming the Code Sec. 199 domestic production activities deduction and increasing the credit to 10.7%.
• Establish a new per-country minimum tax (19%, less a foreign tax credit equal to 85% of the per-country average foreign effective tax rate) on foreign earnings that would reduce firms' ability to avoid U.S. tax by shifting profits overseas, reduce the incentive to shift production overseas, and increase the global competitiveness of U.S. corporations.
• Impose a one-time 14% tax on unrepatriated earnings, which could then be repatriated without any further U.S. tax.
• Limit U.S. interest expense deductions to curb “earnings stripping.”
• Limit inversions by preventing firms from acquiring smaller foreign firms and changing the tax residence as a result, and from changing their tax residence to any country where they do not have substantial economic activities if their operations in the U.S. are more valuable than their operations in the other country and they continue to be managed and controlled in the U.S.
• Close loopholes and stop strategies that facilitate BEPS, including tightening rules governing cross-border transfers of intangible property, closing loopholes by expanding the scope of the existing Subpart F rules, and restricting the use of “hybrid” arrangements that take advantages of differences in tax rules. The report notes that these reforms are consistent with the cooperative efforts being made by the OECD's BEPS project, which were endorsed by President Obama and other world leaders at the 2015 G-20 Summit.
• Allow small businesses to expense up to $1 million in investments.
• Allow cash accounting for businesses with up to $25 million in gross receipts.
• Simplify additional accounting rules for small business and harmonize eligibility.
• Quadruple the deduction for start-up costs (from $5,000 to $20,000).
• Reform and expand the health insurance tax credit for small businesses.

For more detail go to “The President's Framework for Business Tax Reform: An Update.