Yearly Archives: 2017

Now according to Bloomberg Donald Trump’s surprising election and his promise to overhaul the U.S. tax code set off celebrations across corporate America, but some industries had barely applauded before they began gearing up for a fight.

Trump’s win gave Republicans control of the U.S. government for the first time in a decade and quickly drew attention to a tax plan that House Speaker Paul Ryan unveiled last summer with little fanfare. Ryan’s radical tax-code rewrite would replace the corporate income tax with a 20 percent tax on businesses’ domestic sales and imports; their exports would be exempt.

Cue the alarm bells for import-heavy companies like Wal-Mart Stores Inc., Target Corp. and Nike Inc. Retailers, apparel-makers, shoemakers, automakers and others unleashed one of their most robust lobbying and public-relations pushes in recent memory against the so-called “border-adjusted” tax.

Buttressed by more than 10,000 phone calls to congressional offices, by a parody-style TV ad that aired during “Saturday Night Live” and by a succession of Republicans who’ve expressed concern about the plan, the opponents’ efforts appear to be winning. So far.

But the action has now shifted to the White House, which will be “driving the train” on tax legislation, Press Secretary Sean Spicer says. There, the picture gets cloudier; lobbyists on both sides of the border-adjustment tax issue say they’re not sure who’ll determine the final contents of the administration’s plan.

 

Paying in full within 120 days. A taxpayer can pay the full amount owed within 120 days, without having to pay any fee, but interest and any applicable penalties continue to accrue until the tax is paid in full. Taxpayers can use an online payment application.

Installment agreements. Taxpayers unable to pay the full amount owed within 120 days may be able to enter into an installment agreement with IRS to pay the tax. Apply using Form 9465, Installment Agreement Request, and Form 433-F, Collection Information Statement.

There are different rules for taxpayers who owe $10,000 or less, and for taxpayers who owe $50,000 or less.

Taxpayers are eligible for a guaranteed installment agreement if the aggregate amount of the liability (determined without regard to interest, penalties, additions to the tax, and additional amounts) is not more than $10,000 and:

• During the past five tax years, the taxpayer (and spouse if filing a joint return) have timely filed all income tax returns and paid any income tax due, and have not entered into an installment agreement for payment of income tax;
• The taxpayer agrees to pay the full amount owed within three years and to comply with all Code provisions while the agreement is in effect; and
• The taxpayer is financially unable to pay the liability in full when due and submits information that IRS may require to make this determination (i.e., a financial statement). (Code Sec. 6159(c)(2); Reg. § 301.6159-1(c)(1))

Under recently finalized regs, the following fees apply to installment agreements entered into on or after Jan. 1, 2017, except for low-income taxpayers:

• $225 for regular installment agreements, where a taxpayer contacts IRS in person, by phone, or by mail and sets up an agreement to make manual payments over a period of time either by mailing a check or electronically through the Electronic Federal Tax Payment System (EFTPS). (Reg. § 300.1(b))
• $107 for direct debit installment agreements, where a taxpayer contacts IRS by phone or mail and sets up an agreement to make automatic payments over a period of time through a direct debit from a bank account. (Reg. § 300.1(b)(1))
• $149 for online payment agreements, where a taxpayer sets up an installment agreement Online Payment Agreement application. (Reg. § 300.1(b)(2))
• $31 for direct debit online payment agreements, where a taxpayer sets up an installment agreement and agrees to make automatic payments over a period of time through a direct debit from a bank account. (Reg. § 300.1(b)(2))

The fee is $43 for certain qualifying low-income taxpayers, but is reduced to $31 when the taxpayer pays by way of a direct debit from the taxpayer's bank account with respect to online payment agreements. (Reg. § 300.1(b)(3))

Offer in compromise (OIC). An OIC is an agreement between a taxpayer and IRS that settles the taxpayer's tax liabilities for less than the full amount owed.

Taxpayers who the IRS believes can fully pay the liabilities through an installment agreement or other means,

To qualify for an OIC, the taxpayer must have filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.

IRS may compromise a tax liability on any of the following grounds:

• (1)  Doubt as to liability. There must be a genuine dispute as to the existence of amount of the correct tax debt.
• (2)  Doubt as to collectibility. Such doubt exists in any case where the taxpayer's assets and income are less than the full amount of the tax liability.
• (3)  To promote effective tax administration. An offer may be accepted on this ground if: (a) collection in full of the tax owed could be achieved, but (b) requiring payment in full would either create an economic hardship, or would be unfair and inequitable because of exceptional circumstances. (Reg. § 301.7122-1(b))

To request an OIC, taxpayers must apply via Form 656, Offer in Compromise.

• They also must submit Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or
• Form 433-B (OIC), Collection Information Statement for Businesses.
• A taxpayer submitting an OIC based on doubt as to liability must file a Form 656-L (PDF), Offer in Compromise (Doubt as to Liability), instead of Form 656 and Form 433-A (OIC) and/or Form 433-B (OIC).
• The OIC application generally must be accompanied by a $186 application fee.
• However, the fee is waived for certain low income taxpayers, or if the OIC is based on doubt as to liability. ( Form 656-B, Notice 2006-68, 2006-31 IRB 105, Sec. 4.03)

Except with regard to offers filed by low-income taxpayers, or based only on doubt as to liability, an OIC must be accompanied by a nonrefundable payment that depends on how the taxpayer is offering to pay.

• A taxpayer may propose to pay in a lump sum, i.e., an offer payable in five or fewer installments within five or fewer months after the offer is accepted. If such an offer is made, the taxpayer must include with the Form 656 a payment equal to 20% of the offer amount. This payment is required in addition to the $186 application fee.
• A taxpayer may propose to make periodic payments, i.e., six or more monthly installments made within 24 months after the offer is accepted. When submitting a periodic payment offer, the taxpayer must include the first proposed installment payment along with the Form 656. This payment also is required in addition to the $186 application fee. (Code Sec. 7122(c)(1))

Temporarily delay the collection process. One final option, if payment would create financial hardship, is to ask IRS to delay collection until the taxpayer is able to pay. If IRS determines that the taxpayer cannot pay any of his or her tax debt, it may report the taxpayer's account as currently not collectible and temporarily delay collection until the taxpayer's financial condition improves. Interest and penalties continue to accrue until the tax debt is paid in full.

The taxpayer may be asked to complete a Collection Information Statement (Form 433-F, Form 433-A or Form 433-B) and provide proof of financial status (this may include information about assets and monthly income and expenses). During a temporary delay, IRS will again review the taxpayer's ability to pay, and may also file a Notice of Federal Tax Lien to protect the government's interest in his assets. To request a temporary delay of the collection process or to discuss other payment options, contact IRS at 1-800-829-1040 (individuals) or 1-800-829-4233 (businesses).

 

The U.S. Treasury Department (Treasury) has published a current list of countries that may require participation in, or cooperation with, an international boycott for purposes of Code Sec. 999, the rule that denies certain tax benefits to a person that participates in or cooperates with an unsanctioned international boycott.

• Iraq
• Kuwait
• Lebanon
• Libya
• Qatar
• Saudi Arabia
• Syria
• United Arab Emirates
• Yemen 

Dated: March 16, 2017. Douglas Poms, Deputy International Tax Counsel, (Tax Policy).[FR Doc. 2017–06264 Filed 3–29–17; 8:45 am]
Under Code Sec. 999(b)(3), a person participates in or cooperates with an international boycott when that person agrees, as a condition of doing business within a country, with its government, or with one of its nationals or companies, to do any of the following:

• (1)  Refrain from doing business with or in the country that is the target of the boycott, or with its nationals or companies;
• (2)  Refrain from doing business with a U.S. person engaged in trading with the country that is the target of the boycott;
• (3)  Refrain from doing business with any company owned or managed by individuals of a particular nationality, race or religion;
• (4)  Remove or refrain from choosing corporate directors who are of a particular nationality, race or religion; or
• (5)  Refrain from employing individuals of a particular nationality, race or religion.

United States (U.S.) law generally prohibits U.S. persons from participating or agreeing to participate in foreign boycotts which are not sanctioned by the U.S. government.  Internal Revenue Code (IRC) Section 999, provides that a taxpayer cooperates with an international boycott if the taxpayer agrees to refrain from doing business with a boycotted nation or with anyone who does business with a boycotted nation; refrains from doing business with any company whose hiring practices exclude persons of a particular nationality, race or religion; and refrains from shipping or insuring products bound for the boycotting nation if the shipper or insurer does not cooperate with the boycott.

If a U.S. person cooperates or participates in an international boycott, certain tax benefits may be forfeited such as:

• Foreign tax credits,
• Deferral of income from foreign corporations,
• Deferral of taxation of IC-DISC,
• Exemption of foreign trade income of a foreign sales corporation, and
• Exclusion of extraterritorial income from gross income.

The term “operations” is broadly interpreted and refers to all forms of business and commercial activities, regardless of whether they generate income. A U.S. person is considered to have operations in a boycotting country if the taxpayer has an operation that is carried out in a boycotting country.  A U.S. person is considered to have operations related to a boycotting country when the taxpayer has an operation that is carried on outside a boycotting country if the taxpayer knows or had reason to know that specific goods or services produced by the operation are intended for use in a boycotting country.  Examples of operations, include, but are not limited to:

• Selling
• Extraction
• Purchasing
• Leasing
• Licensing
• Processing
• Transporting
• Construction
• Banking, financing
• Manufacturing

U.S. persons must file Form 5713 to report the activities and to calculate tax benefits that are forfeited if participating in a prohibited boycott. “U.S. persons” is defined as U.S. citizens/residents, domestic corporations, domestic partnerships, or domestic estates/trusts.  Form 5713 is due with the income tax return, including extensions.

Willful failure to file Form 5713 may result in penalties of $25,000 or imprisonment for not more than one year, or both.

All U.S. persons with international activities or operations with multinational companies should review the application of IRC Section 999 and Form 5713.   Compliance with Form 5713 is essential for avoiding significant monetary penalties and criminal charges.

 

There is a presumption that if a person or a member of a person's controlled group participates or cooperates with an international boycott during a tax year, all of the person's or group's operations in connection with the boycotting country are connected with the boycott.

This presumption may be rebutted, and an operation may be shown to be separate and not connected with the boycott.

Income deemed connected with an international boycott is included in subpart F income. (Code Sec. 952(a)(3)) The amount included under this rule is equal to all of the income of the controlled foreign corporation (CFC), less (1) the income attributable to earnings and profits of the CFC otherwise included in the gross income of a U.S. person under another category of subpart F income and (2) certain income taxed by the U.S. at regular rates because it is effectively connected to the conduct of a U.S. trade or business, multiplied by the international boycott factor.
 

The taxation of financial intermediaries has been a perennial problem for the design and administration of VATs. This has required countries around the world to resort to ad hoc solutions that are invariably inefficient and often complex. The House Republican destination-based cash flow tax, which is closely related to a VAT, could be headed down the same uncertain and haphazard path.

Even though banks, insurance companies, and other financial institutions compose a significant share of the U.S. economy, the House blueprint released June 24 left readers with no idea of how finance would be treated under the new plan. The proposal said only that the House Ways and Means Committee would work to develop "special rules" for these taxpayers.

This is why a January 27 paper with special emphasis on financial transactions released by the intellectual godfathers of the destination-based cash flow tax is so important. (See Alan Auerbach, Michael P. Devereux, Michael Keen, and John Vella, "Destination-Based Cash Flow Taxation," Oxford University, Said Business School, Working Paper 17/01, Jan. 27, 2017. The authors, along with Paul W. Oosterhuis and Wolfgang Schön, composed a working group chaired by Devereux that has been studying alternative methods of international corporate taxation for the last three years.) With its focus on financial transactions, the working paper provides a missing piece that is desperately needed if this new approach is going to advance.

In a nutshell, their proposed solution for computation of the cash flow tax base involving financial transactions is to ignore all financial flows (interest, premiums, principal payments, etc.) when financial institutions conduct transactions with other taxable businesses. On the other hand, treatment of financial transactions with individuals and businesses not subject to the tax would be more complicated and use a method unfamiliar to most income tax payers. This latter method would require all financial cash flows, including the disbursement of loans to borrowers and the repayment of principal to lenders, to be included in the computation of the destination cash flow base.

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