Yearly Archives: 2018

We previously posted All That You Wanted to Know About Form 706NA - Part I, where we discussed that in the area of estate tax compliance, many of us have prepared Form 706’s, the estate tax return for US citizens and domiciliaries.  To be sure, this form is quite voluminous and can take a while to fill out but there are very few mysteries beyond schedule E; what percentage of an asset might be includable in an estate, the value of an annuity, what debts and expenses are deductible, the calculation of the marital deduction, and the generation-skipping tax computation. The Form 706NA, however, preparation of the tax return for the estate of the nonresident alien owning property in the United States, can present a more daunting task.  
Based on my 32 years of experience as a senior attorney at the International office of the IRS, I am revealing some of the strange and exotic problems that I came upon while auditing roughly 1,500 estate tax returns and preparing about 300 of the same in the last few years.

After we get through the information about the decedent himself, we reach an area of the return, Part III, General Information.Most of it is pretty obvious but… The first area of major concern may be whether the decedent died intestate. Many people who have assets in several countries have country specific wills, for instance one for the United States and one for say Canada, England etc. If the decedent did die testate, one should always include the US will. If there are other wills, go through them carefully before you submit them to the IRS because they make contain data which would create questions or problems with the IRS. In the alternative, many folks have a Universal Will which covers the disposition of assets in all countries. Because of the difference of rules from country to country, such a universal will may create problems with assets passing to a surviving spouse or a charity. 

Question five relates to whether the decedent owned jointly held property in the United States. If the taxpayer plans to include 100% of the value of the asset, then this question should pose no problems. Two potential problems come to light: if the decedent came from a community property jurisdiction, is one half of the value of the asset excluded by operation of law in the foreign country? If one wishes to exclude a portion of an asset from a decedent in a non-community property jurisdiction, Section 2040 of the IRC places the onus again, of proving contribution on the surviving co-tenant. This can sometimes be a very difficult task, especially if the property is been held for a substantial number of years and many records/canceled checks etc. have been destroyed over the years. 

Question six asks whether the decedent had ever been a US citizen. If the answer to the initial question is yes but at the time of death, the decedent is no longer a US citizen, it is necessary to include in the paperwork sent to the IRS some evidence that the decedent properly expatriated from the United States. Based on the timing, if this happened shortly before death, it could raise the issue of expatriation to avoid tax. Again, getting this information before preparing the return is a good way to avoiding embarrassment at  the examination.

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

www.TaxAid.com or www.OVDPLaw.com

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.

 

 

 

According to Law360, Foreign investors stand to reap 43 percent of the economic benefits from the federal tax overhaul's effects on federal tax law during the next 11 years, according to a recent report from the Congressional Budget Office.

In a Wednesday letter responding to an inquiry from Sen. Chris Van Hollen, D-Md., the CBO said a new analysis of gross domestic product and gross national product projections show that from 2018 through 2028, foreign investors will obtain at least a 31 percent annual share of increases in the United States economy attributable to the Tax Cut and Jobs Act.

The share of foreign investors’ benefits from the TCJA jumps from 48 percent in 2026 to 60 percent in 2027 and peaks at 71 percent in 2028, the latest year the CBO projects the law’s impact on the economy. The CBO partly attributes the spike in the final two years of its analysis to higher individual tax rates that will take effect in 2026.

“In CBO’s estimates, the share is higher after 2025 in part because the lower tax rates on individual income expire and the subsequent effects on the supply of labor — and therefore on real GDP — are smaller, but the difference between the effects on GDP and on GNP changes little,” the letter said.

The CBO has estimated that the TCJA will reduce the amount of net foreign income earned by U.S. residents, meaning GNP, which includes income that residents earn abroad but excludes domestic income from nonresidents, will rise less than GDP.

The CBO used new calculations of the ratio of the federal overhaul's expected effects on both economic measuring sticks to determine the share of economic growth that will be realized by residents and foreign investors.

The letter said Van Hollen’s staff asked for more clarification on the TCJA’s effects on both GDP and GNP in real terms or after adjustments to remove the effects of inflation.

The senator sent the letter after the CBO released its first economic outlook of 2018, which estimated that recent legislative changes, including the new federal tax law, are projected to increase the budget deficit by $2.7 trillion more than previously thought.

A representative of Van Hollen’s office said the senator had no comment Friday, but shared a video of an exchange between Van Hollen and CBO Director Keith Hall at a Senate Budget Committee hearing on April 13.

At the hearing, Van Hollen asked if 80 cents of every dollar of increased economic activity from the tax law in 2028 “is not going into the pockets of hard-working Americans … it’s going into the pockets of foreigners, right?”

Hall responded that the calculation was correct but added, “I’m just not sure that’s exactly how I would look at the benefits or the impact of the tax act.”

The letter said the CBO revised that number to 71 percent after using “more precise estimates of the real effects on GDP and GNP, which CBO had not previously published.”

In a statement after the CBO’s release of its April 9 report, Van Hollen voiced his opposition to the TCJA’s effects on the economy, calling it a financial boon for special interests and the rich.

“Big corporations and foreign investors are lining their own pockets with record stock buybacks, while American families are facing higher health costs and still haven’t gotten the $4,000 pay raise they were promised,” he said.

The CBO report was the first analysis to take into account the effects of the TCJA, the Bipartisan Budget Act of 2018 and the Consolidated Appropriations Act. It predicted that the national debt will soar from $21.4 trillion at the end of 2018 to nearly $34 trillion at the end of 2028. The debt held by the public will be nearly the size of the U.S. economy at 96 percent of the GDP in 2028, according to the CBO.

Still, the CBO warned that there is a “good deal of uncertainty” behind its estimates, and said the effects of the new tax law depend on what policies state and foreign governments may enact in response, how businesses will rearrange their finances and how taxpayers will respond to changes in incentives to work, save and invest in the U.S.

Wills resided in the Western District of New York but spent significant time in Cleveland, Ohio, and Atlanta, Georgia, where the debt collection companies were located. From approximately November 2010 through approximately October 2013, the defendant operated a business called Freestar World LLC, through which he did work for the debt collection companies.

The debt collection companies engaged in illegal debt collection practices such as making threatening and harassing phone calls, and collecting on debt that did not exist or debt to which the debt collection companies did not have title.

The defendant had these individuals incorporate several debt collection companies in Georgia and Ohio, open dozens of bank accounts in the names of the debt collection companies, and submit applications for merchant accounts in the names of the debt collection companies.

• Between 2010 and 2013, none of the debt collection companies filed a tax return.  

• In addition, Wills failed to file his 2011 and 2013 personal income tax returns, despite some of the debt collection companies earning approximately $4,000,000 in gross receipts. 

For the tax year 2012, the defendant filed a personal income tax return but the return did not include income information from any businesses, some of which earned nearly $5,000,000 in gross receipts in 2012, except for Freestar.

As a result of unreported income and the unpaid 2012 taxes, the defendant owes $1,209,537.88 in federal income taxes for tax years 2011 through 2013.

Previously, Wills and the debt collection companies were the subject of a civil investigation by the Federal Trade Commission, with the defendant and the FTC stipulating to a final order for permanent injunction on August 8, 2014.
         
U.S. District Judge Elizabeth A. Wolford scheduled sentencing for Aug. 23, 2018. Wills faces a statutory maximum sentence of 5 years in prison.  He also faces a period of supervised release, restitution and monetary penalties.