Yearly Archives: 2019

According to Law360, President Donald Trump and his accounting firm must comply with a subpoena from the Manhattan district attorney and hand over tax returns, the Second Circuit ruled on November 4, 2019, in a decision that will likely be appealed to the U.S. Supreme Court.

The Second Circuit disagreed with U.S. District Judge Victor Marrero of the Southern District of New York that the federal court should abstain from the case under the U.S. Supreme Court's 1971 case Younger v. Harris, which bars federal courts from interfering in matters a state court can handle.

The Second Circuit said that even though the Younger case does not apply, presidential immunity from the state criminal process does not extend to investigations such as grand jury subpoenas at issue in the case.

Manhattan District Attorney Cy Vance is seeking Trump's personal tax returns and other records from Mazars USA LLP as part of an investigation into hush-money payments to two women alleged to have had affairs with Trump, Stephanie Clifford, also known as Stormy Daniels, and Karen McDougal, and how those payments were recorded in the Trump organization's records, the district attorney's office has said. The case is Trump v. Vance Jr., case number 19-3204, in the U.S. Court of Appeals for the Second.

The Internal Revenue Service said on November 4, 2019 that it would begin examinations of U.S.-based multinational companies’ 2017 and 2018 returns to ensure they comply with the repatriation tax provision of the tax overhaul enacted two years ago.

To promote compliance with Internal Revenue Code Section 965 , the IRS said it would start scrutinizing affected multinationals’ returns as part of its campaign announced in July 2018 on that facet of the Tax Cuts and Jobs Act .

The agency said its focus will start with examining 2017 returns and “generally require” looking at companies’ 2017 and 2018 filings. In addition to examinations, the campaign will provide technical assistance to IRS teams working on Section 965 matters, with a focus on identifying and addressing taxpayer populations with potential material compliance risk, according to the agency’s announcement.

The agency also said the audit could expand beyond reviewing taxes paid on offshore profits, it could trigger an examination of other changes companies made to their tax strategies after the 2017 law, which cut the corporate rate to 21% and overhauled the international tax rules.

Affected companies were given the option of paying the tax interest-free over eight years, though as November 4, 2019's notice said, the “vast majority” of Section 965 liability has been expected to arise on corporate returns for 2017 and 2018.

The LB&I division currently has 53 active compliance campaigns listed on the IRS website.

Spending more that 3 months a year in the U.S. may trigger taxable residency without realizing it, bringing with it the additional responsibility of financial reporting obligations and potentially creating tax liability for any affiliated offshore companies.

You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least:

1. 31 days during the current year, and
2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
   • All the days you were present in the current year, and
   • 1/3 of the days you were present in the first year before the current year, and
   • 1/6 of the days you were present in the second year before the current year.

People who unknowingly pass this threshold may be insulated from U.S. income taxes, where there country of residence as an income tax treaty with the U.S., but they’re still considered U.S. residents for other purposes like information reporting.

As explained in IRS Publication 519 (U.S. Tax Guide for Aliens): Effect of Tax Treaties… If you are a dual-resident taxpayer, you can still claim the benefits under an income tax treaty. A dual-resident taxpayer is one who is a resident of both the United States and another country under each country’s tax laws. The income tax treaty between the two countries must contain a provision that provides for resolution of conflicting claims of residence (tie-breaker rule). If you are treated as a resident of a foreign country under a tax treaty, you are treated as a nonresident alien in figuring your U.S. income tax. For purposes other than figuring your tax, you will be treated as a U.S. resident...

Where a foreign resident is able claim Treaty Tiebreaker provision, they may still need to file:

1. Form 114 - Report of Foreign Bank and Financial Accounts (FBAR),  
2. Form 5471- Information Return of U.S. Persons With Respect  to Certain Foreign Corporations
3. Form 8938 - Statement of Specified Foreign Financial Assets (where treaty tiebreaker claim is not made on timely file return). and
4. Forms 3520 or 3520-A - Annual Reports Regarding Foreign Trust.

The penalty for failing to file any of the above mentioned forms is: 

1. Form 114 is $10,000 where the IRS believes that the taxpayer didn't intentionally fail to file the FBAR. However, where the IRS believes the omission was willful then the penalty for failing to file Form 114 is the greater of $100,000 or 50% of the balance in the foreign account.
   

2. For Form 5417 & 8938 the IRS may assert a $10,000 penalty for each failure for each applicable annual accounting period, plus an additional $10,000 for each month the failure continues, beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $60,000.
3. Form 3520: Greater of $10,000 or the following (as applicable):

• 35% of the gross value of any property transferred to a foreign trust for failure by a U.S. transferor to report the creation of or transfer to a foreign trust. 
• 35% of the gross value of the distributions received from a foreign trust for failure by a U.S. person to report receipt of the distribution.
• 5% of the gross value of the portion of the foreign trust's assets treated as owned by a U.S. person under the grantor trust rules (Sec. 671 through 679) for failure by the U.S. person to report the U.S. owner information.
• Form 3520-A: Greater of $10,000 or the 5% penalty (discussed above).

This is just one more reason that NRA's should consult with an experienced attorney before coming to the US for any long period of time and certainly for pre-immigration planning!

Donald Trump has announced that he intends the change his residence from New York to Florida. Many others wealthy individuals know that this change of domicile results in:

1. $0 in Florida State income tax, down from top rates in New York state of 9% and New York City of 4%.
2. $0 in Florida Estate tax, down from New York’s estate tax, which can be as high as 16%, and
3. Florida provides significant asset protections via its generous homestead exemption laws.

But first Trump must be abandon his New York domicile and he will most likely be subject to a NY tax audit, when he claims loss of domicile on his New York tax returns.

In such an audit, New York will likely look to see if Trump has stopped spending much time in New York, which for the time being it appears that he has, and how much time and connection he has now established in Florida. That includes not just time spent in Florida, but things such as registering to vote in the state, setting up bank accounts, and visiting Florida doctors and other professional people in Florida.

You need to prove by clear and convincing evidence that you not only left first state, New York, but relocated to the new state, Florida.