Monthly Archives: November 2020

In a December 2016 post, Foreign Owned Domestic Disregarded Entities Must Report Under New Regs. we discussed that the IRS has now issued final regulations and they treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner, but only for the reporting, record maintenance and associated compliance requirements that apply to 25% foreign-owned domestic corporations under Code Sec. 6038A. 

These changes were intended to provide IRS with improved access to information that it needs to satisfy its obligations under U.S. tax treaties, tax information exchange agreements and similar international agreements, as well as to strengthen the enforcement of U.S. tax laws. TD 9796, 12/12/2016; Reg. § 1.6038A-1, Reg. § 1.6038A-2, Reg. § 301.7701-2. These regulations are effective December 13, 2016.

For Tax Years Beginning After December 31, 2017,
The TCJA Act Increased The Penalty To $25,000 From $10,000
For Each Return That Must Be Filed.

For US tax purposes, a limited liability company (LLC), that has a single owner (Single Member LLC, or SMLLC) and is not classified as a corporation is generally disregarded as separate from its owner (a Disregarded Entity). The economic activities of the SMLLC are attribute to the owner of the LLC for tax purposes, as if the LLC did not exist. 

This concept allowed a foreigner to use a SMLLC to conduct certain economic activities in an “anonymous” manner prior to TCJA 2017.

Foreigners have traditionally used SMLLCs to do the following activities, without having to declare anything in the United States:

• Maintain bank accounts in the United States in the name of a company, yet with the same tax benefits as an individual investor.
• Conduct international trading business using the United States as a hub.
• Hold property with limited personal liability and without publishing the name of the final beneficiary in public records.
• Legally compartmentalize a series of financial and/or real estate investments in different entities without creating a new taxpayer for each separate investment.
• Being a subsidiary of a foreign company doing any of the activities previously mentioned, etc.

In preparation for exchanging more information with other countries, at the end of 2016 Congress revised the law so that SMLLCs were no longer considered transparent for purposes of reporting on their international transactions and foreign ownership. Beginning with the 2017 tax year, SMLLCs with foreign owners and reportable transactions needed to:

1. Apply for a taxpayer number, for which it may be necessary that the ultimate beneficial owner list their taxpayer number (ITIN) or apply for one.
2. Identify and report the LLC’s direct and indirect foreign owners, including the ultimate beneficial owner(s).
3. Break down “reportable” transactions between the LLC and its owner(s) and/or other “related parties.”
4. Report the total value of the LLC’s assets.
5. Maintain books and records subject to audit.

Foreign-owned Corporations were already subject to filing form 5472, and the requirements for SMLLCs are basically the same with one important exception. The definition of “reportable transactions” was expanded for SMLLCs to include not only things such as payments and loans, but also capital contributions and distributions. Therefore, it can easily be that Form 5472 and the corresponding information will have to be presented by each SMLLC every year.

The civil penalty for failing to file a Form 5472, even if the non-filing was unintentionally, was increased from $10,000 for the 2017 fiscal year to $25,000 in 2018. 

The penalty is also applied whenever an incomplete, or late form is filed. Because a separate form 5472 is required for each “related party” in each year that there is a reportable transaction, the penalty can easily multiply for each transaction which the SMLLC has with each “related party.” In addition, failure to maintain updated books to verify transactions constitutes an additional $25,000 penalty. 

Both penalties increase by $25,000 each month that non-compliance continues in case the breach is not resolved within 90 days after the tax authority sends the notice of a penalty. If the LLC does not pay the penalty, the tax lien could be extended to the assets of the LLC even if they are transferred to another owner and in some cases, be enforceable against the owners of the LLC.

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).
 

Read more at: Tax Times blog

According to DoJ, a Alabama, salesman was sentenced to 24 months in prison on October 27, 2020 for tax evasion. 

According to court documents and statements made in court, Ivan Scott “Scott” Butler was an automobile industry consultant and sold automobile warranties as an independent salesman. 

• In 1993, Butler stopped filing tax returns and attended tax defier meetings and purchased tax defier materials. 
• Starting in 1998, Butler used several Nevada nominee corporations to receive his income and conceal it from the IRS. 
• In or around 1999, Butler moved hundreds of thousands of dollars to bank accounts in Switzerland and hid his assets in offshore insurance policies held in the name of non-U.S. insurance providers, thus disguising his ownership of the funds. 
• Such accounts, which generally are used as investment vehicles, are commonly known as “insurance wrappers.”  
• In 2014, Butler converted some of his insurance wrappers into precious metals, which were shipped to Butler and another individual in the United States. 
• Some of those precious metals were given to friends and family for safekeeping. 

In total, Butler caused a tax loss to the IRS of $1,093,400. On March 6, 2020, Butler pleaded guilty to tax evasion. 

In addition to the term of imprisonment, U.S. District Judge Annemarie Carney Axon ordered Butler to serve three years of supervised release and to pay approximately $1,093,400 in restitution to the United States.

Need Help Coming Clean with the IRS?

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)

 

Read more at: Tax Times blog

A federal district court has held in Wolin, No. 17-CV-2927 (RRM) (CLP) (E.D.N.Y. Sept. 28, 2020) that the IRS could collect a failure to file foreign bank account reports (FBAR) penalty from a decedent’s estate because the penalty survived the decedent’s death.

Generally, under federal common law, a claim survives a party’s death if it is "remedial" rather than "punitive.'" (Sharp v Ally Fin., Inc., (DC NY 2018) 328 FSupp 3d 81)

Generally, actions to recover tax penalties are remedial because the purpose of such penalties is to reimburse the government for the heavy cost of investigating violations of the tax law. (Estate of Kahr, (CA 2 1969) 24 AFTR 2d 69-5332)

In 1983, Leo Ziegel, a U.S. citizen, engaged the services of a Swiss company to set up a foundation in Lichtenstein. The foundation's trustee opened a bank account with the Union Bank of Switzerland (UBS). Ziegel signed a UBS signature card for the account

During 2008, Ziegel made cash withdrawals and wrote checks on the UBS account, deposited earned interest and dividend income, and received investment sales proceeds from that account.

Ziegel did not disclose this account to IRS on his 2008 return or at any other time. He also failed to file an FBAR for 2008. 

Ziegel died on April 4, 2014, and on May 15, 2015, the IRS assessed against his estate a failure to file an FBAR penalty ("FBAR penalty") in the amount of $1.4 million.

When the estate failed to pay the FBAR penalty, IRS initiated an action to recover the FBAR penalty from Ziegel’s estate, alleging that the FBAR penalty survived Ziegel’s death and that, therefore, his estate was liable for the penalty.

The District Court Determined That
The FBAR Penalty Survived Ziegel’s Death; 

Therefore, His Estate Was Liable For The Penalty.

The district court noted that, under Estate of Kahr, liability for a tax penalty survives an individual’s death and is borne by their estate if the purpose of the penalty is remedial. The district court determined that the failure to file an FBAR is a “remedial penalty with incidental penal effects” because it is imposed to protect tax revenue and reimburse the government for the public funds expended in investigating and uncovering the individual’s tax malfeasance.

Read more at: Tax Times blog

In Tax Court Press Release (10/29/2020) the Tax Court has announced that, effective Friday, October 30, 2020, it is suspending, until further notice, in-person acceptance of hand-delivered documents. 

On March 18, the Tax Court closed its building due to the COVID-19 pandemic.

On July 10, the Tax Court resumed accepting hand-delivered documents between the hours of 8:00 AM and 4:30 PM, Monday through Friday. 

While in-person acceptance of hand-delivered documents has been suspended until further notice, the Tax Court will continue to receive mail and other deliveries. 

Litigants and representatives may comply with deadlines for filing petitions or notices of appeal by timely mailing the petition or notice of appeal to the Court.

To be timely mailed, the petition or notice of appeal must be postmarked on or before the last day for filing and mailed using the U.S. Postal Service (USPS) or a designated private delivery service. (Code Sec. 7502) 

The Press Release notes that the Court’s eAccess and eFiling systems remain operational. Litigants can use the eFiling system to file documents that can be e-filed, and use eAccess to view documents filed in their case.

The Press Release recommends that litigants and others with questions contact the Court's Public Affairs Office at (202) 521-3355.

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Read more at: Tax Times blog