Monthly Archives: January 2021

• Did your CFC have a lot post 1986 Retained Earnings at the end 2017, which caused it to have a transition tax under IRC section 965? 
• Is your CFCs business not doing so well since 2017, as a result of Covid and other economic factors? 

Consider Making An Offer In Compromise 

For IRC Section 965 Transition Tax.

The IRS recentlyreleased guidance on includingtransition tax liabilities under IRC Section965 for settlement under its offerin compromise program. Section 7122 of the Internal Revenue Code authorizes the settlement of Title 26 liabilities, penalties, and interest. Since the transition tax on untaxedforeign earnings is a Title 26 tax, it can be included in a settlement offer.

Under The New Guidelines of IRM 5.8.4.23.7 (09-24-2020)
“IRC §965 (Transition Tax) Liabilities,” if the §965 Liability
Has Been Assessed and No Election Was Made
Under IRC §965(H), the Tax May Be Included in the Offer.

Under the right factual circumstances, an Offer In Compromise may provide an opportunity for settling transition taxes under Section 965. 

Since an Offer In Compromise based on Doubt As To Collectability will only be accepted where a taxpayer does not have the ability to pay the tax, you must examine the taxpayer’s financial situation, not just their CFC's financial situation, and consider a taxpayer’s assets, the equity and liability of those assets, the gross income and expenses of that taxpayer. This inquiry includes the valuation of any businesses, business assets, including any foreign businesses or foreign assets of the taxpayer. 

As with any Offer in Compromise, the taxpayer must be compliant with their all of their tax filings including FBARs, FACTA requirements, payroll, return filing requirements, and any estimated payments that may be due. 

Furthermore, since the Offer in Compromise program only settles Title 26 tax, penalties, and interest, you must consider the timing of the offer in compromise settlement proposal and whether the taxpayer is liable for any FBAR penalties or restitution, as neither FBAR penalties nor restitution can be settled as part of an offer in compromise. 

For tax years involving civil tax liabilities and criminal restitution, offers can include the civil tax liabilities, but not the restitution-based assessment. If there are restitution assessments, FBAR penalties, or other non-title 26  liabilities, it  is  usually in the taxpayer’s best interest to pay off or otherwise resolve those liabilities through installment payment arrangements before submitting an offer in compromise to settle Title 26 liabilities since the payment of the other liabilities will decrease the taxpayer’s available equity in assets and potentially increase a taxpayer’s allowable expenses such that a lower settlement amount may be obtained for the taxpayer through the offer in compromise program.

Have IRS Tax Problems?

 Contact the Tax Lawyers at
Marini & Associates, P.A. 

Sources

Fla Bar Tax Section Bulletin - Fall 2020

Read more at: Tax Times blog

The Treasury Department published the names of individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency “Expatriated” during the third quarter of 2020. The latest U.S. Department of the Treasury Report reflects that a record 6,047 individuals expatriated during the first three quarters of 2020. 

Why are some Americans Individuals expatriating?

• Trump Did Not Win the Election.
• The Democrat's Now Control the House & the Senate.
• Obama-Care with its associated additional 3.8% Obama Care Tax make you feel like leaving the country?

• You're so sick of liberal Democrats trying to socialize the United States by taxing wealthy people?

• Or maybe you're a naturalized U.S. citizen or permanent resident who has prospered here, but would now like to move back the old country for retirement or to start a new  venture?

Whatever your motives, just because you leave the United States and renounce your citizenship, don't assume you can leave U.S. taxes (or U.S. tax forms and complexity) behind, particularly if you are financially well-off. 

On April 8, 2015, we posted Is it Time to Expatriate, where we discussed that the 2014 list of US expatriates’ shows an increase in the number of Americans who are renouncing their US citizenship or turning in their green card.
The graph to the left is based solely on IRS data and shows the number of published expatriates per year since 1998.

The connection between the list of expatriates and the IRS implies a link to tax policy. 

The U.S. is one of a very small number of countries that tax based on nationality, not residency, leaving Americans living abroad to face double taxation. 

The escalation of offshore penalties over the last 20 years is likely contributing to the increased incidence of expatriation.

In view of the significant uptick in expatriation activity, this Marini & Associates has posted 3 Posts titled So Trump Did Not Win the Election - Is It Time to Expatriate? reviewing the essential elements of expatriation from a tax perspective.

Should I Stay or Should I Go?

Need Advise on Expatriation?

 

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

• So Trump Did Not Win the Election.
• The Democrat's Now Control the House & the Senate.
• ObamaCare with its associated additional 3.8% Obama Care Tax make you feel like leaving the country?

• You're so sick of liberal Democrats trying to socialize the United States by taxing wealthy people?

• Or maybe you're a naturalized U.S. citizen or permanent resident who has prospered here, but would now like to move back the old country for retirement or to start a new venture?

Whatever your motives, just because you leave the United States and renounce your citizenship, don't assume you can leave U.S. taxes (or U.S. tax forms and complexity) behind, particularly if you are financially well-off. 

For those who expatriate after June 16, 2008, the rules are different, since Internal Revenue Code Section 877A applies instead of Section 877. You are subject to an immediate exit tax, which deems you (for tax purposes) to have sold all of your worldwide property for its fair market value the day before your departure from the U.S.

In 1994 a Forbes cover story described how such wealthy Americans as Campbell Soup heir John (Ippy) Dorrance III, the late Carnival founder Ted Arison and Dart Container heir Kenneth Dart had given up their U.S. citizenship and avoided U.S. income or estate tax. Perhaps the most clever was Dart, who managed to come back "home" as the Belize ambassador to the U.S., manning a newly opened Belize embassy in Sarasota, Fla., right where he had previously lived! Since that time, Congress has repeatedly tightened the screws on tax-motivated expatriation.

1. Uncle Sam taxes income worldwide.
The U.S. is unusual in that it asserts the right to tax the worldwide income (and at death assets) of its citizens and those who have become permanent residents. It doesn't matter where you live, where the income is earned, or where else you might pay tax. Yes, you may receive foreign tax credits on your U.S. Form 1040 for taxes you pay elsewhere and those credits will offset some (but typically not all) of the financial burden of paying tax in multiple jurisdictions. But the key point is that if you are a U.S. citizen or a permanent U.S. resident, no matter where you move, Uncle Sam will assert a claim on your wealth. So being a U.S. citizen can be expensive. 

2. Expatriating means really leaving. 
To even think about putting himself beyond the reach of the Internal Revenue Service, a citizen must give up U.S. citizenship and (in the case of citizens subject to Internal Revenue Code Section 877) severely limit the time spendy in the U.S. to not more than 30 days a year. Under that section, a person who attempts to renounce U.S. citizenship but then spends more than 30 days a year in the U.S. will be treated as a U.S. citizen or resident for that year. You may think no one has ever done this, but many have. Permanent U.S. residents (holding green cards) also pay U.S. tax on their worldwide income. They may find it easier to take the expatriation plunge, particularly if family or business opportunities beckon in their country of origin.

3. The old 10-year window is closed. 
Back in 1966 Congress enacted the Foreign Investors Tax Act of 1966, signed into law by Lyndon B. Johnson. Essentially expatriates were subject to U.S. tax on their U.S.-source income at normal U.S. tax rates for a full 10 years following their expatriation. Significantly, though, a person could avoid this tax entirely if he did not have as one of his principal purposes the avoidance of U.S. federal income, estate or gift taxes. Of course few people would admit they had a principal purpose of tax evasion, and the government had a hard time proving it. Suffice it to say that there were lots of people (with good lawyers) marrying foreigners, returning to the country of their birth, etc. The system didn't work very well, and little tax was collected. 

 

Need Advise on Expatriation? 
 

 

Contact the Tax Lawyers of
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

The IRS has historically rejected e-file returns for reasons that seemingly have nothing to do with whether the taxpayer filed a valid return, pursuant to the Beard test (Beard v. Comm’r of Internal Revenue, 82 T.C. 766 (1984), aff’d, 793 F.2d 139 (6th Cir. 1986)).

However, in Fowler v. Commissioner, 155 T.C. No. 7 (2020) the disparity between the way the IRS treats e-filed returns and the way it treats returns mailed by regular mail catches up with it in a fully reviewed opinion with no concurrences or dissents!

The U.S. Tax Court on September 9, 2020 in a “reviewed opinion” held that a properly filed income tax return triggers the statute of limitations for a deficiency notice, regardless of the fact that the return, electronically filed, lacked a required personal identification number. 

The taxpayer, an individual, appointed his tax return preparer to electronically file his 2013 tax return on October 15, 2014. The IRS software rejected this return for its failure to include an Identity Protection Personal Identification Number (IP PIN).

The taxpayer subsequently refiled his 2013 tax return on two occasions and the last filing was made with an IP PIN on April 30, 2015. The IRS software reviewed and accepted the return.

The IRS later reviewed the return, determined a deficiency, and sent the taxpayer a notice of deficiency for the 2013 tax year on April 5, 2018.

The taxpayer filed a petition with the Tax Court. The IRS moved for partial summary judgment, and the taxpayer filed a cross-motion for summary judgment asserting t
hat the IRS had not timely issued a notice of deficiency. 

At Issue Was Whether The Taxpayer’s First Submission of The Income Tax Return On October 15, 2014, Was a FILED Returns Which Triggered The Section 6501(A) Limitations Period. 

Relying on the test to determine whether a document constitutes a tax return as set forth in Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff’d, 793 F.2d 139 (6^th Cir. 1986), the Tax Court granted summary judgment for the taxpayer, holding that the taxpayer’s first submission triggered the section 6501(a) limitations period, notwithstanding the omission of an IP PIN.

The Tax Court concluded:

The October 15 submission appears to be an honest and reasonable attempt to comply with the tax laws. The submission included inputs for income, deductions, exemptions, and credits along with  supporting documentation and schedules. The only difference between the October 15 submission (which [IRS]  rejected) and the April 30 submission (which [IRS] accepted) is that the October 15 submission did not include an IP PIN.

Where a taxpayer properly files a required return, the taxpayer has satisfied all his duties to trigger the statute of limitations. … We simply see no reason to allow [IRS] to toll the statute of limitations where [taxpayer] properly filed a return. 

The Court noted that the IRS regularly rejects returns that meet the Beard test: 

• The Modernized e-File (MeF) system, which the IRS uses to process efiled returns, rejects returns for numerous errors that may not cause a return to fail the Beard test.
• In a footnote to this sentence the Court also noted that although the Internal Revenue Manual says that the IRS should reject e-filed returns failing to contain a IP PIN when the IRS had sent one to the taxpayer, the same provision does not provide for the IRS to return the paper filed return with the same problem. 
• Because the IRS provided no authority for the fact that its programmers injected into the system a requirement that the taxpayer must attach the IP PIN, the Court found that the original return Mr. Fowler filed constituted a valid return, making the notice of deficiency one sent after the statute of limitations had expired.

As the IRS developed and refined e-filing, it let programmers define acceptable e-filing. However, the programmers did not keep consider the Beard test, which was decided and provide guidance for a different time. 

IRS Assess A Late Filing or 

Late Payment for Your E-File Return!

Get These Penalties Abated!

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