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What the Letters Say

Dilemma for American Expats

The Tax Court in Samadi, TC Summary Opinion 2018-27, has determined that a taxpayer who decided to flip houses with a group of friends and family and obtained his real estate license wasn't entitled to mileage deductions for taking members of the group to see potential properties.

The Court found that the taxpayer's real estate activity didn't rise to the level of a trade or business, where the group never actually purchased any properties and the taxpayer never earned any real estate commissions. 

The U.S. is the world’s second-largest tax haven, behind Switzerland and just ahead of the Cayman Islands, according to a report released May 15, 2018.
 
The Financial Secrecy Index, an assessment of global financial centers compiled by the Tax Justice Network, a left-leaning research and advocacy group, bumped up the U.S. from its No. 3 spot in 2015, the last time the study was conducted, following its increased share of the global market for offshore financial services.

“While the United States has pioneered powerful ways to defend itself against foreign tax havens, it has not seriously addressed its own role in attracting illicit financial flows and supporting tax evasion,” the report said. The authors criticized the U.S. for its “independent-minded approach” to cracking down on tax evasion, money laundering and financial crime.

Delaware, Nevada and Wyoming were highlighted as hot spots for secretive “shell” companies, with nominee officers and directors who serve as a front for the actual, hidden owners.

Hong Kong ranks as the fourth most secretive financial jurisdiction, followed by Singapore at No. 5. Taiwan was included for the first time and ranks No. 8.

The index, which is published every two years, ranks countries on their laws regarding the transparency of ownership structures, bank secrecy rules and financial reporting and disclosure requirements. Scores are weighted for size. This 2018 report also used a new criteria including whether countries provide public registers of ownership and annual accounts for limited partnerships. 

This fact about the US being considered a Tax Haven, is also backed up by the European Parliament's report released on March 7, 2017 stated that although the U.S. has a robust legal framework to fight the financing of terrorism and to address money laundering, there are a number of shortcomings such as a “generally unsatisfactory” system for exchanging information on the true beneficial owners of companies and challenges with enforcing internal controls, according to the report from the European Parliamentary Research Service.

“By resisting new global disclosure standards, it provides an array of secrecy and tax-free facilities for nonresidents at federal and state levels, notably in Nevada, Delaware, Wyoming and South Dakota,”

The report expressed concerns about the future direction of U.S. economic policy under President Donald Trump and the consequent impacts on Europe. Trump’s demonstrated preference for bilateral relations with individual European Union members rather than with the bloc as a whole could lead to “a potential U.S. disengagement with EU integration,”

The completion of a framework for regulatory cooperation on financial services in an ambitious EU-US Transatlantic Trade and Investment Partnership could also be under jeopardy in the changing U.S. economic environment, the report said. 

Now as a result of the US being a tax haven, it may be placed on the European Union's blacklist of non-cooperative jurisdictions next June, if it fails to amend its Foreign Account Tax Compliance Act transparency rules to meet EU standards, according to tax accountants EY. The US Tax Cuts & Jobs Act 2017 has already been referred to the OECD Forum for Harmful Tax Practices.

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With the budget reductions and losses in staff over the past several years, the IRS has been forced to do more with less. Therefore, the IRS has turned to big data analytics to make up for its loss of personnel and the impact of the budget reductions.

Analytics entails the obvious benefit of efficiencies in mass data collection and the potential to locate tax evaders.

For more on Date Mining see our August 3, 2017 post IRS CI Forming 2 New International Criminal Units Driven By Data Mining! where we discussed that the use of data-mining technology is widespread and that the IRS Criminal Investigation unit which announced on August 2, 2017 that it is launching two groups that would centralize the unit’s national and international workloads and rely on data analysis to prioritize cases.

The IRS has indicated that it will continue to invest in data technologies to identify tax return errors and address issues with taxpayers as early as possible.

Address Issues with Taxpayers As Early As Possible.

 

Knowing that the IRS is using public Internet data from websites such as Facebook, taxpayers should consider that their posts could impact their probability of audit. Posting family pictures at a resort's pool when the taxpayer is claiming a business trip deduction may provide unintended results. Embellishing online profiles and posting pictures of new purchases should be avoided. Less is the best strategy.

In addition, casual sales on eBay or Amazon are becoming quite commonplace and many taxpayers do not realize that these transactions should be reviewed for potential income tax consequences.

With the IRS obtaining credit, debit, and PayPal records, matching the transactions to taxpayers or small businesses is easy. If being audited, this is something that should not be discussed online.

Taxpayers Need to Be Very Cognizant of Their

Online Profile in the Age of Big Data Analytics.

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

 

 

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