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Category Archives: criminal tax law

What You Need to Know About Form BE-10 – US Direct Investment Abroad & COVID-19

Every five years the US Department of Commerce Bureau of Economic Analysis (“BEA”) conducts a benchmark survey to gauge US investment abroad through a specific form (the “BE-10 Report”).

The BE-10 Report examines the 2019 fiscal year, and the deadline to comply with the filing requirements is 29 May 2020 for US persons required to file fewer than 50 forms, or 30 June 2020 for US persons required to file more than 50 forms. 

An extension of time to file for new filers is available (1) until June 30, 2020, for filers with less than 50 forms, (2) until July 31, 2020, for filers with between 50 and 100 forms, and (3) until August 31, 2020, for filers with more than 100 forms. To receive the extension, filers must request the extension by fax or email using BEA’s extension request form.

Reporting is mandatory and does not require a direct request to the filer from BEA. Failure to file BE-10 report may lead to significant civil penalties including monetary fines of between $2,500 and $25,000 (subject to inflationary adjustments). In some circumstances, criminal penalties and even imprisonment may be warranted.

BEA uses surveys to collect data about U.S.-owned business activities in other countries. The data are needed for statistics measuring the scale of direct investment abroad and the effects these activities have on the U.S. economy.

Data from these surveys contribute to many of BEA's international and national economic statistics and help answer questions such as:

  • Which countries get the most direct investment from U.S. parent companies?
  • Which industries are U.S. companies investing in abroad?

These statistics aid decision-making by Congress and federal officials; help analysts and researchers study the impact of direct investment on employment, wages, productivity, and tax revenues; and help American businesses make informed decisions about hiring, growth, and investment. All surveys of U.S. direct investment abroad are mandatory and confidential.

A foreign affiliate is a business enterprise located outside the United States in which a U.S. person or business holds a 10 percent or more voting interest.

Filing during the COVID-19 outbreak

BEA's surveys are used to produce accurate and objective statistics on the U.S. economy. Survey responses covering 2020 are particularly needed to ensure accurate measurement of the U.S. economy during the COVID-19 outbreak.

Because the present situation has temporarily reduced our capacity to send and receive paper mail, we may contact survey respondents via email. We understand that the virus already may have had profound effects on the ability of survey respondents to comply with the surveys. To assist you, we suggest:

  • Use our secure eFile system at www.bea.gov/efile or fax to submit completed forms. At present we have limited ability to receive physical copies of completed survey forms, extension requests, or other documents that are mailed or couriered to us.
  • Extensions are available if needed.
  • Provide estimates if necessary. We realize that the data requested in our surveys might be unavailable at this time or access to required records may be limited.

BEA survey staff continue to be available to assist survey respondents.

Have an International Tax Problem?

 Contact the Tax Lawyers at 
Marini& Associates, P.A. 
 
 
for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888) 882-9243

 
 


 

Read more at: Tax Times blog

FBAR vs. Form 8938 Treatment of Financial Accounts Located in a U.S. Territory or Possession

The ABA posted Foreign Asset Reporting and U.S. Territories where they discuss that Puerto Rico, American Samoa, Guam, The United States Virgin Islands, The Northern Mariana Islands—these are all United States territories or possessions. Individuals born in these territories are deemed by law to be either United States citizens or United States nationals. Yet these locations are separated from the contiguous United States by vast bodies of water. Many U.S. citizens from the contiguous United States have never been to any of the territories. Travel from the contiguous United States to any one of these territories involves a multiple-hour trip by either air or sea. In many ways, these locations seem foreign and exotic to most Americans.


The FBAR, Form 8938, Form 3520, Form 5471, Form 8621—these are all information reporting forms used to report various types of foreign assets to different bureaus within the U.S. Department of the Treasury, such as the Internal Revenue Service (the IRS) or the Financial Crimes Enforcement Network (FinCen). When most people think of “foreign” assets, they think of assets located in foreign countries, such as Switzerland, Israel, China, the United Kingdom, or Russia.

What about an asset, such as a bank account, located in a U.S. territory or possession? Is it a foreign or a domestic asset? The answer, unfortunately, is not so simple.An asset located in a U.S. territory or possession may or may not be considered “foreign” depending on the type of information reporting form. In addition, an individual’s residence in a U.S. territory or possession may impact whether or not they must report an asset located in that territory. This difference in treatment becomes most apparent when comparing the treatment of U.S. territories and possessions on the FBAR Form versus their treatment on Form 8938.

FBAR vs. Form 8938 Treatment of Financial Accounts Located in a U.S. Territory or Possession

The obligation to file Form 8938 depends on three factors: 

    (i) the filing status of the taxpayer; 
    (ii) the residence of the taxpayer; and 
    (iii) the aggregate value of the taxpayer’s specified foreign financial assets. 

For example, an unmarried taxpayer residing in the United States must file Form 8938 if her specified foreign assets exceed $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year. 

At the other end of the spectrum, married taxpayers residing outside the United States and filing a joint Form 1040 income tax return must file Form 8938 if their specified foreign assets exceed $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year. 

In between there are various other threshold amounts for married taxpayers residing in the United States and either filing separately or jointly, unmarried taxpayers residing outside the United States, and married taxpayers residing outside the United States but filing separately. 

Failure to file a Form 8938 may result in a $10,000 penalty, with an additional penalty of $10,000 for each 30-day period during which the Form 8938 is not filed, up to a maximum of $50,000. If the failure to disclose a specified foreign financial asset on Form 8938 also results in an underpayment of tax, then there is a 40 percent accuracy-related penalty on the underpayment.

With respect to a financial account located in a U.S. territory or possession, the asset will be reported differently on the two forms. For FBAR purposes, such an account is treated as a U.S. account and therefore does not need to be reported on the FBAR. That same account, however, is considered a foreign account for purposes of Form 8938 and must be reported on that form.

This difference in treatment can be traced to the different statutes that govern the FBAR and Form 8938. The obligation to file an FBAR is derived from Title 31 of the U.S. Code, specifically 31 U.S.C. § 5314, which requires U.S. persons to maintain records and file reports with respect to that person’s financial accounts held at a foreign financial institution. Title 31 deals with monetary instruments, including topics such as money laundering. The definition section of Title 31 defines the term “United States” as including U.S. possessions and territories.

    
    (6)     “United States” means the States of the United States, the District of Columbia, and, when the Secretary prescribes by                   regulation, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands, American                      Samoa, the Trust Territory of the Pacific Islands, a territory or possession of the United States, or a military or                               diplomatic establishment.

The practical effect of this definition is that U.S. territories and possessions are not deemed foreign for Title 31 purposes. As a result, a financial account in a U.S. territory or possession is deemed a United States-based account, and therefore does not need to be reported on the FBAR. This is confirmed by the FBAR regulations.

By contrast, the obligation to file Form 8938 is derived from Title 26 of the U.S. Code, specifically § 6038D. Title 26, of course, is the Internal Revenue Code that deals with topics related to the U.S. federal tax system. Title 26’s definition section defines the term “United States” as excluding U.S. possessions and territories.

    
    (9)    United States.--The term ‘United States’ when used in a geographical sense includes only the States and the District of                 Columbia.

The practical effect of this definition is that U.S. territories and possessions are deemed foreign for Title 26 purposes. Thus, a financial account in a U.S. territory or possession is deemed a foreign account and must be reported on Form 8938, a fact confirmed by the regulations governing Form 8938.

Because of these different statutory definitions, it appears that a legislative change may be needed to harmonize the FBAR and Form 8938 in their treatments of accounts based in U.S. territories. That said, the FBAR was first introduced in the 1970s, and Form 8938 was introduced in mid-2010. 

There does not appear to be any legislative fix on the horizon for the differing manner in which these forms treat such accounts. Taxpayers and their professional advisers must therefore be mindful of the fact that accounts that do not need to be reported on the FBAR may nonetheless need to be reported on Form 8938.

For more  regarding FBAR vs. Form 8938
Treatment of Residents of U.S. Territories or Possessions and  the Treatment of U.S. Territories or Possessions on Other Information Reporting Forms see the ABA posted Foreign Asset Reporting and U.S. Territories. 

Have an International Tax Problem?

 Contact the Tax Lawyers at 
Marini& Associates, P.A. 
 
 
for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888) 882-9243

 
 


Read more at: Tax Times blog

IRS Doesn’t Have Superior Claim to Songwriter’s Royalties

 

In United States v. Edward J. Holland Jr. et al. No. 18-1712 (10 March 2020), Holland a songwriter, sold his song-rights to music companies, in exchange for royalty payments. Holland failed fully to report his income. 

 
In 1986-1990, the IRS levied Holland’s royalty assets and recovered $1.5 million. 
 
In 1997, the IRS informed him that it intended again to levy those assets. 
 
Holland converted his interest in future royalty payments into a lump sum and created a partnership wholly owned by him, to which he transferred title to the royalty assets ($23.3 million). The partnership borrowed $15 million, for which the royalty assets served as collateral. Bankers Trust paid $8.4 million directly to Holland, $5 million in fees, and $1.7 million for Holland’s debts, including his taxes. 
  • The IRS did not assess any additional amounts against Holland until 2003. 
  • In 2005, the partnership refinanced the 1998 deal, using Royal Bank. 
  • In 2012, the IRS concluded that the partnership held the royalty assets as Holland’s alter ego or fraudulent transferee and recorded a $20 million lien against the partnership.
In an enforcement suit, the partnership sold the royalty assets. The proceeds ($21 million) went into an interpleader fund, to be distributed to the partnership’s creditors in order of priority. The government’s lien ($20 million), if valid against the partnership, would take priority over Royal Bank’s security interest. 
 
The Sixth Circuit affirmed a judgment for Royal Bank. Transactions to monetize future revenue, using a partnership or corporate form, are common and facially legitimate. Holland received adequate consideration in 1998. The IRS’s delay in making additional assessments rather than the 1998 transfer caused the government’s collection difficulties.
 

 

Have a Tax Problem?  

 

 
 Contact the Tax Lawyers at 
Marini& Associates, P.A. 
 
 
for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888) 882-9243

 

 
 

Read more at: Tax Times blog

Atty Wife Not Entitled To Innocent Spouse Relief For Under Reporting

In Rogers v. Commissioner of Internal Revenue, No. 17-3358 (7th Cir. 2018) the US Court of Appeals affirmed the Tax Court’s conclusion that Mrs. Rogers’s participation through her counsel, an experienced tax attorney, in the prior Tax Court proceedings indicated her meaningful participation and therefore was not entitled to Innocent Spouse Relief.

Frances and her husband John filed a joint return for 2004. The IRS subsequently found the return deficient and informed them that they owed an additional $488,177 in income taxes and under reporting penalties of $138,732.

The couple filed suit. John, a Harvard-educated tax lawyer, represented them at trial. Frances, a former teacher with an MBA, doctorate, and a law degree, attended the trial. The Tax Court ruled against the couple, finding them jointly and severally liable, 26 U.S.C. 6013(d),

Three years later, Frances sought innocent spouse relief, 26 U.S.C. 6015. 

  • The Tax Court rejected the claim. 
  • The Seventh Circuit affirmed, finding that in the trial precluded Frances from after-the-fact seeking to avoid responsibility for those liabilities.

Such Relief Is Available Only If The Petitioner
Has Not “Participated Meaningfully In [The] Prior Proceeding,”
In This Case, The 2012 Trial.

Mrs. Rogers’s contention that she lacked knowledge of business and financial matters, including complex tax matters, and otherwise did not understand what transpired during the 2012 trial lacked credibility and she had every opportunity to raise her claim during the 2012 trial. Her testimony was self-serving and at odds with her education and experience.

Have a Tax Problem?  
 


 Contact the Tax Lawyers at 
Marini& Associates, P.A. 
 
 
for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888) 882-9243

 

Read more at: Tax Times blog

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