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Congress issues Report on TCJA Revisions to International Corporate Tax Rules

September 4, 2019

The Congressional Research Service has issued the Congressional Research Service-Issues in International Corporate Taxation: The 2017 Revision (P.L. 115-97)  report that looks at how changes made in 2017 by the Tax Cuts and Jobs Act (TCJA, PL 115-97) to the international corporate tax rules addressed concerns under prior tax law and what problems, issues, and legal uncertainties arose under the TCJA.
The report is divided into three sections. The first section explains prior international tax rules and the revisions made in the TCJA. The second section discusses the four major issues of concern under prior law: allocation of investment; profit shifting; repatriation; and inversions. The second section also discusses how the TCJA addresses these concerns and raises new ones. It also discusses issues associated with international agreements. The third section summarizes commentary about problems and issues, including legal challenges and uncertainty, within the new international tax regime and options that have been suggested.
The report states that one of the major motivations for the TCJA was concern about the international tax system. Issues associated with these rules involved the allocation of investment between the US and other countries; the loss of revenue due to the artificial shifting of profit out of the US by multinational firms (both US and foreign); the penalties for repatriating income earned by foreign subsidiaries that led to the accumulation of deferred earnings abroad; and inversions (US firms shifting their headquarters to other countries for tax reasons). In addition to lowering the corporate tax rate from 35% to 21% and providing some other benefits for domestic investment (such as temporary expensing of equipment), the TCJA also substantially changed the international tax regime.
The TCJA moved the tax system from a nominal worldwide tax on all foreign-source income, with a credit against US tax for foreign taxes due, to a nominal territorial system that does not tax foreign-source income. Nevertheless, the report says, both systems could be considered a hybrid of a worldwide and territorial system. Prior law reduced the tax on foreign-source income by allowing deferral (taxing income of foreign subsidiaries only if it was repatriated or paid as a dividend to the US parent) and cross-crediting of foreign taxes (so the credit for high taxes paid in one country could offset US tax on income from a low-tax country). The new system exempts dividends but also imposes a current worldwide tax on global intangible low-taxed income (GILTI), but at a lower rate. It also introduces a corresponding lower rate on intangible income derived from abroad from assets in the US (foreign-derived intangible income, or FDII). The TCJA adds the base erosion and anti-abuse tax (BEAT) to existing anti-abuse measures aimed at artificial profit shifting. BEAT imposes a minimum tax on ordinary income plus certain payments to related foreign companies.
Despite the lower corporate tax rate, the report says it is not clear that capital will be shifted into the US from abroad; although a lower rate reduces the tax rate on equity-financed investments, it decreases the subsidy to debt-financed investments. Whether equity investments increase or decrease depends on the magnitude of the TCJA (which appear largely offsetting) and the international mobility of debt versus equity. It is also not clear whether the investment in stock will be allocated more efficiently or in a way more optimal for US welfare, although economic theory suggests that reducing the tax subsidy for debt is a clear improvement.
Although the TCJA's territorial tax may make profit shifting more attractive, overall, given other elements of the new system, the report says it appears to make profit shifting less important. GILTI and FDII bring the tax treatment of income from intangibles in the US and abroad closer together, and BEAT and stricter thin capitalization rules (rules limiting interest deductions) also limit profit shifting, including shifting through leveraging.
The TCJA ends most "penalties" for repatriating earnings and thus eliminates the prior incentives to retain earnings abroad. As part of ending these penalties, the TCJA also introduced a series of measures aimed at making inversions (a method of retaining earnings abroad where a corporation restructures itself so that the current parent is replaced by a foreign parent; thus moving its tax residence to the foreign country) less attractive.
The report says some TCJA measures may violate international agreements such as the World Trade Organization (WTO), bilateral tax treaties, and Organization for Economic Cooperation and Development (OECD) minimum standards to prevent harmful tax practices.
Have an International Tax Problem?
 Contact the Tax Lawyers at 

Marini& Associates, P.A. 
 
 
for a FREE Tax Consultation
at: www.TaxAid.com or www.OVDPLaw.com or
Toll Free at 888-8TaxAid (888) 882-9243


Read more at: Tax Times blog

Streamline Offshore Submission Turned Criminal!

August 28, 2019

According to DoJ, a former CPA Indicted for Failing to Report Foreign Bank Accounts and Filing False Documents with the IRS A federal grand jury returned a superseding indictment charging Brian Booker, a former resident of Fort Lauderdale, Florida, whose business specialized in international trade, with failing to file Reports of Foreign Bank and Financial Accounts (FBARs) and filing false documents with the Internal Revenue Service (IRS).

According to the superseding indictment, Booker, a former Certified Public Accountant, owned a cocoa trading company that was organized under the laws of the Republic of Panama. Booker allegedly operated that company from Venezuela, Panama, and his former residence in Fort Lauderdale, Florida. The superseding indictment further alleges that, for calendar years 2011 through 2013, Booker failed to disclose his interest in financial accounts located in Switzerland, Singapore, and Panama on annual Reports of Foreign Bank and Financial Accounts (FBARs) as required by law. Booker also allegedly filed false individual income tax returns for tax years 2010 through 2012 that failed to report to the IRS all of Booker’s foreign bank accounts.

Booker is also charged with filing a false “Streamlined Submission” in conjunction with the Streamlined Domestic Offshore Procedures. The IRS Streamlined procedures allowed eligible taxpayers residing within the United States, who failed to report gross income from foreign financial accounts on prior tax returns, failed to pay taxes on that gross income, or who failed to submit an FBAR disclosing foreign financial accounts, to voluntarily disclose their conduct to the IRS. The superseding indictment alleges that Booker’s Streamlined submission falsely claimed that his failure to report all income, pay all tax, and submit all required information returns, such as FBARs, was due to non-willful conduct.

If convicted, Booker faces a maximum sentence of five (5) years in prison for each count (15 years in total) relating to his failure to file an FBAR. He also faces a maximum sentence of three (3) years in prison for each of the counts related to filing false tax documents (another 9 years in total). An indictment is an accusation. A defendant is presumed innocent unless and until proven guilty.
 

Streamlined Domestic Offshore Filings Are No Longer
Cookie-Cutter Filings, To Be Prepared Without The
Advice of an Experienced Tax Attorney.

The linchpin for qualification for the Streamlined Domestic Offshore Filingis that the taxpayer must certify that their failure to report the income and/or file a correct FBAR report resulted from non-willful conduct. 


Am I “non-willful”?
For purposes of the streamlined procedures, non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law. The vast majority of taxpayers having previously undisclosed interests in a foreign financial account or asset likely believe they are “non-willful.” However, the real issue is whether the IRS will agree. 

Be cautious when certifying non-willful status to the government.
The government may have or subsequently receive information that does not support such status. All relevant facts and circumstances must be carefully analyzed before making a determination regarding the submission of a “non-willful” certification requesting participation in the Streamlined Filing Compliance Procedures.

Will They Actually Inquire Regarding the “Non-Willful” Certification? 
The IRS has indicated it will review each certification of non-willful status seeking participation in the streamlined procedures.

Will the IRS Interview the Taxpayer?
Further questions often lay within the responses to each of the foregoing questions. An interview by an IRS examiner (in person or by phone) should be anticipated in most cases and are more likely with respect to resident taxpayers.

Those directly involved in creating and maintaining the foreign account and assets are the only ones capable of determining non-willful status. If such status is not supported by sufficient objective facts, consider other methods of coming into compliance, including the OVDP.
 
Have Undeclared Income from an Offshore Bank Account?
 
 
Want to Know Which OVDP Program is Right for You?
 

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

 
 

 


Read more at: Tax Times blog

IRS Warns of New IRS Impersonation Email Scam

August 23, 2019

The IRS and its Security Summit partners warned tax professionals this week about a new IRS impersonation scam campaign spreading nationally on email.  

The new scam illustrates the growing sophistication of cybercriminal organizations. The scam now relies on dozens of compromised websites and web addresses that pose as IRS.gov, making it a challenge to shut down. By infecting computers with malware, these impersonators can get control of a taxpayer’s computer or secretly download software that tracks every keystroke, eventually giving them access to passwords to sensitive accounts, such as financial accounts.

“The IRS does not send emails about your tax refund or sensitive financial information,” said Commissioner Chuck Rettig. 

 
“This latest scheme is yet another reminder that tax scams are a year-round business for thieves. We urge you to be
on-guard at all times.”


The IRS, state tax authorities and the tax industry that are part of the Security Summit effort noted that they have made progress in fighting stolen identity tax refund fraud, but victims remain vulnerable to scams by IRS imposters who send them bogus emails or make harassing phone calls.

The IRS emphasized that it doesn't initiate contact with taxpayers via email, text message or social media to ask for personal or financial information. That includes requests for PIN numbers, passwords or other access information for credit cards, banks or other financial accounts.

The IRS also doesn’t call taxpayers to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS typically will first mail a bill to a taxpayer who owes taxes.

The IRS does not initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information. This includes requests for PIN numbers, passwords or similar access information for credit cards, banks or other financial accounts.

Have an IRS Tax Problem?

 

 
Contact the Tax Lawyers at 
Marini & Associates, P.A.  
 
for a FREE Tax HELP 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

A Taxpayer's Limited Education Not Sufficient to Prove Reasonable Cause for Failure to File FBAR

August 21, 2019

A district court has held in Ott, DC MI 8/7/2019, that the failure-to-file FBAR penalty applied to a taxpayer because she failed to establish reasonable cause for her failure to file.

Pursuant to 31 USC § 5314(a), every U.S. person that has a financial interest in, or signature or other authority over, a financial account, or accounts, in a foreign country must report the account to IRS annually on a FinCEN Report 114, Report of Foreign Bank and Financial Accounts (commonly referred to as an FBAR) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.

The penalty for violating the FBAR requirement is set forth in 31 USC § 5321(a)(5), which provides that the Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation, of 31 USC § 5314(a).
  1. The maximum amount of the penalty depends on whether the violation was non-willful or willful. The maximum penalty amount for a nonwillful violation of the FBAR requirements is $10,000. (31 USC § 5321(a)(5)(B)(i)) and
  2. The maximum penalty amount for a willful violation "shall be increased to the greater of" $100,000 or 50% of the balance in the account at the time of the violation. (31 USC § 5321(a)(5)(C), 31 USC § 5321(a)(5)(D))
The IRS may not impose a penalty if the taxpayer meets several requirements, one of which is that the violation was due to reasonable cause. (31 USC § 5321(a)(5)(B)(ii))
Circumstances that may indicate reasonable cause include an honest misunderstanding of fact or law that is reasonable in light of the facts and circumstances, including the experience, knowledge, and education of the taxpayer.

In addition, reliance on an information return or on the advice of a professional tax advisor or an appraiser does not necessarily demonstrate reasonable cause. Rather, the taxpayer must show that, under all the circumstances, such reliance was reasonable and that the taxpayer acted in good faith, e.g., where the taxpayer engages a professional tax advisor, provides him or her with "full details," and then relies upon his or her advice. (Jarnagin, (Ct Fed Cl 2017) 120 AFTR 2d 2017-6683).

Ms. Ott, a US citizen, had foreign bank accounts for which she was required to file FBARs for three tax years. She failed to file the FBARs and the IRS assessed non-willful failure-to-file FBAR penalties for those years. She had hired an advisor to prepare her tax returns.
Ms. Ott did not dispute that she violated 31 USC § 5314's reporting requirements but maintained that assessing penalties under 31 USC § 5321 would be inappropriate because she had reasonable cause for her omission. She argued that she had reasonable cause because her education was limited, she had no tax experience, and she had hired an advisor to prepare her tax returns. 
The district court found that Ms. Ott did not meet her burden of showing she had reasonable cause for failing to timely file the FBARs. The District Court went on to state: 
"Between 2005 and 2010, Otts withdrew $392,000 from the Canadian accounts. Otts use some of the money they withdrew from the Canadian accounts to invest in
real estate and other business opportunities." 
"Despite having Canadian accounts since 1993, the Otts did not report their interest in, or authority over, these farm financial counsel Schedule B on the personal income tax returns (Forms 1040), at any time before 2010." 
"It is not clear from the complaint if the tax preparer ever asked the about the foreign accounts or if the tax preparer utilized a "tax organizer" … (however) the Otts signed federal income tax returns under penalty of perjury, that included a schedule B, which they reported that they did not have an interesting, or authority over, a financial account in the foreign country."   

Citing Jarnagin, the court said that she did not show that she took any steps to learn whether she was required to file FBARs. While she hired an advisor to complete her tax returns, she did not act in good faith since she did not provide any evidence that she informed the advisor of her foreign accounts. In addition, the court found that Ms. Ott's limited education and experience did not excuse her failure to file the FBARs.


Have Undeclared Income from an Offshore Bank Account?

 
 
Been Assessed an FBAR Penalty?
 

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

 

Read more at: Tax Times blog

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