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IRS Targets Israeli Banks and Their US Client

July 5, 2012

On June 14, the Department of Justice unsealed an indictment against three American tax preparers for helping clients avoid taxes by moving money to Israel.
The transgressions detailed in the indictment were relatively small. The indictment said the father and son David and Nadav Kalai and their colleague David Almog at a firm called United Revenue Service helped several clients duck taxes by moving money to two Israeli banks, identified only as “Bank A” and “Bank B.”

The indictment revealed the existence of a grand jury that is almost surely going after much bigger fish. And the details provided in it appear to suggest that “Bank A” is Bank Leumi, whose private banking operation is headquartered in Tel Aviv, and“Bank B” is Bank Hapoalim, which also maintains its global private banking center in Israel’s second-biggest city.”

Because tax evasion is a felony in Israel and because the US has a treaty with Israel; this offense is an extraditable offense in Israel. Now will Israel refuse to hand over a dual citizen? The state of Israel was certainly not created to protect Jews from crimes of international tax evasion. More importantly, the US is Israel’s only real ally in the world. So do not be surprized if Israel hands over those dual citizens that the Department of Justice (DOJ) suspects of tax evasion.

If you have an undisclosed account in Israel, 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).

Remember, the FBAR Offshore Voluntary Disclosure Process (OVDI)program is most likely available — Even if your bank, even if your personal banker is under investigation, the program is still available as long as YOU are not personally under audit or investigation by the IRS.

Read more at: Tax Times blog

Getting ITIN becomes even more difficult for now.

July 2, 2012

IR-2012-62, June 22, 2012

WASHINGTON — The Internal Revenue Service announced on June 22, 2012, important interim changes to strengthen its procedures for issuing Individual Taxpayer Identification Numbers (ITINs) from now through the end of the year.
Designed specifically for tax-administration purposes, ITINs are only issued to people who are not eligible to obtain a Social Security Number. Foreign nationals and non-resident aliens are among those who must obtain ITINs.
· During this interim period, the IRS will only issue ITINs when applications include original documentation, such as passports and birth certificates, or certified copies of these documents from the issuing agency.
· During this interim period, ITINs will not be issued based on applications supported by notarized copies of documents.
· In addition, ITINs will not be issued based on applications submitted through certifying acceptance agents, unless they attach original documentation or copies of original documents certified by the issuing agency.
The changes, which are effective immediately. Final rules will be issued before the start of the 2013 filing season.
Some categories of applicants are not impacted by these interim changes, including spouses and dependents of U.S. military personnel who need ITINs. People who should follow the current procedures outlined in the Form W-7 instructions include:
  • Military spouses and dependents without an SSN who need an ITIN (Military spouses use box e on Form W-7 and dependents use box d). Exceptions to the new interim document standards will be made for military family members satisfying the documentation requirements by providing a copy of the spouse or parent’s U.S. military identification, or applying from an overseas APO/FPO address.
  • Nonresident aliens applying for ITINs for the purpose of claiming tax treaty benefits (use boxes a and h on Form W-7).
  • Non-resident alien applicants generally need ITINs for reasons besides filing a U.S. tax return. This is necessary for nonresident aliens who may be subject to third-party withholding for various income, such as certain gaming winnings or pension income, or need an ITIN for information reporting purposes. While existing documentation standards will be maintained only for these applicants, scrutiny of the documents will be heightened.
The IRS may require some taxpayers who have already filed applications to furnish additional documentation directly to the IRS. No additional action is required for people who have already filed ITIN requests unless they are contacted by the IRS.

Read more at: Tax Times blog

Income from Certain Government Bonds not PFIC Income.

June 29, 2012

Notice 2012-45 This notice provides guidance regarding the treatment of certain government bonds for purposes of determining whether a foreign corporation is a passive foreign investment company (PFIC).

Section 1297(a) provides that a PFIC is any foreign corporation if 75 percent or more of its gross income for the taxable year is passive income or the average percentage of assets held by the corporation during the taxable year which produce passive income or which are held for the production of passive income is at least 50 percent.  Section 1297(b)(1) provides that passive income means any income which is of a kind which would be foreign personal holding company income as defined in section 954(c), subject to the exceptions of section 1297(b)(2).  Under section 1297(b)(2)(A), the term “passive income” does not include any income derived in the active conduct of a banking business by an institution licensed to do business as a bank in the United States or, to the extent provided in regulations, by any other corporation (active banking exception).

In Notice 89-81, 1989-2 C.B. 399, the Internal Revenue Service (IRS) and the Department of the Treasury (Treasury Department) described rules that would expand the active banking exception to certain foreign corporations not licensed to do business as a bank in the United States, and identified the types of banking activities that produce income excluded from passive income under the active banking exception.  In 1995, the IRS and the Treasury Department issued proposed regulations on the active banking exception.  Prop. Reg. §1.1296-4.

Recent economic conditions have resulted in a shift in the assets held by some non-U.S. financial institutions.  As a result of these conditions, certain financial institutions are holding government bonds at higher than historical levels.  These increased levels have raised an issue concerning the treatment of these financial institutions, and specifically the treatment of government bonds, under the PFIC rules.  

This notice announces that, solely for purposes of section 1297 and the taxable years provided in Section 4 of this notice, the income from Qualifying Government Bonds held by an Active Bank qualifies for the active banking exception.

This notice shall apply to taxable years of foreign corporations beginning in 2011, 2012, and 2013.  

Read more at: Tax Times blog

California Franchise Tax Board (FTB) To Issue 475,000 Tax Levies for Delinquent Tax Debts

June 29, 2012

If you or your clients have tax problems and owe California State income taxes, the Tax Man Cometh! The California Franchise Tax Board (FTB) is collecting delinquent tax debts through the Financial Institution Record Match (FIRM) program. FIRM uses automated data exchanges to locate bank accounts held by Californians who have tax debts. The FIRM program will match records on a quarterly basis in order to collect tax debts from both individuals and businesses. No financial institution doing business within the state of California is exempt from participating in the program.

However, in rare cases temporary exemption or suspension of participation may apply. Banks that chose not to comply are subject to large fines each year. Accounts that are eligible for tax levies include checking and savings accounts, as well as mutual funds. FIRM is similar to the Financial Institution Data Match (FIDM) program, which is used to collect delinquent child support debt.
The FIRM program allows the FTB to use data obtained from banks to find assets and garnish bank accounts up to 100 percent of the amount owed. As of April, the FTB began to serve tax levies on the bank accounts of individuals who have delinquent balances, including penalties, interest, taxes and fees that have been identified through FIRM. With the help of the FIRM program, the FTB expects to issue 475,000 tax levies this fiscal year, a 75 percent increase from last year.

In order to avoid tax levies you or your tax lawyer should consider possible alternatives including installment agreements, offers in compromise and bankruptcies.

Data between FTB and FIRM can be exchanged in two ways. In the first method, information regarding open accounts is given directly to the FTB for the Board to match accounts with delinquent taxpayers. This method is only available to institutions that are unable to match the information against their own records. Institutions that do not qualify for the first method must match taxpayer information against their own records. Banks can choose to hire a third-party transmitter to aid in matching the data. Because the accuracy of the data is of the utmost importance, banks must verify matches from third-party services before submitting them to the FTB.

A 10-day holding period follows the issue of the tax levy to the bank. During this time, the taxpayer or a tax attorney on the taxpayer's behalf may negotiate the amount due or, if financial hardship is creating tax problems, discuss payment options. If the FTB levied an account in error, they will delay the garnishment while they verify the mistake and then issue a garnishment release notice. If the bank has already issued the payment, the Board will return the payment.

By Dennis N. Brager on June 27, 2012 3:43 AM   

Read more at: Tax Times blog

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