Archive for the ‘Tax Policy’ Category
Posted by williambyrnes on May 14, 2013
Editor’s Note: The following is an excerpt from Chapter 2 of LexisNexis® Guide to FATCA Compliance by William Byrnes and Robert Munro.
The over-arching requirements for FATCA [the Foreign Account Tax Compliance Act] are three-fold:
obtain appropriate due diligence information and documentation for account holders, investors and payees;
report on relevant parties such as U.S. account holders, recalcitrant account holders and non-participating foreign financial institutions (“FFIs”); and
coordinate withholding as appropriate and if necessary. The requirements are largely intertwined, with due diligence serving as the foundation for the reporting and withholding requirements.
Now that the final FATCA Regulations are published and a number of intergovernmental agreements (“IGAs”) have been signed, FFIs must implement practical steps to be FATCA compliant by January 1, 2014. There is no one-size-fits-all compliance plan for FFIs; however, there are many similar and consistent steps FFIs, regardless of location, can take to develop a FATCA compliance program to meet the broad goal of FATCA: to combat offshore tax evasion by U.S. persons and become FATCA compliant.
Before a FFI can become FATCA compliant, a FFI should take certain preliminary steps to determine the impact FATCA will have on the FFI as well as plan the path toward compliance in an efficient and timely manner.
Early in the process, the FFI should develop a FATCA task force or program team that will oversee the day-to-day operations to becoming FATCA compliant. The task force should include representatives from tax, anti-money laundering (“AML”) and customer on-boarding groups, technology, change management and operations as well as, potentially, other stakeholders. The task force will oversee the broad program plan for the FFI and likely report to the FATCA sponsoring executives or steering committee.
FFIs have to determine what, if any, communications they will prepare for both internal and external stakeholders concerning FATCA. An internal awareness and training program should be developed to teach FFI employees about FATCA and its importance to the FFI. The awareness program should start at the highest level to establish the necessary “tone at the top.”
The FFI may also want to prepare a list of questions, a “FAQs of FATCA,” to ensure the FFI’s clients are receiving a consistent message, regardless of where in the world they are located. FFIs should also determine what if any message they want to provide directly to clients or put on their websites, although it is very important that the FFI does not give unintentional tax advice to its clients.
Additionally, some training of FFI staff, including client-facing personnel, could assist with customers of the FFI receiving a clear and consistent message. It may likely be the FFI’s client-facing personnel are already receiving questions from customers regarding FATCA.
FFIs should take a proactive approach to minimize costs and interference with the customer experience at the FFI. With that in mind, prior to developing a FATCA compliance strategy, FFIs should conduct an assessment of the impact FATCA will have on the FFI by collecting information relating to:
- Number and activity of each legal entity and/or business line;
- Products and services offered by the business line;
- Types and volume of accounts;
- Relevant policies and procedures; and
- Identification of information technology (“IT”) systems and databases that maintain relevant information and may require updates.
The FFI should also determine what past interactions it has had with the IRS or home country tax authority relating to information reporting on their customers. FFIs may be able to leverage past reporting for FATCA compliance.
FFIs around the globe may rely on other parties to take on certain responsibilities. For example, a foreign fund may outsource some or all of its asset custody, compliance and regulatory functions, transfer agency services and/or distribution. In this case, the FATCA compliance program will only be as strong as the weakest link.
Coordinating and ensuring all relevant parties are working towards FATCA compliance will be important since a FATCA compliance failure on behalf of an agent of the FFI can be construed as a failure by the FFI itself. Asking questions of the FFI’s third-party service providers will be an important early step. If a third-party service provider is not working towards FATCA compliance, the FFI may want to re-assess their relationship and engagement with that party.
After the impact assessment is complete, the FFI will need to plan a path forward that not only makes all of the information technology systems and policy changes, but also develops a working corporate governance structure and functioning compliance program. …
Richard Kando, CPA (New York) is a Director at Navigant Consulting and served as a Special Agent with the IRS Criminal Investigation Division where he received the U.S. Department of Justice – Tax Division Assistant Attorney General’s Special Contribution Award.
Jeffrey Locke, Esq. is Director at Navigant Consulting. Prior to joining Navigant, he served as an assistant New York state attorney general in the Criminal Prosecutions Bureau and worked in the prosecutor’s office for the United Nations in Kosovo.
Posted in Compliance, Money Laundering, OECD, Reporting, Tax Policy, Taxation | Tagged: FATCA, FFI, Foreign Account Tax Compliance Act, Internal Revenue Service, LexisNexis, Money Laundering, NFFE, tax | Leave a Comment »
Posted by williambyrnes on May 10, 2013
Types of Entities
The Foreign Account Tax Compliance Act (“FATCA”) provides for withholding taxes to enforce reporting requirements on specified foreign accounts owned by specified U.S. persons or by U.S. owned foreign entities.
FATCA requires specified U.S. persons (U.S. citizen, residents and certain non-resident aliens) and specified domestic entities to report interests in specified foreign financial assets (SFFAs) if the aggregate value of those assets exceeds certain threshold. The regulations apply to domestic entities formed or availed of to hold, directly or indirectly, specified foreign financial assets. These specified entities include certain closely held corporations and partnerships that meet certain conditions and aggregation rules. Specified entities include domestic trusts if they meet certain criteria and exceed certain reporting threshold.
A U.S. owned foreign entity is an entity with one or more substantial U.S. owners. With certain exceptions, a substantial U.S. owner is any U.S. person with greater than 10% direct or indirect ownership interest in the foreign entity.
FATCA applies to U.S. persons who have specified foreign financial assets (SFFAs) whose value exceeds certain thresholds. The IRS announced in January 2013 that reporting by domestic entities with interests in specified foreign financial assets will not be required to file the IRS reporting form for FATCA, Form 8938, until after the date specified by final regulations, which will not be earlier than taxable years beginning after December 31, 2012.1
All foreign entities and foreign trusts are potentially subject to FATCA, in addition to the current Qualified Intermediary (QI) rules. Withholding rules and reporting requirements under FATCA depend upon the entity’s classification. FATCA classifies foreign entities as either financial entities or non-financial entities. Financial entities are classified as Foreign Financial Institutions (FFIs) [see infra. Chapter 7] while non-financial entities are classified as Non-Financial Foreign Entities (NFFEs) [see infra. Chapter 8].
Entities and trusts are very different under U.S. law. Entities include partnerships, limited liability companies (LLCs), international business companies (IBCs), foundations, usufructs, and corporations. In entities, the title to the property owned is not divided.
In a trust, however, U.S. law splits the ownership of the title into two parts, legal and equitable. The trustee of the trust owns the legal title for the benefit of the beneficiary, who owns the equitable title. A trust is a relationship, not an entity, and is treated differently under both the existing QI rules and FATCA.
Specified Foreign Financial Assets (SFFAs)
The most common type of SFFA that banks will encounter is a financial account such as any depository or custodial account that is maintained by an FFI.2 A financial account also includes non-publically traded equity or debt interest in a depository or custodial institution, an insurance company, or an investment entity.3 …
Moreover, a financial account includes a non-publically traded equity or debt interest in a holding company or treasury center in an expanded affiliated group [See infra. Chapter 8]. This applies if the holding company or treasury center has at least one investment entity or passive NFFE and the income of the investment entity or passive NFFE in the group exceeds 50% of the group’s aggregate income.4 …
SFFAs include assets not held in an account. Stocks and securities issued by a non-U.S. person that are held for investment are SFFAs whether they are held in an account with a FFI or not. The same holds true for capital or profits interests in a foreign partnership, any form of debt issued by a non-U.S. person, or a beneficial interest in a foreign trust, foreign estate, or foreign entity. A litany of financial instruments collectively referred to as “swaps” are also SFFAs whether held in an account or not. Options and derivative instruments that have any non-U.S. parties or are issued by a non-U.S. issuer are also SFFAs.5 …
Exemptions from SFFA Definitions
FATCA does provide exemptions. An interest in a foreign security or social insurance program is not a SFFA. A stock of precious metals held in a foreign safe deposit box is not a SFFA. Any security or partnership interest used or held in the conduct of normal trade or business is considered not to be held for investment under FATCA. Stock, however, cannot be considered to be held in the conduct of normal trade or business for purposes of FATCA. Therefore, foreign stock is a SFFA.6 …
Example of SFFA
To clarify what may be considered an SFFA, consider the following example. Mr. Smith, a U.S. person resident in the U.S., has $1 million in a Swiss bank account. He owns a partnership interest in a hedge fund established in the Cayman Islands, and directly owns 5,000 shares of a publically traded Japanese corporation, JapanCo. He also has social security benefits in a foreign country. …
1. IRS Notice 2013-10, “Information Reporting by Domestic Entities under Section 6038D with Respect to Specified Foreign Financial Assets”.
2. IRC §1471(d)(2), Treas Reg §1.1471-5(b)(1)(i), (ii).
3. IRC §1471(d)(2), Treas Reg §1.1471-5(b)(1)(iii)(A). “Investment entity” is defined in Treas Reg §1.1471-5(e)(4)(i).
4. IRC §1471(d)(2), Treas Reg §1.1471-5(b)(1)(iii)(B)(1). “Treasury center” is defined in Treas Reg §1.1471-5(e)(1)(v).
5. See generally IRS Form 8938, Statement of Specified Foreign Financial Assets.
6. See generally IRS Form 8938, Statement of Specified Foreign Financial Assets.
7. Foreign social security or social insurance programs are not specified as FFA, so they are not subject to FATCA reporting. Instructions to IRS Form 8938, Statement of Specified Foreign Financial Assets, p. 4.
Posted in Compliance, Reporting, Tax Policy, Taxation, Uncategorized | Tagged: Cayman Islands, FATCA, FFI, Finance, Foreign Account Tax Compliance Act, Internal Revenue Service, international tax, IRS, LexisNexis, Limited liability company, NFFE, tax | Leave a Comment »
Posted by williambyrnes on May 3, 2013
Over 400 pages of compliance analysis !! now available with the 20% discount code link in this flier –> LN Guide to FATCA_flier.
The LexisNexis® Guide to FATCA Compliance was designed in consultation, via numerous interviews and meetings, with government officials, NGO staff, large financial institution compliance officers, investment fund compliance officers, and trust companies, in consultation with contributors who are leading industry experts. The contributors hail from several countries and an offshore financial center and include attorneys, accountants, information technology engineers, and risk managers from large, medium and small firms and from large financial institutions. A sample chapter from the 25 is available on LexisNexis: http://www.lexisnexis.com/store/images/samples/9780769853734.pdf
Contributing FATCA Expert Practitioners
Kyria Ali, FCCA is a member of the Association of Chartered Certified Accountants (“ACCA”) of Baker Tilly (BVI) Limited.
Michael Alliston, Esq. is a solicitor in the London office of Herbert Smith Freehills LLP.
Ariene d’Arc Diniz e Amaral, Adv. is a Brazilian tax attorney of Rolim, Viotti & Leite Campos Advogados.
Maarten de Bruin, Esq. is a partner of Stibbe Simont.
Jean-Paul van den Berg, Esq. is a tax partner of Stibbe Simont.
Amanda Castellano, Esq. spent three years as an auditor with the Internal Revenue Service.
Luzius Cavelti, Esq. is an associate at Tappolet & Partner in Zurich.
Bruno Da Silva, LL.M. works at Loyens & Loeff, European Direct Tax Law team and is a tax treaty adviser for the Macau special administrative region of the People’s Republic of China.
Prof. J. Richard Duke, Esq. is an attorney admitted in Alabama and Florida specializing over forty years in income and estate tax planning and compliance, as well as asset protection, for high net wealth families. He served as Counsel to the Ludwig von Mises Institute for Austrian Economics 1983-1989.
Dr. Jan Dyckmans, Esq. is a German attorney at Flick Gocke Schaumburg in Frankfurt am Main.
Arne Hansen is a legal trainee of the Hanseatisches Oberlandesgericht (Higher Regional Court of Hamburg), Germany.
Mark Heroux, J.D. is a Principal in the Tax Services Group at Baker Tilly who began his career in 1986 with the IRS Office of Chief Counsel.
Rob. H. Holt, Esq. is a practicing attorney of thirty years licensed in New York and Texas representing real estate investment companies.
Richard Kando, CPA (New York) is a Director at Navigant Consulting and served as a Special Agent with the IRS Criminal Investigation Division where he received the U.S. Department of Justice – Tax Division Assistant Attorney General’s Special Contribution Award.
Denis Kleinfeld, Esq., CPA. is a renown tax author over four decades specializing in international tax planning of high net wealth families. He is Of Counsel to Fuerst Ittleman David & Joseph, PL, in Miami, Florida and was employed as an attorney with the Internal Revenue Service in the Estate and Gift Tax Division.
Richard L. Knickerbocker, Esq. is the senior partner in the Los Angeles office of the Knickerbocker Law Group and the former City Attorney of the City of Santa Monica.
Saloi Abou-Jaoude’ Knickerbocker Saloi Abou-Jaoude’ Knickerbocker is a Legal Administrator in the Los Angeles office of the Knickerbocker Law Group concentrated on shari’a finance.
Jeffrey Locke, Esq. is Director at Navigant Consulting.
Josh Lom works at Herbert Smith Freehills LLP.
Prof. Stephen Polak is a Tax Professor at Thomas Jefferson School of Law’s International Tax & Financial Services Graduate Program where he lectures on Financial Products, Tax Procedure and Financial Crimes. As a U.S. Senior Internal Revenue Agent, Financial Products and Transaction Examiner he examined exotic financial products of large multi-national corporations. Currently, Prof. Polak is assigned to U.S. Internal Revenue Service’s three year National Research Program’s as a Federal State and Local Government Specialist where he examines states, cities, municipalities, and other governmental entities.
Dr. Maji C. Rhee is a professor of Waseda University located in Tokyo.
Jean Richard, Esq. a Canadian attorney, previously worked for the Quebec Tax Department, as a Senior Tax Manager with a large international accounting firm and as a Tax & Estate consultant for a pre-eminent Canadian insurance company. He is currently the Vice President and Sr. Wealth Management Consultant of the BMO Financial Group.
Michael J. Rinaldi, II, CPA. is a renown international tax accountant and author, responsible for the largest independent audit firm in Washington, D.C.
Edgardo Santiago-Torres, Esq., CPA, is also a Certified Public Accountant and a Chartered Global Management Accountant, pursuant to the AICPA and CIMA rules and regulations, admitted by the Puerto Rico Board of Accountancy to practice Public Accounting in Puerto Rico, and an attorney.
Hope M. Shoulders, Esq. is a licensed attorney in the State of New Jersey whom has previously worked for General Motors, National Transportation Safety Board and the Department of Commerce.
Jason Simpson, CAMS is the Director of the Miami office for Global Atlantic Partners, overseeing all operations in Florida, the Caribbean and most of Latin America. He has worked previously as a bank compliance employee at various large and mid-sized financial institutions over the past ten years. He has been a key component in the removal of Cease and Desist Orders as well as other written regulatory agreements within a number of Domestic and International Banks, and designed complete AML units for domestic as well as international banks with over three million clients.
Dr. Alberto Gil Soriano, Esq. worked at the European Commission’s Anti-Fraud Office in Brussels, and most recently at the Legal Department of the International Monetary Fund’s Financial Integrity Group in Washington, D.C. He currently works at the Fiscal Department of Uría Menéndez Abogados, S.L.P in Barcelona (Spain).
Lily L. Tse, CPA. is a partner of Rinaldi & Associates (Washington, D.C.).
Dr. Oliver Untersander, Esq. is partner at Tappolet & Partner in Zurich.
Mauricio Cano del Valle, Esq. is a Mexican attorney who previously worked for the Mexican Ministry of Finance (Secretaría de Hacienda) and Deloitte and Touche Mexico. He was Managing Director of the Amicorp Group Mexico City and San Diego offices, and now has his own law firm.
John Walker, Esq. is an accomplished attorney with a software engineering and architecture background.
Bruce Zagaris, Esq. is a partner at the Washington, D.C. law firm Berliner, Corcoran & Rowe, LLP.
Prof. William Byrnes was a Senior Manager then Associate Director at Coopers & Lybrand, before joining academia wherein he became a renowned author of 38 book and compendium volumes, 93 book & treatise chapters and supplements, and 800+ articles. He is Associate Dean of Thomas Jefferson School of Law’s International Taxation & Financial Services Program.
Dr. Robert J. Munro is the author of 35 published books is a Senior Research Fellow and Director of Research for North America of CIDOEC at Jesus College, Cambridge University, and head of the anti money laundering studies of Thomas Jefferson School of Law’s International Taxation & Financial Services Program.
Posted in Compliance, Estate Tax, Financial Crimes, information exchange, Money Laundering, OECD, Reporting, Tax Policy, Taxation, Wealth Management | Tagged: Compliance, FATCA, Internal Revenue Service, LexisNexis, tax, Tax Evasion, tax reporting | Leave a Comment »
Posted by williambyrnes on March 4, 2013
As the world becomes “smaller,” the dynamics of global financial transactions are intensifying. This is why the Foreign Account Tax Compliance Act (FATCA) is one of the most important awareness issues in today’s tax policy and compliance arena. As new developments emerge almost daily in this ever-changing environment, the importance of working knowledge is increasingly pronounced. The LexisNexis® Guide to FATCA Compliance, scheduled for release in May 2013, will be an invaluable resource of insight into FATCA principles, the reasons behind them, and the best practice steps financial institutions must follow in order to comply. Comprehensive coverage in this work, authored by Professor William Byrnes and Dr. Robert Munro, is complemented by content provided by highly qualified international contributors to render meaningful information about all aspects of FATCA.
The impact of FATCA is far-reaching: Affected financial institutions of many descriptions must navigate complex and challenging regulations to maintain compliance. In broad terms, foreign banks, brokerages, pension funds, insurance companies and a host of other foreign businesses that disburse payments to U.S. citizens and residents are all subject to FATCA compliance. As agreements between nations are consummated and other FATCA developments unfold, the importance of awareness will only grow.
- See more at: http://www.lexisnexis.com/community/taxlaw/blogs/fatca/archive/2013/02/28/lexisnexis-174-guide-to-fatca-compliance.aspx#sthash.Xtf40oCq.megzVJco.dpuf
Posted in Compliance, information exchange, Reporting, Tax Policy, Taxation | Tagged: FATCA, Financial institution, Financial transaction, Foreign Account Tax Compliance Act, Government, Internal Revenue Service, LexisNexis, United States | Leave a Comment »
Posted by williambyrnes on March 1, 2013
The LexisNexis® Guide to FATCA Compliance was designed in consultation, via numerous interviews and meetings, with government officials, NGO staff, large financial institution compliance officers, investment fund compliance officers, and trust companies, from North and South America, Europe, South Africa, and Asia, and in consultation with contributors who are leading industry experts. The contributors hail from several countries and an offshore financial center and include attorneys, accountants, information technology engineers, and risk managers from large, medium and small firms and from large financial institutions. Thus, the challenges of the FATCA Compliance Officer are approached from several perspectives and contextual backgrounds.
This edition will provide the financial enterprise’s FATCA compliance officer the tools for developing a best practices compliance strategy, starting with determining what information is needed for planning the meetings with outside FATCA experts.
This 330 page Guide contains three chapters written specifically to guide a financial institution’s lead FATCA compliance officer in designing a plan of internal action within the enterprise and interaction with outside FATCA advisors with a view of best leveraging available resources and budget [see Chapters 2, 3, and 4].
This Guide includes a practical outline of the information that should be requested by, and provided to, FATCA advisors who will be working with the enterprise, and a guide to the work flow and decision processes.
Click here to pre-order the LexisNexis® Guide to FATCA Compliance! Remember that only US customers can buy on the US Lexis store.
Chapter 1 Introduction
Chapter 2 Practical Considerations for Developing a FATCA Compliance Program
Chapter 3 FATCA Compliance and Integration of Information Technology
Chapter 4 Financial Institution Account Remediation
Chapter 5 FBAR & 8938 FATCA Reporting
Chapter 6 Determining U.S. Ownership Under FATCA
Chapter 7 Foreign Financial Institutions
Chapter 8 Non-Financial Foreign Entities
Chapter 9 FACTA and the Insurance Industry
Chapter 10 Withholding and Qualified Intermediary Reporting
Chapter 11 Withholding and FATCA
Chapter 12 ”Withholdable” Payments
Chapter 13 Determining and Documenting the Payee
Chapter 14 Framework of Intergovernmental Agreements
Chapter 15 Analysis of Current Intergovernmental Agreements
Chapter 16 UK-U.S. Intergovernmental Agreement and Its Implementation
Chapter 17 Mexico-U.S. Intergovernmental Agreement and Its Implementation
Chapter 18 Japan-U.S. Intergovernmental Agreement and Its Implementation
Chapter 19 Switzerland-U.S. Intergovernmental Agreement and Its Implementation
Chapter 20 Exchange of Tax Information and the Impact of FATCA for Germany
Chapter 21 Exchange of Tax Information and the Impact of FATCA for The Netherlands
Chapter 22 Exchange of Tax Information and the Impact of FATCA for Canada
Chapter 23 Exchange of Tax Information and the Impact of FATCA for The British
Chapter 24 European Union Cross Border Information Reporting
Chapter 25 The OECD, TRACE Program, FATCA and Beyond
Posted in Compliance, information exchange, OECD, Reporting, Tax Policy, Taxation | Tagged: Canada, Chapter 11 Title 11 United States Code, Chapter 13 Title 11 United States Code, FATCA, Financial institution, Internal Revenue Service, LexisNexis, United States | Leave a Comment »
Posted by williambyrnes on January 21, 2013
Treasury Advances Efforts to Secure International Participation, Streamline Compliance, and Prepare for Implementation of the Foreign Account Tax Compliance Act (January 17, 2013 U.S. Treasury Department of Public Affairs)
The U.S. Department of the Treasury and the Internal Revenue Service (IRS) on January 17, 2013 issued comprehensive final regulations implementing the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA). Enacted by Congress in 2010, these provisions target non-compliance by U.S. taxpayers using foreign accounts. The issuance of the final regulations marks a key step in establishing a common intergovernmental approach to combating tax evasion.
These regulations provide additional certainty for financial institutions and government counterparts by finalizing the step-by-step process for U.S. account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, and U.S. withholding agents.
The final regulations issued today:
Build on intergovernmental agreements that foster international cooperation. The Treasury Department has collaborated with foreign governments to develop and sign intergovernmental agreements that facilitate the effective and efficient implementation of FATCA by eliminating legal barriers to participation, reducing administrative burdens, and ensuring the participation of all nonexempt financial institutions in a partner jurisdiction. In order to reduce administrative burdens for financial institutions with operations in multiple jurisdictions, the final regulations coordinate the obligations for financial institutions under the regulations and the intergovernmental agreements.
Phase in the timelines for due diligence, reporting and withholding and align them with the intergovernmental agreements. The final regulations phase in over an extended transition period to provide sufficient time for financial institutions to develop necessary systems. In addition, to avoid confusion and unnecessary duplicative procedures, the final regulations align the regulatory timelines with the timelines prescribed in the intergovernmental agreements.
Expand and clarify the scope of payments not subject to withholding. To limit market disruption, reduce administrative burdens, and establish certainty, the final regulations provide relief from withholding with respect to certain grandfathered obligations and certain payments made by nonfinancial entities.
Refine and clarify the treatment of investment entities. To better align the obligations under FATCA with the risks posed by certain entities, the final regulations:
(1) expand and clarify the treatment of certain categories of low-risk institutions, such as governmental entities and retirement funds;
(2) provide that certain investment entities may be subject to being reported on by the FFIs with which they hold accounts rather than being required to register as FFIs and report to the IRS; and
(3) clarify the types of passive investment entities that must be identified and reported by financial institutions.
Clarify the compliance and verification obligations of FFIs. The final regulations provide more streamlined registration and compliance procedures for groups of financial institutions, including commonly managed investment funds, and provide additional detail regarding FFIs’ obligations to verify their compliance under FATCA.
Progress on International Coordination, Including Model Intergovernmental Agreements
Since the proposed regulations were published on February 15, 2012, Treasury has collaborated with foreign governments to develop two alternative model intergovernmental agreements that facilitate the effective and efficient implementation of FATCA. These models serve as the basis for concluding bilateral agreements with interested jurisdictions and help implement the law in a manner that removes domestic legal impediments to compliance, secures wide-spread participation by every non-exempt financial institution in the partner jurisdiction, fulfills FATCA’s policy objectives, and further reduces burdens on FFIs located in partner jurisdictions. Seven countries have already signed or initialed these agreements.
Today, Treasury announced for the first time that Norway has joined the United Kingdom, Mexico, Denmark, Ireland, Switzerland, and Spain as countries that have signed or initialed model agreements. Treasury is engaged with more than 50 countries and jurisdictions to curtail offshore tax evasion, and more signed agreements are expected to follow in the near future.
Additional Background on the Model Agreements
On July 26, 2012, Treasury published its first model intergovernmental agreement (Model 1 IGA). Instead of reporting to the IRS directly, FFIs in jurisdictions that have signed Model 1 IGAs report the information about U.S. accounts required by FACTA to their respective governments who then exchange this information with the IRS. Treasury also developed a second model intergovernmental agreement (Model 2 IGA) published on November 14, 2012. A partner jurisdiction signing an agreement based on the Model 2 IGA agrees to direct its FFIs to register with the IRS and report the information about U.S. accounts required by FATCA directly to the IRS.
These agreements do not offer an exemption from FATCA for any jurisdiction but instead offer a framework for information sharing pursuant to existing bilateral income tax treaties. Under both models, all financial institutions in a partner jurisdiction that are not otherwise excepted or exempt must report the information about U.S. accounts required by FATCA. Therefore, the IRS receives the same quality and quantity of
information about U.S. accounts from FFIs in jurisdictions with IGAs as it receives from FFIs applying the final regulations elsewhere, but these agreements help streamline reporting and remove legal impediments to
Background on FATCA
FATCA was enacted in 2010 by Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires FFIs to report to the IRS information about financial accounts held by U.S. taxpayers,
or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. In order to avoid withholding under FATCA, a participating FFI will have to enter into an agreement with the IRS to:
Identify U.S. accounts,
Report certain information to the IRS regarding U.S. accounts, and
Withhold a 30 percent tax on certain U.S.-connected payments to non-participating FFIs and account holders who are unwilling to provide the required information.
Registration will take place through an online system. FFIs that do not register and enter into an agreement with the IRS will be subject to withholding on certain types of payments relating to U.S. investments.
Posted in Compliance, Financial Crimes, Money Laundering, Reporting, Tax Policy | Tagged: FATCA, Financial institution, Internal Revenue Service, IRS, Mexico, Treasury, United States, United States Department of the Treasury | Leave a Comment »
Posted by williambyrnes on January 2, 2013
In the first moments of 2013, Congress eased the fiscal cliff tax increases for taxpayers earning less than $450,000 by enacting the American Taxpayer Relief Act (Act), permanently extending the Bush-era income tax cuts for this group. … While the legislation extends the current income tax rates for taxpayers earning less than $450,000 ($400,000 for single filers) per year, it allowed the Bush-era tax cuts to expire for all higher-income taxpayers. Similarly, taxes on capital gains, dividends, and estates were increased for the wealthiest taxpayers.
How Were Income Taxes Increased by the Fiscal Cliff Compromise?
How Does the Act Impact the Current System for Tax Deductions and Exemptions?
Were Capital Gains and Dividend Rates Impacted by the Act?
How Are Estate and Gift Tax Rates Affected?
What Other Changes Were Made?
Beyond the Act: What is the “Investment Income Tax”?
Planning Under the Act: How Should Clients Plan for Higher Taxes in 2013?
Read the analysis at National Underwriters’ Advanced Markets - http://nationalunderwriteradvancedmarkets.com/articles/fc010113-a.aspx?action=16
Posted in Estate Tax, Retirement Planning, Tax Policy, Taxation, Wealth Management | Tagged: Bush Tax Cuts, Capital gain, fiscal cliff, Fiscal conservatism, income tax, tax, Tax rate, United States, United States Congress | Leave a Comment »
Posted by williambyrnes on December 7, 2012
Clients today assume that the tax-free status of life insurance is a given and may have even engaged in fiscal cliff planning that involves the purchase of life insurance to provide a source of tax-free investment income. Given today’s political climate, it is important for clients to realize that no tax preference is safe and that the tax benefits they have come to expect from life insurance are no exception.
read this article at Life Health Pro e-zine
Posted in Estate Tax, Insurance, Retirement Planning, Tax Policy | Tagged: Agents and Marketers, Business, Financial services, insurance, Life, life insurance | Leave a Comment »
Posted by williambyrnes on November 23, 2012
… While most compromise legislation has focused on allowing some of these rates to rise while maintaining current rates for lower-income groups, Congress may beable to leave most tax rates in place if they focus on capping deductions and reducing spending for all taxpayers. Of course,
US Tax Rates (Taxes on riches/wealth) (Photo credit: mSeattle)
Read the entire article at National Underwriters’ –> Life Health Pro <–
Posted in Estate Tax, Tax Policy, Taxation | Tagged: Bush Tax Cuts, tax, Tax rate | Leave a Comment »
Posted by williambyrnes on October 21, 2011
As an advisor, your clients look to you for competent advice in planning their charitable giving. It would be terrible to find out that the gift you thoughtful suggest cannot be deducted due to an avoidable paperwork mistake. Although the IRS sometimes forgives these minor errors, others are unforgivable, as illustrated in recent IRS email advice.
The IRS was not so forgiving with a taxpayer, who made what would otherwise qualify as a tax-deductible charitable gift. The problem was that the taxpayer “failed to get a contemporaneous written acknowledgment” from the charitable organization. In its advice the IRS said it will deny the taxpayer’s charitable deduction even if the taxpayer takes remedial measures and the charity amends its Form 990 (Return of Organization Exempt from Income Tax) to acknowledge the donation and include the information required by the Code.
Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of charitable deductions in Advisor’s Journal, see Qualified Charitable Distributions from an IRA (CC 11-03) & IRS Takes Qualified IRA Charitable Distributions off the Table for 2010 (CC 11-15).
For in-depth analysis of the charitable deduction under Section 170, see Advisor’s Main Library: B6—The Income Tax Charitable Deduction—I.R.C. §170.
Posted in Tax Policy, Taxation, Wealth Management | Tagged: Charitable organization, income tax, Internal Revenue Code, Internal Revenue Service, IRS, IRS tax forms, Standard deduction, tax | Leave a Comment »
Posted by williambyrnes on September 26, 2011
The Obama Administration’s 2012 federal budget proposal has revived two budget proposals that recent scandals have directed a slew of regulatory attention on private placement. Considering examinations of private placements recently being characterized by a FINRA executive as a “major, major initiative, it would seem strange for the Securities and Exchange Commission (“SEC”) to consider relaxing rules for marketing private placements.
Nevertheless, that’s exactly what SEC Chairman Mary Schapiro told members of Congress the agency is planning.
Speaking before the U.S. House of Representatives Committee on Oversight and Government Reform, Shapiro said that the SEC is going to “take a fresh look” at rules relating to private placements and other securities offerings, both public and private. Specifically, she said that the agency will reconsider the private placement public marketing ban and the 500-investor threshold that categorizes a company as “public.”
Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of private placements in Advisor’s Journal, see Private Placements Becoming Much Riskier for Firms (CC 11-78) and Private Placements Becoming Much Riskier for Firms (CC 11-78).
Posted in Tax Policy, Taxation, Wealth Management | Tagged: Chairman, law, Mary Schapiro, Private placement, SEC, Securities and Exchange Commission, U.S. Securities and Exchange Commission, United States Congress | Leave a Comment »
Posted by williambyrnes on April 11, 2011
The Obama administration’s 2012 budget includes an attack on corporate owned life insurance that could further erode its tax advantages and put a ding in carriers’ balance sheets. Washington’s repeated assaults on corporate-owned life insurance seem to be motivated by its view of corporate owned life insurance as simply a tax arbitrage opportunity for big corporations, ignoring its importance for smaller businesses that rely on a few key people to keep them afloat. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For in-depth analysis of corporate-owned life insurance, see Advisor’s Main Library: D—Deductibility Of Business Insurance Premiums, E—Premiums As Taxable Income To The Insured & F—Taxability Of Corporate Owned Life Insurance Proceeds At Death.
Posted in Insurance, Tax Policy | Tagged: Agents and Marketers, Business, Corporate-owned life insurance, Financial services, insurance, life insurance, United States, Washington | 1 Comment »
Posted by williambyrnes on April 10, 2011
Why is this Topic Important to Wealth Managers? This topic discusses the Recovery Act spending and its effects on the national economy. It provides wealth managers with indicators and information to help clients better understand the use of government (taxpayer) funds and their allocation as a result of the financial crisis and ensuing financial recovery.
The American Recovery and Reinvestment Act of 2009, enacted February 2009, was designed to put Americans back to work and combat the largest downturn in the economy since the Great Depression. Through the Recovery Act, Congress allocated funds in three ways. The single largest part of the Act —more than one-third of it, or $288 billion— was tax cuts. Ninety-five percent of taxpayers have seen taxes go down as a result of the Act. 
The second-largest part or $244 billion — just under a third — was direct relief to state governments and individuals. This funding helped state governments avoid laying off teachers, firefighters and police officers and prevented states’ budget gaps from growing wider. On an individual level, the Act ensured those hardest hit by the recession received extended unemployment insurance, health coverage, and food assistance.
The remaining third or $275 billion of the Recovery Act financed the largest investment in roads since the creation of the Interstate Highway system; construction projects at military bases, ports, bridges and tunnels; overdue Superfund cleanups; clean energy projects; improvements in outdated rural water systems; upgrades to overburdened mass transit and rail systems; and much more.
The $787 billion (in total) economic Recovery plan included provisions, in sum, designed to (1) create and save jobs, (2) spur economic activity and invest in long-term economic growth, and (3) foster unprecedented levels of accountability and transparency in government spending.
The Recovery Act was intended to provide a short-term jump start to the economy, but many of the projects funded by Recovery money, especially infrastructure improvements, are expected to benefit economic growth for many years. Thus, the Recovery Act’s longer-term economic investment goals include:
- Initiating a process to computerize health records to reduce medical errors and save on health-care costs
- Investing in the domestic renewable energy industry
- Weatherizing 75 percent of federal buildings and more than one million homes
- Increasing college affordability for seven million students by funding a shortfall in Pell Grants, raising the maximum grant level by $500, and providing a higher education tax cut to nearly four million students
- Cutting taxes for 129 million working households by providing an $800 “Making Work Pay” tax credit
- Expanding the Child Tax Credit 
Has the Recovery Act worked? Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: American Recovery and Reinvestment Act of 2009, Economic, economic growth, Great Depression, Investment, Pell Grant, Private sector, United States | Leave a Comment »
Posted by williambyrnes on April 6, 2011
Taxpayers with assets hidden in offshore accounts will get a second chance to voluntarily declare their assets to the IRS in return for reduced penalties under the new Offshore Voluntary Disclosure Initiative (“OVDI”).
This newest offshore amnesty program offers a reduced, 25% penalty which will be calculated based on the highest aggregate amount in the taxpayer’s offshore account between 2003 and 2010. In addition to penalties, program participants will be required to pay eight years of back taxes plus interest, accuracy related penalties, and delinquency penalties. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of offshore issues in Advisor’s Journal, see IRS Planning New Voluntary Disclosure Program for Offshore Assets (CC 10-118), Offshore’s Limited Shelf Life (CC 10-47) & IRS Proposed FATCA Guidance Expands Offshore Compliance Initiatives (CC 10-52)
Posted in Compliance, Tax Policy | Tagged: Douglas Shulman, Internal Revenue Service, IRS, Offshore bank, Switzerland, tax, UBS, United States | Leave a Comment »
Posted by williambyrnes on March 29, 2011
Why is this Topic Important to Wealth Managers? This discussion is focused on a hot topic in Washington and around the country. The new 1099 reporting requirements that are expected to come into effect next year may be amended or removed all together. Wealth managers would be well served to be knowledgeable on the subject that not only affects clients and their businesses, but it also directly affects many wealth managers themselves who pay for goods and services as a trade or business. Thus, here at Advanced Markets we bring wealth managers in particular the most relevant and up-to-date information on the web.
Repeal of the health reform law’s business-to-business 1099 reporting requirement is a step closer, with the U.S. Senate passing an amendment on February 2 that would repeal the provision. Praising passage of the Senate amendment, Senator Stabenow said, “Today we provided a common-sense solution for business owners so they can focus on creating jobs, not filling out paperwork for the IRS…. If left unchecked, 40 million small businesses would see their IRS 1099 paperwork increase 2000 percent.”
President Obama even praised the repeal efforts in his state of the union address, receiving a resounding round of applause. Acknowledging that his health care reform law has its share of flaws, and offering to work with the Congress to correct those flaws, he said that “We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.” Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
The House of Representatives passed H.R. 4, the Small Business Paperwork Mandate Elimination Act of 2011 by majority vote (314-112, with 76 Democrats joining a unanimous House GOP). The legislation, if passed by the Senate and signed into law by President Obama, would repeal an expansion currently scheduled to take effect in 2012 of information that businesses must report to the Internal Revenue Service on Form 1099.
Specifically, the new legislation would amend the Internal Revenue Code to repeal the expanded 1099 information reporting requirements on payments made to corporations, rental property expense payments, and payments for property and other gross proceeds. The legislation would thus strike portions of section 6041 of the Internal Revenue Code which were added by the Patient Protection and Affordable Care Act of 2010 (PPA).
The PPA expanded tax information reporting requirements to require businesses to issue a Form 1099 for any payments to corporations (rather than just to individuals) and for any payments for property (rather than just for services or investment income) that exceed $600 per year per payee. H.R. 4 would strike language requiring “amounts in consideration for property” and “gross proceeds” to be subject to 1099 reporting requirements under section 6041 of IRS Code in order to eliminate the expanded reporting requirements. The bill would also repeal expanded information reporting requirements on rental property expense payments that are currently in effect.
According to the Joint Committee on Taxation, repealing these expanded 1099 information reporting requirements for rental property expense payments as well as certain payments of more than $600 will reduce taxes by approximately $24.7 billion over ten years. 
Section 6041 of the Internal Revenue Code outlines reporting requirements and generally requires information returns to be made by every person (payor) engaged in a trade or business that makes payments aggregating $600 or more in any taxable year to another person (payee) in the course of the payor’s trade or business. The information returns must be filed with the Internal Revenue Service and corresponding statements must be sent to each payee.
Beginning in 2012, certain payments not previously subject to 1099 reporting requirements, including those made to corporations and those made for property, will become subject to the reporting requirements under the PPA. The PPA and subsequent legislation expanded information reporting requirements of businesses for payments of $600 or more to any vendor and on rental property expense payments. Some argue, these new requirements would likely impose a huge tax compliance burden on small businesses, forcing them to devote resources to tax filing instead of to business expansion and job creation.
For previous coverage of the Health Care Reform Act’s enhanced 1099 reporting requirement in Advisor’s Journal, see Health Care Reform Causes an Avalanche of 1099s (CC 10-84).
Please check back with Advisorfyi and Advisorfx for more timely information on 1099 reporting.
Posted in Tax Policy | Tagged: Business, Debbie Stabenow, Health care reform, Internal Revenue Service, Repeal, Small business, United States Congress, United States Senate | 1 Comment »
Posted by williambyrnes on March 29, 2011
Why is this Topic Important to Wealth Managers? This topic presents a discussion on information reporting regarding nonresident aliens and domestic interest income. Because some wealth managers work with international clients, or a family in which at least one family member like a spouse or child is foreign, it is helpful to discuss the new proposed reporting requirements as issued by the Department of the Treasury. Having a better understanding of the reported information that will end up in the hands of the IRS will hopefully help wealth managers focus on compliance, as well as wealth preservation and growth.
The Internal Revenue Service recently released new proposed regulations regarding reporting interest payments made to nonresident aliens. A nonresident alien is an individual who is neither a citizen of the United States nor a resident of the United States. We will discuss in a later blogticle this week about how to determine if someone is either a US taxpayer or instead is a non-resident alien (not a US taxpayer).
The new proposed rules require the payor to make an information return on Form 1042-S, “Foreign Person’s U.S. Source Income Subject to Withholding” on interest payments aggregating $10 or more each year paid to a nonresident alien, that is otherwise reportable on a Form 1099 (interest income). 
The payor shall generally prepare and file Form 1042-S at the time and in the manner prescribed by the code and the regulations, for the calendar year in which the interest is paid. 
The IRS and Treasury Department first published, in 2001, a notice of proposed rulemaking which provided that U.S. bank deposit interest paid to any nonresident alien individual must be reported annually to the IRS.  Then in 2002, the Treasury Department and the IRS withdrew these regulations and proposed narrower regulations that would require reporting only on interest payments to nonresident alien individuals that are residents of certain designated countries or, at the option of the payor, on interest payments to all nonresident alien recipients of bank deposit interest. 
Under regulations currently in effect, reporting of U.S. bank deposit interest is required only if the interest is paid to a U.S. person or a nonresident alien individual who is a resident of Canada. 
The newest proposed regulations published this month withdraw previous regulations and provide proposed regulations that extend the information reporting requirement to include bank deposit interest paid to nonresident alien individuals who are residents of any foreign country.
The Treasury Department notes this extension is appropriate for several reasons: Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Alien (law), Deposit account, Internal Revenue Service, IRS tax forms, Regulation, Report, Treasury Department, United States | Leave a Comment »
Posted by williambyrnes on March 27, 2011
Why is this Topic Important to Wealth Managers? A wealth manager should be able to present Advanced Market Intelligence on the long-term economic impact of government spending and its ability to raise revenues with clients.
The United States faces daunting economic and budgetary challenges. The economy has struggled to recover from the recent recession, which was triggered by a large decline in house prices and a financial crisis—events unlike anything this country has seen since the Great Depression.
For the federal government, the sharply lower revenues and elevated spending deriving from the financial turmoil and severe drop in economic activity—combined with the costs of various policies implemented in response to those conditions and an imbalance between revenues and spending that predated the recession—have caused budget deficits to surge in the past two years. The deficits of $1.4 trillion in 2009 and $1.3 trillion in 2010 are, when measured as a share of gross domestic product (GDP), the largest since 1945—representing 10.0 percent and 8.9 percent of the nation’s output, respectively. 
Also, the recovery in employment has been slowed not only by the moderate growth in output in the past year and a half but also by structural changes in the labor market, such as a mismatch between the requirements of available jobs and the skills of job seekers, that have hindered the employment of workers who have lost their job. Payroll employment, which declined by 7.3 million during the recent recession, gained a mere 70,000 jobs (or 0.06 percent), on net, between June 2009 and December 2010. 
However, under current law, CBO projects, budget deficits will drop markedly over the next few years—to $1.1 trillion in 2012, $704 billion in 2013, and $533 billion in 2014. Relative to the size of the economy, those deficits represent 7.0 percent of GDP in 2012, 4.3 percent in 2013, and 3.1 percent in 2014. From 2015 through 2021, the deficits in the baseline projections range from 2.9 percent to 3.4 percent of GDP. 
Nevertheless, the deficits that will accumulate under current law will push federal debt held by the public to significantly higher levels. Just two years ago, debt held by the public was less than $6 trillion, or about 40 percent of GDP; at the end of fiscal year 2010, such debt was roughly $9 trillion, or 62 percent of GDP, and by the end of 2021, it is projected to climb to $18 trillion, or 77 percent of GDP.  Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: China, Congressional Budget Office, Deficit, Employment, Government spending, Great Depression, Gross domestic product, United States | Leave a Comment »
Posted by williambyrnes on March 26, 2011
Why is this Topic Important to Wealth Managers? Increasing the IRS staffing budget in certain departments may be indicative of increasing scrutiny of client’s information and tax returns. Increasing government scrutiny may lead to increased compliance costs in time and fees. Consequently, a wealth manager may want to address with client the need for increasing diligence in preparation of their affairs. Thus, Advanced Market Intelligence presents a discussion on the Internal Revenue Services’ allocations for fiscal year 2012, and contrasts 2010 data and figures.
The fiscal year 2012 proposed budget allocates $14 billion to the Department of the Treasury; a 4 percent increase above the 2010 enacted level.  The increase over 2010 levels is attributed to costs associated with implementation of legislation and new investments in IRS tax compliance activities that are aimed to help reduce the deficit. Of the $14 billion appropriated to the Treasury operations, over $13.28 billion is encumbered for the Internal Revenue Service.
The Internal Revenue Service has allocated its appropriations to the tune of $2.345 billion for “Taxpayer Services”; $5. 96 billion for “Enforcement” of which over $5 billion is apportioned to “Exam and Collections”; “Operations and Support” represent $4.62 billion; and “Business Systems Modernization” together with “Health Insurance Tax Credit Administration” represent approximately $351 million. 
The main function of the Internal Revenue Service is to collect he revenue that funds the government and administer the nation’s tax laws.  The IRS collected $2.345 trillion in taxes (gross receipts before tax refunds) in 2010, or 93 percent of all federal government receipts.
Total resources to support the IRS activities for fiscal year 2012 are estimated to be around $13.626 billion, including $13.283 billion from direct appropriations, an estimated $138 million from reimbursable programs, and an estimated $204 million user fees. The direct federal budget appropriation is $1,137,784,000, 9.37 percent, more than the fiscal year 2010 enacted level of $12,146,123,000. 
The 2012 budget provides funding to implement enacted legislation; handle new information reporting requirements; increase compliance by addressing offshore tax evasion; expand enforcement efforts on noncompliance among corporate and high-wealth taxpayers; and enforce return preparer compliance.
The IRS estimates new enforcement personnel will generate more than $1.3 billion in additional annual enforcement revenue once the new hires reach full potential in fiscal year 2014.
Even the Department of the Treasury notes, the tax law is complex and that even sophisticated taxpayers can make honest mistakes on their tax returns. To this end, the IRS states that it remains committed to a balanced program of assisting taxpayers to both understand the tax law and remit the proper amount of tax.
In fiscal year 2010, revenue from all enforcement sources at the IRS reached $57.6 billion, 18 percent more than in 2009. The significant increase was attributable in part to: Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Budget, Business, Douglas Shulman, Fiscal year, Internal Revenue Service, Republicans, tax, United States Department of the Treasury | 1 Comment »
Posted by williambyrnes on March 23, 2011
Why is this Topic Important to Wealth Managers? A producer should be able to present a perspective of the potential impact of current budget proposals upon investments that will be realized in the future. Thus, Advanced Market Intelligence discusses certain features to the proposed federal budget that impact fiscal year 2012.
The President’s new budget proposal included many revenue raising measures. However, below are two areas affecting the tax code that will actually increase the deficit, and also have a strong likelihood to have an impact on clients’ decisions made today.
Currently, the maximum rate of tax on the qualified dividends and net long-term capital gains of an individual is 15 percent.  In addition, any qualified dividends and capital gains that would otherwise be taxed at a 10- or 15-percent ordinary income tax rate are taxed at a zero percent rate.
The zero- and 15-percent rates for qualified dividends and capital gains are scheduled to expire for taxable years beginning after December 31, 2012.  In 2013, the maximum income tax rate on capital gains would increase to 20 percent (18 percent for assets purchased after December 31, 2000 and held longer than five years), while all dividends would be taxed at ordinary tax rates of up to 39.6 percent.
Taxing qualified dividends at the same low rate as capital gains for all taxpayers is said to reduce the tax bias against equity investment and promote a more efficient allocation of capital. Eliminating the special 18-percent rate on gains from assets held for more than five years is thought to further simplify the tax code. Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Alternative Minimum Tax, Capital gain, Dividend, Fiscal year, Qualified dividend, Rate schedule (federal income tax), tax, Tax rate | Leave a Comment »
Posted by williambyrnes on March 20, 2011
Why is this Topic Important to Wealth Managers? Presents discussion on the national debt and national future financial outlook. A client wants to know what YOU think about Treasury Notes versus other types of government debt, even foreign government debt. An understanding of the annual federal national deficit, and its impact on the federal national debt, will provide you a helpful starting point to educate your client, without providing investment advice.
We thought an introduction to the current economic condition would therefore be appropriate. As of September 30, 2010, the federal debt managed by Bureau of the Public Debt totaled about $13,551 billion primarily for borrowings to fund the federal government’s operations. A Government Accountability Office (GAO) Study recently showed the Federal Debt balances consisted of approximately (1) $9,023 billion as of September 30, 2010, of debt held by the public and (2) $4,528 billion as of September 30, 2010 of intragovernmental debt holdings. 
Debt held by the public primarily represents the amount the federal government has borrowed to finance cumulative cash deficits. To finance a cash deficit, the federal government borrows from the public. When a cash surplus occurs, the annual excess funds can then be used to reduce debt held by the public. In other words, annual cash deficits or surpluses generally approximate the annual net change in the amount of federal government borrowing from the public.
Intragovernmental debt holdings represent balances of Treasury securities held by federal government accounts, primarily federal trust funds, that typically have an obligation to invest their excess annual receipts (including interest earnings) over disbursements in federal securities.
The federal debt has been audited since fiscal year 1997. Over this period, total federal debt has increased by 151 percent. During the last 4 fiscal years, managing the federal debt has been a challenge, as evidenced by the growth of total federal debt by $5,058 billion, or 60 percent, from $8,493 billion as of September 30, 2006, to $13,551 billion as of September 30, 2010.
The increase to the federal debt became particularly acute with the onset of the recession in December 2007. Reduced federal revenues and federal government actions in response to both the financial market crisis and the economic downturn added significantly to the federal government’s borrowing needs. And, due to the persistent effects of the recession, experts believe federal financing needs remain high. As a result, the increases to total federal debt over the past three fiscal years represent the largest dollar increases over a three year period in history. The largest annual dollar increase occurred in fiscal year 2009 when total federal debt increased by $1,887 billion.
During fiscal year 2010, total federal debt increased by $1,653 billion. Of the fiscal year 2010 increase, about $1,471 billion was from the increase in debt held by the public and about $182 billion was from the increase in intragovernmental debt holdings.
During fiscal years 2008, 2009, and 2010, legislation was enacted to raise the statutory debt limit on five different occasions. During this period, the statutory debt limit went from $9,815 billion to its current level of $14,294 billion, an increase of about 46 percent. Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Federal government of the United States, Finance, Fiscal year, Government Accountability Office, Government debt, United States federal budget, United States public debt, United States Treasury security | Leave a Comment »
Posted by williambyrnes on March 9, 2011
Last month the National Taxpayer Advocate Nina E. Olson released her annual report to Congress, identifying the need for tax reform as the number one priority in tax administration. The report also examines challenges the IRS is facing in implementing the new health care law. Below is a highlight of some points made in the report: 
“There has been near universal agreement for years that the tax code is broken and needs to be fixed,” Olson said in releasing the report. “Yet no broad-based attempt to reform the tax code has been made. This report documents the burdens the tax code imposes on taxpayers and explores why many taxpayers may nevertheless feel wedded to key aspects of the current system, undermining efforts at reform.”
Analysis of IRS data shows that taxpayers and businesses spend 6.1 billion hours a year complying with tax-filing requirements. “If tax compliance were an industry, it would be one of the largest in the United States,” the report says. “To consume 6.1 billion hours, the ‘tax industry’ requires the equivalent of more than three million full-time workers.”
Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Health law, Internal Revenue Service, Nina E. Olson, tax, Tax law, Tax reform, United States, United States Congress | Leave a Comment »
Posted by williambyrnes on March 5, 2011
President Obama recently targeted corporate tax rates in his State of the Union address. “It makes no sense, and it has to change”. “Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years — without adding to our deficit. It can be done.”
Here’s why some politicians in Washington are calling for reform:
Although America has one of the highest maximum corporate tax rates throughout industrialized nations, many large corporations pay only a fraction of the maximum rate. In a study by a New York University Professor, the data shows that a great number of public companies are paying around half, or even less, than the maximum corporate rate.
Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Barack Obama, Business Roundtable, Corporate tax, New York University, State of the Union address, tax, United States, Washington | Leave a Comment »
Posted by williambyrnes on February 27, 2011
A significant number of Offshore Voluntary Disclosure Practice cases (remember the Swiss Bank Accounts) involve Passive Foreign Investment Company (PFIC) investments. A lack of historical information on the cost basis and holding period of many PFIC investments, the Service notes, may make it difficult for taxpayers to prepare statutory PFIC computations and for the Internal Revenue Service to verify them. As a result, resolution of many Disclosure Practice cases are said to be unduly delayed. Therefore, for purposes of this initiative, the Internal Revenue Service is offering taxpayers an alternative to the statutory PFIC computation that will resolve PFIC issues on a basis that is consistent with the Mark to Market (MTM) methodology authorized in Internal Revenue Code section 1296 but will not require complete reconstruction of historical data.
Posted in Tax Policy | Tagged: Banking in Switzerland, Internal Revenue Service, Investment, Passive Foreign Investment Company, PFIC, tax | Leave a Comment »
Posted by williambyrnes on February 24, 2011
The topic Self-Employment Tax on wages versus distributions has reared its head again – as shown by the recent Federal District Court case involving David E. Watson.
The C.P.A. recently disputed and lost to the Government’s position which recharacterized dividend and loan payments from David E. Watson, P.C. (a Subchapter S corporation) to its sole shareholder and employee, David E. Watson. The IRS assessed additional employment taxes, interest and penalties against Watson for each of tax years in which Watson’s salary was significantly lower than his total distributions.
Read the analysis at AdvisorFYI (sign up for a 2 week online free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
Posted in Tax Policy | Tagged: Corporation, Internal Revenue Service, IRS tax forms, Self-employment, tax, Taxation, United States, Withholding tax | Leave a Comment »
Posted by williambyrnes on February 11, 2011
Recently, in a series of Announcements the Internal Revenue Service stated that it was developing a schedule requiring certain business taxpayers to report uncertain tax positions on their tax returns.
Now the new requirements have been finalized, businesses and wealth managers have a better idea of the direction of Uncertain Tax Position reporting.
Reported under Schedule UTP for Form 1120 series, the Uncertain Tax Position reporting currently applies to a select number of corporations (however phase-in provisions will change this by 2012 and 2014).
Who must file a Schedule UTP?
The class of organizations that must file is limited (for now). Generally, for 2010 tax year returns most small businesses will not be included in the reporting, but that will probably change. Nevertheless, a corporation must file Schedule UTP with its 2010 income tax return if: To read this article excerpted above, please access AdvisorFYI
Posted in Tax Policy | Tagged: Business, Corporation, Internal Revenue Service, IRS tax forms, tax, Tax return (United States), TurboTax, United States | Leave a Comment »
Posted by williambyrnes on February 10, 2011
A member of the U.S. military who takes a leave of absence from his private sector job in order to go on active duty will often face a pay cut—the differential between his military and private sector pay. Some employers make up this differential by paying employees who are on active duty a partial salary. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of the Tax Relief Act of 2010 in Advisor�s Journal, see Obama Tax Compromise Provides 100 Percent Bonus Depreciation of Business Assets Through 2011 (CC 11-01), Obama’s Social Security Tax Holiday: Penny Wise and Pound Foolish? (CC 10-119), Does the New Estate Tax Make the Bypass Trust Obsolete? (CC-10-122), and 2010 Estates: To Elect or Not to Elect (CC 10-124).
Posted in Tax Policy | Tagged: Active duty, Barack Obama, Federal Insurance Contributions Act tax, South Carolina, tax, TurboTax, United States, United States armed forces | Leave a Comment »
Posted by williambyrnes on January 25, 2011
Although overshadowed by the fight over the Obama tax agreement, mutual fund legislation passed the House on December 15. The Registered investment Company Modernization Act of 2010 (RICM Act), H.R. 4337, was originally passed by the House on September 28, but the Senate amended the bill, forcing a second vote in the House. The President signed it into law December 22 – Public Law 111-325.
Tax Code provisions governing mutual funds have not had a substantial update since 1986, with some components of the Code relating to mutual funds sitting untouched for sixty or more years. The tax and regulatory landscape has changed significantly in the intervening years, which has left the tax rules for mutual funds sorely in need of updating.
The RICM Act brings the Tax Code’s treatment of mutual funds and other registered investment companies (RICs) up to date by introducing the following provisions to the Tax Code, among others: Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of mutual fund investment in Adviso’rs Journal, see Can Term Life Coupled with a Mutual Fund Investment Replace a Variable Universal Life Policy? (CC 10-77).
Posted in Tax Policy | Tagged: Business, Business and Economy, Financial services, Funds, Investing, Investment, Mutual fund, tax | Leave a Comment »
Posted by williambyrnes on January 3, 2011
Why is this Topic Important to Wealth Managers? Discusses and examines some long-term implications on the economy, through a macroeconomic perspective, of the Bush Tax Cuts. Examines financial data spanning over a decade to help wealth managers converse on current economic topics.
A recent report examined certain major economic indicators in relation to the Bush tax cuts. These indicators, in total, showed a negative overall effect that the Bush tax cuts had on the economy. The below chart presents common economic gauges before and after the tax cuts (which first occurred in 2001 and 2002).
To read this article excerpted above, please access www.AdvisorFYI.com
Posted in Tax Policy, Uncategorized | Tagged: economic growth, tax, Tax cut, tax policy | Leave a Comment »
Posted by williambyrnes on October 18, 2010
Why is this Topic Important to Wealth Managers? Discuses one alternative investment wealth managers are continuing to explore in consideration of uncertain tax law changes. Provides general background as well as analysis and comparison to show the benefits available through the purchase of tax-exempt bonds.
Interest received from bonds is generally taxed at ordinary income rates. This includes both government and corporate bonds unless otherwise excluded by the tax code. Dividends though are taxed at capital gains rates, which for the meanwhile can provide significant tax benefits. See our previous AdvisorFYI blogticle of September 13th Bush Tax Cuts Set to Expire.
However, some state and local municipal bonds often called “muni” bonds, produce tax—exempt interest income under Internal Revenue Code § 103. The general obligation interest on state or local bonds fall into this category as distinguished from private activity bonds.
A detailed discussion of private activity bonds in comparison to general obligation bonds can be found at AdvisorFX Tax Facts: Q 1123. Is interest on obligations issued by state and local governments taxable? (sign up for a free trial subscription if you are not a subscriber).
To read the remainder of this blogticle that deals with general obligation bonds, and offers a comparison between tax-exempt and taxable income bonds with illustrated rates of return, please see AdvisorFYI -
Posted in Tax Exempt Orgs, Tax Policy, Taxation | Tagged: Bonds, Business, Corporate bond, Internal Revenue Code, Municipal bond, Rate of return, tax, Tax exemption | Leave a Comment »
Posted by williambyrnes on October 11, 2010
Why is this Topic Important to Wealth Managers? Provides insight into relevant taxation issues regarding the ownership of a foreign insurance company, premium payments made to a foreign insurance company, and foreign insurance company income taxation. Discusses information wealth managers may find relevant in regards to advanced family and business estate plans.
What are the U.S. tax implications, generally, for a United States Corporation that owns a foreign insurance company?
To begin, a well known rule is that premiums paid to a foreign insurance company are subject to a federal income premium tax. The tax is due even though the U.S. parent may own the foreign insurance company, either in part or in full. The tax is remitted by the premium payor who “must file Form 720 to pay the tax at the time of the premium payment.”
For casualty insurance policies the tax is 4% of the total premium payment to a foreign insurer and for life insurance and annuity contracts the tax is 1% of the premium paid. The tax only applies to premium payments to a foreign insurer.
If a foreign company carrying on an insurance business within the United States qualifies as a life or casualty insurer under the Code, “if it were [otherwise] a domestic corporation,” then the company is “taxable under such part on its income effectively connected with its conduct of any trade or business within the United States.” 
To determine what income then is effectively connected with a trade or business within the United States, one must know what a trade or business within the United States means. “Neither the Code nor the regulations fully define the term ‘trade or business within the United States.’ ”  Most “cases hold that profit oriented activities in the United States, whether carried on by the taxpayer directly or through agents, are a trade or business if they are regular, substantial, and continuous.”  Additionally, an insurance company “makes contracts over a period of years”, which leads one to believe the issuance of insurance contracts on persons or activities in the United States is continuous. 
Read on about Foreign Insurance Company Taxation
Posted in Insurance, Tax Policy, Taxation | Tagged: Agent Resources, Business, Business and Economy, Carriers, Financial services, insurance, Property and Casualty, United States | Leave a Comment »
Posted by williambyrnes on October 9, 2010
Why is this Topic Important to Wealth Managers? Presents an introduction into the taxation of U.S. life insurance companies. Provides insight for wealth managers considering advanced planning techniques involving the use of life insurance companies.
Congress has determined, generally, that insurance companies by issuing insurance contracts are serving the public good. Moreover, Congress has determined that the tax accounting applicable to corporations does not adequately align to the operations of the insurance industry. Thus, to distinguish insurance companies, Congress created a special chapter of the Internal Revenue Code (subchapter “L”) applicable only for them. Subchapter L is divided into Section 801 to 848 of which 801 to 818 address the taxation of lile insurance companies.
By example, because of the nature of the life insurance business, in that liabilities carry long into the future, Congress has afforded special deductions to this class. To avoid potential reserve deficiencies by recognizing income (and therefore incurring a present tax liability) when premiums are collected, Congress essentially allows underwriting gains to occur once the insurance liability obligations have expired.
Let’s take a look at the Code specifically to see how these mechanics actually work. First and foremost, pursuant to IRC Sec. 801 a life insurance company is taxed at the same rates as other corporations. These rates can be found in IRC § 11.
A life insurance company means under IRC § 816(a), “ an insurance company which is engaged in the business of issuing life insurance and annuity contracts”, generally, as well as accident or health contracts, so long as, the company’s “life insurance reserves, plus unearned premiums” on “noncancellable” policies, “comprise more than 50 percent of its total reserves.”
Read on about Subchapter L: Life Insurance Companies
Posted in Tax Policy | Tagged: Agents and Marketers, Business, Business and Economy, Financial services, insurance, Internal Revenue Code, Life, life insurance | Leave a Comment »
Posted by williambyrnes on October 8, 2010
Why is this Topic Important to Wealth Managers? Provides an introduction into the Internal Revenue Code so that tomorrow’s blogticle about specific sections of the Code may be better understood, in particular the taxation of life insurance companies.
How are the laws related to tax organized or in other words, what’s the general process in finding an answer to a tax question?
All federal laws of the United States arise out of the Constitution. The Constitution has granted Congress certain enumerated powers, such as the power to regulate commerce among the several states. Congress also has the power to create laws that are necessary and proper in governing based on its listed powers. All powers not granted to the Federal government are reserved by the States through the 10th Amendment – meaning only the States may enact laws in those areas (al least this is how it is supposed to work).
Once Congress passes a necessary and proper law to carry out its enumerated powers, that law becomes a United States Statute, or a Statute already existing is either amended or deleted. The Statutes of the United States are called the United States “Code”.
The United States Code is divided into 50 different titles. Title 26 is perhaps the most infamous, being the “Internal Revenue Code”. The Internal Revenue Code, or Title 26 of the United States Code is further delineated, into Subtitles, Chapters, Subchapters, Parts, and finally Sections and Subsections.
Congress has delegated the power of enforcement of these laws, which lies with the executive branch, of Title 26 to the Secretary of Treasury to create Regulations or Administrative Interpretations of the Statutes. The regulations are not in and of themselves laws but rather, direction from the Secretary of interpretation of the laws. The regulations have legal authority, which means they may be presented in court. In almost all tax cases, there is some Statute, that is called into question, therefore the Court’s exclusive job is to rule on interpretation of the Statute as it applies to the situation before the court, not to overrule any statute, unless it found the law unconstitutional. Therefore, additional law is generated by courts’ interpreting Statutes. This is known as “case law”.
Read on about the The Internal Revenue Code: Decoded
Posted in Tax Policy | Tagged: Federal government of the United States, Internal Revenue Code, law, Statute, United States, United States Code, United States Congress, United States Constitution | Leave a Comment »
Posted by williambyrnes on October 1, 2010
The tax landscape is changing for the amount U.S. multinational corporations may claim through the foreign tax credit. This change is the result of the Statutory Pay-As-You-Go Act of 2010 that requires any increased spending must be offset by a corresponding increase in revenue. The foreign tax credit modifications narrowly escaped becoming the offsetting revenue raising provisions of the Unemployment Compensation Extension Act of 2010 that extended unemployment benefits. However, the success was short-lived, as these modifications were added to Pub. L. No. 111-226, the Education, Jobs and Medicaid Assistance Act of 2010. This legislation provides $10 billion of elementary and secondary education funding to protect teacher jobs from being cut. Nearly $10 billion over ten years is expected to be raised by altering various rules that corporations leverage to calculate their foreign tax credits and foreign-source income, providing the necessary revenue offset for this law.
In the article, we will examine the concept behind foreign tax credits offered in the United States; the history of foreign tax credits in the United States; the changes to the foreign tax credits; and the public policy behind the bill and the potential effects upon multinational corporations. To download the free article, please link to LexisNexis here at Tax Law Community
You may post any questions or comments below - Prof. William Byrnes
Posted in Tax Policy | Tagged: education, law, Low Income Taxpayers, Multinational corporation, tax, Tax credit, Taxation, United States | Leave a Comment »
Posted by williambyrnes on September 30, 2010
President Obama signed the Small Business Jobs and Credit Act of 2010, H.R. 5297, on Monday, September 27, establishing an allowance for partial annuitizations of annuity contracts from January 1, 2011. In the coming weeks, the Advisors Journal will include in-depth examinations of the provisions of the Small Business Act that are of the most interest to advisors and insurance producers, such as the partial annuitization of annuity contracts and the Roth Conversion Extension to Employer Accounts.
In this AdvisorFX exclusive analysis, we summarize the impact of the Act’s other major provisions. Please read the article via your AdvisorFX subscription at AdvisorFX (or sign up for a free 30 day trial).
Posted in Tax Policy, Taxation | Tagged: Barack Obama, Business, insurance, Life annuity, Small business, Small Business Administration, Small Business Jobs, United States | Leave a Comment »
Posted by williambyrnes on September 17, 2010
Why is this Topic Important to Wealth Managers? Provides discussion on current situation of federal tax “stand-off” as it relates to clients’ planning objectives. Gives insight into market participants current choices in dealing with the Tax Cut dilemma.
Congress’ inaction is causing concern for many high net worth taxpayers. Clint Stretch, managing principal of tax policy at Deloitte Tax LLP in Washington says, “uncertainty over taxes means some individuals are ‘vulnerable to hysteria’ ”. And that some financial advisers are urging clients into “unnecessary or unwise transactions.”  With “[a]n estimated 315,000 U.S. taxpayers earn more than $1 million, according to the Joint Committee on Taxation”, it leaves a lot of room for opportunity and error.
Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Economic, Joint committee, Net worth, tax, Taxation, United States, United States Congress, Washington | Leave a Comment »
Posted by williambyrnes on September 16, 2010
Why is this Topic Important to Wealth Managers? Provides an overview of how the pending tax cut provisions will affect the national economy and your clients as a part of it. Discusses generally the relationship between tax and Congressional budget as they relate to the taxpayer burdens.
In the face of bailouts, new legislation and regulation, and a stalling economy, one area, taxes, is certainly being discussed among the public scuttlebutt. Specifically, the Bush Era Tax Cuts are the center of attention because they will sunset or expire, without further legislative action by the end of this year.
Read the full analysis at AdvisorFYI
Posted in Tax Policy, Uncategorized | Tagged: Budget, Business, Economic, Economy, Politics, tax, Taxation, United States | Leave a Comment »
Posted by williambyrnes on September 15, 2010
Although, Reagan’s administration saw higher growth in total, and annually, on average, than that of the previous and post 8 years of his term, his administration’s numbers are still below the 50 year trend, as well as the terms of some other Presidents, notwithstanding the unsupportive data on the short term effects of the tax cuts. However, there is a lack of conclusive evidence, therefore, to determine that a decrease in capital gains tax rates will have the short or long term affect of increasing total GDP. Yet, neither will an increase in the rate increase tax revenues.
We invite you to read the study and analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Business, Capital gains tax, Gross domestic product, income tax, Politics, tax, Taxation, United States | Leave a Comment »
Posted by williambyrnes on September 14, 2010
Why is this Topic Important to Wealth Managers? Author Ben Terner of the Panel of Experts offers detailed information that has a direct affect on clients’ planning objectives as it relates to estate and gift tax. Provides a general discussion as well as detailed analysis of the current law and the affect of Congress’ current indecision.
Generally, “[g]ross income does not include the value of property acquired by gift, bequest, devise, or inheritance.”  Which means gift income or inheritance income received by the beneficiary is not taxable income to the individual who receives property by such gift, bequest, devise, or inheritance.  “Although the donated or inherited property itself is not taxable, income derived from such property is includable in gross income.” 
Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Congress, gift tax, law, Politics, tax, Taxation, United States, United States Congress | 2 Comments »
Posted by williambyrnes on September 13, 2010
Why is this Topic Important to Wealth Managers? Provides a basic overview of the tax cut provisions that are in effect but set to expire by the end of this year. Helps financial professional understand implications regarding client’s estate and personal plans in consideration of the Bush Tax Cuts.
As busy as Congress has been over the last year, it’s “finally turning its attention to the expiring 2001 and 2003 tax cuts”, says Robert Rubin who is co-chairman of the Council on Foreign Relations and former Secretary of the U.S. Treasury. Read the entire analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Bush Tax Cuts, Congress, Jobs and Growth Tax Relief Reconciliation Act of 2003, Robert Rubin, tax, Taxation, United States, United States Congress | Leave a Comment »
Posted by williambyrnes on September 11, 2010
In the face of opposition by the Obama administration to extending the Bush tax cuts, analysis recently released by the Congressional Budget Office (CBO) supports extending the breaks for another few years. Douglas Elmendorf, director of the CBO, believes that eliminating the tax cuts in a stagnant economy may hamper growth, and that continuing the cuts beyond December 31st sets the stage for some economic recovery next year: “Under that … scenario, economic growth would be stronger next year; unemployment would be lower next year.”
Today’s analysis by our Experts Robert Bloink and William Byrnes is located at AdvisorFX Journal CBO Analysis Supports Extending Tax Cuts
Posted in Tax Policy, Uncategorized | Tagged: income tax, tax policy | 1 Comment »