Archive for the ‘Taxation’ Category

EU to Adopt New Expanded Savings Directive

Posted by William Byrnes on March 25, 2014

EU Council Announces March 2014 Adoption of Expanded EU Savings Directive

On Saturday, March 22, 2014 the EU Council’s General Secretariat announced that it will adopt major amendments to the EU Directive on taxation of savings income at its next March 2014 meeting. The amendments will address the current loopholes, such as application to trusts, to foundations, and to investment income that is comparable to interest income.

Brief Background on EU Savings Directive

The liberalization of capital markets and the free movement of capital within the EU borders revealed how important it was to establish cooperation with a view to preventing, in the direct taxation area, fraud and evasion linked to cross-border financial investments. The problem with taxpayers moving their investments to Member States which did not impose taxation at source while the taxpayers simultaneously under-reported to their respective State of residence (or not reporting at all) the income earned. The EU Savings Directive was adopted to address this situation, coming into effect in 2005.

The mechanism of the Directive works by imposing an obligation to any paying agent in an EU Member State which makes a payment to an individual resident in the other Member State which is the beneficial owner of the income, to report that payment of interest to the competent tax authorities of the Member State in which the paying agent is established. The competent tax authorities of that (source) State in turn transfer the information collected to the competent tax authority of the residence of the beneficial owner. Based on the information received it is possible for the State of residence of the beneficial owner to verify if the amount is declared for tax purposes and to tax the corresponding income.

Loopholes Reported in 2008

In his 2004 Report on the Regulatory, Competitive, Economic and Socio-Economic Impact of the European Union Code of Conduct on Business Taxation and Tax Savings Directive to the United Kingdom Foreign and Commonwealth Office and the Overseas Territories of The Virgin Islands (British), Turks & Caicos Islands, Anguilla and Montserrat, Professor William Byrnes undertook an in-depth analysis of the EU Savings Directive identifying several loopholes that would require later amendments for it to achieve its objectives.

The Savings Directive loopholes include:

• Territorial scope: It is limited to intra-community situations in which a paying agent from one Member State pays to an individual resident in another Member State. It does not apply to payments from outside the EU, i.e. when the paying agent is located in a third (non-EU) State or to payments to beneficial owners who reside in third States.

• Personal scope: it does not apply to persons other than individuals, in particular payments made to legal entities. This limitation provides individuals with opportunities to circumvent the Savings Directive by using an interposed legal person or arrangement.

• Material scope: it does not cover other forms of savings like insurance products, pensions, some tailored investment funds, return on derivative contracts, structured products, etc.

These and other loopholes have been formally reported by the European Commission since 2008. The main findings of a report produced by the Commission identified as a major problem lack of “consistent treatment of other comparable situations”.[1] Pursuing this aim of consistency requires that interest payments obtained by an individual through intermediate vehicles are consistently put on an equal footing with interest payments directly received by the individual. This consistency of coverage is required not only to ensure the effectiveness of the Directive, but also compliance with the rules of the internal market and fair competition between comparable financial products and structures.

A proposal was submitted to the Council which aimed at extending the scope of the Directive.[2]

European Council Announces Amended Savings Directive Adoption in March 2014

On March 22, 2014 the European Council reported in a press release [3] that (emphasis added):

The European Council welcomes the Commission’s report on the state of play of negotiations on savings taxation with European third countries (Switzerland, Liechtenstein, Monaco, Andorra and San Marino) and calls on those countries to commit fully to implementing the new single global standard for automatic exchange of information, developed by the OECD and endorsed by the G20, and to the early adopters initiative.

The European Council calls on the Commission to carry forth the negotiations with those countries swiftly with a view to concluding them by the end of the year, and invites the Commission to report on the state of play at its December meeting. If sufficient progress is not made, the Commission’s report should explore possible options to ensure compliance with the new global standard.

In the light of this, the Council will adopt the Directive on taxation of savings income at its next March 2014 meeting.

The European Council invites the Council to ensure that, with the adoption of the Directive on Administrative Cooperation by the end of 2014, EU law is fully aligned with the new global standard.

What About the Withholding Exception for Austria and Luxembourg?

While most Member States adopted the exchange of information regime provided in the 2005 Savings Directive, three Member States with a tradition of bank secrecy—Belgium, Luxembourg and Austria—preferred to adopt, during a transitional period, a withholding tax regime. They were authorized to adopt a withholding tax (now 35%) on interest income that is paid to individual savers resident in other EU Member States. In the meantime Belgium decided to discontinue applying the transitional withholding tax as of 1 January 2010 and exchange information instead.

Therefore, only Luxembourg and Austria are currently entitled to levy a withholding tax. Luxembourg has notified the EU Commission that from next year, January 1, 2015 it will discontinue applying the transitional withholding tax and thus begin automatically exchanging information for applicable accounts from that date.

Thus, only Austria has expressed that it will maintain the withholding tax option. Austria’s finance minister is quoted in April 2013 stating: “All this data exchange will not put one red cent in my tax coffers, …. I want to have the money, not a data cemetery.”^[4] However, in light of the Council’s press release on Saturday, this position has probably changed.

The Austria’s Chancellor had also indicated that Austria may begin automatic exchange regarding the interest from savings accounts beginning 2014.^[5] Although this statement is different from the Luxembourg commitment towards automatic exchange of information, it would not be surprising that Austria will soon also endorse this automatic exchange standard within the scope of applying the Savings Directive, in light of FATCA, GATCA, and the Council’s press release.

Practical Compliance Aspects of Exchange of Information, FATCA and GATCA

For in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA), see Lexis Guide to FATCA Compliance, 2^nd Edition just published!

William H. Byrnes, author of six Lexis international tax titles, has achieved authoritative prominence with more than 20 books, 100 book chapters and supplements, and 1,000 media articles. In 2008 he was appointed Associate Dean at Thomas Jefferson School of Law, previously obtaining Professor of Law with Tenure at St. Thomas University. William Byrnes was a Senior Manager, then Associate Director of international tax for Coopers and Lybrand, and consulted for clients involved with Africa, Europe, Asia, the Indian sub-continent, and the Caribbean. He has been commissioned by a number of governments on tax policy.

[1] See Commission Staff Working Document, “Refining the present coverage of Council Directive 2003/48/EC on taxation of income from savings”, SEC (2008), p. 559.

[2] See “Proposal for a Council Directive amending Council Directive 2003/48/EC on taxation of savings income in the form of interest payments”, COM (2008) 727 final, of November 13, 2008.

[3] Conclusions, European Council, Brussels, Euco 7/1/14, 21 March 2014.

[4]“All this data exchange will not put one red cent in my tax coffers,” finance minister Maria Fekter said on 13 April. “I want to have the money, not a data cemetery.” Stamatoukou, Eleni, “EU Savings Directive to be modified”, New Europe Online, (April 15, 2013) Available at http://www.neurope.eu/article/eu-savings-directive-be-modified.

[5] Austria’s position regarding the extension of the EU Savings Directive requires that such extension be also imposed through international agreements with San Marino, Switzerland, Lichtenstein, Andorra, and Monaco. However, it is unclear if Austria has since backtracked and made these five agreements a pre-condition for its own automatic information exchange on savings income for depository accounts. See Bodoni, Stephanie, EU Push For Savings-Tax Deal Fought By Luxembourg, Austria, Bloomberg (Nov 14, 2013). Available at http://www.bloomberg.com/news/2013-11-14/eu-set-to-fail-to-meet-savings-tax-goal-on-luxembourg-opposition.html.

Posted in FATCA, OECD, Taxation, Uncategorized | Tagged: EU savings directive, FATCA, GATCA, information exchange, William Byrnes | 2 Comments »

What do I need to know about the Health Care Law for my 2013 Tax Return?

Posted by William Byrnes on March 23, 2014

The IRS stated in Health Care Tax Tip 2014-10 that for most taxpayers, the Affordable Care Act has no effect on the 2013 federal income tax return. For example, for the 2013 tax return a taxpayer does not yet report health care coverage under the individual shared responsibility provision or claim the premium tax credit. Reporting of these items start with the filing of the 2014 tax return (which will only happen between late January and April 15, 2015).

However, the IRS alerted that some taxpayers people will be affected by a few provisions, including two new medical taxes and a reduction in the ability to take a deduction for medical expenses incurred during 2013. See (1) increases in the itemized medical deduction threshold, (2) additional Medicare tax and (3) net investment income tax.

The IRS reminded taxpayers that the employer’s reporting of a taxpayer’s value of health care coverage is not taxable (the new box 12 employer health care reporting requirement, identified by Code DD on an employee’s Form W-2) .

Information available about other tax provisions in the health care law: More information is available regarding the following tax provisions: Premium Rebate for Medical Loss Ratio, Health Flexible Spending Arrangements, and Health Saving Accounts.

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

“Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience. The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction. For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Taxation | Tagged: ACA, Health care, tax | Leave a Comment »

Almost half of tax returns still due in remaining 25 days to file!

Posted by William Byrnes on March 21, 2014

The IRS announced in Newswire 2014-32 that almost half of the tax returns expected to be filed for the year 2013 had yet to be filed by March 14, 2014. How many returns will be filed in this last 25 day period? About 70 million tax returns of the total expected 149 million returns of 2013! If half of these outstanding tax returns are filed with the assistance of a tax preparer, that’s 35 million potential clients in the past 25 days of the tax season! Not a bad profession to be in!

Over the next 25 days this blog will contain many articles for small business owners on taking certain deductions and obtaining various tax credits that allow a small business owner or entrepreneur to minimize the tax imposed on the trade or business and thus maximize the business’ after-tax return.

The IRS reminds small business owners and entrepreneurs of three tax facts that may impact the outstanding 2013 return.

Tax Fact 1: Optional safe harbor method to determine the business use of a home deduction. Also known as the simplified option for claiming the home office deduction, beginning in 2013, taxpayers can use the optional safe harbor method to determine the deduction for the business use of a home.

If a taxpayer works from home, then it may be possible for the taxpayer to claim the home office deduction. However, in years past this home office deduction has been rather complicated to calculate.

1. Generally, in order to claim a deduction for a home office, a taxpayer must use a part of your home exclusively and regularly for business purposes. Also, the part of your home used for business must be:

the principal place of business, or
a place where the taxpayer meets clients or customers in the normal course of business, or
a separate structure not attached to the home. Examples might include a studio, garage or barn.

What clearly does NOT qualify for a home office deduction? By example, a taxpayer sets up a computer in her bedroom on a dresser that she uses for personal emails and for keeping her business records. In the dresser drawers are pens, paperclips, some receipts, as well as hair clips and some pieces of jewelry. The IRS isn’t going to allow a home office deduction based on that computer on that dresser.

The taxpayer may be able to use the simplified option to claim the home office deduction instead of claiming actual expenses. Under this method, the taxpayer multiplies the allowable square footage of the office area by a prescribed rate of $5. The maximum footage allowed by the IRS is 300 square feet. The deduction maximum limit using this method is thus $1,500 per year.

If the taxpayer is self-employed and chooses the actual expense method, then the taxpayer should use Form 8829, Expenses for Business Use of Your Home, to calculate the amount of the home office deduction. The taxpayer claims the deduction on Schedule C, Profit or Loss From Business, whether using the simplified or actual expense method.

If the taxpayer is an employee, then additional rules apply to claim the deduction. For example, in addition to the above tests, the business use must also be for the employer’s convenience. By example: a “work from home” arrangement.

Tax Fact 2: Standard mileage rate. Beginning in 2013, the standard mileage rate for the cost of operating a car, van, pickup, or panel truck for each mile of business use is 56.5 cents per mile.

Tax Fact 3: Additional Medicare Tax. Beginning in 2013, a 0.9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than:

$125,000 if married filing separately,
$250,000 if married filing jointly, or
$200,000 if single, head of household, or qualifying widow(er) with dependent child.

Medicare wages and self-employment income are combined to determine if a taxpayer’s income exceeds the threshold. RRTA compensation should be separately compared to the threshold.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction. For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Taxation | Tagged: entrepreneur, IRS, Small business, tax facts, Tax returns, tax season | Leave a Comment »

IRS About-Turns on Approach to One-Per-Year Limit on IRA Rollovers – Trustees beware!

Posted by William Byrnes on March 21, 2014

In Announcement 2014-15 that will be published in IRB 2014-16 on April 14, 2014, the IRS alerted trustees that it has had a major about turn on how its views the one-per-year limit on IRS rollovers. It’s view will now be much more restrictive on roll overs. What brought about the change of thinking? The January 28, 2014 Tax Court decision of Bobrow v. Commissioner.

Section 408(d)(3)(A)(i) provides generally that any amount distributed from an IRA will not be included in the gross income of the distributee to the extent the amount is paid into an IRA for the benefit of the distributee no later than 60 days after the distributee receives the distribution. Section 408(d)(3)(B) provides that an individual is permitted to make only one rollover described in the preceding sentence in any one-year period.

Proposed Regulation § 1.408-4(b)(4)(ii) and IRS Publication 590, Individual Retirement Arrangements (IRAs), provide that this limitation is applied on an IRA-by-IRA basis. However, a recent Tax Court opinion, Bobrow v. Commissioner, T.C. Memo. 2014-21, held that the limitation applies on an aggregate basis, meaning that an individual could not make an IRA-to-IRA rollover if he or she had made such a rollover involving any of the individual’s IRAs in the preceding 1-year period. The Tax Court stated at page 12:

“The plain language of section 408(d)(3)(B) limits the frequency with which a taxpayer may elect to make a nontaxable rollover contribution. By its terms, the one-year limitation laid out in section 408(d)(3)(B) is not specific to any single IRA maintained by an individual but instead applies to all IRAs maintained by a taxpayer. Section 408(d)(3)(B) speaks in general terms: An individual may not receive a nontaxable rollover from “an individual retirement account or individual retirement annuity” if that individual has already received a tax-free rollover within the past year from “an individual retirement account or an individual retirement annuity.””

The Tax Court continued at page 13, looking at Congress’ intent surrounding the enactment of section 408(d)(3)(B):

“Section 408 was enacted as part of the Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406, sec. 2002(b), 88 Stat. at 958. Recognizing that the American workforce had become much more mobile than in previous years, Congress enacted the section 408(d)(3)(A) exemption as a way of providing employees with some measure of flexibility with regard to their retirement planning. However, Congress added the section 408(d)(3)(B) limitation as a way to ensure that taxpayers did not take advantage of section 408(d)(3)(A) to repeatedly shift nontaxable income in and out of retirement accounts.”

Thus, the Tax Court concluded that: “Had Congress intended to allow individuals to take nontaxable distributions from multiple IRAs per year, we believe section 408(d)(3)(B) would have been worded differently.”

The IRS announced that it anticipates that it will follow the interpretation of § 408(d)(3)(B) in Bobrow and, accordingly, intends to withdraw the proposed regulation and revise Publication 590 to the extent needed to follow that interpretation. These actions by the IRS will not affect the ability of an IRA owner to transfer funds from one IRA trustee directly to another, because such a transfer is not a rollover and, therefore, is not subject to the one-rollover-per-year limitation of § 408(d)(3)(B). See Rev. Rul. 78-406, 1978-2 C.B. 157.

What Happens Now?

The IRS has received comments about the administrative challenges presented by the Bobrow interpretation of § 408(d)(3)(B). The IRS understands that adoption of the Tax Court’s interpretation of the statute will require IRA trustees to make changes in the processing of IRA rollovers and in IRA disclosure documents, which will take time to implement. Accordingly, the IRS will not apply the Bobrow interpretation of § 408(d)(3)(B) to any rollover that involves an IRA distribution occurring before January 1, 2015. Regardless of the ultimate resolution of the Bobrow case, the Treasury Department and the IRS expect to issue a proposed regulation under § 408 that would provide that the IRA rollover limitation applies on an aggregate basis. However, in no event would the regulation be effective before January 1, 2015. The Announcement is available http://www.irs.gov/pub/irs-drop/a-14-15.pdf

Warning on IRA Rollovers: Regulators to Scrutinize Suitability: Tomorrow’s blog article will provide another Warning on IRA Rollovers: Regulators to Scrutinize Suitability!

Authoritative and easy-to-use, 2014 Tax Facts on Insurance & Employee Benefits shows you how the tax law and regulations are relevant to your insurance, employee benefits, and financial planning practices. Often complex tax law and regulations are explained in clear, understandable language. Pertinent planning points are provided throughout.

Organized in a convenient Q&A format to speed you to the information you need, 2014 Tax Facts delivers the latest guidance on:

Estate & Gift Tax Planning
IRAs
HSAs
Capital Gains, Qualifying Dividends
Non-qualified Deferred Compensation Under IRC Section 409A
And much more!

Key updates for 2014:

Important federal income and estate tax developments impacting insurance and employee benefits including changes from the American Taxpayer Relief Act of 2012
Concise updated explanation and highlights of the Patient Protection and Affordable Care Act (PPACA)
Expanded coverage of Annuities
New section on Structured Settlements
New section on International Tax
More than thirty new Planning Points, written by practitioners for practitioners, in the following areas:
- Life Insurance
- Health Insurance
- Estate and Gift Tax
- Deferred Compensation
- Individual Retirement Plans

Posted in Retirement Planning, Taxation, Uncategorized, Wealth Management | Tagged: Individual Retirement Account, IRA, IRA rollover | Leave a Comment »

The IRS Will Pay You to Save Retirement Money !

Posted by William Byrnes on March 18, 2014

The IRS reported in Tax Tip 2014-28 that it will pay some taxpayers to save for retirement!

If a taxpayer contributes to a retirement plan, like a 401(k) or an IRA, then the taxpayer may be eligible for the “Saver’s Credit”. The Saver’s Credit can help save for retirement and reduce this year’s tax owed. 5 facts about this credit:

1. The Saver’s Credit is the short name for the Retirement Savings Contribution Credit. It can be worth up to $2,000 for married couples filing a joint return. The credit is worth up to $1,000 for single taxpayers.

2. Eligibility depends on a taxpayer’s filing status and the amount of yearly income. 2013 tax return eligibility for the credit depends on:

Married filing separately or a single taxpayer with income up to $29,500
Head of household with income up to $44,250
Married filing jointly with income up to $59,000

3. Other special rules that apply to the credit include:

Must be at least 18 years of age.
Can’t be a full-time student in 2013.
Can’t be claimed as a dependent on another person’s tax return.

4. The taxpayer must have contributed to a 401(k) plan or similar workplace plan by the end of the year to claim this credit. However, a taxpayer can contribute to an IRA by the due date of a tax return (April 15, 2014) and still have that contribution count for 2013.

5. File Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit. Tax software includes this form for e-file.

The Saver’s Credit is in addition to other tax savings for setting aside money for retirement. For example, a taxpayer may be able to deduct contributions to a traditional IRA.

Posted in Retirement Planning, Taxation | Tagged: 401(k), IRA, Retirement, Saver’s Credit, Saver’s Tax Credit | Leave a Comment »

Three Tax Tips about Obama Care

Posted by William Byrnes on March 12, 2014

Here are three tips about how the law may affect you:

The IRS published tax tip HC-TT- 2014-05 alerting taxpayers that Obama Care has provisions that may affect personal income taxes. How Obama Care affects a taxpayer depends on employment status, whether the taxpayer participates in a tax favored health plan, and the taxpayer’s age.

1. Employment Status

If a taxpayer is employed then the employer may report the value of the health insurance provided on the W-2 in Box 12 with a Code “DD”. However, this amount is not taxable.
If a taxpayer is self-employed, then the taxpayer may deduct the cost of health insurance premiums, within limits.

2. Tax Favored Health Plans

If a taxpayer has a health flexible spending arrangement (FSA) at work, money added to it normally reduces taxable income.
If a taxpayer has a health savings account (HSA) at work, money the employer adds to it, within limits, is not taxable.
Money added to an HSA usually counts as a deduction.
Money used from an HSA for “qualified medical expenses” is not taxable income; however, withdrawals for other purposes are taxable and can even be subject to an additional tax.
If a taxpayer has a health reimbursement arrangement (HRA) at work, money received from it is generally not taxable.

3. Age

If a taxpayer is age 65 or older, the threshold for itemized medical deductions remains at 7.5 percent of Adjusted Gross Income (AGI) until 2017; for others the threshold increased to 10 percent of AGI in 2013. AGI is shown on Form 1040 tax form.

Posted in Taxation | Tagged: ACA, income tax, medical expenses, Obama Care, tax | Leave a Comment »

IRS Offers Obama Care Tax Tips for 2013 and 2014

Posted by William Byrnes on March 11, 2014

The IRS has set up a webpage >Health Care Tax Tips< to help people understand what they need to know for the 2013 federal individual income tax returns they are filing by April 15th, as well as for future tax returns. This includes information on the new Premium Tax Credit and making health care coverage choices.

Because many of the new Obama Care tax rules only went into effect on Jan. 1, 2014, most of these Obama Care changes do not affect the 2013 tax return.

What do I need to know for my 2013 tax return?

For most people, the Affordable Care Act has no effect on their 2013 federal income tax return.
The individual shared responsibility provision and the premium tax credit do not affect your 2013 federal income tax return.
However, for some people, a few provisions could affect their tax returns, such as increases in the itemized medical deduction threshold, the additional Medicare tax and the net investment income tax.

Considerations for 2014 tax year?

Open Enrollment for the Health Insurance Marketplace: The open enrollment period to purchase health care coverage through the Health Insurance Marketplace for 2014 began Oct. 1, 2013 and runs through March 31, 2014. When you get health insurance through the marketplace, you may be able to get advance payments of the premium tax credit that will immediately help lower your monthly premium. Learn more at HealthCare.gov.
Premium Tax Credit: If you get insurance through the Marketplace, you may be eligible to claim the premium tax credit. You can elect to have advance payments of the tax credit sent directly to your insurer during 2014, or wait to claim the credit when you file your tax return in 2015. If you choose to have advance payments sent to your insurer, you will have to reconcile the payments on your 2014 tax return, which will be filed in 2015. If you’re already receiving advance payments of the credit, you need do nothing at this time unless you have a change in circumstance. Learn More.
Change in Circumstances: If you’re receiving advance payments of the premium tax credit to help pay for your insurance coverage, you should report life changes, such as income, marital status or family size changes, to your marketplace. Reporting changes will help to make sure you are getting the proper amount of advance payments.
Individual Shared Responsibility Payment: Starting January 2014, you and your family must have health care coverage, have an exemption from coverage, or make a payment when you file your 2014 tax return in 2015. Most people already have qualifying health care coverage and will not need to do anything more than maintain that coverage throughout 2014. Learn More.

The Health Care Tax Tips available at >IRS ACA website< include:

IRS Reminds Individuals of Health Care Choices for 2014 ─ Find out what you need to know about how health care choices you make for 2014 may affect your taxes.
The Health Insurance Marketplace – Learn about Your Health Insurance Coverage Options – Find out about getting health care coverage through the Health Insurance Marketplace.
The Premium Tax Credit ─ Learn the basics of the Premium Tax Credit, including who might be eligible and how to get the credit.
The Individual Shared Responsibility Payment – An Overview ─ Provides information about types of qualifying coverage, exemptions from having coverage, and making a payment if you do not have qualifying coverage or an exemption.
Three Timely Tips about Taxes and the Health Care Law ─ Provides tips that help with filing the 2013 tax return, including information about employment status, tax favored health plans and itemized deductions.
Four Tax Facts about the Health Care Law for Individuals ─Offers basic tips to help people determine if the Affordable Care Act affects them and their families, and where to find more information.
Changes in Circumstances can Affect your Premium Tax Credit ─ Learn the importance of reporting any changes in circumstances that involve family size or income when advance payments of the Premium Tax Credit are involved.

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.

tax-facts-online_medium The company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

“The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Kravitz.

Posted in Taxation | Tagged: Affordable Care Act, Health care, income tax, IRS, Obama Care | 1 Comment »

Income Higher Than $51,900? Does Alternative Minimum Tax (AMT) Apply to You?

Posted by William Byrnes on March 10, 2014

The IRS’ Tax Tip 2014-10

The IRS published a recent tax tip for the 2014 tax filing season to remind taxpayers about the possibility that even if no tax is owed under regular tax rules, under the special calculation rules of the alternative minimum tax system, tax may be owed anyway. Excerpted below:

The AMT attempts to ensure that some individuals who claim certain tax benefits pay a minimum amount of tax.

1. You may have to pay the tax if your taxable income, plus certain adjustments, is more than the AMT exemption amount for your filing status. If your income is below this amount, you usually will not owe AMT.

2. The 2013 AMT exemption amounts for each filing status are:

• Single and Head of Household = $51,900

• Married Filing Joint and Qualifying Widow(er) = $80,800

• Married Filing Separate = $40,400

3. The rules for AMT are more complex than the rules for regular income tax. The best way to make it easy on yourself is to use IRS e-file to prepare and file your tax return. E-file tax software will figure AMT for you if you owe it.

4. If you file a paper return, use the AMT Assistant tool on IRS.gov to find out if you may need to pay the tax.

5. If you owe AMT, you usually must file Form 6251, Alternative Minimum Tax – Individuals. Some taxpayers who owe AMT can file Form 1040A and use the AMT Worksheet in the instructions.

Additional IRS Resources:

Tax Topic 556 – Alternative Minimum Tax

Posted in Taxation | Tagged: Alternative Minimum Tax, AMT | Leave a Comment »

IRS Small Business Tax Center ….

Posted by William Byrnes on March 7, 2014

IRS Tax Tip 2014-09 posted February a couple weeks ago and I excerpt relevant portions for the small business community, many actively engaging with their tax preparers for tax season.

The Center includes these resources:

You can apply for an Employer Identification Number, get a form or learn about employment taxes.
IRS Video Portal. Watch helpful videos and webinars on many topics. Find out about filing and paying business taxes or about how the IRS audit process works. Under the ‘Businesses’ tab, look for the ’Small Biz Workshop.’ Watch it when you want to learn the basics about small business taxes.
Online Tools and Educational Products. The list of Small Business products includes the Tax Calendar for Small Businesses and Self-Employed. Install the IRS CalendarConnector tool and access important tax dates and tips right from your smart phone or computer, even when you’re offline.
Small Business Events. Find out about free IRS small business workshops and other events planned in your state.

Go to the Small Business and Self-Employed Tax Center and use the A-Z index to find whatever you need.

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries. For over 110 years, National Underwriter has been the first in line with the targeted tax, insurance, and financial planning information you need to make critical business decisions.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

The company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

“The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Kravitz.

Posted in Taxation | Tagged: IRS, Small business, tax | Leave a Comment »

Taxable and Nontaxable Income

Posted by William Byrnes on March 5, 2014

The IRS published another tax tip (2014-12) to assist tax filers this tax season addressing when income is taxable, and when it is not.

With individual tax returns due at the post office within 6 weeks, the IRS is stepping up efforts to help guide taxpayers with basic income tax questions and filing requirements. Excerpted below, in its Tax Tip, the IRS states:

Taxable income includes money you receive, such as wages and tips. It can also include noncash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.

Some types of income are not taxable except under certain conditions, including:

Life insurance proceeds paid to you are usually not taxable. But if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
Income from a qualified scholarship is normally not taxable. This means that amounts you use for certain costs, such as tuition and required books, are not taxable. However, amounts you use for room and board are taxable.
If you got a state or local income tax refund, the amount may be taxable. You should have received a 2013 Form 1099-G from the agency that made the payment to you. If you didn’t get it by mail, the agency may have provided the form electronically. Contact them to find out how to get the form. Report any taxable refund you got even if you did not receive Form 1099-G.

Here are some types of income that are usually not taxable:

Gifts and inheritances
Child support payments
Welfare benefits
Damage awards for physical injury or sickness
Cash rebates from a dealer or manufacturer for an item you buy
Reimbursements for qualified adoption expenses

For more on this topic see Publication 525, Taxable and Nontaxable Income.

IRS YouTube Videos:

Taxable and Nontaxable Income – English | Spanish | ASL

Posted in Taxation | Tagged: income tax, IRS, tax return, Taxable income | 1 Comment »

The Child Tax Credit May Cut Your Tax

Posted by William Byrnes on March 4, 2014

IRS Tax Tip 2014-18 reminds taxpayers whom have a child or children under 17, then the Child Tax Credit may save money at tax time. Key facts the IRS wants taxpayers to know about the Child Tax Credit:

• Amount. The non-refundable Child Tax Credit may help cut the federal income tax by up to $1,000 for each qualifying child claimed on a tax return.

• Qualifications. A child must pass seven tests to qualify for this credit:

1. Age test. The child was under age 17 at the end of 2013.

2. Relationship test. The child is a son, daughter, stepchild, foster child, brother, sister, stepbrother, or stepsister. A child can also be a descendant of any of these persons. For example, a grandchild, niece or nephew will meet this test. Adopted children also qualify. An adopted child includes a child lawfully placed with a taxpayer for legal adoption.

3. Support test. The child did not provide more than half of his or her own support for 2013.

4. Dependent test. Claim the child as a dependent on your 2013 federal income tax return.

5. Joint return test. A married child can not file a joint return with their spouse.

6. Citizenship test. The child must be a U.S. citizen, U.S. national or U.S. resident alien.

7. Residence test. In most cases, the child must have lived with the taxpayer for more than half of 2013.

• Limitations. Taxpayer’s filing status and income may reduce or eliminate the credit.

• Additional Child Tax Credit. If the taxpayer receives less than the full Child Tax Credit, may still qualify for the refundable Additional Child Tax Credit. This means taxpayer may receive a refund even if no tax is owed.

• Schedule 8812. A taxpayer may need to file Schedule 8812, Child Tax Credit, with the tax return. A taxpayer claiming the Additional Child Tax Credit must complete and attach Schedule 8812.

• Interactive Tax Assistant Tool. Use the ITA tool to determine whether it is possible to claim the Child Tax Credit.

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.

The company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

Posted in Taxation | Tagged: child tax credit, IRS, tax return, William Byrnes | Leave a Comment »

Eight Tax Savers for Parents

Posted by William Byrnes on March 3, 2014

IRS Tax Tip 2014-11

The IRS published eight tax benefits parents should look out for when filing their federal tax returns this year, excerpted below.

1. Dependents. In most cases, you can claim your child as a dependent. This applies even if your child was born anytime in 2013. For more details, see Publication 501, Exemptions, Standard Deduction and Filing Information.

2. Child Tax Credit. You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17 at the end of 2013. The maximum credit is $1,000 per child. If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more about both credits, see the instructions for Schedule 8812, Child Tax Credit, and Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit. You may be able to claim this credit if you paid someone to care for one or more qualifying persons. Your dependent child or children under age 13 are among those who are qualified. You must have paid for care so you could work or look for work. For more, see Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit. If you worked but earned less than $51,567 last year, you may qualify for EITC. If you have three qualifying children, you may get up to $6,044 as EITC when you file and claim it on your tax return. Use the EITC Assistant tool at IRS.gov to find out if you qualify or see Publication 596, Earned Income Tax Credit.

5. Adoption Credit. You may be able to claim a tax credit for certain expenses you paid to adopt a child. For details, see the instructions for Form 8839, Qualified Adoption Expenses.

6. Higher education credits. If you paid for higher education for yourself or an immediate family member, you may qualify for either of two education tax credits. Both the American Opportunity Credit and the Lifetime Learning Credit may reduce the amount of tax you owe. If the American Opportunity Credit is more than the tax you owe, you could be eligible for a refund of up to $1,000. See Publication 970, Tax Benefits for Education.

7. Student loan interest. You may be able to deduct interest you paid on a qualified student loan, even if you don’t itemize deductions on your tax return. For more information, see Publication 970.

8. Self-employed health insurance deduction. If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid to cover your child under the Affordable Care Act. It applies to children under age 27 at the end of the year, even if not your dependent. See Notice 2010-38 for information.

IRS YouTube Videos:

Education Tax Credits – English | Spanish | ASL

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Seven Facts about Dependents and Exemptions

Posted by William Byrnes on March 2, 2014

The IRS Tax Tip 2014-22 released this past week included a synopsis of the tax rules for rules for exemptions and dependents – these generally affecting every taxpayer who files a federal income tax return.

Seven facts about these rules:

1. Exemptions cut income. There are two types of exemptions: personal exemptions and exemptions for dependents. A taxpayer can usually deduct $3,900 for each exemption claimed on the 2013 tax return.

2. Personal exemptions. A taxpayer can usually claim an exemption for him or herself. If married and filing a joint return, the taxpayers can also claim another exemption for the spouse. Filing a joint return and claiming two exemptions will lead to a $7,800 deduction from the couple’s reported income.

However, if a taxpayer files a separate return, then he / she can claim an exemption for the spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer.

3. Exemptions for dependents. A taxpayer can usually claim an exemption for each of his/her dependents. A dependent is either the taxpayer’s child or a relative that meets certain tests. The taxpayer can claim a spouse as a dependent. The taxpayer must list the Social Security number of each dependent claimed.

4. Some people don’t qualify. A taxpayer generally may not claim married persons as dependents if they file a joint return with their spouse. There are some exceptions to this rule.

5. Dependents may have to file. People that are claimed as a dependent may have to file their own federal tax return. This depends on many things, including the amount of their income, their marital status and if they owe certain taxes.

6. No exemption on dependent’s return. If a person is claimed as a dependent, then that person can’t claim a personal exemption on his or her own tax return. This is true even if the taxpayer chooses not to actually claim that person as a dependent on the tax return. The rule applies because the taxpayer has the right to claim that person as a dependent.

7. Exemption phase-out. The $3,900 per exemption is subject to income limits (high income earners). This rule may reduce or eliminate the amount depending on a taxpayer’s income.

The company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

Posted in Taxation | Tagged: dependents, exemptions, income tax, Personal exemptions | Leave a Comment »

“Dirty Dozen” Tax Scams for 2014

Posted by William Byrnes on February 19, 2014

The Internal Revenue Service today in its NewsWire (IR-2014-16) released its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud. The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

The following are the Dirty Dozen tax scams for 2014:

Identity Theft

Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Identity theft occurs when someone uses your personal information, such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.

The agency’s work on identity theft and refund fraud continues to grow, touching nearly every part of the organization. For the 2014 filing season, the IRS has expanded these efforts to better protect taxpayers and help victims.

The IRS has a special section on IRS.gov dedicated to identity theft issues, including YouTube videos, tips for taxpayers and an assistance guide. For victims, the information includes how to contact the IRS Identity Protection Specialized Unit. For other taxpayers, there are tips on how taxpayers can protect themselves against identity theft.

Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490. More information can be found on the special identity protection page.

Pervasive Telephone Scams

The IRS has seen a recent increase in local phone scams across the country, with callers pretending to be from the IRS in hopes of stealing money or identities from victims.

These phone scams include many variations, ranging from instances from where callers say the victims owe money or are entitled to a huge refund. Some calls can threaten arrest and threaten a driver’s license revocation. Sometimes these calls are paired with follow-up calls from people saying they are from the local police department or the state motor vehicle department.

Characteristics of these scams can include:

Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
Scammers may be able to recite the last four digits of a victim’s Social Security Number.
Scammers “spoof” or imitate the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
Victims hear background noise of other calls being conducted to mimic a call site.

After threatening victims with jail time or a driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

In another variation, one sophisticated phone scam has targeted taxpayers, including recent immigrants, throughout the country. Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do: If you know you owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.

If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484.

If you’ve been targeted by these scams, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

Phishing

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information online that can help you protect yourself from email scams.

False Promises of “Free Money” from Inflated Refunds

Scam artists routinely pose as tax preparers during tax time, luring victims in by promising large federal tax refunds or refunds that people never dreamed they were due in the first place.

Scam artists use flyers, advertisements, phony store fronts and even word of mouth to throw out a wide net for victims. They may even spread the word through community groups or churches where trust is high. Scammers prey on people who do not have a filing requirement, such as low-income individuals or the elderly. They also prey on non-English speakers, who may or may not have a filing requirement.

Scammers build false hope by duping people into making claims for fictitious rebates, benefits or tax credits. They charge good money for very bad advice. Or worse, they file a false return in a person’s name and that person never knows that a refund was paid.

Scam artists also victimize people with a filing requirement and due a refund by promising inflated refunds based on fictitious Social Security benefits and false claims for education credits, the Earned Income Tax Credit (EITC), or the American Opportunity Tax Credit, among others.

The IRS sometimes hears about scams from victims complaining about losing their federal benefits, such as Social Security benefits, certain veteran’s benefits or low-income housing benefits. The loss of benefits was the result of false claims being filed with the IRS that provided false income amounts.

While honest tax preparers provide their customers a copy of the tax return they’ve prepared, victims of scam frequently are not given a copy of what was filed. Victims also report that the fraudulent refund is deposited into the scammer’s bank account. The scammers deduct a large “fee” before cutting a check to the victim, a practice not used by legitimate tax preparers.

The IRS reminds all taxpayers that they are legally responsible for what’s on their returns even if it was prepared by someone else. Taxpayers who buy into such schemes can end up being penalized for filing false claims or receiving fraudulent refunds.

Taxpayers should take care when choosing an individual or firm to prepare their taxes. Honest return preparers generally: ask for proof of income and eligibility for credits and deductions; sign returns as the preparer; enter their IRS Preparer Tax Identification Number (PTIN); provide the taxpayer a copy of the return.

Beware: Intentional mistakes of this kind can result in a $5,000 penalty.

Return Preparer Fraud

About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But, some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.

It is important to choose carefully when hiring an individual or firm to prepare your return. This year, the IRS wants to remind all taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).

The IRS also has a web page to assist taxpayers. For tips about choosing a preparer, details on preparer qualifications and information on how and when to make a complaint, visit www.irs.gov/chooseataxpro.

Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task.

IRS.gov has general information on reporting tax fraud. More specifically, you report abusive tax preparers to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 and fill it out or order by mail at 800-TAX FORM (800-829-3676). The form includes a return address.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS works on a wide range of international tax issues with DOJ to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

The IRS has collected billions of dollars in back taxes, interest and penalties so far from people who participated in offshore voluntary disclosure programs since 2009. It is in the best long-term interest of taxpayers to come forward, catch up on their filing requirements and pay their fair share.

Impersonation of Charitable Organizations

Another long-standing type of abuse or fraud is scams that occur in the wake of significant natural disasters.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.

They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims. The IRS cautions both victims of natural disasters and people wishing to make charitable donations to avoid scam artists by following these tips:

To help disaster victims, donate to recognized charities.
Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.
Don’t give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money.
Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Call the IRS toll-free disaster assistance telephone number (1-866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.

False Income, Expenses or Exemptions

Another scam involves inflating or including income on a tax return that was never earned, either as wages or as self-employment income in order to maximize refundable credits. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit although they were not eligible. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes.

Those who promote or adopt frivolous positions risk a variety of penalties. For example, taxpayers could be responsible for an accuracy-related penalty, a civil fraud penalty, an erroneous refund claim penalty, or a failure to file penalty. The Tax Court may also impose a penalty against taxpayers who make frivolous arguments in court.

Taxpayers who rely on frivolous arguments and schemes may also face criminal prosecution for attempting to evade or defeat tax. Similarly, taxpayers may be convicted of a felony for willfully making and signing under penalties of perjury any return, statement, or other document that the person does not believe to be true and correct as to every material matter. Persons who promote frivolous arguments and those who assist taxpayers in claiming tax benefits based on frivolous arguments may be prosecuted for a criminal felony.

Falsely Claiming Zero Wages or Using False Form 1099

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any variations of this scheme. Filing this type of return may result in a $5,000 penalty.

Some people also attempt fraud using false Form 1099 refund claims. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.

Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

Abusive Tax Structures

Abusive tax schemes have evolved from simple structuring of abusive domestic and foreign trust arrangements into sophisticated strategies that take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit/debit cards issued from offshore financial institutions.

IRS Criminal Investigation (CI) has developed a nationally coordinated program to combat these abusive tax schemes. CI’s primary focus is on the identification and investigation of the tax scheme promoters as well as those who play a substantial or integral role in facilitating, aiding, assisting, or furthering the abusive tax scheme (e.g., accountants, lawyers). Secondarily, but equally important, is the investigation of investors who knowingly participate in abusive tax schemes.

What is an abusive scheme? The Abusive Tax Schemes program encompasses violations of the Internal Revenue Code (IRC) and related statutes where multiple flow-through entities are used as an integral part of the taxpayer’s scheme to evade taxes. These schemes are characterized by the use of Limited Liability Companies (LLCs), Limited Liability Partnerships (LLPs), International Business Companies (IBCs), foreign financial accounts, offshore credit/debit cards and other similar instruments. The schemes are usually complex involving multi-layer transactions for the purpose of concealing the true nature and ownership of the taxable income and/or assets.

Form over substance are the most important words to remember before buying into any arrangements that promise to “eliminate” or “substantially reduce” your tax liability. The promoters of abusive tax schemes often employ financial instruments in their schemes. However, the instruments are used for improper purposes including the facilitation of tax evasion.

The IRS encourages taxpayers to report unlawful tax evasion. Where Do You Report Suspected Tax Fraud Activity?

Misuse of Trusts

Trusts also commonly show up in abusive tax structures. They are highlighted here because unscrupulous promoters continue to urge taxpayers to transfer large amounts of assets into trusts. These assets include not only cash and investments, but also successful on-going businesses. There are legitimate uses of trusts in tax and estate planning, but the IRS commonly sees highly questionable transactions. These transactions promise reduced taxable income, inflated deductions for personal expenses, the reduction or elimination of self-employment taxes and reduced estate or gift transfer taxes. These transactions commonly arise when taxpayers are transferring wealth from one generation to another. Questionable trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.

IRS personnel continue to see an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses, as well as to avoid estate transfer taxes. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.

Posted in Taxation | Tagged: IRS, tax filing, tax scams | Leave a Comment »

IRS Smartphone App Now Available

Posted by William Byrnes on February 18, 2014

Excerpt from the IRS Special Edition Tax Tip 2014-05 ….

The latest version of the innovative IRS2Go app is now available. Here’s what you can do with the redesigned IRS Smartphone app IRS2Go, version 4.0, available in English and Spanish:

Check the status of your refund. The new version of IRS2Go includes an easy-to-use refund status tracker so taxpayers can follow their tax return step-by-step throughout the IRS process. Just enter your Social Security number, filing status and your expected refund amount. You can start checking on the status of your refund 24 hours after the IRS confirms receipt of an e-filed return or four weeks after you mail a paper return. Since the IRS posts refund updates on a daily basis, there’s no need to check the status more than once each day.
Find free tax preparation. You may qualify for free tax help through the IRS Volunteer Income Tax Assistance or Tax Counseling for the Elderly programs. A new tool on IRS2Go will help you find a VITA location. Just enter your ZIP code and select a mileage range to see a listing of VITA/TCE sites near you. Select one of the sites and your Smartphone will show an address and map to help you navigate.
Get tax records. You can request a copy of your tax bill or a transcript of your tax return using IRS2Go. The post office will deliver to your address on record.
Stay connected. You can interact with the IRS by following the IRS on Twitter @IRSnews, @IRStaxpros and @IRSenEspanol. You can also watch IRS videos on YouTube, register for email updates or contact the IRS using the “Contact Us” feature.

Information on IRS2Go and other > IRS social media products <

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.

The company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

Posted in Taxation | Tagged: IRS, IRS app, tax filing | Leave a Comment »

Earned Income Tax Credit (EITC): The IRS Inappropriately Bans Many Taxpayers but a 22.7% Improper Payment Persists Regardless

Posted by William Byrnes on February 11, 2014

The National Taxpayer Advocate provides the following > report information < on the Earned Income Tax Credit (EITC).

Earned Income Tax Credit and Family Credits

The Earned Income Tax Credit (EITC) is a refundable federal income tax credit for low to moderate income-earning individuals and families. If you qualify, the credit could be a maximum amount of up to $6,044 in 2013. This means you could pay less or no federal tax or even get a refund.

The EITC is based on your earned income and whether or not there are qualifying children in your household. You must file a tax return to claim the EITC and if you have children, they must meet the relationship, age and residency requirements.

What is the EITC?

A taxpayer may qualify for the EITC if you worked any part of last year and made less than $51,000 in 2013. Read more about the EITC, how to file for it, and how to receive a refund:

IRS Incorrectly Bans Many Taxpayers from Claiming EITC

The National Taxpayer Advocate reported that the IRS Incorrectly Bans Many Taxpayers from Claiming EITC (see > Taxpayer Advocate Report on EITC < ) Excerpted from the National Taxpayer Advocate report…

Section 32(k) of the Internal Revenue Code (IRC) authorizes the IRS to ban taxpayers from claiming the earned income tax credit (EITC) for two years if the IRS determines they claimed the credit improperly due to reckless or intentional disregard of rules and regulations. This standard requires more than mere negligence on the part of the taxpayer.

According to IRS Chief Counsel guidance, a taxpayer’s failure to participate in an EITC audit does not justify imposing the ban. Once the IRS imposes the ban, any EITC claimed in the next two years will be disallowed even if the taxpayer is otherwise eligible for the credit.

IRS data shows:

The IRS imposed the ban improperly almost 40 percent of the time in 2011;
Taxpayers who were (but for the 2011 ban) eligible for the credit in the following two years were deprived of a tax benefit that averaged more than $4,600 for the two years combined.

In a representative sample of two-year ban cases, the Taxpayer Advocate Service (TAS) found:

In 19 percent of the cases, the IRS imposed the ban solely because EITC had been disallowed in a previous year;
In only 10 percent of the cases did a taxpayer’s response to the audit raise the possibility that he or she had the requisite state of mind to justify the two-year ban;
In 69 percent of the cases, the ban was imposed without required managerial approval;
In almost 90 percent of the cases, neither IRS work papers nor communications to the taxpayer contained the required explanation of why the ban was imposed; and
Taxpayers’ average income was about $15,500.

Low income taxpayers face unique obstacles in learning EITC rules and substantiating their entitlement to the credit, but IRS procedures do not take this into account. Instead, the IRS applies the two-year ban on the basis of unexamined assumptions about the taxpayer’s state of mind or even presupposes reckless or intentional disregard of the rules and regulations, potentially causing significant harm to taxpayers who may be entitled to EITC in a subsequent year.

Treasury > reports < that the other benefit programs results in high administrative costs and low error because of the necessity of the pre-qualification for benefits by a caseworker, whereas the EITC’s program’s administrative costs are less than 1% of the program benefits. The Treasury report continues that “the IRS screens EITC claims against certain criteria and also conducts approximately 500,000 audits of claims annually.”

Almost a Quarter of EITC Payments are in Error

Yet, considering that the IRS improperly bans taxpayers from the EITC program and performs 500,000 audits of EITC claims annually, 22.7% of the EITC is improperly paid. A challenging problem to be addressed. Low administrative cost but high rate of improper denial of eligibility and high rate of improper payment. Send me (or use comments below) suggestions of how these problems may be mitigated.

2012: $55.4B Total Payments (Outlays) with $12.6B Improper Payments = 22.7% Improper Payment Rate

FISCAL REPORTING YEAR	IMPROPER AMOUNT (IN BILLIONS)	IMPROPER RATE
2010	$16.9	26.3%
2011	$15.2	23.5%
2012	$12.6	22.7%
2013	$13.2	22.8%
2014	$11.8	22.8%

Treasury’s EITC Program Comments

A number of factors unique to the EITC program trigger errors. The complexity of the law contributes to confusion around eligibility requirements, mainly qualifying child relationship and residency rules. Other factors include high program turnover of one-third annually, return preparer errors, and fraud.

The IRS will continue to address EITC noncompliance through its aggressive compliance program which includes examinations, reviews of income misreporting, systemic corrections during tax return processing, and an enhanced focus on paid return preparers. Because tax return preparers handle two-thirds of returns claiming the EITC, the Department of the Treasury expects the implementation of new preparer requirements for registration, competency testing, continuing education, and compliance checks will improve EITC compliance, decrease fraud, and reduce overall program noncompliance.

Additional information on the program is also provided annually in the department’s Performance and Accountability Report

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.

The company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

Posted in Tax Policy, Taxation | Tagged: Earned Income Tax Credit, EITC, IRS, tax filing | Leave a Comment »

Earned Income Tax Credit (EITC) for Low- and Moderate-Income Workers: a Significant Tax Benefit

Posted by William Byrnes on February 10, 2014

Last Friday (January 31, 2014) the IRS opened the tax filing season for 2013 taxes. In Newswire (IR-2014-9 and -10), also released January 31, the IRS seeks to reach out to low and moderate income workers to alert them to take advantage of the Earned Income Tax Credit, known as the “EITC”. The IRS stated that the EITC is often overlooked by the low and moderate workers, many whom do their own tax filing.

This year, taxpayers have until Tuesday, April 15, 2014 to file their 2013 tax returns and pay any tax due. The IRS expects to receive more than 148 million individual tax returns this year, and more than 80% of tax returns are now filed electronically.

Approximately 75% of tax filers typically receive refunds, 90% of these refunds issued in less than 21 days. Last year, taxpayers received an average refund of $2,744. The IRS stated that “E-file” when combined with a direct deposit is the fastest way to receive a refund. 75% of refund recipients now choose direct deposit.

The Earned Income Tax Credit (EITC)

The IRS estimates that 20% of eligible low and moderate income workers miss out on taking advantage of the the EITC, and thus lose any potential refund generated by it. Either the taxpayer does not claim the EITC when filing or does not file a tax return at all because their income is below the filing threshold. The IRS further stated that one-third of the taxpayers eligible for EITC changes each year as their personal circumstances, such as work status or family situation, changes, affecting eligibility.

The EITC varies depending on income, family size and filing status. Last year, over 27 million eligible workers and families received more than $63 billion total in EITC, with an average EITC amount of $2,300.

Workers, self-employed people and farmers who earned $51,567 or less last year could receive larger refunds if they qualify for the EITC. That could mean up to $487 in EITC for people without children, and a maximum credit of up to $6,044 for those with three or more qualifying children. Unlike most deductions and credits, the EITC is refundable. In other words, those eligible may get a refund even if they owe no tax.

Common EITC Mistakes

Taxpayers are responsible for the accuracy of their tax return regardless of who prepares it. The rules for EITC are complicated. The IRS urges taxpayers to seek help if they are unsure of their eligibility (read about Taxpayer Clinics below).

There are several requirements to consider:

Your filing status can’t be Married Filing Separately.
You must have a valid Social Security number for yourself, your spouse if married, and any qualifying child listed on your tax return.
You must have earned income. Earned income includes earnings such as wages, self-employment and farm income.
You may be married or single, with or without children to qualify. If you don’t have children, you must also meet age, residency and dependency rules.
If you are a member of the U.S. Armed Forces serving in a combat zone, special rules apply.

Some common EITC errors are:

Claiming a child who does not meet the relationship, age or residency tests
Filing as “single” or “head of household” when married
Over or under reporting of income and or expenses to qualify for or maximize EITC
Missing Social Security numbers or Social Security Number and last name mismatches for both taxpayers and the children

Online Tools at IRS.gov Available to Help

People can find out if they qualify for the EITC by answering a few questions about income, family size and filing status, among other things using the EITC Assistant, a special online tool. The EITC Assistant will help determine eligibility and will figure an estimated EITC refund. A taxpayer can even get a printout explaining why he or she qualifies or has been denied.

Free Taxpayer Clinics Help Taxpayers File – Located Around the USA

Eligible taxpayers can also use another helpful online resource, the VITA Site Locator tool to locate one of nearly 13,000 community-based volunteer tax sites consisting of over 90,000 volunteers that can help them file their return for free. (In San Diego, Thomas Jefferson School of Law has an active VITA program).

Tele-Tax, for example, help taxpayers see if they qualify for various tax benefits, such as the Child Tax Credit and Additional Child Tax Credit for eligible families, the American Opportunity Tax Credit for parents and college students, the saver’s credit for low-and moderate-income workers saving for retirement and energy credits for homeowners making qualifying energy-saving home improvements. The automated IRS services can also help home-based businesses check out the new simplified option for claiming the home office deduction, a straightforward computation that allows eligible taxpayers to claim $5 per square foot, up to a maximum of $1,500, instead of filling out a 43-line form (Form 8829) with often complex calculations.

Free Online Tax Software for Filing

When taxpayers are ready to fill out and file their returns, another online option enables anyone to e-file their returns for free. Free File offers two free electronic filing options: brand-name tax software or online Fillable Forms. Taxpayers who make $58,000 or less can choose free options from 14 commercial software providers. There’s no income limit for the second option, Free File Fillable Forms, the electronic version of IRS paper forms, which is best suited to people who are comfortable preparing their own tax return.

Online Refund Tool

Even after taxpayers file, there are more online tools that can provide them with valuable assistance long after tax season ends. One of the most popular is Where’s My Refund? a tool available on IRS.gov that enables taxpayers to track the status of their refund. Initial information will normally be available within 24 hours after the IRS receives the taxpayer’s e-filed return or four weeks after the taxpayer mails a paper return to the IRS. The system updates every 24 hours, usually overnight, so there’s no need to check more often.

Can’t Afford to Pay the Tax Bill by April 15th? Use the Online Payment Agreement Tool

For taxpayers whose concern isn’t a refund, but rather, a tax bill they can’t pay, the Online Payment Agreement tool can help them determine whether they qualify for an installment agreement with the IRS. And those whose tax obligation is even more serious, the Offer in Compromise Pre-Qualifier can help them determine if they qualify for an offer in compromise, an agreement with the IRS that settles their tax liability for less than the full amount owed.

Are You Withholding Enough or Too Much Tax During the Year?

Another useful year-round tool, the IRS Withholding Calculator, helps employees make sure the amount of income tax taken out of their pay is neither too high nor too low. This tool can be particularly useful to taxpayers who, after filling out their tax returns, find that the refund or balance due was higher than expected.

Beware of EITC Scams and Frauds

Scams that create fictitious qualifying children or inflate income levels to get the maximum EITC could leave taxpayers with a penalty. If an EITC claim was reduced or denied after tax year 1996 for any reason other than a mathematical or clerical error, taxpayers must file Form 8862, Information To Claim Earned Income Credit After Disallowance, with the next tax return to claim the EITC.

Tax Help Through YouTube, Twitter, Tumblr

The IRS also offers more than 100 short instructional videos, tax tips and other useful resources year-round through a variety of social media platforms. They include:

YouTube, available in English, Spanish, and American Sign Language.
Several twitter feeds in English and Spanish at @IRSnews,@IRSenEspanol and @IRStaxpros.
Tumblr at www.internalrevenueservice.tumblr.com.

The newest addition to the Tax Facts Library, Tax Facts on Individuals & Small Business focuses exclusively on what individuals and small businesses need to know to maximize opportunities under today’s often complex tax rules. It is the essential tax reference for financial advisors, & planners; insurance professionals; CPAs; attorneys; and other practitioners advising small businesses and individuals. See http://www.nationalunderwriter.com/tax-facts-on-individuals-small-business.html

Organized in a convenient Q&A format to speed you to the information you need, Tax Facts on Individuals & Small Business delivers the latest guidance on:
» Healthcare
» Home Office
» Contractor vs. Employee — clarified!
» Business Deductions and Losses
» Business Life Insurance
» Small Business Valuation
» Small Business Entity Choices
» Accounting — including guidance on how standards change as the business grows
» Capital Gains
» Investor Losses
» New Medicare Tax and Net Investment Income tax
» Individual Income Taxation

Posted in Reporting, Taxation | Tagged: Earned Income Tax Credit, EITC, IRS, tax filing, tax return, William Byrnes | Leave a Comment »

Tax Whistleblowers – $104 Million IRS Award to Mr. Birkenfeld (UBS) Yet Nothing for Mr. Insinga (RABO)?

Posted by William Byrnes on February 9, 2014

Since its creation, the IRS Whistleblower Office has received over 1,300 tips. However, before pursuing tips analysts must first determine that a federal tax issue is involved and not based merely on speculation or conjecture. The majority of the tips come from employees or former employees of companies that do not necessarily adhere to federal tax laws. Tips deemed credible may lead to three different avenues, such as (1) a new audit, (2) expansion of a current audit, or (3) criminal investigation.

However, once the office makes an award determination, the Tax Court has authority to hear appeals resulting from claim disputes.

Read author Dawna Snipes‘ article on recent developments at > AdvisorFYI < . Dawna Snipes is an adjunct professor of National College of Business and Technology, and also with the University of Phoenix.

Posted in Taxation | Tagged: Whistleblower | Leave a Comment »

What are the tax benefits of real estate investment?

Posted by William Byrnes on February 5, 2014

Q. In general, what are the tax benefits of real estate investment?

What limitations may restrict enjoyment of those benefits?

As a general rule, an investor takes the same deductions and credits and recognizes income whether the investor owns the property directly or has an interest in a limited partnership that “passes through” the deductions, credits, and income. However, …..

For the three-page analysis of Income, Interest, Taxes, Credits, Depreciation, Deductions, Limitations, and other issues, read William Byrnes and Robert Bloink of Tax Facts Online on > Think Advisor <

2014 Tax Facts on Investments provides clear, concise answers to often complex tax questions concerning investments. Pertinent planning points are provided throughout.

Organized in a convenient Q&A format to speed you to the information you need, 2014 Tax Facts on Investments delivers the latest guidance on:

Mutual Funds, Unit Trusts, REITs
Incentive Stock Options
Options & Futures
Real Estate
Stocks, Bonds
Oil & Gas
Precious Metals & Collectibles
And much more!

Key updates for 2014:

Important federal income and estate tax developments impacting investments, including changes from the American Taxpayer Relief Act of 2012
Expanded coverage of Reverse Mortgages
Expanded coverage of Real Estate Investment Trusts (REITs)
More than 30 new Planning Points, written by practitioners for practitioners, in the following areas:
- Limitations on Loss Deductions
- Charitable Gifts
- Reverse Mortgages
- Deduction of Interest and Expenses
- REITs

Plus, you’re kept up-to-date with online supplements for critical developments. Written and reviewed by practicing professionals who are subject matter experts in their respective topics, Tax Facts is the practical resource you can rely on.

Posted in Taxation, Uncategorized | Tagged: Byrnes, Credits, Deductions, Depreciation, Income, Interest, Limitations, Property, Real estate, Taxes | Leave a Comment »

Five Great Reasons to E-file Your Tax Return

Posted by William Byrnes on February 3, 2014

The IRS has published IRS Tax Tip 2014-04 addressing “E-Filing”.

The IRS reports that 122 million taxpayers e-filed in 2013 for the 2012 tax year: IRS e-file. The IRS provides five reasons why a taxpayer should e-file your tax return:

1. Accurate and complete. E-file is the best way to file an accurate and complete tax return. The tax software does the math for you, and it helps you avoid mistakes.

2. Safe and secure. IRS e-file meets strict guidelines and uses the best encryption technology. The IRS has safely and securely processed more than 1.2 billion e-filed individual tax returns since the program began.

3. Faster refunds. E-filing usually brings a faster refund because there is nothing to mail and your return is less likely to have errors, which take longer to process. The IRS issues most refunds in less than 21 days. The fastest way to get your refund is to combine e-file with direct deposit into your bank account.

4. Payment options. If you owe taxes, you can e-file early and set an automatic payment date anytime on or before the April 15 due date. You can pay by check or money order, or by debit or credit card. You can also transfer funds electronically from your bank account.

5. E-file’s easy. You can e-file your federal return through IRS Free File, the free tax preparation program available only at IRS.gov. You can also use commercial tax software or ask your tax preparer to e-file your return. If you qualify, IRS Volunteer Income Tax Assistance and Tax Counseling for the Elderly will e-file your return for free.

IRS YouTube Videos:

Welcome to Free File – English
Do It Yourself Free Tax Preparation – English | Spanish | ASL

Posted in Taxation | Tagged: 1040, e-file, income tax, IRS, tax filing | Leave a Comment »

Why Should You File a 2013 Tax Return?

Posted by William Byrnes on February 2, 2014

The IRS released its first Tax Tip of the calendar year (IRS Tax Tip 2014-01). I have excerpted it below for your convenience:

Even if you don’t have to file a tax return, there are times when you should. Here are five good reasons why you should file a return, even if you’re not required to do so:

1. Tax Withheld or Paid. Did your employer withhold federal income tax from your pay? Did you make estimated tax payments? Did you overpay last year and have it applied to this year’s tax? If you answered “yes” to any of these questions, you could be due a refund. But you have to file a tax return to get it.

2. Earned Income Tax Credit. Did you work and earn less than $51,567 last year? You could receive EITC as a tax refund if you qualify. Families with qualifying children may be eligible for up to $6,044. Use the EITC Assistant tool on IRS.gov to find out if you qualify. If you do, file a tax return and claim it.

3. Additional Child Tax Credit. Do you have at least one child that qualifies for the Child Tax Credit? If you don’t get the full credit amount, you may qualify for the Additional Child Tax Credit. To claim it, you need to file Schedule 8812, Child Tax Credit, with your tax return.

4. American Opportunity Credit. Are you a student or do you support a student? If so, you may be eligible for this credit. Students in their first four years of higher education may qualify for as much as $2,500. Even those who owe no tax may get up to $1,000 of the credit refunded per eligible student. You must file Form 8863, Education Credits, with your tax return to claim this credit.

5. Health Coverage Tax Credit. Did you receive Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation? If so, you may qualify for the Health Coverage Tax Credit. The HCTC helps make health insurance more affordable for you and your family. This credit pays 72.5 percent of qualified health insurance premiums. Visit IRS.gov for more on this credit.

To sum it all up, check to see if you would benefit from filing a federal tax return. You may qualify for a tax refund even if you don’t have to file. And remember, if you do qualify for a refund, you must file a return to claim it.

IRS YouTube Videos:

Do I Have To File a Tax Return? – English | Spanish | ASL
Education Tax Credits – English | Spanish | ASL

Do You Need to File a Federal Income Tax Return?

You can also use the Interactive Tax Assistant tool on IRS.gov to see if you need to file.

Many people will file a 2013 Federal income tax return even though the income on the return was below the filing requirement. The questions below will help you determine if you need to file a Federal Income Tax return or if you need to stop your withholding so you will not have to file an unnecessary return in the future.

The Internal Revenue Service is providing this information as a part of our customer service and outreach efforts to Reduce Taxpayer Burden and Processing Costs. Changing your withholding and/or not filing Unnecessary Returns will save both you and the government time and money.

Even if you do not have to file a return, you should file one to get a refund of any Federal Income Tax withheld.

To determine if you need to file a Federal Income Tax return for 2013 answer the following questions:

Occasionally, individuals have one-time or infrequent financial transactions that may require them to file a Federal Income Tax return. Do any of the following examples apply to you?

Did you have Federal taxes withheld from your pension and wages for this tax year and wish to get a refund back?
Are you entitled to the Earned Income Tax Credit or did you receive Advance Earned Income Credit for this tax year?
Were you self-employed with earnings of more than $400.00?
Did you sell your home?
Will you owe any special tax on a qualified retirement plan (including an individual retirement account (IRA) or medical savings account (MSA)? You may owe tax if you:
- Received an early distribution from a qualified plan
- Made excess contributions to your IRA or MSA
- Were born before July 1, 1942, and you did not take the minimum required distribution from your qualified retirement plan.
- Received a distribution in the excess of $160,000 from a qualified retirement plan.
Will you owe social security and Medicare tax on tips you did not report to your employer?
Will you owe uncollected social security and Medicare or Railroad retirement (RRTA) tax on tips you reported to your employer?
Will you be subject to Alternative Minimum Tax (AMT)? (The tax law gives special treatment to some kinds of income and allows special deductions and credit for some kinds of expenses.)
Will you owe recapture tax?
Are you a church employee with income in wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security or Medicare taxes?

Authors Professor William Byrnes and Robert Bloink

Posted in Taxation | Tagged: Earned Income Tax Credit, IRS, tax filing, tax return | 1 Comment »

Tax Filing Season Opens Today – January 31

Posted by William Byrnes on January 31, 2014

The 2014 tax filing season opens today. This is the first day that the IRS will accept 2013 federal income tax returns. If you are working on your taxes and need tax help, the IRS website has both tax help and tax information.

Tax Forms and Publications. Download tax forms and publications. Many publications are also available in Spanish.
IRS Tools. You’ll find several tools and self-service options on IRS.gov to help you with your taxes. Here are just a few:
- Use the Interactive Tax Assistant to answer many of your tax questions.
- Find out if you’re eligible for the Earned Income Tax Credit by using the EITC Assistant.
- Use the AMT Assistant tool to find out if you may need to pay Alternative Minimum Tax.
- Track your refund using the ‘Where’s My Refund?’ tool.

When you are ready to file your tax return beginning Jan. 31, there are several, free options that you should consider. Taxpayers who have visited IRS Taxpayer Assistance Centers in prior years for free tax preparation should be aware that, beginning this year, these offices are no longer offering this service. Other options for free tax preparation include:

Use Free File to e-file for free. Most people e-file their tax return these days. Everyone can use IRS Free File to prepare and e-file their federal taxes for free. The only way to use this program is through the IRS website. If you made $58,000 or less, you can use free tax software. If your income is more than $58,000 and you feel comfortable doing your own taxes, use Free File Fillable Forms. This option has the electronic versions of IRS paper forms.
Get taxes done with VITA or TCE. You may be able to get free tax preparation at a Volunteer Income Tax Assistance or Tax Counseling for the Elderly site. IRS-trained volunteers can help you get the tax credits and deductions you’re entitled to claim. The VITA program generally offers free tax return preparation and e-filing to people who earn $52,000 or less. The TCE program offers help mainly to people 60 or older. Thousands of free tax preparation sites around the nation will open in late Jan. and early Feb. Visit IRS.gov to find the one nearest you.

IRS YouTube Videos:

Welcome to Free File – English
Do It Yourself Free Tax Preparation – English | Spanish | ASL
IRS Information Available in Spanish – English | Spanish | ASL
How to Get 1040 Forms – English | Spanish | ASL

Posted in Taxation | 1 Comment »

Which Tax Form Should You File?

Posted by William Byrnes on January 30, 2014

The IRS released Tax Tip 2014-03 today: Which Tax Form Should You File?

The IRS is promoting its free tax software or Fillable Forms option that allows you to fill in your tax forms using a computer. You can e-file the completed forms for free!

The IRS offers the following tips for choosing the correct tax form:

You can generally use the 1040EZ if:

Your taxable income is below $100,000;
Your filing status is single or married filing jointly;
You are not claiming any dependents; and
Your interest income is $1,500 or less.

The 1040A may be best for you if:

Your taxable income is below $100,000;
You have capital gain distributions;
You claim certain tax credits; and
You claim adjustments to income for IRA contributions and student loan interest.

However, reasons you must use the 1040 include:

Your taxable income is $100,000 or more;
You claim itemized deductions;
You are reporting self-employment income; or
You are reporting income from sale of a property.

IRS YouTube Videos:

Welcome to Free File – English
IRS Tax Forms and Publications – English | Spanish | ASL

Authors Professor William Byrnes and Robert Bloink

Posted in Taxation | Tagged: IRS, IRS tax forms, tax filing, tax season | Leave a Comment »

IRS Gives High-Income Taxpayers a Break on New 3.8% Tax

Posted by William Byrnes on January 2, 2014

The IRS has finally given high-income taxpayers a break with the release of the final regulations governing the new 3.8% tax on net investment income.

These final rules mark a dramatic shift from the IRS’s previous position. By adding flexibility to the rules, the IRS’s unanticipated amendments ease the sting of the investment income tax.

Read Professor Robert Bloink and William Byrnes’ analysis of the shift in the IRS’ position at > Think Advisor <

tax planning case studies for individuals and small business available on Tax Facts online

Posted in Taxation, Wealth Management | Tagged: accounting, income tax, Internal Revenue Service, IRS, IRS tax forms, Patient Protection and Affordable Care Act, Taxation, United States | 3 Comments »

Three Year-End Tax Tips from the IRS

Posted by William Byrnes on December 20, 2013

The IRS released Special Edition Tax Tip 2013-16 in time for Christmas within which it offers three year end tips to help taxpayers prepare for the tax filing season. The IRS three tax tips are as follows:

1. Start a filing system. If you don’t have a filing system for your tax records, you should start one. It can be as simple as saving receipts in a shoebox, or more complex like creating folders or spreadsheets. It’s always a good idea to save tax-related receipts and records. Keeping good records now will save time and help you file a complete and accurate tax return next year.

2. Make Charitable Contributions. If you plan to give to charity, consider donating before the year ends. That way you can claim your contribution as an itemized deduction for 2013. This includes donations you charge to a credit card by Dec. 31, even if you don’t pay the bill until 2014. A gift by check also counts for 2013 as long as you mail it in December. Remember that you must give to a qualified charity to claim a tax deduction. (See the blog posting on December 19 here under regarding the IRS charitable giving year-end tips and compliance notes.)

3. Contribute to Retirement Accounts. You need to contribute to your 401(k) or similar retirement plan by Dec. 31 to count for 2013. On the other hand, you have until April 15, 2014, to set up a new IRA or add money to an existing IRA and still have it count for 2013.

The Saver’s Credit, also known as the Retirement Savings Contribution Credit, helps low- and moderate-income workers in two ways. It helps people save for retirement and earn a special tax credit. Eligible workers who contribute to IRAs, 401(k)s or similar workplace retirement plans can get a tax credit on their federal tax return. The maximum credit is up to $1,000, $2,000 for married couples. Other deductions and credits may reduce or eliminate the amount you can claim.

Posted in Retirement Planning, Tax Exempt Orgs, Taxation | Tagged: Individual Retirement Account, Internal Revenue Service, IRS, Itemized deduction, tax, Tax deduction, Tax return (United States) | Leave a Comment »

IRS Offers Tips for Year-End Giving

Posted by William Byrnes on December 19, 2013

In its December 16th Newswire (IR-2013-98), the IRS reminded individuals and businesses making contributions to charity of several important tax law provisions that have taken effect in recent years. The IRS highlighted the following changes in the end of year Newswire.

Special Tax-Free Charitable Distributions for Certain IRA Owners

This provision, currently scheduled to expire at the end of 2013, offers older owners of individual retirement arrangements (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, first available in 2006, can be used for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be transferred directly by the IRA trustee to the eligible charity. Distributed amounts may be excluded from the IRA owner’s income – resulting in lower taxable income for the IRA owner. However, if the IRA owner excludes the distribution from income, no deduction, such as a charitable contribution deduction on Schedule A, may be taken for the distributed amount.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats amounts distributed to charities as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

Rules for Charitable Contributions of Clothing and Household Items

To be tax-deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

Donors must get a written acknowledgement from the charity for all gifts worth $250 or more that includes, among other things, a description of the items contributed. Household items include furniture, furnishings, electronics, appliances and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:

Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2013 count for 2013. This is true even if the credit card bill isn’t paid until 2014. Also, checks count for 2013 as long as they are mailed in 2013.
Check that the organization is eligible. Only donations to eligible organizations are tax-deductible. Exempt Organization Select Check, a searchable online database available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in the database.
For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2013 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
And, as always it’s important to keep good records and receipts.

IRS YouTube Videos:

Year-End Tax Tips: English | Spanish | ASL
Charitable Contributions: English | Spanish | ASL
Exempt Organizations Select Check: English | Spanish | ASL

See Publication 526, Charitable Contributions.

See Online mini-course, Can I Deduct My Charitable Contributions?

Posted in Compliance, Tax Exempt Orgs, Taxation | Tagged: Charitable contribution, charitable deduction, Charitable organization, IRA, IRS, tax exempt | Leave a Comment »

Act Now on End of Year Expiring Tax Breaks: IRA Charitable Rollovers, Bonus Depreciation

Posted by William Byrnes on December 18, 2013

Individual clients may have one final chance to satisfy required minimum distribution (RMD) requirements without increasing taxable income.

Small business clients, on the other hand, should be advised that the time to expand is now, as special expensing and bonus depreciation rules are also set to expire at year’s end.

Regardless of your client’s situation, the list of expiring tax breaks is robust enough to grab everyone’s attention.

Read Professor William Byrnes and Robert Bloink’s end of year planning tips at > Think Advisor <

Posted in Taxation | Tagged: accounting, Business, MACRS, RMD, Section 179 depreciation deduction, Small business, Tax break, Tax credit | Leave a Comment »

Will a Twitter Freeze Slash Your Thanksgiving Weight Gain or Your Client’s Tax Bill?

Posted by William Byrnes on November 28, 2013

While you think about how to reduce your weight, after the glutinous consumption of the Thanksgiving meal today, also consider how to reduce your client’s estate tax before an investment pays off. The Twitter executives developed a plan to reduce their eventual gift and estate taxes in advance of their IPO. The IPO has cause the value of the company to skyrocket. But your client does not have to own Twitter stock to leverage the Twitter tax plan…. In fact, a closer look at the planning strategies employed by Twitter shows that your client does not have to be sitting on the next hot silicon valley IPO to benefit from their use. Even if your client does not own pre-IPO shares, the freeze and discounting strategies used can save them from a hefty tax bill.

Read William Byrnes and Robert Bloink’s analysis of the Twitter freeze strategy that may be attractive for certain of your clients at > http://www.thinkadvisor.com/2013/11/06/can-a-twitter-freeze-slash-your-clients-tax-bill <

And please support our newest book that has just been published: > Tax Facts on Individuals and Small Business <

Posted in Estate Tax, Taxation | Tagged: estate tax, gift tax, Initial public offering, IPO, tax, Twitter | Leave a Comment »

International Tax Reform – Senator Baucus fires a volley

Posted by William Byrnes on November 20, 2013

In his first volley to start a serious discussion for reform of the U.S. taxation of the international activities of U.S. parent companies, Max Baucus, Senate Finance Committee Chairman released several draft tax bills yesterday. His release statement included, “The proposal — the first in a series of discussion drafts to overhaul America’s tax code — details ideas on how to reform international tax rules to spark economic growth, create jobs, and make U.S. businesses more competitive.”

The primary components of the proposed draft Bills include:

Income from selling products and providing services to U.S. customers is taxed annually at full U.S. rates.
Passive and highly-mobile income is taxed annually at full U.S. rates.

The drafts include two options that apply an annual minimum tax to income from products and services sold into foreign markets:

(1) apply a minimum tax rate to all such income, or

(2) tax such income at a lower minimum tax rate if derived from active business operations and at the full U.S. rate if not

Examples provided of a minimum rate include 60% and 80% of applicable U.S. tax, with an allowance for tax credit maintained.

The proposal calls for a ‘deemed repatriation’ of all historical earnings of foreign subsidiaries that have not been previously subject to U.S. tax, imposing a one-off tax at an example rate of 20%, payable over eight years. Tax credits would also be allowed as offset against this one-off tax.

The proposal seeks to eliminate of the international aspects of the “check-the-box” rule. Finally, the proposal explores mitigating ‘base profits erosion’ (BEPS) arrangements used by foreign multinationals to avoid U.S. tax.

Senator Baucus is quoted, “Over the past three years, the Finance Committee has examined every aspect of the tax code in an effort to fix a broken system. Through hearings, option papers and blank slate proposals, we’ve received input from key stakeholders and nearly every member of the Senate. These discussion drafts are the next step. They represent proposals collected throughout this process and provide a path forward on tax reform. Some are Democratic ideas. Some are Republican ideas. The common link is they are all ideas worth exploring.”

The Ranking (aka Minority) Member of the Committee, Republican Senator Orrin Hatch, released a statement that significant policy differences must still be bridged before international tax reform is realized: “…. but the fact is that significant policy differences remain between both sides and a final agreement was never reached. I hope that once the budget conference negotiations have concluded that we can renew our discussions to determine whether we can find common ground to overhaul our tax code.”

The discussion draft is available at > Senate international tax proposals<

The proposed bills with legislative language are available at:

> International Tax Provisions Bill (Option 1) <

> International Tax Provisions Bill (Option 2) < and

> International Tax Provisions Bill (Option 3)

For the entire series of Tax Reform Discussion Papers, see http://www.finance.senate.gov/issue/?id=6c61b1e9-7203-4af0-b356-357388612063

Posted in Tax Policy, Taxation | Tagged: BEPS, CFC, deferral, international tax, Max Baucus, Senate, Senate Finance committee, Tax law, Tax reform, United States | Leave a Comment »

LexisNexis Publishes William H. Byrnes “International Withholding Tax Treaty Guide – 2nd Edition”

Posted by William Byrnes on October 24, 2013

LexisNexis released in September 2013 the new and expanded 2^nd Edition of its International Withholding Tax Treaty Guide. Thomas Jefferson’s Associate Dean of Graduate & Distance Education William Byrnes is the co-author with Dr. Robert J. Munro, retired law librarian of University of Florida. This is William Byrnes and Robert Munro’s sixth book together.

When asked about how Dr. Munro and he started writing together, William Byrnes replied: “When I met him in 1998, Dr. Robert Munro was Co-Director of the Center for International Financial Crimes Studies at University of Florida’s College of Law, focusing on anti money laundering and anti terrorism financing, whereas I focused on international taxation and multinational behavior. We explored several overlapping areas of interest, approaching each from our very different perspectives. Dr. Munro brings to the table his experience as a national security expert and his research into undocumented marketplaces whereas I bring my experience with multinational organization decision making and risk management.”

“Dr. Munro, after retiring from University of Florida, actively teaches anti money laundering for the Thomas Jefferson graduate program and provides its graduate and juris doctorate students with publication opportunities through the publication course to promote their professional careers. He has been particularly helpful with assisting students seek national security careers.”

Regarding the 2^nd edition International Withholding Tax Treaty Guide published this month, Robert Munro added: “The second edition of International Withholding Tax Treaty Guide includes a new binder with new chapter structures of completely rewritten tax information and analysis. The International Withholding Tax Treaty Guide has been expanded to include many new countries to match the robust list of 110 countries of Foreign Tax & Trade Briefs. Moreover, International Withholding Tax Treaty Guide subscribers will receive new chapters of analysis and planning based on the OECD Model DTA articles and major trading country jurisprudence that are most relevant to corporate tax counsel, addressing topics such as capital gains, dividends, interest, rents, leasing income, royalties, and permanent establishment. Corporate counsel may combine the Foreign Tax & Trade Brief publications with Tax Havens of the World to form an international tax planning and risk management library at substantially less cost than competitive product suites.”

William Byrnes explained the history of this Lexis publication: “During the Second World War, Walter H. Diamond, then a banker, was tasked by the federal government to analyze and report on the investment and tax laws of each country and territory of which the Allies held confiscated Axis assets. Walter Diamond ventured though out the continents and Pacific meticulously collecting the local tax and investment laws and regulations applicable to the Allies new assets, and transcribed them into an understandable brief by country for the U.S. Treasury. In 1948, Matthew Bender published his country briefs in the first edition of Foreign Tax & Trade Briefs. Since 1948, the quarterly updated country briefs have been leveraged by thousands of multinational corporate counsel subscribers as part of their foreign tax and investments risk management best practices.”

“In 1974, Matthew Bender added a third binder to Foreign Tax & Trade Briefs, International Withholding Tax Treaty Guide, to specifically address the important role of tax treaties in tax risk management that had developed in the sixties. By 1975, nearly 1,000 tax treaties had been signed between countries based on the OECD’s Model with an additional 200 treaties in force based on the League of Nations Models. There are now more than 3,200 tax related treaties.”

When asked their next project together, Dr. Munro stated: “We are looking at tackling the rewrite of all three binders of Lexis’ Tax Havens of the World, with a new table of contents, new chapters, and a more modern ‘post-OECD reports’ approach.” William Byrnes added, “Yes, this major re-do should keep us creatively busy another couple years.”

Posted in book, Taxation | Tagged: Foreign Tax & Trade Brief, International taxation, LexisNexis, Organisation for Economic Co-operation and Development, Robert Munro, Tax treaty, Thomas Jefferson, University of Florida | Leave a Comment »

William Byrnes author of 2 tax titles published September 2013

Posted by William Byrnes on October 21, 2013

Summit Professional Network’s National Underwriter published two books authored by Associate Dean William Byrnes and Robert Bloink: 2014 Tax Facts on Investments and 2014 Tax Facts on Insurance & Employee Benefits

William Byrnes explained National Underwriter Company’s place in the market: “National Underwriter has been the leading publisher for over 110 years to the insurance industry. Tax Facts was first published over 60 years ago and has become in the words of Michael E. Kitces, Director of Financial Planning of Pinnacle Advisory Group:

“… THE benchmark standard that all other resources are measured by, for financial planners that might need to look up a question about any kind of tax-related issue involving a client. The Tax Facts series sits on a bookshelf right next to my desk for easy and regular access, and only leaves when I replace it with each year’s update!” (source: http://pro.nuco.com/Pages/AboutUs.aspx)

William Byrnes added “Tax Facts has built strong a subscriber base of over 20,000 financial planning professionals. I think financial planning professionals relate to the approach of contextualizing client problems in a Question – Answer format. Clients don’t come with neatly packaged issues, but instead want to tell their stories and ask questions. Thus, Tax Facts takes that approach, by example leveraging case studies and typical client questions in the expanding online version.”

William Byrnes continued “Robert Bloink’s experience as a former IRS Counsel and national insurance markets advisor combines well with my big 4 and publication background.”

When asked “What is new about the 2014 edition?” Robert Bloink replied “We have included a new section on cross border employment and estate tax issues, captive insurance and alternative risk transfer, reverse mortgages, DOMA, Affordable Care Act, and REITs as well as expanding coverage of annuities, structured settlements, retirement planning and deferred compensation.”

Alexis Long worked with Thomas Jefferson joint degree juris doctorate and LLM alumnus, Marcus Threats, on the REIT Q&A section which sprung from his senior writing project. Mr. Threats said that “I obtained a legal education to address challenges that I had experienced in the property investments markets. While the opportunity for a dual degree at Thomas Jefferson attracted me to the law school, the authorship with a renown professional publisher has really made my Thomas Jefferson education stand out.”

William Byrnes interjected: “This Thursday Adjunct Professor Alexis Long begins the next Publications course via the online LLM and interested students should contact her or myself. We are already planning the 2014 year and about to complete our JD and LLM publication teams.”

William Byrnes continued: “By the way, in November Robert and I expect to announce the publication of our third Tax Facts title addressing entrepreneur’s income tax and small business tax issues and hope it gains market traction in line with these two titles.”

Posted in book, Estate Tax, Retirement Planning, Taxation, Wealth Management | Tagged: insurance, national underwriter, tax facts, Thomas Jefferson, William Byrnes | Leave a Comment »

Gifting Life Insurance Policies: Not a Simple Matter

Posted by William Byrnes on October 17, 2013

Making a gift of a life insurance policy can prove to be anything but simple for clients who may not know what questions to ask in order to ascertain the potential tax consequences of the transaction. Transferring a policy that is subject to a policy loan can prove even more problematic, even if the transferee is a family member and the transfer is intended entirely as a gift.

Though the rule’s name might suggest otherwise, the transfer for value rule can create a serious tax trap for a client who transfers a life insurance policy, even if nothing tangible actually changes hands in the transaction. Want to read more? Open access content at Think Advisor!

Posted in Estate Tax, Insurance, Taxation, Wealth Management | Tagged: Agents and Marketers, Beneficiary, Business, estate tax, Financial services, gift tax, insurance, Life, life insurance, term life insurance, Wealth Management | Leave a Comment »

Can Clients 1035 an Inherited Annuity?

Posted by William Byrnes on September 6, 2013

Annuity products are one area in which trends in contract features are constantly changing as insurance companies endeavor to more effectively meet the needs of annuity investors and with the attendant problem that beneficiaries of inherited annuities could end up with antiquated investment products.

This constant evolution of investment trends may have your clients wondering what type of value their annuities will offer beneficiaries after their death. The IRS has just blessed a solution to this planning dilemma by allowing a beneficiary to exchange inherited annuities for another annuity product that more accurately reflects the beneficiary’s investment goals.

Read the complete analysis by William Byrnes and Robert Bloink at > Think Advisor <

Posted in Insurance, Taxation, Wealth Management | Tagged: Beneficiary, Business, Financial services, insurance, Internal Revenue Service, Life annuity, Pension, Swiss Annuity | Leave a Comment »

Net unrealized appreciation tax break: Still a tax break in 2013?

Posted by William Byrnes on September 4, 2013

The tax break provided for net unrealized appreciation (NUA) on 401(k) account distributions once provided a powerful tax savings strategy for clients with large 401(k) balances — allowing some clients to reduce their taxes on these retirement funds by as much as 20 percent.

Today, as high-net-worth clients are increasingly seeking strategies to help minimize their tax burdens in light of higher 2013 tax rates, the NUA strategy may have become more complicated than ever. Read the full analysis of William Byrnes & Robert Bloink at > Life Health Pro <

Posted in Retirement Planning, Taxation | Tagged: 401(k), accounting, net unrealized appreciation, Obama Care tax, tax, Tax break, Tax deduction, Tax rate, Taxation | Leave a Comment »

Second Edition of Lexis’ International Withholding Tax Treaty Guide released

Posted by William Byrnes on August 26, 2013

Associate Dean William Byrnes is also pleased to announce the publication of International Withholding Tax Treaty Guide, Second Edition by LexisNexis.

The second edition of International Withholding Tax Treaty Guide, authored by Professor William H. Byrnes and Dr. Robert J. Munro, includes new binders with new chapter structures of completely rewritten tax information and analysis. The second edition of Foreign Tax & Trade Briefs includes a new structure for all 110 country chapters to reflect the evolution of national tax systems since 1948. The International Withholding Tax Treaty Guide has been expanded to include many new countries to match the robust list of Foreign Tax & Trade Briefs, and its footnote numbering has been amended for brevity and modern coherence.

Moreover, International Withholding Tax Treaty Guide subscribers will receive new chapters of analysis and planning based on the OECD Model DTA articles and major trading country jurisprudence that are most relevant to corporate tax counsel, addressing topics such as capital gains, dividends, interest, rents, leasing income, royalties, and permanent establishment, as well as developing topics such as new standards of information exchange. Corporate counsel may combine these publications with the LexisNexis Matthew Bender publication Tax Havens of the World to form a complete international tax planning and risk management library.

Associate Dean William Byrnes said “The Second Edition completes my re-write process of this book to re-structure the citation architecture for a modern approach to tax treaty analysis,” Over the next two years I will author an in-depth, comparative analysis of tax treaty articles, to provide practitioners and arbitrators a go-to treatise for global corporate planning.”

William Byrnes continued “In 1974, Matthew Bender added a third binder to Foreign Tax & Trade Briefs, the International Withholding Tax Treaty Guide, to specifically address the important role of tax treaties in tax risk management that had developed in the sixties. By 1975, nearly one thousand tax treaties had been signed between countries based on the OECD’s Model with an additional 200 treaties in force based on the League of Nations Models. Moreover, many (former) territories had become independent, developing countries with the ability to establish their own tax treaties. There are now more than 3,200 tax treaties, of which 2,900 are signed and in effect with the remaining 300 yet to become effective by official legislative approval.”

Posted in book, Taxation | Tagged: Corporate tax, LexisNexis, OECD, Organisation for Economic Co-operation and Development, tax, Tax treaty, Withholding tax | Leave a Comment »

2 New Tax Facts Books Released

Posted by William Byrnes on August 23, 2013

National Underwriters published 2014 editions of Tax Facts books authored by William Byrnes and Robert Bloink of the graduate tax program.

2014 Tax Facts on Investments

2014 Tax Facts on Insurance & Employee Benefits

“We have included a new section on cross border employment and estate tax issues, captive insurance and alternative risk transfer, reverse mortgages, DOMA, as well as the previously expanding sections on ETFs and on precious metals & collectibles,” William Byrnes said. “Moreover, we hope to soon announce the newest title of Tax Facts addressing entrepreneurs and their small business tax issues.”

“Tax Facts Books and the Tax Facts Online portal have built strong following of many thousand of financial planning professionals. I think financial planning professionals relate to National Underwriter’s approach of contextualizing client problems in a Question – Answer format.”

Both publications are now available as e-books, as an alternative or in combination with print.

Posted in book, Retirement Planning, Taxation, Wealth Management | Tagged: Business, Captive insurance, Corporate tax, estate tax, Graduate tax, income tax, Inheritance tax, insurance, Internal Revenue Service, tax | Leave a Comment »

FATCA Registration Portal Finally Opens

Posted by William Byrnes on August 21, 2013

Update for subscribers of LexisNexis® Guide to FATCA Compliance [1]

FATCA requires that FFIs, through a responsible officer (a.k.a. “FATCA compliance officer”), make regular certifications to the IRS via the FATCA Portal, as well as annually disclose taxpayer and account information for U.S. persons, unless an intergovernmental agreement allows for indirect reporting to the IRS via a foreign government. On Monday, August 19 the IRS opened its new online FATCA registration system for financial institutions that need to register for compliance with the Foreign Account Tax Compliance Act.[2] This critical FATCA milestone was supposed to open July 15; however only on July 12 the IRS issued a postponement, as well as a push back of all corresponding impacted milestones and deadlines.

The full text of this article is available on the LexisNexis FATCA http://www.lexisnexis.com/legalnewsroom/tax-law/b/fatcacentral/archive/2013/08/21/the-race-to-register-with-the-irs-online-fatca-system-has-begun.aspx

[1] See http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327

[2] See https://sa2.www4.irs.gov/fatca-rup/login/userLogin.do

Posted in Compliance, FATCA, Taxation | Tagged: FATCA, FATCA Registration Portal, FFI, Financial institution, Internal Revenue Service, IRS, tax, Withholding tax | Leave a Comment »

U.S. History of Non-Profit Tax Exemption and Deduction for Donations

Posted by William Byrnes on August 20, 2013

“. . . [w]hen the Finance Committee began public hearings on the Tax Reform Act of 1969 I referred to the bill as ‘368 pages of bewildering complexity.’ It is now 585 pages . . . . Much of this complexity stems from the many sophisticated ways wealthy individuals – using the best advice that money can buy – have found ways to shift their income from high tax brackets to low ones, and in many instances to make themselves completely tax free. It takes complicated amendments to end complicated devices.” Senator Russell Long, Chairman, Finance Committee

Download this entire article at > William Byrnes’ full-lenth articles on SSRN <

From the turn of the twentieth century, Congress and the states have uniformly granted tax exemption to charitable foundations, and shortly thereafter tax deductions for charitable donations. But an examination of state and federal debates and corresponding government reports, from the War of Independence to the 1969 private foundation reforms, clearly shows that politically, America has been a house divided on the issue of the charitable foundation tax exemption. By example, in 1863, the Treasury Department issued a ruling that exempted charitable institutions from the federal income tax but the following year, Congress rejected charitable tax exemption legislation. However thirty years later, precisely as feared by its 1864 critics, the 1894 charitable tax exemption’s enactment carried on its coat tails a host of non-charitable associations, such as mutual savings banks, mutual insurance associations, and building and loan associations.

Yet, the political debate regarding tax exemption for the non-charitable associations did not nearly rise to the level expended upon that for philanthropic, private foundations established by industrialists for charitable purposes in the early part of the century. But the twentieth century debate upon the foundation’s charitable exemption little changed from that posited between the 1850s and 1870s by Presidents James Madison and Ulysses Grant, political commentator James Parton and Dr. Charles Eliot, President of Harvard. The private foundation tax exemption evoked a populist fury, leading to numerous, contentious, investigatory foundation reports from that of 1916 Commission of Industrial Relations, 1954 Reece Committee, 1960 Patman reports, and eventually the testimony and committee reports for the 1969 tax reform. These reports uniformly alleged widespread abuse of, and by, private foundations, including tax avoidance, and economic and public policy control of the nation. The private foundation sector sought refuge in the 1952 Cox Committee, 1965 Treasury Report, and 1970 Petersen Commission, which uncovered insignificant abuse, concluded strong public benefit, though recommending modest regulation.

During the charitable exemption debates from 1915 to 1969, Congress initiated and intermittently increased the charitable income tax deduction while scaling back the extent of exemption for both private and public foundations to the nineteenth century norms. At first, the private foundation’s lack of differentiation from general public charities protected their insubstantially regulated exemption. But in 1943, contemplating eliminating the charitable exemption, Congress rather drove a wedge between private and public charities. This wedge allowed the private foundation’s critics to enact a variety of discriminatory rules, such as limiting its charitable deduction from that of public charities, and eventually snowballed to become a significant portion of the 1969 tax reform’s 585 pages.

This article studies this American political debate on the charitable tax exemption from 1864 to 1969, in particular, the debate regarding philanthropic, private foundations. The article’s premise is that the debate’s core has little evolved since that between the 1850s and 1870s. To create perspective, a short brief of the modern economic significance of the foundation sector follows. Thereafter, the article begins with a review of the pre- and post-colonial attitudes toward charitable institutions leading up to the 1800s debates, illustrating the incongruity of American policy regarding whether and to what extent to grant charities tax exemption. The 1800s state debates are referenced and correlated to parts of the 1900s federal debate to show the similarity if not sameness of the arguments against and justifications for exemption. The twentieth century legislative examination primarily focuses upon the regulatory evolution for foundations. Finally, the article concludes with a brief discussion of the 1969 tax reform’s changes to the foundation rules and the significant twentieth century legislation regulating both public and private foundations.

Download this entire article at > William Byrnes’ full-lenth articles on SSRN <

Posted in Tax Exempt Orgs, Tax Policy, Taxation | Tagged: charity, Internal Revenue Service, James Parton, tax, Tax deduction, Tax exemption, Treasury Department, Ulysses Grant, United States | Leave a Comment »

IRS releases FATCA financial institution reporting form 8966

Posted by William Byrnes on August 19, 2013

The IRS issued this past week the draft of the financial institution FATCA reporting form (Form 8966 – “FATCA Report”). The FATCA Report form, dated August 13, 2013 but released the following day, is for foreign financial institutions and also withholding agents to report financial information about account holders.

The Form has 5 parts:

(1) Identification of Filer,

(2) Account Holder or Recipient Information,

(3) Identifying Information of U.S. Owners that are specified U.S. Persons,

(4) Financial Information, and

(5) Pooled Reporting Type.

The Financial Information part contains 7 reporting fields, being: (1) account number, (2) currency code, (3) account balance, (4) interest, (5) dividends, (6) gross proceeds/redemptions, and (7) other.

The “Pooled” Reporting requires the FFI to indicate firstly which of six buckets the underlying accounts fall into, then secondly, financial information about the bucket.

The 6 buckets are:

(1) Recalcitrant account holders with U.S. Indicia,

(2) Dormant Accounts,

(3) Recalcitrant account holders that are U.S. persons,

(4) Recalcitrant account holders without U.S. Indicia,

(5) Non-participating foreign financial institutions, and

(6) Recalcitrant account holders that are passive NFFEs

The reported financial information includes: (a) number of accounts, (b) aggregate payment amount, (c) aggregate account balance and (d) currency code.

You may link to the new > draft Form 8966 <

Find more information about FATCA, including complimentary chapter download, at Lexis’ Guide to FATCA Compliance

Posted in Compliance, FATCA, Taxation | Tagged: FATCA, FFI, Finance, Financial institution, Foreign Account Tax Compliance Act, Internal Revenue Service, IRS, United State | Leave a Comment »

Planning Concept: Traditional Private Annuity in Trust Variation

Posted by William Byrnes on August 14, 2013

Provides an overview of private annuities in relation to financial planning. Examines a new concept wealth managers are employing for their clients with regards to private annuities and trusts.

The traditional private annuity is a transaction used by some wealth managers for clients whose circumstances permit. Generally a private annuity transaction occurs where the grantor transfers assets to a third party who pays the grantor an annuity, usually for the life of the grantor.[1]

When a trust is involved with a traditional private annuity, the common transaction may look like this: “The owner of highly appreciated commercial real estate transfers the property to an irrevocable trust in exchange for the trust’s promise to pay an annuity for life. The present value of the annuity equals the fair market value (‘FMV‘) of the property. The trust then sells the property to a third party for a sale price equal to its FMV.” [2] For additional discussion on private annuity contracts see National Underwriter Advanced Markets’ Private Annuity. [3]

The idea behind wealth managers suggesting similar transactions “is that the original transferor can spread his large capital gain over life expectancy by using the irrevocable trust as an intermediary rather than selling directly to the third party (who is presumably unwilling to do a private annuity).” [4]

There are considerations wealth managers must take into account when discussing private annuities with their clients. These may include valuation methods, arms-length transaction consideration, and incidents of ownership. For a detailed discussion of the tax implications of private annuities, please see Tax Facts Q 41. How are payments received under a private annuity Taxed? [5]

It is often the case that a trustee, although not necessarily, will use “the sale proceeds to insure its annuity obligation by purchasing a commercial immediate annuity.” [6]

Planning Concept: Some wealth managers have recently begun to structure private annuities for their clients slightly differently than the traditional method discussed above. Here the idea is a private annuity contract issued from the trust to the grantor who pays valuable consideration for the annuity which carries with it a condition precedent or “contingency”. The condition on the annuity could be the death of the grantor’s spouse. The trustee may “reinsure” the risk with the purchase of life insurance from payment of the annuity in the event the condition takes place.[7] Similar considerations with regards to private annuities should also be considered with private annuities that carry a condition.

In the event the grantor’s spouse does not die in the near future, the premiums paid for the private annuity could generally be considered income to the trust, which may be owned by a second generation. If the spouse does die in the near future, payment of the annuity would create general gain taxation with a tax-free redemption up to basis. [8]

[1] Manning on Estate Planning. PLIREF-ESTPLN s 5:9, 5-30. “§ 5:9 The Private Annuity”.

[2] New York Estate Planning. 33 ESTPLN 13. “Maximizing The Planning Opportunities Of Private Annuities”. 2006.

[3] AUS Main Libraries, Section 2. The Federal Estate Tax, D—Annuities In The Gross Estate.

[4] Id.

[5] Tax Facts Q 41. How are payments received under a private annuity taxed?

[6] Id.

[7] 33 ESTPLN 13

[8] PLIREF-ESTPLN s 5:9, 5-30; 26 U.S.C.A. § 1001.

Posted in Insurance, Taxation, Wealth Management | Tagged: annuities, Business, Financial services, insurance, Life annuity, Pension, Retirement, Swiss Annuity | Leave a Comment »

Incidents of Ownership and Burden on the Estate

Posted by William Byrnes on August 12, 2013

Why is this Topic Important to Wealth Managers? Discusses estate tax considerations in regards to life insurance policies. Also, includes a detailed dialogue of the incidents of ownership concept.

What do most wealth managers try to avoid when planning with life insurance and trusts?

That the Gross Estate for Estate Tax calculations would include the death benefit from the policy in the estate.[1]

What are some common ways to avoid this dilemma when using a trust and life insurance in regards to estate planning?[2]

The insured should never own the policy; “it should be owned from inception” by the trust or third party.

A trustee takes “all the actions to purchase the policy on the life of the insured”.
The trustee should be “authorized but not required to purchase insurance on the life of anyone whose life the trust’s beneficiaries have an insurable interest.”
The trust explicitly prohibits the insured from obtaining any interest whatsoever that the trust may purchase on the insured’s life.
The trust does not require, but rather permits the premium payments.
Trust is well funded, beyond that of one year of premium payments.
The trustee acts in the best interest of the beneficiaries.

A revisionary interest will give rise to incidence of ownership [3], which could include the insured’s right to; [4]

Cancel, assign or surrender the policy.
Obtain a loan on the cash value of the policy or pledge the policy as collateral for a loan.
Change the beneficiary, change contingent beneficiaries, change beneficiaries share of the proceeds.

When discussing incidents of ownership, naturally the 3 year rule should be further expounded.[5] “The 3-year ‘bring-back’ rule” is applicable, “with respect to dispositions of retained interests in property which otherwise would have been includable in the gross estate”.[6] As discussed in AUS Main Libraries Section 8, C—Lifetime Gifts Of Insurance And Annuities-“Gifts Within Three Years Of Death”, essentially, the rule as it applies to life insurance means that any policy transferred out of the estate of the insured within 3 years of his/her death, the policy proceeds are brought back into the gross estate for estate tax calculations.

It is generally accepted that “the trust should be established first, with a transfer of cash from the grantor to be used to pay the initial premium” or a few years of premiums. “The trustee would then submit the formal application, with the trust as the original applicant and owner.” Generally, the insured will “participate only to the extent of executing required health questionnaires and submitting to any required physical examination.” Again the key is that the, “grantor/insured not have possessed at any time anything that might be deemed an incident of ownership with respect to the policy.” [7]

Posted in Estate Tax, Taxation | Tagged: Beneficiary, estate planning, Financial services, Inheritance tax, insurance, life insurance, Ownership, Trust law | Leave a Comment »

Employees and Independent Contactors

Posted by William Byrnes on August 9, 2013

Why is this Topic Important to Financial Professionals? Many small business owners are faced with issues surrounding Form 1099 and how the rules apply to their businesses.

What are some distinctions of the employees versus independent contractors?

An independent contractor, in general, has a majority of control over the details of his job function and only the end result is dictated by the company or individual who hires. This is what is commonly known as “the degree of behavioral control.” Another category used by the IRS and the courts to determine the status of an individual as either an employee or independent contractor is “financial control”. Financial control involves examining the financial relationship between the parties such as reimbursement, and/or if any materials or space has been provided to accomplish the job. Other relationship factors such as having a contract or agreement between the parties, as well as the terms of any contract, must also be examined in determining the employment status of the individual.

One of the issues that is often overlooked in the area of an employee relationship instead of an independent contractor relationship is that employees have X number of hours to dedicate to employment each week, whether that number is 40, 50, or anything else that an employment agreement might state. Independent contracts are often not required to expend a set number of hours to accomplish a task, but instead enough hours to accomplish the task.

Another relevant issue to be considered in determining which of the two employment relations exist is that of termination. An “At-Will” employee can normally be terminated and generally has no cause for a breach of contract and cannot sue for damages. An independent contractor cannot usually be terminated without a breach of contract.

Tax Distinctions

Taxation of the two dissimilar positions is significantly different. Independent contractors essentially work for themselves, and the business that pays them is, in effect, a client. Generally, and independent contractor will file a tax return as a sole proprietor or closely held corporation, such as a Subchapter S Corporation. An employee is subject to federal income tax withholding and the employer is subject to payroll taxes, included in the general W-2 process.

Independent contractors, like other businesses, recognize revenue and expenses. The independent contractor usually receives a Form 1099 from the source that pays him. The Code and Regulations state that when a trade or business pays an individual for certain “services” over $600 that a Form 1099 is required to be filed with the Secretary of the Treasury.[1] And just as other businesses realize “legislative graces of Congress,” such as Section 162 deductions, the sole proprietor too may have expenses that generally qualify as trade or business expenses.

For a detailed analysis regarding independent contractors, see Tax Facts Q 814. How are business expenses reported for income tax purposes?

[1] Internal Revenue Code Section (IRC) 6041, Treasury Regulations (TR) 1.6041-1(a)(1)(i), TR 1.6041-1(a)(2).

Posted in Taxation, Wealth Management | Tagged: 1099, Business, Corporation, Health care reform, independent contractor, Internal Revenue Service, IRS, IRS tax forms, Treasury Regulations | Leave a Comment »

The Value of Variable Life Insurance: Surrender Charges and Fair Market Value

Posted by William Byrnes on July 25, 2013

The U.S. Court of Appeals for the Ninth Circuit recently affirmed the Tax Court’s position on the use of surrender charges in the valuation equation when a nonqualified employee benefit plan that holds a life insurance policy distributes that policy to a taxpayer upon winding up of the plan.

When these life insurance policies are distributed to the taxpayer-employees under such a plan, the taxpayers are responsible for paying taxes on the value of the policies. According to the IRS, the policy value equals the cash value of the policy without regard to any surrender charges. So what do your clients have to include in income if the actual cash surrender value of their life insurance policy is negative?

The Facts

Read the full analysis at ThinkAdvisor – http://www.thinkadvisor.com/2013/05/28/the-value-of-variable-life-insurance-surrender-cha

Posted in Estate Tax, Taxation, Uncategorized, Wealth Management | Tagged: Business, Cash surrender value, Cash value, Financial services, insurance, Internal Revenue Service, life insurance, term life insurance | Leave a Comment »

FATCA and Switzerland: Model II

Posted by William Byrnes on July 22, 2013

Note: The following is an excerpt from Chapter 19 of the LexisNexis® Guide to FATCA Compliance* – The title is now shipping to customers world-wide.

In General

…

Unlike Model I, the “Swiss” Model II does not establish automatic information exchange between governments. The Swiss government has thus not agreed to automatic information exchange between governmental authorities. Instead, the Swiss government has agreed that it will ensure that the Swiss financial institutions will be able to enter into an FFI agreement with the U.S. Treasury Department to directly report to the IRS (to become a “participating FFI”). In other words, the underlying mechanics of Model II are the same as under FATCA itself. The financial institutions organized under Swiss law annually report the U.S. accountholders and their U.S. beneficial owners.

For Switzerland it has become necessary to negotiate Model II, as Swiss law prohibits financial institutions from acting on behalf of a foreign government. Article 271 (1) of the Swiss Criminal Code states that “[a]ny person who carries out activities on behalf of a foreign state without lawful authority . . .”2 commits a crime. This provision would have put financial institutions in Switzerland in an untenable position where they would have had to decide whether they want to be in conflict with the Swiss Criminal Code or with FATCA. With the Model II Agreement, Swiss financial institutions have the guarantee that they will not be prosecuted in Switzerland if they report bank information to the IRS.3

… As regards existing U.S. accounts (and U.S. accounts yet to be opened), the relevant financial institution is to obtain prior consent from the accountholder regarding the reporting of bank information to the IRS. In particular, there is a duty to proceed actively. Where the accountholder declines consent, the financial institution may not deliver information to the IRS. Without prior consent it would violate Swiss banking secrecy rules, which are still in effect. What is reported, however, are “nameless aggregates” and the number of accounts that, in FATCA terms, belong to the “Recalcitrant Accountholders”.

This information is to form the basis of an IRS group request, through which the IRS, on request, can demandcomplete information on the Recalcitrant Accountholders.4 The group request provides the IRS, after a time lag, with the information that the financial institution would have reported according to the FATCA rules had it received consent to report (see article 2 2(c) of Model II).

It is interesting how the Model II agreement governs this group request mechanism, as the agreement includes no independent regulation, but refers in this regard to provisions of the double tax convention (article 2 2(a) of Model II). Nevertheless, the Model II itself provides that the group request and the requested information are “foreseeably relevant” within the meaning of the applicable relevant double tax convention. See article 2 2(b) of Model II: “The information requested […] shall be considered information that is foreseeably relevant […] covered by the Convention […].”5 The U.S. – Switzerland IGA Article 5 Exchange of Information provides that such requests shall be made pursuant to the Protocol of the Article 26 of the U.S. – Switzerland Double Tax Agreement when the Protocol enters into force. Furthermore, such requests shall apply only to information beginning upon the IGA’s entry into force. The requested information will be considered “…information that may be relevant for carrying out the administration or enforcement of the domestic laws of the United States …, without regard to whether the Reporting Swiss financial Institution or another party has contributed to noncompliance of the taxpayers in the group.”6

…

Analysis

…

The question now is what legal implications FATCA will entail in Switzerland, especially with regard to the group request reporting. The group request provision in Model II will, in our prediction, be tested in Swiss courts once the first account data of Recalcitrant Accountholders are the subject of an IRS group request. As regards the legal issues concerning this group request, the following points should suffice.

… read the entire chapter analysis excerpt at Lexis’ FATCA Central

______

[1] Agreement between the United States of America and Switzerland for Cooperation to Facilitate the Implementation of FATCA (February 14, 2013) (“U.S. – Switzerland IGA”) available at http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Agreement-Switzerland-2-14-2013.pdf .

[2] Article 271 (1) of the Swiss Criminal Code. Emphasis added.

[3] Art. 4 of the U.S. – Switzerland IGA.

[4] Art. 5, Para. 1 of the U.S. – Switzerland IGA.

[5] Emphasis added. Model II also includes an exchangable phrase “may be relevant”.

[6] Article 5, para. 2 of the U.S. – Switzerland IGA.

[7] Article 6 of the U.S. – Switzerland IGA.

[8] Article 9 of the U.S. – Switzerland IGA.

[9] Annex II, Art. II, Para. A – Deemed-Compliant Financial Institutions.

…

Posted in Compliance, FATCA, Taxation | Tagged: FATCA, Financial institution, Foreign Account Tax Compliance Act, Internal Revenue Service, LexisNexis, Switzerland, United State, United States Department of the Treasury | Leave a Comment »

The Not-So-Irrevocable Trust: Unlocking Trust Assets

Posted by William Byrnes on July 18, 2013

The “irrevocable” label might have some clients feeling like they are locked into previously established irrevocable trusts for life, which might not always be the case. There are many reasons why a client might remain interested in preserving an irrevocable trust, but after the fiscal cliff deal made the generous $5 million estate tax exemption and spousal portability permanent, there are equally strong reasons why a client might prefer to terminate. …

The choice to terminate will force clients to reevaluate insurance and other trust held assets and lead to what are often long overdue replacement or reallocation discussions.

When Can an Irrevocable Trust Be Terminated?

Read the full analysis at ThinkAdvisor: http://www.thinkadvisor.com/2013/06/17/the-not-so-irrevocable-trust-unlocking-trust-asset

Posted in Estate Tax, Taxation, Trusts, Wealth Management | Tagged: $5 million, advanced markets, estate planning, Illinois, Internal Revenue Service, law, Organizations, Tax exemption, Trust law, United States, Wealth Management | Leave a Comment »

FATCA Withholding Compliance

Posted by William Byrnes on July 17, 2013

Note: The following is an excerpt from Chapter 11 of the LexisNexis® Guide to FATCA Compliance* – The title is now shipping to customers world-wide.

Importance of the Income Source

In cross-border transactions, the U.S. tax system, as well as the tax systems of most other nations or jurisdictions, contains rules to determine and identify items of income (or expense) derived from U.S. sources or foreign sources-referred to from the U.S, perspective as U.S. source income or foreign source income. This is generally referred to as the source of income rules. The U.S. Internal Revenue Code (IRC) contains source of income rules.1 Tax treaties also provide and often clarify source of income rules. The source of income rules provide the basis for taxation, but the operating rules are contained elsewhere in the IRC.

The income category generally determines the source of income rules. These rules attempt to assign income to a U.S. or non-U.S. source on a statutory basis by looking at the perception of what is the predominate situs (location) of the economic activity that generates the income, and the source of legal protections that facilitate such income generation.

Certain categories of U.S. source income are subject to withholding “at source”-i.e. in the U.S. Because the U.S. has no taxing authority or jurisdiction over foreign persons, the IRC finds one or more withholding agents who are required to withhold at source in the U.S. Generally when transfers of these certain categories of income are made to persons outside the U.S., the withholding agent in the U.S. withholds a certain percentage of the funds and remits the funds to the Internal Revenue Service (IRS). The withholding rules are generally described under the Qualified Intermediary (QI) program.

FATCA Is In Addition to QI

The U.S. added the Foreign Account Tax Compliance Act (FATCA) as an additional layer over QI.2 FATCA consists of worldwide reporting and withholding rules designed to greatly reduce U.S. tax noncompliance for accounts and certain assets held offshore by U.S. taxpayers. FATCA’s withholding rules are discussed in this chapter.

GENERAL RULE FOR WITHHOLDABLE PAYMENTS 3

…. read the entire chapter analysis excerpt at Lexis’ FATCA Central

_________

1 Primarily IRC §§ 861, 862, 863, 865.

2 See Chapter 10.

3 See Chapter 12.

Posted in Compliance, FATCA, Taxation | Tagged: FATCA, Foreign Account Tax Compliance Act, Internal Revenue Service, LexisNexis, tax, Taxation in the United States, United State, Withholding tax | 1 Comment »

U.S. Treasury delays FATCA withholding until July 1, 2014

Posted by William Byrnes on July 12, 2013

In a major U.S. Treasury announcement about FATCA this morning (July 12, 2013) titled “Engaging with More than 80 Countries to Combat Offshore Tax Evasion and Improve Global Tax Compliance”, Treasury extended by 6 months the start of the Foreign Account Tax Compliance Act (FATCA) withholding and account due diligence requirements.

Treasury stated that “due to overwhelming interest from countries around the world, a six-month extension to will be provided to allow more time to complete agreements with foreign jurisdictions.” Boiled down, Treasury has granted a 6 month extension, to July 1, 2014, for foreign financial institutions to achieve FATCA compliance because just three days before the FATCA Registration Portal should have opened, only 7 IGA have been agreed and signed by the United States and foreign countries.

FATCA Portal Opening Delayed

Moreover, on Monday, July 15, Treasury was supposed to open its FATCA Portal that foreign institutions could begin to register with the IRS. However, the IRS released Notice 2013-43 in conjunction with Treasury’s announcement that its FATCA portal would not be available before August 19, 2013. Thus, the IRS has had to push back the other key dates for registration by an additional 6 months as well. After the FATCA registration website opens, a financial institution will be able to begin the process of registering by creating an account and inputting the required information for itself, for its branch operations, and, if it serves as a “lead” financial institution, for other members of its expanded affiliated group.

The IRS will not issue any GIINs in 2013. Instead it expects to begin issuing GIINs as registrations are finalized in 2014. The IRS will electronically post the first IRS FFI List by June 2, 2014, and will update the list on a monthly basis thereafter. To ensure inclusion in the June 2014 IRS FFI List, FFIs would need to finalize their registration by the new deadline of April 25, 2014 instead of the original October 25, 2013 deadline.

6 Month Extension for New Account Opening Procedures

FATCA withholding agents generally will be required to implement new account opening procedures by July 1, 2014 instead of January 1. For Participating Foreign Financial Institutions (“PFFI”), new account opening procedures are correspondingly extended to at least July 1, 2014, but even further to the effective date of its FFI agreement if it registers timely via the FATCA Portal.

6 Month Extension for Pre-Existing Obligations

The IRS will modify the definition of “preexisting obligation” to take into account the new extended compliance deadlines. Accordingly, the definition will be modified:

With respect to a withholding agent other than a PFFI or a registered deemed-compliant FFI: any account, instrument, or contract maintained, executed, or issued by the withholding agent that is outstanding on June 30, 2014;
With respect to a PFFI: any account, instrument, or contract maintained, executed, or issued by the PFFI that is outstanding on the effective date of the FFI agreement; and
With respect to a registered deemed-compliant FFI: any account, instrument, or contract maintained, executed or issued by the FFI prior to the later of July 1, 2014, or the date on which the FFI registers as a deemed-compliant FFI and receives a GIIN.

Deadline Extension Coordination with Current and Future Intergovernmental Agreements (IGAs)

Treasury intends to include a similar change to the definition of the term “Preexisting Account” in both model IGAs. Thus, it is expected that future IGAs will define the term “Preexisting Account” to mean a Financial Account maintained as of June 30, 2014. For IGAs in force that contain the previous definition of the term “Preexisting Account,” the partner jurisdiction will be permitted under the coordination provision of the IGA to permit its FFIs to substitute the definition of the term “preexisting account” from the amended final regulations for the definition of the term “Preexisting Account” in the IGA. For IGAs concluded before the coordination provision was added, the coordination provision will apply through the operation of the most-favored nation provision once an IGA containing the coordination provision is in force.

2013 Eliminated As A FATCA Reportable Year

The final regulations provide that a PFFI will be required to file information reports on its U.S. accounts with respect to the 2013 and 2014 calendar years no later than March 31, 2015. Treasury and the IRS intend to modify these rules to require reporting on March 31, 2015, only with respect to the 2014 calendar year (for U.S. accounts identified by December 31, 2014).

Treatment of Financial Institutions Operating in Jurisdictions That Have Signed an Intergovernmental Agreement to Implement FATCA

A jurisdiction will be treated as having in effect an IGA if the jurisdiction is listed on the Treasury website as a jurisdiction that is treated as having an IGA in effect. In general, Treasury and the IRS intend to include on this list jurisdictions that have signed but have not yet brought into force an IGA. The list of jurisdictions that are treated as having an IGA in effect is available at the following address:

http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCAArchive.aspx.

A financial institution resident in a jurisdiction that is treated as having an IGA in effect will be permitted to register on the FATCA registration website as a registered deemed-compliant FFI (which would include all reporting Model 1 FFIs) or PFFI (which would include all reporting Model 2 FFIs), as applicable. In addition, a financial institution may designate a branch located in such jurisdiction as not a limited branch.

A jurisdiction may be removed from the list of jurisdictions that are treated as having an IGA in effect if the jurisdiction fails to perform the steps necessary to bring the IGA into force within a reasonable period of time. If a jurisdiction is removed from the list, financial institutions that are residents of that jurisdiction, and branches that are located in that jurisdiction, will no longer be entitled to the status that would be provided under the IGA, and must update their status on the FATCA registration website accordingly.

FATCA Compliance Resource

For a 400 page analysis of how to cost effectively comply with FATCA, please see “LexisNexis® Guide to FATCA Compliance” containing 25 chapters for meaningful interactions among enterprise stakeholders, and between the FATCA Compliance Officer and the FATCA advisors and vendors, as well as analysis of the compliance requirements of the current IGAs signed by Treasury.

Posted in Compliance, FATCA, Taxation | Tagged: FATCA, Foreign Account Tax Compliance Act, IGA, Internal Revenue Service, IRS, LexisNexis, United States, United States Department of the Treasury | Leave a Comment »

E-book now available for LexisNexis® Guide to FATCA Compliance!

Posted by William Byrnes on June 27, 2013

… following on the heels of the successful hardcopy release for this critical tax compliance area in which most financial firms must begin registering with the IRS reporting portal this July until the October deadline to be included on the IRS’ December participating list …

http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327

“LexisNexis Guide to FATCA Compliance” has now been released in electronic format. Print orders have already been mailed to Asia, Europe, North America, and the Caribbean.

Professor William Byrnes stated, “I built the international tax & financial services graduate program with a mission of facilitating professionals to become excellent communicators of the robust and complex area of international taxation, passing on the legacy of my mentors Walter Diamond, Jacobus (“Joop”) van Hoorn, Marshall Langer and Barry Spitz.

“The FATCA Compliance Guide was designed by a list of top industry FATCA experts via numerous interviews and meetings with government and central bank officials, NGO staff, large financial institution compliance officers, investment fund compliance officers, and trust company counsel, and of course, substantial analytic writing.

“It is amazing how many contributing experts that I can leverage with modern communications technology, and organize discussions and editing among multiple persons using online platforms. This method really leverages the learning technologies used in the online international tax program these past 18 years.”

When asked about the Guide’s subject, William Byrnes replied, “Simply put, the FATCA regulations require foreign financial enterprises to report financial information about US taxpayers to the IRS. Moreover, US financial institutions must begin reporting similar financial information on foreign taxpayers to the IRS that the IRS will automatically forward to the respective foreign government. Noncompliance leads to a 30% withholding on all payments made to the non-compliant institution, which will drive such institution out of the US market rather quickly.”

“FATCA became effective on January 1, 2013, albeit withholding begins only January 1, 2014. Though FATCA was enacted 3 years ago, there is substantial industry concern that many impacted compliance departments currently do not have access to sufficient, detailed information regarding which sources of the enterprises income are foreign and which are based in the U.S. and which of their customers are U.S. (taxable) persons (e.g. dual U.S. nationals, substantially presence U.S. tax residents), and which entities have substantial U.S. ultimate beneficial owners.”

“The 400 pages of the Guide are grouped in 3 parts: compliance, regulatory analysis, and intergovernmental agreement analysis.”

Posted in book, Compliance, FATCA, Taxation | Tagged: Compliance, FATCA, Foreign Account Tax Compliance Act, IRS, tax | Leave a Comment »

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Posted by William Byrnes on June 24, 2013

Readers stay updated and informed with good ol’ fashioned BOOKS that SHIP FREE this week only, Monday, June 24th – Sunday, June 30th at NationalUnderwriter!

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Posted in book, Estate Tax, Taxation | Tagged: income tax, IRS, national underwriter, tax facts | Leave a Comment »

Practical Considerations for Developing a FATCA Compliance Program

Posted by William Byrnes 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. …

Chapter contributors:

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 | 1 Comment »

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