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William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘IRS’

Tax Facts for Choosing the Right Tax Filing Status

Posted by William Byrnes on December 14, 2015


Using the correct filing status is very important when filing a tax return. The right status affects how much is owed in taxes. It may even affect whether a tax return must be filed.

When choosing a filing status, keep in mind that marital status on Dec. 31 is the status for the entire year.  If more than one filing status applies, choose the one that will result in the lowest tax.

Note for same-sex married couples that new rules apply if legally married in a state or foreign country that recognizes same-sex marriage.  The same sex spouses generally must use a married filing status on the 2015 federal tax return and forward.  This is true even if the same sex spouses now live in a state or foreign country that does not recognize same-sex marriage.

Here is a list of the five filing statuses to help you choose:

1. Single.  This status normally applies if you aren’t married or are divorced or legally separated under state law.

2. Married Filing Jointly.  A married couple can file one tax return together. If your spouse died in 2013, you usually can still file a joint return for that year.

3. Married Filing Separately.  A married couple can choose to file two separate tax returns instead of one joint return. This status may be to your benefit if it results in less tax. You can also use it if you want to be responsible only for your own tax.

4. Head of Household.  This status normally applies if you are not married. You also must have paid more than half the cost of keeping up a home for yourself and a qualifying person. Some people choose this status by mistake. Be sure to check all the rules before you file.

5. Qualifying Widow(er) with Dependent Child.  If your spouse died during 2014 or 2015 and you have a dependent child, this status may apply. Certain other conditions also apply.

Tax Facts Online is the premier practical, useful, actionable, and affordable reference on the taxation of insurance, employee benefits, investments, small tax-facts-online
business and individuals. This advisory service provides expert guidance on hundreds of the most frequently asked client questions concerning their most important tax issues.

Many ongoing, significant developments have affected tax law and, consequently, tax advice and strategies. Tax Facts Online is the only source that is reviewed daily and updated regularly by our expert editors.

In addition to completely current content not available anywhere else, Tax Facts Online gives you exclusive access to:

  • Robust search capabilities that enable you to locate detailed answers—fast
  • Time-saving calculators, tables and graphs
  • A copy/paste capability that speeds the production of presentations and enables you to easily incorporate Tax Facts content into your workPlus, the recent addition of current news, case studies, commentary and competitive intelligence serves our customers well as the only tax reference that a non-professional tax expert will ever need.

Tax Facts Online Core Content

Tax Facts on Insurance provides definitive answers to your clients’ most important tax-related insurance questions, while offering insightful analysis and illustrative examples. Numerous planning points direct you to the most recent and important insurance solutions.

Tax Facts on Employee Benefits provides current in-depth coverage of important client-related employee benefits questions. Employee benefits affect most2015_tf_triple_combo_cover-meveryone, and your clients must know how to deal with often complex issues and problems. Tax Facts on Employee Benefits provides the answers in a direct, concise, and practical manner.

Tax Facts on Investments provides clear, detailed answers to your difficult tax questions concerning investments. You must know what investments best suit your clients from a tax standpoint. You will discover questions that directly provide insightful answers, comparison of investment choices, as well as how investments have changed in recent years.

Tax Facts on Individuals & Small Business focuses exclusively on what individuals and small buisnesses 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.

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Dr. Jack Manhire Departs IRS & Treasury for Texas A&M Law School

Posted by William Byrnes on July 30, 2015


Dr. John T. (“Jack”) Manhire, Jr., former Chief of Legal Analysis for the IRS Office of Professional Treasury-Dept.-Seal-of-the-IRS
Responsibility and National Program Chair, Executive Education for the U.S. Treasury Executive Institute, has accepted a position as Director of Program Development at Texas A&M University School of Law.

Last month Texas A & M announced that William H. Byrnes, IV, (co-editor of our International Financial Law Prof Blog) left Thomas Jefferson Law School and joined the faculty of Texas A&M Law.

Including Dr. Manhire and the new University President, Dr. Michael Young, Texas A&M Law has hired 13 significant faculty hires for 2015, and two significant faculty visitors for Spring 2016 through the Texas A&M Institute of Advanced Studies.

For 2016, the law school is seeking to hire several more equally distinguished law professors.  See he previous post  Texas A&M University School of Law 2016-17 Faculty Recruitment Areas of Interest

Posted in Courses, Education Theory | Tagged: , | Leave a Comment »

Taxable or Not?

Posted by William Byrnes on March 16, 2015


9dc30-6a00d8341bfae553ef01bb07b43355970d-piAll income is taxable unless the law excludes it. Here are some basic rules you should know to help you file an accurate tax return:

  • Taxed income.  Taxable income includes money you earn, like wages and tips. It also includes bartering, an exchange of property or services. The fair market value of property or services received is taxable.

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

  • Life insurance.  Proceeds paid to you because of the death of the insured person are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that you get that is more than the cost of the policy is taxable.
  • Qualified scholarship.  In most cases, income from this type of scholarship is not taxable. This means that amounts you use for certain costs, such as tuition and required books, are not taxable. On the other hand, amounts you use for room and board are taxable.
  • State income tax refund.  If you got a state or local income tax refund, the amount may be taxable. You should have received a 2014 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

Tax Facts on Individuals & Small Business

2014_tf_on_individuals_small_businesses-m_1Due 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 competitive information to help them provide the best answers for their clients and to obtain new clients.  National Underwriter’s Tax Facts series is the only resource written specifically for the financial advisor and producer providing fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts has been famous over 50 years.

Anyone interested can try Tax Facts Online risk-free for 30 days, with a 100% guarantee of complete satisfaction.  Call 1-800-543-0874.

Posted in Taxation | Tagged: , | 1 Comment »

Are My Tips Taxable?

Posted by William Byrnes on February 23, 2015


9dc30-6a00d8341bfae553ef01bb07b43355970d-piThe IRS disclosed certain tax tips in a recent publication (2015-13) that may help a taxpayer file and report “tip” income correctly.

• Show all tips on the 1040 tax return.  All tips received during a calendar year must be added up and included on the federal tax return.  This even includes the value of tips that are not in cash.  Examples of non-cash tips include items such as tickets, passes or other items when provided by a customer for work or service.

• All tips are taxable.  Tips paid directly by a customer and tips added by a customer to a credit card are both to be included in taxable income. As well, tips received under a tip-splitting agreement with other employees, such as in a restaurant, are to be included.

• Report tips to the employer.  If an employee receives $20 or more in tips in any one month, the employee must report the tips for that month to the employer.  Tips reported to the employer include cash, check and credit card tips but does not include the value of any noncash tips.  The employer must withhold federal income, Social Security and Medicare taxes on these reported tips.

Daily tip log.  Use the IRS’ Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tips.

Tax Facts on Individuals & Small Business

2014_tf_on_individuals_small_businesses-m_1Due 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 competitive information to help them provide the best answers for their clients and to obtain new clients.  National Underwriter’s Tax Facts series is the only resource written specifically for the financial advisor and producer providing fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts has been famous over 50 years.

Anyone interested can try Tax Facts Online risk-free for 30 days, with a 100% guarantee of complete satisfaction.  Call 1-800-543-0874.

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New IRS Standard Mileage Rates – Business Rate Rise in 2015

Posted by William Byrnes on December 12, 2014


The IRS issued the 2015 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

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Beginning on Jan. 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck will be:

  • 57.5 cents per mile for business miles driven, up from 56 cents in 2014
  • 23 cents per mile driven for medical or moving purposes, down half a cent from 2014
  • 14 cents per mile driven in service of charitable organizations

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.

Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after claiming accelerated depreciation, including the Section 179 expense deduction, on that vehicle. Likewise, the standard rate is not available to fleet owners (more than four vehicles used simultaneously). Details on these and other special rules are in Revenue Procedure 2010-51, the instructions to Form 1040and various online IRS publications including Publication 17, Your Federal Income Tax.

Besides the standard mileage rates, Notice 2014-79, posted today on IRS.gov, also includes the basis reduction amounts for those choosing the business standard mileage rate, as well as the maximum standard automobile cost   that may be used in computing an allowance under  a fixed and variable rate plan.

2015_tf_on_indiv_sm_business_cover-mTax 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.

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 & New Medicare Tax and Net Investment Income tax
• Business Deductions and Losses including Home Office
• Contractor vs. Employee — clarified!
• Business Life Insurance
• Small Business Entity Choices & Small Business Valuation
• Capital Gains & Investor Losses
• Accounting — including guidance on how standards change as the business grows

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8 Tax Facts for Deducting Charitable Contributions

Posted by William Byrnes on November 10, 2014


IRS logoIf you are looking for a tax deduction, giving to charity can be a ‘win-win’ situation. It’s good for them and good for you. Here are eight things you should know about deducting your gifts to charity:

1. You must donate to a qualified charity if you want to deduct the gift. You can’t deduct gifts to individuals, political organizations or candidates.

2. In order for you to deduct your contributions, you must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with your federal tax return.

3. If you get a benefit in return for your contribution, your deduction is limited. You can only deduct the amount of your gift that’s more than the value of what you got in return. Examples of such benefits include merchandise, meals, tickets to an event or other goods and services.

4. If you give property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market.

5. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.

6. You must file Form 8283, Noncash Charitable Contributions, if your deduction for all noncash gifts is more than $500 for the year.

7. You must keep records to prove the amount of the contributions you make during the year. The kind of records you must keep depends on the amount and type of your donation. For example, you must have a written record of any cash you donate, regardless of the amount, in order to claim a deduction. It can be a cancelled check, a letter from the organization, or a bank or payroll statement. It should include the name of the charity, the date and the amount donated. A cell phone bill meets this requirement for text donations if it shows this same information.

8. To claim a deduction for donated cash or property of $250 or more, you must have a written statement from the organization. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.

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In 2015, Various Tax Benefits Increase Due to Inflation Adjustments

Posted by William Byrnes on November 5, 2014


The tax items for tax year 2015 of greatest interest to most taxpayers include the following dollar amounts –IRS logo

  • The tax rate of 39.6 percent affects singles whose income exceeds $413,200 ($464,850 for married taxpayers filing a joint return), up from $406,750 and $457,600, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
  • The standard deduction rises to $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively, for tax year 2014. The standard deduction for heads of household rises to $9,250, up from $9,100.
  • The limitation for itemized deductions to be claimed on tax year 2015 returns of individuals begins with incomes of $258,250 or more ($309,900 for married couples filing jointly).
  • The personal exemption for tax year 2015 rises to $4,000, up from the 2014 exemption of $3,950. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). It phases out completely at $380,750 ($432,400 for married couples filing jointly.)
  • The Alternative Minimum Tax exemption amount for tax year 2015 is $53,600 ($83,400, for married couples filing jointly). The 2014 exemption amount was $52,800 ($82,100 for married couples filing jointly).
  • The 2015 maximum Earned Income Credit amount is $6,242 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,143 for tax year 2014. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
  • Estates of decedents who die during 2015 have a basic exclusion amount of $5,430,000, up from a total of $5,340,000 for estates of decedents who died in 2014.
  • For 2015, the exclusion from tax on a gift to a spouse who is not a U.S. citizen is $147,000, up from $145,000 for 2014.
  • For 2015, the foreign earned income exclusion breaks the six-figure mark, rising to $100,800, up from $99,200 for 2014.
  • The annual exclusion for gifts remains at $14,000 for 2015.
  • The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) rises to $2,550, up $50 dollars from the amount for 2014.
  • Under the small business health care tax credit,  the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,800 for tax year 2015, up from $25,400 for 2014.

.01 Tax Rate Tables. For taxable years beginning in 2015, the tax rate tables under § 1 are as follows:

TABLE 1 – Section 1(a) – Married Individuals Filing Joint Returns and Surviving Spouses

If Taxable Income Is & The Tax Is:

  1. Not over $18,450 10% of the taxable income
  2. Over $18,450 but $1,845 not over $74,900 plus 15% of the excess over $18,450
  3. Over $74,900 but $10,312.50 not over $151,200 plus 25% of the excess over $74,900
  4. Over $151,200 but $29,387.50 not over $230,450 plus 28% of the excess over $151,200
  5. Over $230,450 but $51,577.50 not over $411,500 plus 33% of the excess over $230,450
  6. Over $411,500 but $111,324 not over $464,850 plus 35% of the excess over $411,500
  7. Over $464,850 $129,996.50 plus 39.6% of the excess over $464,850

TABLE 3 – Section 1(c) – Unmarried Individuals (other than Surviving Spouses and Heads of Households)

If Taxable Income Is & The Tax Is:

  1. Not over $9,225 10% of the taxable income
  2. Over $9,225 but $922.50 not over $37,450 plus 15% of the excess over $9,225
  3. Over $37,450 but $5,156.25 not over $90,750 plus 25% of the excess over $37,450
  4. Over $90,750 but $18,481.25 not over $189,300 plus 28% of the excess over $90,750
  5. Over $189,300 but $46,075.25 not over $411,500 plus 33% of the excess over $189,300
  6. Over $411,500 $119,401.25 not over $413,200 plus 35% of the excess over $411,500
  7. Over $413,200 $119,996.25 plus 39.6% of the excess over $413,200

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Job Hunting Expenses

Posted by William Byrnes on November 3, 2014


If you look for a new job in the same line of work, you may be able to deduct some of your job hunting costs.IRS logo

Here are some key tax facts you should know about if you search for a new job:

  • Same Occupation.  Your expenses must be for a job search in your current line of work. You can’t deduct expenses for a job search in a new occupation.
  • Résumé Costs.  You can deduct the cost of preparing and mailing your résumé.
  • Travel Expenses.  If you travel to look for a new job, you may be able to deduct the cost of the trip. To deduct the cost of the travel to and from the area, the trip must be mainly to look for a new job. You may still be able to deduct some costs if looking for a job is not the main purpose of the trip.
  • Placement Agency. You can deduct some job placement agency fees you pay to look for a job.
  • First Job.  You can’t deduct job search expenses if you’re looking for a job for the first time.
  • Work-Search Break.  You can’t deduct job search expenses if there was a long break between the end of your last job and the time you began looking for a new one.
  • Reimbursed Costs.  Reimbursed expenses are not deductible.
  • Schedule A.  You usually deduct your job search expenses on Schedule A, Itemized Deductions. You’ll claim them as a miscellaneous deduction. You can deduct the total miscellaneous deductions that are more than two percent of your adjusted gross income.

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Miscellaneous Deductions Can Cut Taxes

Posted by William Byrnes on October 15, 2014


IRS logoMiscellaneous Deductions Can Cut Taxes

You may be able to deduct certain miscellaneous costs you pay during the year. Examples include employee expenses and fees you pay for tax advice. If you itemize, these deductions could lower your tax bill. Here are some things the IRS wants you to know about miscellaneous deductions:

Deductions Subject to the Two Percent Limit.  You can deduct most miscellaneous costs only if their total is more than two percent of your adjusted gross income. These include expenses such as:

  • Unreimbursed employee expenses.
  • Expenses related to searching for a new job in the same line of work.
  • Certain work clothes and uniforms.
  • Tools needed for your job.
  • Union dues.
  • Work-related travel and transportation.

Deductions Not Subject to the Two Percent Limit.  Some deductions are not subject to the two percent limit. They include:

  • Certain casualty and theft losses. Generally, this applies to damaged or stolen property that you held for investment. This includes items such as stocks, bonds and works of art.
  • Gambling losses up to the amount of your gambling winnings.
  • Losses from Ponzi-type investment schemes.

There are many expenses that you can’t deduct. For example, you can’t deduct personal living or family expenses. You claim allowable miscellaneous deductions on Schedule A, Itemized Deductions.

Posted in Taxation | Tagged: , | 2 Comments »

Learn About the Federal Tax System

Posted by William Byrnes on October 6, 2014


IRS logo

Want to learn about the federal tax system?  

Did you know there’s a free, online program to help teachers and students learn the “hows” and “whys” of taxes? The IRS calls it “Understanding Taxes.” It was designed by the IRS and teachers to make learning about federal taxes as easy as A-B-C.

  • Accessible (web-based)
  • Brings learning to life
  • Comprehensive

Here are six more reasons to check out the Understanding Taxes program:

1. There are thirty-nine easy, relevant and fun lessons available 24/7.

2. A student can quickly look through the program and skip around.

3. A series of tax tutorials guides through the basics of tax preparation.  Another feature is a chance to test knowledge through tax trivia. There’s also a glossary of tax terms.

4. Teachers can customize the interactive program.  It’s easy to add to a school’s curriculum.

5. No need to register or login to use the program.

6. The program is a great way to learn about the history and theory of taxes in the USA.

IRS YouTube Videos:

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The IRS’ International Collection Efforts Not Up to Par, TIGTA Audit Finds

Posted by William Byrnes on October 1, 2014


International Financial Law Prof Blog.

International tax noncompliance remains a significant area of concern for the IRS. However, the IRS’s collection efforts need to be enhanced to ensure that delinquent international taxpayers become compliant with their U.S. tax obligations.

 

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IRS Notice 2014-52 – Rules Regarding Inversions and Related Transactions

Posted by William Byrnes on September 23, 2014


12833-6a00d8341bfae553ef01a3fd3e6553970b-piSECTION 1.  OVERVIEW

The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) are concerned that certain recent inversion transactions are inconsistent with the purposes of sections 7874 and 367 of the Internal Revenue Code (Code).  The Treasury Department and the IRS understand that certain inversion transactions are motivated in substantial part by the ability to engage in certain tax avoidance transactions after the inversion that would not be possible in the absence of the inversion.  In light of these concerns, this notice announces that the Treasury Department and the IRS intend to issue regulations under sections 304(b)(5)(B), 367, 956(e), 7701(l), and 7874 of the Code.

Section 2 of this notice describes regulations that the Treasury Department and the IRS intend to issue that will address transactions that are structured to avoid the purposes of sections 7874 and 367 by (i) for purposes of section 7874, disregarding certain stock of a foreign acquiring corporation that holds a significant amount of passive assets; (ii) for purposes of sections 7874 and 367, disregarding certain non-ordinary course distributions; and (iii) for purposes of section 7874, providing guidance on the treatment of certain transfers of stock of a foreign acquiring corporation (through a spin-off or otherwise) that occur after an acquisition.

Section 3 of this notice describes regulations that the Treasury Department and the IRS intend to issue that will address certain tax avoidance by (i) preventing the avoidance of section 956 through post-inversion acquisitions by controlled foreign corporations (CFCs) of obligations of (or equity investments in) the new foreign parent corporation or certain foreign affiliates; (ii) preventing the avoidance of U.S. tax on pre-inversion earnings and profits of CFCs through post-inversion transactions that otherwise would terminate the CFC status of foreign subsidiaries and/or substantially dilute the U.S. shareholders’ interest in those earnings and profits; and (iii) limiting the ability to remove untaxed foreign earnings and profits of CFCs through related party stock sales subject to section 304.

Section 4 of this notice provides the effective dates of the regulations described in this notice.  Section 5 of this notice requests comments and provides contact information for purposes of submitting comments.

Notice 2014-52, Rules Regarding Inversions and Related Transactions

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8 Tax Facts a Home Seller Should Know

Posted by William Byrnes on August 18, 2014


IRS logoIn its 8th tax tip of summer, the IRS revealed that if a taxpayer sells a home for a profit, the gain may not be taxable.  The IRS provided eight tax facts about selling a home in 2014.

1. A capital gain, or a part of it, on the sale of a home may not be taxable.  This rule may apply if the home is owned and used it as the main home for at least two out of the five years before the date of sale.  However, there are exceptions to the “ownership and use” rules. Some exceptions apply to persons with a disability. Some apply to certain members of the military and certain government and Peace Corps workers.

2. Up to $250,000 of gain will not be taxable for an individual, and $500,000 for married, filing a joint return.  The Obama Care Net Investment Income Tax will also not apply to the excluded gain.

3. If the gain is not taxable because it falls beneath the threshold, then the taxpayer may not be required to report the sale to the IRS on the 2014 tax return, filed in 2015.

4. However, a taxpayer must report the sale on the 2014 tax return if part or all of the gain cannot be excluded from tax, or if the taxpayer receives a Form 1099-S, Proceeds From Real Estate Transactions.  The additional Net Investment Income Tax may apply to the gain.

5. Generally, a taxpayer can only exclude the gain from the sale of a main home once every two years.

6.  If a taxpayer has more than one home, then the taxpayer may only exclude the gain on the sale of the main home, which is usually the home lived in most of the time.

7. If a taxpayer claimed the first-time homebuyer credit when purchasing the home, then special rules apply to the sale.

8. A loss on a home sale can not be deducted.

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5 Tax Tips for New Business

Posted by William Byrnes on August 11, 2014


IRS logoIn its summer time Tax Tips 9-2014, the IRS provided 5 tax tips to taxpayers who start a new business during 2014.

1. Business Structure.  The IRS stated that taxpayers should choose the business type for the new business. Some common types of entities include sole proprietorship, partnership, S corporation, Limited Liability Company (LLC) and C corporation (normally just referred to as a ‘corporation’).  The type of business chosen will determine the IRS form(s) that must be used to annually report information and to determine tax owing to the IRS.

2. Business Taxes.  There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. The type of taxes a business pays usually depends on which type of business the taxpayer chose to set up.

3. Employer Identification Number.  A taxpayer may need to get an EIN for federal tax purposes in order to file the tax form necessary for the business type.

4. Accounting Method.  An accounting method is a set of rules that determine when to report income and expenses. A business must use a consistent method. The two that are most common are the cash method and the accrual method. Under the cash method, income is reported in the year received and expenses are deducted in the year paid.  Under the accrual method, income is reported in the year earn, regardless of when payment was actually made, and expenses are deducted in the year incur, regardless of when paid.

5. Employee Health Care.  The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees.  A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. Beginning in 2014, the maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities.

For 2015 and after, employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees that is equivalent to 50 full-time employees) will be subject to the Employer Shared Responsibility provision.

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What Are the IRS Changes in the Newly Released Withholding Agreements for Foreign Trusts and Partnerships

Posted by William Byrnes on August 8, 2014


Revenue Procedure 2014-47 updates the Withholding Foreign Partnership (WP) and Withholding Foreign Trust (WT) agreements applicable to foreign partnerships and trusts that wishbook cover
to enter into a WP or WT withholding agreement with the IRS under ­§§1.1441-5(c)(2)(ii) and (e)(5)(iv).

Under Chapters 3 and 4, Application Procedures and Overview of Requirements for –

  • Withholding Foreign Partnership or
  • Withholding Foreign Trust Status

The procedure also contains the new –

  • Final Withholding Foreign Partnership Agreement
  • Final Withholding Foreign Trust Agreement

download for free –> LexisNexis® Guide to FATCA Compliance (Chapter 1, Background and Current Status of FATCA)

Reporting Forms?

If a foreign partnership has U.S. partners, the foreign partnership is generally required to file Form 1065 with a Schedule K-1 to report each U.S. partner.

If a foreign trust is a grantor trust with U.S. owners, the foreign trust is required to file Form 3520-A, Annual Information Return of a Foreign Trust with a U.S. Owner, and to provide statements to a U.S. owner, as well as each U.S. beneficiary who is not an owner and receives a distribution.

What Entities Are Eligible to Execute a WP or WT Agreement?

The WP agreement and WT agreement may be entered into by a foreign partnership and a foreign trust.

With respect to an FFI, the WP agreement and WT agreement may only be entered into by an FFI that agrees to satisfy the requirements and obligations of

1. a participating FFI (including a reporting Model 2 FFI),

2. a registered deemed-compliant FFI (including a reporting Model 1 FFI and a nonreporting Model 2 FFI treated as registered deemed-compliant), or

3. a registered deemed-compliant Model 1 IGA FFI (as defined in section 2 of the WP agreement or WT agreement).

An FFI that is a certified deemed-compliant FFI (including a nonreporting IGA FFI may enter into a WP agreement or WT agreement if the FFI meets and agrees to assume the obligations of, and to be treated as, a participating FFI (including a reporting Model 2 FFI), a registered deemed-compliant FFI (including a reporting Model 1 FFI or a nonreporting Model 2 FFI treated as registered deemed-compliant), or a registered deemed-compliant Model 1 IGA FFI.

An NFFE or an FFI that is a retirement fund (as defined in section 2 of the WP agreement or WT agreement) may also apply to enter into a WP agreement or WT agreement.

What Is the 2014 Effective Date of Execution of the Agreement?

  1. An entity (other than a retirement fund or an NFFE that is not a sponsoring entity) that applies for WP or WT status before August 31, 2014 and is approved will have a WP agreement or WT agreement with an effective date of June 30, 2014, provided that it obtains a GIIN, if it has not already done so, within 90 days of such approval.
  2. An entity (other than a retirement fund or an NFFE that is not a sponsoring entity) that applies after August 31, 2014 will have a WP agreement or WT agreement with an effective date of the date it is issued a WP-EIN or WT-EIN, if its application is approved and provided that it obtains a GIIN, if it has not already done so, within 90 days of such approval.
  3. A new WP or WT applicant that is a retirement fund or an NFFE that is not a sponsoring entity will have a WP agreement or WT agreement with an effective date of the date it is issued a WP-EIN or WT-EIN, if its application is approved.

What Is the Effective Date After 2014?

For calendar years after 2014, applications for WP or WT status received on or before March 31 of the calendar year, if approved, will be effective January 1 of that calendar year. Applications for WP or WT status received on or after April 1, if approved, will be effective January 1 of the following calendar year and the entity must be in compliance with the WP Agreement beginning January 1.

Withholding Requirements?

Chapter 4: FATCA

Section 1471(a) requires a withholding agent to deduct and withhold a tax equal to 30 percent on any withholdable payment made to an FFI, unless the FFI agrees to and complies with the terms of an FFI agreement to satisfy the obligations specified for a participating FFI, is deemed to meet these requirements of a deemed-compliant FFI, or is treated as an exempt beneficial owner.

Section 1472(a) requires a withholding agent to deduct and withhold a tax equal to 30 percent on any withholdable payment made to an NFFE unless such entity provides a certification that it does not have any substantial U.S. owners, provides information regarding its substantial U.S. owners, or an exception to these requirements otherwise applies.

A participating FFI (including a reporting Model 2 FFI) or registered deemed-compliant FFI (other than a reporting Model 1 FFI or registered deemed-compliant Model 1 IGA FFI) will
satisfy its requirement to withhold under sections 1471(a) and 1472(a) with respect to account holders of the FFI that are entities by withholding on withholdable payments made to
nonparticipating FFIs and recalcitrant account holders under the FFI agreement, or an applicable Model 2 IGA.  See the FFI agreement, §1.1471-5(f), and the applicable Model 2 IGA for the withholding requirements that apply to withholdable payments made to account holders of the FFI that are individuals treated as recalcitrant account holders.

A reporting Model 1 FFI or a registered deemed-compliant Model 1 IGA FFI will satisfy its requirement to withhold under section 1471(a) with respect to its account holders by withholding on withholdable payments made to nonparticipating FFIs to the extent required under the applicable Model 1 IGA. A withholding agent (including a participating FFI or registered deemed-compliant FFI) that is required to withhold on a withholdable payment must report the payment on Form 1042- S, Foreign Person’s U.S. Source Income Subject to Withholding.

A participating FFI (including a reporting Model 2 FFI) and certain registered deemed-compliant FFIs must, for a transitional period, report certain information about accounts it maintains that are held by nonparticipating FFIs. A withholding agent (including an FFI with respect to payments made to an NFFE that were not already reported with respect to a U.S. account or U.S. reportable account (as defined under the applicable Model 1 or Model 2 IGA) is also required to report withholdable payments made to an NFFE (other than an excepted NFFE) with substantial U.S. owners on Form 8966, FATCA Report, even though no withholding is required.

Chapter 3

A withholding agent is required to deduct and withhold a tax equal to 30 percent on any payment of U.S. source fixed or determinable annual or periodical (FDAP) income that is an amount subject to withholding made to a foreign person. A lower rate of withholding may apply under the Code, the regulations, or an income tax treaty. Generally, a withholding agent must also report the payments on Forms 1042-S, regardless of whether withholding is required.

Coordination of Withholding and Reporting Requirements under Chapters 3 and 4.

With respect to a payment that is subject to withholding under chapter 4, a withholding agent may credit any tax withheld under chapter 4 against its liability for any tax due with respect to the payment under chapter 3.  A withholding agent may use a single Form 1042-S to report information required under both chapters 3 and 4 with respect to a withholdable payment of U.S. source FDAP income subject to withholding under chapter 4 and for which a credit against the beneficial owner’s chapter 3 liability, if any, may be claimed.

Thus, a withholding agent that reports on Form 1042-S a withholdable payment that has been withheld upon under chapter 4 may provide certain information about the beneficial owner of the payment for purposes of chapter 3 on the same Form 1042-S.  With respect to a withholdable payment of U.S. source FDAP income that is not subject to withholding under chapter 4 and that is an amount subject to withholding (or reporting) under chapter 3, a withholding agent is also required to report the applicable chapter 4 exemption code in addition to the other information required to be reported on Form 1042-S.

What Are the Changes to the WP Agreement and the WT Agreement?

The revenue procedure revises and updates the WP and WT agreements to coordinate with the withholding and reporting requirements of chapter 4, and based on the IRS’ experience in dealing with these entities since the WP and WT agreements were first published in 2003.

Additionally, because a WP or WT will be required to assume primary withholding responsibility for chapter 4 purposes, the revised WP agreement and WT agreement expand the scope of payments for which an entity can act as a WP or WT to reportable amounts (as defined in section 2 of the WP or WT agreement, which includes withholdable payments). Thus, a WP or WT need not provide its withholding agent with a nonqualified intermediary withholding certificate and withholding statement for reportable amounts not subject to chapter 3 withholding that are allocable to partners, beneficiaries, or owners that are U.S. non-exempt recipients. A WP or WT will be required to report partners, beneficiaries, or owners that are U.S. non-exempt recipients on Form 8966, Schedule K-1, or Form 3520-A to the extent required under its FATCA requirements or the WP agreement or WT agreement.

Documentation Requirements.

The existing WP agreement and WT agreement require a WP or WT to document its partners, beneficiaries or owners solely with Forms W-8 and W-9 and do not permit reliance on the presumption rules of chapters 3 or 61. The revised WP agreement and WT agreement also prohibit reliance on the presumption rules with respect to a WP or WT’s direct partners, beneficiaries, or owners and retain an automatic termination provision for a WP or WT’s failure to obtain documentation for a direct partner, beneficiary, or owner.

The revised WP agreement and WT agreement provide for the use of documentary evidence, in lieu of a Forms W-8 or Form W-9, for direct partners, beneficiaries, or owners that is obtained by a WP or WT that is an FFI and that is subject to the “know-your-customer” practices and procedures of a jurisdiction that the IRS has approved.   A list of jurisdictions for which the IRS has received know-your-customer information and for which the know-yourcustomer rules are acceptable is available at: http://www.irs.gov/Businesses/International-Businesses/List-of-Approved-KYC-Rules.

The rules permitting the use of documentary evidence do not apply to an NFFE acting as a WP or WT, which is required to obtain Forms W-8 and W-9 to document the chapter 3 status and, when required, the chapter 4 status of its partners, beneficiaries, or owners.

Agency Option, Joint Account Option, and Indirect Partners.

The existing WP agreement and WT agreement do not allow a WP or WT to act as a WP or WT for its indirect partners, beneficiaries, or owners, except in two specific situations describe section 9 of the WP agreement or WT agreement (agency and joint account arrangements), both of which require a written agreement between the WP or WT and another foreign partnership or foreign trust.

Notwithstanding the restriction described above, the existing WP agreement and WT agreement were modified by rider in certain cases to permit a WP or WT to act as such for its indirect partners, beneficiaries, or owners, but the rider required specific payee reporting by the WP or WT with respect to these partners, beneficiaries, or owners.

The WP agreement and WT agreement are revised to provide that a WP or WT may act as a WP or WT with respect to direct and indirect partners, beneficiaries, or owners of a direct partner that is a passthrough partner (as defined in section 2 of the WP or WT agreement), provided that such partner, beneficiary, or owner is not a U.S. non-exempt recipient (unless such U.S. non-exempt recipient is included in the passthrough partner’s chapter 4 withholding rate pool of U.S. payees or recalcitrant account holders) in which case the WP or WT may also assume the withholding and Form 1042-S reporting requirements for these indirect partners.

Compliance Procedures.

The existing WP agreement and WT agreement require periodic audits by an external auditor in certain circumstances, including when a WP or WT made a pooled reporting election. The revised WP agreement and WT agreement replace the external audit requirement with an internal compliance program.

Modified Form 1065 Filing Requirement.

Under the existing WP agreement, unless modified by a rider, a WP is required to file Form 1065 and Schedules K-1 in accordance with the requirements of §1.6031(a)-1 and the instructions to the form.The revised WP agreement, incorporates the modified filing obligations under §1.6031(a)-1(b)(3) with certain revisions to permit a WP that meets the conditions specified in section 6.03(B) of the WP agreement, including that the WP would not otherwise be required to report a specifically allocated item to any partner on Schedule K-1, to either not file a partnership return or not file Schedules K-1 for certain foreign partners dependent on whether the WP has any direct or indirect U.S. partners.

SECTION 4. Withholding Foreign Partnership Agreement

Section 1. PURPOSE AND SCOPE
Section 2. DEFINITIONS
Section 3. WITHHOLDING RESPONSIBILITY
Section 4. DOCUMENTATION REQUIREMENTS
Section 5. WITHHOLDING FOREIGN PARTNERSHIP WITHHOLDING CERTIFICATE
Section 6. TAX RETURN AND INFORMATION REPORTING OBLIGATIONS
Section 7. ADJUSTMENTS FOR OVER- AND UNDERWITHHOLDING; REFUNDS
Section 8. COMPLIANCE PROCEDURES
Section 9. CERTAIN PARTNERSHIPS AND TRUSTS AND INDIRECT PARTNERS
Section 10. EXPIRATION, TERMINATION AND DEFAULT
Section 11. MISCELLANEOUS PROVISIONS
Section 12. EFFECTIVE DATE
 

SECTION 5. Withholding Foreign Trust Agreement

Section 1. PURPOSE AND SCOPE
Section 2. DEFINITIONS
Section 3. WITHHOLDING RESPONSIBILITY
Section 4. DOCUMENTATION REQUIREMENTS
Section 5. WITHHOLDING FOREIGN TRUST WITHHOLDING CERTIFICATE
Section 6. TAX RETURN AND INFORMATION REPORTING OBLIGATIONS
Section 7. ADJUSTMENTS FOR OVER- AND UNDERWITHHOLDING; REFUNDS
Section 8. COMPLIANCE PROCEDURES
Section 9. CERTAIN PARTNERSHIPS AND TRUSTS AND INDIRECT BENEFICIARIES AND OWNERS
Section 10. EXPIRATION, TERMINATION AND DEFAULT
Section 11. MISCELLANEOUS PROVISIONS
Section 12. EFFECTIVE DATE OF AGREEMENT

 

book cover

 

download for free –> LexisNexis® Guide to FATCA Compliance (Chapter 1, Background and Current Status of FATCA)

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New FATCA FAQ – Application of the Preexisting Obligation Election to Intermediaries and Flow-through Entities

Posted by William Byrnes on August 8, 2014


FATCA book coverQuestion: Notice 2014-33, 2014-21 I.R.B. 1033, provides that a withholding agent or FFI may treat an obligation as a preexisting obligation if the obligation (i) is issued, opened, or executed on or after July 1, 2014, and before January 1, 2015, and (ii) is held by an entity.  How does this provision of Notice 2014-33 apply when the recipient of a payment made under the obligation is a flow-through entity or intermediary?

Answer: A withholding agent may treat an obligation held by an entity (including an entity acting as an intermediary with respect to the obligation or a flow-through entity) as a preexisting obligation to the extent permitted in Notice 2014-33.  Therefore, an obligation held by an intermediary or flow-through entity is treated as a preexisting obligation if it is issued, opened, or executed before January 1, 2015.  In such a case, the withholding agent may rely on a pre-FATCA Form W-8 to document the holder of the obligation throughout 2014.  If the flow-through entity or intermediary provides the withholding agent with a withholding statement allocating a portion of a payment to a chapter 4 withholding pool of recalcitrant account holders or NPFFIs (or payee-specific information for such persons), then the withholding agent is required to apply chapter 4 withholding to the portion of the payment allocated to each such pool of payees (or each such payee), even though it is not yet required to document the chapter 4 status of the flow-through entity or intermediary.  However, a withholding agent must determine the chapter 4 status of a flow-through entity or intermediary as a PFFI or RDCFFI when provided with a withholding statement allocating a portion of a payment to a chapter 4 withholding rate pool of U.S. payees that the withholding agent reports on Form 1042-S as made to the pool rather than requiring payee-specific documentation for each payee in the pool or withholding and reporting in accordance with the applicable presumption rules.

If the withholding agent receives documentation from a flow-through entity with respect to an interest holder in the entity or from an intermediary with respect to its account holder and confirms (in writing) that the intermediary or flow-through entity treats the obligation as a preexisting obligation (including under Notice 2014-33, if applicable), the withholding agent may treat the obligation as a preexisting obligation provided that the withholding agent does not have documentation showing the interest holder or account holder to be an NPFFI.  The preceding sentence would apply, for example, to documentation provided with respect to a passive NFFE that is an account holder in an intermediary and that does not provide the information or certification described in Treas. Reg. § 1.1471-3(d)(12)(iii) with respect to its owners.

FATCA – FAQsGeneral Compliance, See Q7

download free  –> the 58 page Lexis Guide to FATCA Compliance, Chapter 1.

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Are you paying too much or too little tax?

Posted by William Byrnes on August 7, 2014


IRS logoIn Summer Tax Tip 10-2014, the IRS disclosed that that many taxpayers will discover that they either get a larger refund or owe more tax than they expected next April 15, 2015.  But, the IRS stated, this type of tax surprise is controllable by the taxpayer.

One way to prevent owing more tax next April 15, plus interest and any penalty, or to avoid having too much tax withheld, is to adjust the amount of tax withheld from salary.

Another way to prevent interest and penalties on April 15th is to change the amount of estimated tax paid during the year.

Factors the IRS wants taxpayers to consider during the summer include:

•    New Job.   A taxpayer must fill out and submit Form W-4, Employee’s Withholding Allowance Certificate in order to begin new employment.  The employer will use the information provided by the taxpayer on this form to calculate the amount of federal income tax to withhold from the paycheck.

•    Estimated Tax.  A taxpayer may need to pay estimated tax directly to the IRS during 2014 BEFORE filing the April 15 tax return in 2015.  If a taxpayer earns income without withholding, such as self-employment, interest, dividends or rent, then it is likely that the taxpayer owes estimated tax.  For the year 2014, tax may be due also on June 16, 2014, on Sept. 15 in 2014, on Jan. 15, 2015, and of course, also on Wednesday, April 15, 2015.  Read more about estimated tax here.

•    Life Event Change.  Married?  New Child?  New House?  The Form W-4 or Estimated Tax calculation needs to be updated to reflect a marriage, a child, or the purchase of a new home.

•    Changes in Circumstances.  A taxpayer that receives advance payment of the Obama Care premium tax credit in 2014 must report changes in circumstances, such as changes in income or family size, to the Health Insurance Marketplace where the medical insurance was bought for the year.  Also, a taxpayer must notify the Marketplace if moving away from the geographic area covered by the Marketplace plan.  Read more here.

 

 

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IRS releases Circular 230 update webinar

Posted by William Byrnes on July 31, 2014


Treasury-Dept.-Seal-of-the-IRSwatch the IRS Circular 230 webinar

see Revised Circular 230 (June 2014)

What is Circular 230?

Circular 230 is a document containing the statute and regulations detailing a tax professional’s duties and obligations while practicing before the IRS; authorizing specific sanctions for violations of the duties and obligations; and, describing the procedures that apply to administrative proceedings for discipline. Circular 230 is the common name given to the body of regulations promulgated from the enabling statute found at Title 31, United States Code § 330. This statute and the body of regulations are the source of OPR’s authority. Title 31 seeks to insure tax professionals possess the requisite character, reputation, qualifications and competency to provide valuable service to clients in presenting their cases to the IRS. In short, Circular 230 consists of the “rules of engagement” for tax practice. The underlying issue in all Circular 230 cases is the tax professional’s “fitness to practice” before the IRS.

 

 

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Getting Married – How Must I Include the IRS In My Wedding Plans?

Posted by William Byrnes on July 28, 2014


Why would a taxpayer want to include the IRS in his or her wedding plans?  Well, “its the law”.

No, the taxpayer does not need to send a wedding invitation to the closest IRS office.  But a 2014 marriage results in changes to the new married “couple’s” 2014 tax filing and possibly amount owed in tax for 2014.  Whether the couple will owe more in tax each year, including the year of marriage, over that of the combined amount of each individual’s tax due, depends on several factors, such as whether both spouses have income and how much that income is.  In general, a married couple, when both spouses are employed, pay more income tax than if they remained single and filed individual tax returns.  Also, the married couple may owe, and may owe more, of the additional 3.8% Net Investment Income Tax.

The IRS’ Summer Tax Tip 2014-2 reminds taxpayers that marriage has certain tax consequences from at least a filing persepctive.  These include:

Change in filing status.  If a couple is married before, or even on Dec. 31, 2014 at 11:59pm, then for the whole year of 2014 for tax purposes the IRS considers the couple married. Thus, neither spouse may file an individual’s tax return any longer.  Instead, the married couple must choose to file your federal income tax return either jointly or separately (as a married couple) for 2014.

Same-sex married couples:  If the couple is legally married in a state or country that recognizes same-sex marriage, then the couple must file as married for the federal tax return. This is true even if you and your spouse later live in a state or country that does not recognize same-sex marriage.

Name change. The names and Social Security numbers listed on a tax return must match the Social Security Administration records. If a spouse changes the family name, then that name change must be reported to SSA.

Change tax withholding.  A change in marital status requires that a new Form W-4 for each spouse’s employer (Employee’s Withholding Allowance Certificate).  If it normal that when both spouse have income, the combined incomes moves each into a higher tax bracket for withholding at work.  Use the IRS Withholding Calculator tool to assist completing a new Form W-4.

Obama Care Premium Tax Credit changes in circumstances.  If a taxpayer took advantage of receiving the advance payment of the premium tax credit in 2014, then it is required to report changes in circumstances, such as changes in income, marriage, or family size, to the Health Insurance Marketplace.  Moreover, if one spouse will move out of the area covered of a current Marketplace plan, then that spouse must notify the Marketplace.

Address change for IRS letters.  A taxpayer has the responsibility to inform that IRS of an address changes.  To do that, file Form 8822, Change of Address, with the IRS.  Also, separately, the taxpayer should ask the U.S. Postal Service online at USPS.com to forward any mail sent to the former address.

2014_tf_on_individuals_small_businesses-m_1Due 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 book 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.

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.

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5 Tax Facts about IRS Notices and Letters

Posted by William Byrnes on June 25, 2014


In Tax Tip 2014-60, the IRS disclosed that it sends millions of notices and letters to taxpayers.   Not surprising, given that over 150 million returns are filed each year.   The IRS informed taxpayers of 6 important tips about such notices and letters:

1. The IRS sends letters and notices by mail, never by email nor by social media.  Each notice has specific instructions about what the taxpayer must do to respond.  Often, a taxpayer only needs to respond by mail to deal with whatever the notice requests.  Keep copies of any notices and responses with the annual tax records.

2. The IRS may send a letter or notice for a variety of very different reasons.  Typically, a letter or notice is only about one specific issue on a taxpayer’s federal tax return or about the taxpayer’s tax account.   A notice may simply inform the taxpayer about changes to the tax account or only ask you for more information about an item on the tax return.  However, it may inform the taxpayer that a tax payment is due.

3. A taxpayer may receive a notice that states the IRS has made a change or correction to the tax return.  In this case, the taxpayer should review the information received and then compare it with the original tax return.  If the taxpayer agrees with the IRS notice, then the taxpayer usually does not need to reply except to make a payment.

4. However, if the taxpayer does not agree with the notice, then the taxpayer must respond.  The taxpayer must write a letter to explain why the taxpayer disagrees with the IRS notice, including any information and documents that supports the taxpayer’s position.  The taxpayer must mail a reply, with the bottom tear-off portion of the notice, to the address shown in the upper left-hand corner of the notice.  Allow at least 30 days for a response.

5. A taxpayer does not need to call or visit an IRS office for most notices.  However, if a taxpayer has questions, then call the phone number in the upper right-hand corner of the notice. Have a copy of the tax return and the notice for the call.

tax-facts-online_medium

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.” said Rick Kravitz.  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.

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.

 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.

2014 Tax Facts on Investments provides clear, concise answers to often complex tax questions concerning investments.  2014 expanded sections on Limitations on Loss Deductions, Charitable Gifts, Reverse Mortgages, and REITs.

 

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8 Tax Facts about Penalties for Late Filing and Paying Taxes

Posted by William Byrnes on June 18, 2014


In Tax Tip 2014-56, the IRS provided 9 tax facts that a taxpayer needs to know about late filing and late paying tax penalties after the deadline of April 15.  By example, taxpayers should be made aware that the failure-to-file penalty is usually 10 times greater than the failure-to-pay penalty.  So the IRS encourages taxpayers to file on time, even if they cannot pay on time.

1. If a taxpayer is due a federal tax refund then there is no penalty if the tax return is filed later than April 15.  However, if a taxpayer owes taxes and fails to file the tax return by April 15 or fails to pay any tax due by April 15,  then the taxpayer will probably owe interest and penalties on the tax still after April 15.

2. Two federal penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.

3. The failure-to-file penalty is usually much more than the failure-to-pay penalty.  In most cases, it is 10 times more!!!  So if a taxpayer cannot pay what is owe by April 15, the taxpayer should still file a tax return on time and pay as much as possible to reduce the balance.

4. The failure-to-file penalty is normally 5% of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25% of the unpaid taxes.

5. If a taxpayer files a return more than 60 days after the due date (or extended due date), the minimum penalty for late filing is the smaller of $135 or 100% of the unpaid tax.

6. The failure-to-pay penalty is generally 0.5% per month of your unpaid taxes.  It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due.  It can build up to as much as 25% of the unpaid taxes.

7. If the 5% failure-to-file penalty and the 0.5% failure-to-pay penalty both apply in any month, the maximum penalty amount charged for that month is 5%.

8. If a taxpayer requested the 6-month extension of time to file the income tax return (until October 15) by the tax due date of April 15 and paid at least 90% of the taxes that are owed, then the taxpayer may not face a failure-to-pay penalty.  However, the taxpayer must pay the remaining balance by the extended due date.  The taxpayer will still owe interest on any taxes paid after the April 15 due date.

9. A taxpayer may avoid a failure-to-file or failure-to-pay penalty if able to show reasonable cause for not filing or paying on time.

tax-facts-online_medium

Because of the constant changes to the tax 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. For over 110 years, National Underwriter has provided fast, clear, and authoritative answers to financial advisors pressing questions, and it does so in the convenient, timesaving, Q&A format.

“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.


If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

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Why Is The IRS Softening the Offshore Voluntary Compliance Program ?

Posted by William Byrnes on June 11, 2014


On June 3, 2014 the IRS Commissioner John A. Koskinen stated before The U.S. Council For International Business-OECD International Tax Conference:

“Now while the 2012 OVDP and its predecessors have operated successfully, we are currently considering making further program modifications to accomplish even more. We are considering whether our voluntary programs have been too focused on those willfully evading their tax obligations and are not accommodating enough to others who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-willful variety. For example, we are well aware that there are many U.S. citizens who have resided abroad for many years, perhaps even the vast majority of their lives. We have been considering whether these individuals should have an opportunity to come into compliance that doesn’t involve the type of penalties that are appropriate for U.S.-resident taxpayers who were willfully hiding their investments overseas. We are also aware that there may be U.S.-resident taxpayers with unreported offshore accounts whose prior non-compliance clearly did not constitute willful tax evasion but who, to date, have not had a clear way of coming into compliance that doesn’t involve the threat of substantial penalties.

 We are close to completing our deliberations on these respects and expect that we will soon put forward modifications to the programs currently in place. … We believe that re-striking this balance between enforcement and voluntary compliance is particularly important at this point in time, given that we are nearing July 1, the effective date of FATCA. …”

Amount Recovered Thus Far from Non-Compliant Taxpayers 

According to the GAO Reports and the Senate Subcommittee report, the 2008, 2011, and the ongoing 2012 offshore voluntary disclosure initiative (OVDI) have led to 43,000 taxpayers paying back taxes, interest and penalties totaling $6 billion to date, with more expected.

However, the vast majority of this recovered $6 billion is not tax revenue but instead results from the FBAR penalties (anti money laundering financial reporting form sent by June 30 to FINCEN, separate from the 1040 tax filing to the IRS sent by April 15) assessed for not reporting a foreign account.  The Taxpayer Advocatefound that for noncompliant taxpayers with small accounts, the FBAR and tax penalties reached nearly 600% of the actual tax due!  The median offshore penalty was about 381% of the additional tax assessed for taxpayers with median-sized account balances.

From the IRS OVDP FAQ:

“For example, assume the taxpayer has the following amounts in a foreign account over the period covered by his voluntary disclosure. It is assumed for purposes of the example that the $1,000,000 was in the account before 2003 and was not unreported income in 2003.

 

Year Amount on Deposit Interest Income Account Balance
2003 $1,000,000 $50,000 $1,050,000
2004   $50,000 $1,100,000
2005   $50,000 $1,150,000
2006   $50,000 $1,200,000
2007   $50,000 $1,250,000
2008   $50,000 $1,300,000
2009   $50,000 $1,350,000
2010   $50,000 $1,400,000

(NOTE: This example does not provide for compounded interest, and assumes the taxpayer is in the 35-percent tax bracket, does not have an investment in a Passive Foreign Investment Company (PFIC), files a return but does not include the foreign account or the interest income on the return, and the maximum applicable penalties are imposed.)

If the taxpayers in the above example come forward and their voluntary disclosure is accepted by the IRS, they face this potential scenario:

They would pay $518,000 plus interest. This includes:

  • Tax of $140,000 (8 years at $17,500) plus interest,
  • An accuracy-related penalty of $28,000 (i.e., $140,000 x 20%), and
  • An additional penalty, in lieu of the FBAR and other potential penalties that may apply, of $385,000 (i.e., $1,400,000 x 27.5%).

If the taxpayers didn’t come forward, when the IRS discovered their offshore activities, they would face up to $4,543,000 in tax, accuracy-related penalty, and FBAR penalty.”

The IRS example to enter the OVDP has 75% of the OVDP collection amount from the FBAR penalty.  The FBAR penalty is 2.75 larger than the tax due.  But not entering leads to owing an amount four times the account value.

Thus, judged by the amount of tax funds recovered, the OVDP has substantially underperformed to date.  But by leveraging a taxpayer’s lack of compliance with the non-tax FBAR, the OVDP and IRS civil prosecutions appear to meet performance goals of raising revenue and obtaining overall tax compliance for US persons with foreign accounts and/or residing abroad.  Or do they?

Have These Initiatives Increased Taxpayer Compliance?

The Taxpayer Advocate, replying on State Department statistics, cited that 7.6 million U.S. citizens reside abroad and many more U.S. residents have FBAR filing requirements, yet the IRS received only 807,040 FBAR submissions as recently as 2012.  The Taxpayer Advocate noted that in Mexico alone, more than one million U.S. citizens reside, and many Mexican citizens reside in the U.S. (and thus are required to file a FBAR for any Mexican accounts of $10,000 or greater).  Moreover, Non-Resident Aliens (NRAs) must file a FBAR as well.  Thus, all the initiatives to date have produced a compliance rate below 10% compliance.  Sounds more like the War on Drugs rather than a drive to increase tax compliance.

This is not to say that obtaining a highly level of compliance with the tax law, like compliance with the drug laws and DUI laws, is not a public good in itself – such tax compliance is a public good that the public has chosen, via Congress (and its investigatory hearings), for resource allocation. But like the War on Drugs, there are many potential strategies to bring about compliance.  The ones used to date just haven’t worked very well, and caused more problems (the War on Drugs has led to one of the highest rates of imprisonment of the world, that some have called a scorched earth policy against young male minorities in particular).

Have These Initiatives Met the Tax Collection Goals?

The Subcommittee Report states: “Offshore tax evasion has been an issue of concern … because lost tax revenues contribute to the U.S. annual deficit, which today exceeds $500 billion. Collecting unpaid taxes is one way to reduce the deficit without raising taxes.”

The Senate Subcommittee reported that: “According to the IRS, the current estimated annual U.S. tax gap is $450 billion, which represents the total amount of U.S. taxes owed but not paid on time, despite an overall tax compliance rate among American taxpayers of 83 percent. Contributing to that annual tax gap are offshore tax schemes responsible for lost tax revenues totaling an estimated $150 billion each year.”

To justify the reporting of the number of $150 billion a year of lost tax revenue due to “offshore tax schemes”, the Senate Report primarily cites its own investigatory reports and third party articles that refer to transfer pricing issues.  While transfer pricing regulations have been under scrutiny, at least by the Democrats, in the Senate, it is certainly not commonly held by those same Democrats that transfer pricing is illegal or constitutes an “offshore scheme”.

It is proven beyond a doubt by the UBS, Credit Suisse, and other similar investigations, validated by the OVDI disclosures, that some Americans are noncompliant, and that some of those noncompliant Americans would owe tax if disclosing foreign income on their tax returns.  There is also no doubt that the total number of noncompliant Americans between 2008 and 2013 was more than the 43,000 who were brought in from the wilderness.

There is also no doubt that the tax that would have been collected from these noncompliant taxpayers had they been compliant during their time in the wilderness is in fact, relative to the reported figure of $150 billion lost annually, miniscule (somewhere probably between $300 million and $500 million a year for lost tax (recalling the majority of the $6 billion collected representing FBAR penalties, tax penalties, and interest).  To date, of the $150 billion referred to as lost a year to offshore schemes, only approximately .003% (a third of one percent) has been collected – and that assuming the higher number of $500 million a year.  Not a good result by any measure.  And not going to dent the annual $450B – $500B deficit (not including unfunded liabilities).

Are More Than 90% of Taxpayers with Foreign Accounts Tax Evaders?

The Taxpayer Advocate, relying on State Department statistics, cited that 7.6 million U.S. citizens reside abroad.  Most are required to file a FBAR.  The Taxpayer Advocate noted that in Mexico alone, more than one million U.S. citizens reside, and many Mexican citizens reside in the U.S. (and thus are required to file a FBAR for any Mexican accounts of $10,000 or greater).

Many more U.S. residents have FBAR filing requirements because of having signatory, control, or ownership of an overseas account.  The Department of Homeland Security reported in Population Estimates (July 2013) that an estimated 13.3 million LPRs lived in the United States as of January 1, 2012, some of who will have FBAR filing requirements.

For 2011, approximately four million individual returns included foreign source income and 450,000 included the Foreign Earned Income Exclusion.  Yet the IRS received only 807,040 FBAR submissions as recently as 2012.

Based on these numbers, more than 90% of taxpayers with foreign accounts are NOT compliant with the FBAR filing requirement.  Add it up: 7.6 million Americans abroad, 13.3 LPRs in the USA, at least 1 million NRAs in the US, and some number of American citizens in the US with foreign accounts.  Must equal at least 10 million taxpayers that should be filing the FBAR.   The IRS has stated that a substantial number of US taxpayers living abroad do not file tax returns at all.

The IRS reports that 87% of American residing taxpayers are tax compliant.  So the remaining 13% … statistically speaking, being an American residing in America and having a foreign account is indicative of tax evasion, especially if FBAR is considered a “tax” compliance obligation (which it is not).

Based on these numbers, being an American living in a foreign country is a leading cause of criminality.  What the statistics do not tell is which comes first: criminality or foreign activity?  A person tends toward criminality and thus opens a foreign account or moves to a foreign country?  Or the act of moving abroad to a foreign country leads to criminality?  Absurd questions?      

Is the FBAR form necessary?  Why has it not been combined with the 1040?  Why not with the new 8938?  Questions to ponder in another article.

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77,353 FFI Listed by IRS as FATCA compliant – here’s a breakdown

Posted by William Byrnes on June 2, 2014


The IRS has published the FATCA compliant Foreign Financial Institution (FFI) list in downloadable XMS (excel) format.  The list contains the current 77,353 names of financial institutions and other entities that have completed Foreign Account Tax Compliance Act (FATCA) registration with the IRS and obtained a global intermediary identification number (GIIN).  At least another 70,000 – 100,000 FFIs remain to register and/or are waiting to receive a GIIN, although the IRS has stated in the FFI List FAQs the total number could reach as high as 500,000.

From July 1st a withholding of 30% will apply to FATCA withholdable payments to the 140 countries and jurisdictions without an IGA.  68 countries and jurisdictions have a an IGA with the USA and thus a FATCA registration extension until the end of the year.  See yesterday’s article about the IGAs and other deadlines.

20% of the FATCA compliant financial firms hailed from Cayman Islands at 14,836 registered whereas BVI had 1,837.  2.053 Netherlands financial firms registered thus far, whereas nearly twice as many Swiss firms had GIINs at 4,040.  Liechtenstein only had 239 register.  Of the BRIC countries, only 211 China firms were registered to date, 246 Indian ones, and 514 Russian ones, compared to 2,258 for Brazil.

The most obscure GIIN registration is perhaps AK BARS Investments Corporation which listed BRITISH INDIAN OCEAN TERRITORY.  Falkland Islands even had a registration, albeit a branch, as did Wallis and Futuna (French Pacific territory).  The most contentious GIIN registrations will be the 23 from “the State of Palestine” (I must have missed the State Department press release recognizing its statehood).

The FFI List Search and Download Tool contains a link to a Search and Download Tool that allows the FFI List to be searched and downloaded to ensure ease of use.  A User Guide for the list search-and-download tools is posted online to explain the convenient features provided.

A cumulative updated FFI list will be posted monthly that will contain the names of all financial institutions and other entities that have completed FATCA registration with the IRS and obtained a GIIN up to 5 business days before the end of the previous month. The first updated list will be posted by the IRS on July 1.

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book cover
Practical Compliance Aspects of FATCA and GATCA

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters by 50 industry experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance challenges (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems.   A free download of the first of the 34 chapters is available at http://www.lexisnexis.com/store/images/samples/9780769853734.pdf


If you are interested in discussing the Master or Doctoral degree in the areas of international taxation or anti money laundering compliance, please contact me profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour”

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9 Tax Facts about Amending a Tax Return

Posted by William Byrnes on May 21, 2014


The IRS in Tax Tip 2014-51 alerted taxpayers to their ability to amend a tax return after it has already been filed with the IRS.  By example, if a taxpayer discovers that a mistake was made on the return, such as a mis-statement of income or inadvertent inclusion or exclusion of a deduction, the taxpayer can correct the mistake by filing an amended tax return.

9 tax facts that a taxpayer should know about filing an amended tax return include:

1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct errors on a tax return.  But the amended return must be filed on paper.  Amended returns cannot be e-filed.

2. A taxpayer should file an amended tax return if there is an error claiming a filing status, income, deductions or credits on the original return.

3. However, a taxpayer normally will not need to file an amended return to correct simple math calculation errors on the return.  The IRS computers will find those math errors and automatically make those changes.  Such changes may effect the tax due or increase or decrease a refund.  Also, a taxpayer does not to file an amended return because of a forgotten tax form attachment, such as a W-2 or schedule. The IRS will normally later send a request for those to be sent separately.

4. A taxpayer normally has 3 years from the filing date of the original tax return to amend the tax return to claim a refund by filing Form 1040X . A taxpayer may file the amended return within two years from the date of paying the tax due, if that date is later than the filing date of the tax return.  Thus, generally the last day for most taxpayers to file a 2010 claim for a refund is April 15, 2014, unless a special exception applies.

5. If a taxpayer needs to amend more than one tax return, then a 1040X must be prepared for each year. Each 1040X form must be mailed in a separate envelope.  Note the tax year being amended on the top of Form 1040X.  Form 1040X’s instructions include the address where to mail the form.

6. If a taxpayer has other IRS forms or schedules that required changes, then attach them to the Form 1040X.

7. If a taxpayer is due an additional refund because of a potential amendment from the original return, then the taxpayer should wait to receive that first refund before filing Form 1040X to claim the additional refund.  Amended returns require as much as 12 weeks to process.

8. If a taxpayer ends up owing more tax, then file the Form 1040X and pay the tax as soon as possible. This will reduce any interest and penalties on that amount owing.

9. An amended tax return can be tracked three weeks after it is filed with the IRS tool: ‘Where’s My Amended Return?’ or by phone at 866-464-2050.  This tool can track the status of an amended return for the current year and up to three years back.  The ‘Where’s My Amended Return?’ tool requires a taxpayer identification number, normally the Social Security number, and the date of birth and zip code.

tax-facts-online_medium

Because of the constant changes to the tax 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. For over 110 years, National Underwriter has provided fast, clear, and authoritative answers to financial advisors pressing questions, and it does so in the convenient, timesaving, Q&A format.

“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.

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Is Your Child Required to File a Tax Return?

Posted by William Byrnes on May 16, 2014


2014_tf_on_investments-mChildren are potential taxpayers too!  That is the message from the IRS in Tax Tip 2014-38.  A child may be required to a federal tax return, or if a child can not file his or her own return, then the parent or guardian is normally responsible for filing their tax return.

Here are 4 tax facts from the IRS that about a child’s investment income:

1. Investment income normally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust.

2. Special rules apply if a child’s total investment income is more than $2,000. The parent’s tax rate may apply to part of that income instead of the child’s (lower) tax rate.

3. If a child’s total interest and dividend income was less than $10,000 in 2013, the taxpayer may be able to include the income on the taxpayer’s tax return. If the taxpayer elects this choice, the child does not then file a return. See Form 8814, Parents’ Election to Report Child’s Interest and Dividends.

4. Children whose investment income was $10,000 or more in 2013 must file their own tax return. File Form 8615, Tax for Certain Children Who Have Investment Income, along with the child’s federal tax return.

Starting in 2013, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax. NIIT is a 3.8% tax on the lesser of either net investment income or the excess of the child’s modified adjusted gross income that is over a threshold amount. Use Form 8960, Net Investment Income Tax, to calculate this tax.

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110 Swiss client accounts turned over to IRS

Posted by William Byrnes on May 13, 2014


Swisspartners Enters into Non Prosecution Agreement and Turns Over US clients account information

The Tax Division of the US Department of Justice (DOJ) and the IRS’ Criminal Investigation (IRS-CI) announced a major victory in their joint campaign “… to identify U.S. tax cheats who have hidden behind phony offshore trusts and foundations,” said Deputy Attorney General Cole in the Friday, May 9, 2014 release by the DOJ’s Office of Public Affairs.

“This office will continue to work aggressively to hold accountable not only those U.S. taxpayers who evade their tax obligations by hiding money overseas, but also those abroad who make such tax evasion possible,” said U.S. Attorney Bharara.

The asset management firm, Swisspartners, entered into a non-prosecution agreement (NPA), the terms of which were verified by signature in a May 8, 2014 DOJ letter attached to the May 9th  complaint filed with the New York Southern District.  Almost a year ago, the DOJ reported that in July 2013 Liechtensteinische Landesbank AG, a bank based in Vaduz, Liechtenstein that owns 71% of Swisspartners, entered into a non-prosecution agreement and agreed to pay more than $23.8 million stemming from its offshore banking activities, and turned over more than 200 account files of U.S. taxpayers who held undeclared accounts at the bank.

“I am very pleased that we have successfully concluded negotiations with the Swisspartners Group,” said IRS-CI Chief Weber .  “In making amends, the Swisspartners Group has turned over 110 account files relating to U.S. taxpayer-clients who maintained undeclared assets overseas….”

Swisspartners Group confessed to assisting U.S. taxpayer-clients in opening and maintaining undeclared foreign bank accounts from in or about 2001 through in or about 2011.  The DOJ provided the following factors as the basis of the NPA:

  • the Swisspartners Group’s voluntary implementation of various remedial measures beginning in or about May 2008;
  • the Swisspartners Group’s voluntary self-reporting in 2012 of its criminal conduct at a time when it was neither a subject nor target of any investigation by the U.S. Department of Justice;
  • the Swisspartners Group’s voluntary and extraordinary cooperation, including its voluntary production of account files that include the identities of U.S. taxpayer-clients;
  • the Swisspartners Group’s willingness to continue to cooperate to the extent permitted by applicable law;
  • the Swisspartners Group’s representation, based on an investigation by outside counsel, the results of which have been shared with the U.S. Attorney’s Office and the Tax Division, that the misconduct under investigation did not, and does not, extend beyond that described in the Statement of Facts; and
  • the NPA requires the Swisspartners Group to continue to cooperate with the United States for at least three years from the date of the agreement.

The NPA requires the Swisspartners Group to forfeit $3.5 million to the United States, representing certain fees that it earned by assisting its U.S. taxpayer-clients in opening and maintaining these undeclared accounts, and to pay $900,000 in restitution to the IRS, representing the approximate amount of unpaid taxes arising from the tax evasion by the Swisspartners Group’s U.S. taxpayer-clients from 2001 to 2011.  In the complaint, Swisspartners admitted to:

  1. establishing sham corporate entities whereby the clients continued to maintain control of accounts,
  2. smuggling cash, in the tens of thousands, without reporting into the US to deliver to its clients, and
  3. establishing sham insurance policies with premiums from undeclared sources and in which the clients continued to control the underlying investments.

On its website, Swisspartners states: “swisspartners analyzes your tax and fiscal law situation and provides structuring services at an international level – complementary to the services provided by your tax advisor in your home country.”  Regarding insurance policies, its website states: “swisspartners designs private-placement insurance contracts that take into account the legal and tax requirements of the countries in which the family members involved have their fiscal domiciles.  Not only are our efficiently designed contracts not subject to ongoing taxation in the asset owner’s country of residence, they are also non-taxable in several other countries.

In the DOJ release statements, Deputy Attorney General Cole stated, “Swisspartners avoided criminal charges as a direct result of its decision to self-report its misconduct at a time when it was not even under investigation and its extraordinary cooperation, including its decision to turn over voluntarily the files and identities of U.S. taxpayer clients it helped hide money from the IRS.  The case serves as a clear example of the benefits that can be obtained from early and complete cooperation with federal law enforcement.”

What is the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks?

The Tax Division of the Department of Justice released a statement on December 12, 2013 that strongly encouraged Swiss banks wanting to seek non-prosecution agreements to resolve past cross-border criminal tax violations to submit letters of intent by a Dec. 31, 2013 deadline required by the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“).  The Program was announced on Aug. 29, 2013, in a joint statement signed by Deputy Attorney General James M. Cole and Ambassador Manuel Sager of Switzerland (> See the Swiss government’s explanation of the Program < ).  Switzerland’s Financial Market Supervisory Authority (FINMA) had issued a deadline of Monday, December 16, 2013 for a bank to inform it with its intention to apply for the DOJ’s Program.

106 Swiss Banks Enter DOJ’s NPA program

David Voreacos of Bloomberg News reported that Kathryn Keneally, assistant attorney general of the Justice Department’s Tax Division, in her keynote remarks to the American Bar Association Section of Taxation mid-year  (January 25, 2014), stated that 106 Swiss banks (of approximately 300 total) filed the requisite letter of intent to join the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“) by the December 31, 2013 deadline.  Renown attorney and Professor Jack Townsend reported on his blog on April 30, 2014 a list of 52 Swiss banks that had publicly announced the intention to submit the letter of intent, as well as each bank’s category for entry: six announced seeking category 4 status, eight for category 3, thirty-eight for category 2.

However, while 106 may be a large jump from a mid-December report by the international service of the Swiss Broadcasting Corporation (“SwissInfo”) that only a few Swiss banks had filed for non prosecution with the DOJ’s program, William R. Davis and Lee A. Sheppard of Tax Analysts’ Worldwide Tax Daily reported that “one private practitioner estimated that some 350 banks holding 40,000 accounts have not come in.” (see “ABA Meeting: Keneally Reports Success With Swiss Bank Program”, Jan. 28, 2014, 2014 WTD 18-3.)

Framework of Swiss Bank NPA Program

The DOJ statement described the framework of the Program for Non-Prosecution Agreements: every Swiss bank not currently under formal criminal investigation concerning offshore activities will be able to provide the cooperation necessary to resolve potential criminal matters with the DOJ.  Currently, the department is actively investigating the Swiss-based activities of 14 banks.  Those banks, referred to as Category 1 banks in the Program, are expressly excluded from the Program.  Category 1 Banks against which the DOJ has initiated a criminal investigation as of 29 August 2013 (date of program publication).

On November 5, 2013 the Tax Division of the DOJ released comments about the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks.  Swiss banks that have committed violations of U.S. tax laws and wished to cooperate and receive a non-prosecution agreement under the Program, known as Category 2 banks, had until Dec. 31, 2013 to submit a letter of intent to join the program, and the category sought.

To be eligible for a non-prosecution agreement, Category 2 banks must meet several requirements, which include agreeing to pay penalties based on the amount held in undeclared U.S. accounts, fully disclosing their cross-border activities, and providing detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest.  Providing detailed information regarding other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed is also a stipulation for eligibility. The Swiss Federal Department of Finance has released a > model order and guidance note < that will allow Swiss banks to cooperate with the DOJ and fulfill the requirements of the Program.

The DOJ’s November 2013 comments responded to such issues as: (a) Bank-specific issues and issues concerning individuals, (b) Choosing which category among 2, 3, or 4, (c) Qualifications of independent examiner (attorney or accountant), (d) Content of independent examiner report, (e) Information required under the Program – no aggregate account data, (f) Penalty calculation – permitted reductions, (g) Category 4 banks – retroactive application of FATCA Annex II, paragraph II.A.1, and (h) Civil penalties.

Which of Four Categories To File for Non-Prosecution Under?

Regarding which category to file under, the DOJ replied: “Each eligible Swiss bank should carefully analyze whether it is a category 2, 3 or 4 bank. While it may appear more desirable for a bank to attempt to position itself as a category 3 or 4 bank to receive a non-target letter, no non-target letter will be issued to any bank as to which the Department has information of criminal culpability. If the Department learns of criminal conduct by the bank after a non-target letter has been issued, the bank is not protected from prosecution for that conduct. If the bank has hidden or misrepresented its activities to obtain a non-target letter, it is exposed to increased criminal liability.”

SwissInfo reported that Migros Bank selected Program Category 2 because “370 of its 825,000 clients, mostly Swiss citizens residing temporarily in the US or clients with dual nationality”, met the criteria of US taxpayer.  Valiant told SwissInfo that “an internal review showed it had never actively sought US clients or visited Americans to drum up business. The bank said less than 0.1% of its clients were American.”

Category 2

Banks against which the DoJ has not initiated a criminal investigation but have reasons to believe that that they have violated US tax law in their dealings with clients are subject to fines of on a flat-rate basis.  Set scale of fine rates (%) applied to the untaxed US assets of the bank in question:

  1. Existing accounts on 01.08.2008: 20%
  2. New accounts opened between 01.08.2008 and 28.02.2009: 30%
  3. New accounts after 28.02.2009: 50%

Category 2 banks must delivery of information on cross-border business with US clients, name and function of the employees and third parties concerned, anonymised data on terminated client relationships including statistics as to where the accounts re-domiciled.

Category 3

Banks have no reason to believe that they have violated US tax law in their dealings with clients and that can have this demonstrated by an independent third party. A category 3 bank must provide to the IRS the data on its total US assets under management and confirmation of an effective compliance program in force.

Category 4

Banks are a local business in accordance with the FATCA definition.

Independence of Qualified Attorney or Accountant Examiner

Regarding the requirement of the independence of the qualified attorney or accountant examiner, the DOJ stated that the examiner “is not an advocate, agent, or attorney for the bank, nor is he or she an advocate or agent for the government. He or she must provide a neutral, dispassionate analysis of the bank’s activities. Communications with the independent examiner should not be considered confidential or protected by any privilege or immunity.”  The attorney / accountant’s report must be substantive, detailed, and address the requirements set out in the DOJ’s non-prosecution Program.  The DOJ stated that “Banks are required to cooperate fully and “come clean” to obtain the protection that is offered under the Program.”

In the ‘bottom line’ words of the DOJ: “Each eligible Swiss bank should carefully weigh the benefits of coming forward, and the risks of not taking this opportunity to be fully forthcoming. A bank that has engaged in or facilitated U.S. tax-related or monetary transaction crimes has a unique opportunity to resolve its criminal liability under the Program. Those that have criminal exposure but fail to come forward or participate but are not fully forthcoming do so at considerable risk.”

(Chapter updates since November 2013 are available at https://profwilliambyrnes.com/category/fatca/)book cover

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters of the analysis of 50 FATCA experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  information exchange protocols and systems.  complimentary chapter download: http://www.lexisnexis.com/store/images/samples/9780769853734.pdf


If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

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7 Tax Facts on Deducting Charitable Contributions to a Charity

Posted by William Byrnes on May 9, 2014


2014_tf_on_individuals_small_businesses-m_1In its Tax Tip 2014-39, the IRS disclosed that a taxpayer looking for a tax deduction may donate to a charity and create a ‘win-win’ situation.  The IRS stated that it is good for the charity and good for the taxpayer.  (subscribe by email on the left menu to these daily tax articles)

7 tax tips to know about deducting gifts to charity

1. A taxpayer must donate to a qualified charity if the taxpayer wants to deduct the gift.  Importantly, a taxpayer can not deduct gifts to individuals, political organizations or candidates.  Search the >online IRS database< for the charity.  If it is on the list, then it is qualified.

2. In order for a taxpayer to deduct contributions, the taxpayer must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with the federal tax return.

3. If a taxpayer receives a benefit in return for the contribution, the deduction will be limited.  A taxpayer can only deduct the amount of the gift that is more than the value of what the taxpayer received in return.  Examples of such benefits include merchandise, meals, tickets to an event or other goods and services in exchange for a donation.

4. If a taxpayer donates property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price the taxpayer would receive if the taxpayer sold the property on the open market.  A taxpayer must file Form 8283, Noncash Charitable Contributions, if the deduction for all noncash gifts is more than $500 for the year.

5. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to >vehicle donations<.

6. A taxpayer must keep records to prove the amount of the contributions made during the year. The kind of records that must be kept depends on the amount and type of the donation. For example, a taxpayer must keep a written record of any cash donation, regardless of the amount, in order to claim a deduction.  It can be a cancelled check, a letter from the organization, or a bank or payroll statement.  It should include the name of the charity, the date and the amount donated. A cell phone bill meets this requirement for text donations if it shows this same information.

7. To claim a deduction for donated cash or property of $250 or more, a taxpayer must have a written statement from the organization. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing applying for the Master or Doctoral degree in the areas of financial planning or taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

 

Posted in Taxation | Tagged: , , , , , | 1 Comment »

IRS Reports 131 Million Tax Returns Filed but Many Amended Returns Expected

Posted by William Byrnes on April 29, 2014


The IRS reported in its 2014-56 NewsWire that 131 million tax returns were filed by the deadline of April 15 for the tax year of 2013.  88% of these tax returns were e-filed of which 35% (almost 46 million returns) were filed by taxpayers from home computers.

But the IRS disclosed that it expects nearly 5 million of these taxpayers to file amendments to their returns by filing Form 1040X during 2014.  Generally, for a credit or refund, taxpayers must file Form 1040X within 3 years, including extensions, after the date they filed their original return or within 2 years after the date they paid the tax, whichever is later. For most people, this means that returns for tax-year 2011 or later can still be amended.

Thus far, the IRS has released 94,809,000 refunds averaging $2,686 each.  In all, the IRS has had to return almost $255 billion to taxpayers in the form of refunds of access tax withholdings.

Same Sex Couples Amending Returns

The IRS alerted same-sex couples to consider filing amended returns for past years.  A same sex couple, legally married in a state or foreign country that recognizes their marriage, is now considered married for tax purposes. This is true regardless of whether or not the couple lives in a jurisdiction that recognizes same-sex marriage.

For returns originally filed before Sept. 16, 2013, legally married same sex couples have the option of filing amended return to change their filing status to married filing separately or married filing jointly. But they are not required to change their filing status on a prior return, even if they amend that return for another reason. In either case, their amended return must be consistent with the filing status they have chosen.

If a taxpayer still owes tax for the year 2013, then read https://profwilliambyrnes.com/2014/04/15/4-tax-tips-if-you-cant-pay-the-full-amount-of-taxes-on-time/

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

5 Tax Facts for Early Retirement Plan Withdrawals

Posted by William Byrnes on April 28, 2014


In Tax Tip 2014-35, the IRS addressed the issue of potential tax penalties for withdrawing money before retirement age from a retirement account.

5 tax tips about early withdrawals from retirement plans:

1. An early withdrawal normally means taking money from a retirement plan before age 59½.

2. If a taxpayer makes a withdrawal from a plan, that withdrawal amount must be reported to the IRS on the annual tax return.  Income tax may be due as well as an additional 10 percent tax on the amount of the early withdrawal.  The taxpayer may need to file Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts”, with the annual federal tax return.

3. The additional 10 percent tax does not apply to nontaxable withdrawals.  Nontaxable withdrawals include withdrawals of the cost to participate in the retirement plan.  The cost includes the taxpayer’s after-tax contributions before the contributions are contributed to the plan.

4. A “rollover” is a type of nontaxable withdrawal. Generally, a rollover is a distribution to the taxpayer of cash or other assets from one retirement plan that is then immediately contributed to another retirement plan.  The taxpayer has 60 days to complete the rollover to make it tax-free.

5. There are many exceptions to the additional 10 percent tax. Some of the exceptions for retirement plans are different from the rules for IRAs.

Exceptions to Tax on Early Distributions

Generally, the amounts an individual withdraws from an IRA or retirement plan before reaching age 59½ are called ”early” or ”premature” distributions. Individuals must pay an additional 10% early withdrawal tax and report the amount to the IRS for any early distributions, unless an exception applies.

The distribution will NOT be subject to the 10% additional early distribution tax in the following circumstances: Exception to 10% Additional Tax
Qualified Plans
(401(k), etc.)
IRA, SEP, SIMPLE IRA* and SARSEP Plans Internal Revenue Code Section(s)
Age
after participant/IRA owner reaches age 59½ yes yes 72(t)(2)(A)(i)
Automatic Enrollment
permissive withdrawals from a plan with auto enrollment features yes yes for SIMPLE IRAs and SARSEPs 414(w)(1)(B)
Corrective Distributions
corrective distributions (and associated earnings) of excess contributions, excess aggregate contributions and excess deferrals, made timely yes n/a 401(k)(8)(D),
401(m)(7)(A),
402(g)(2)(C)
Death
after death of the participant/IRA owner yes yes 72(t)(2)(A)(ii)
Disability
total and permanent disability of the participant/IRA owner yes yes 72(t)(2)(A)(iii)
Domestic Relations
to an alternate payee under a Qualified Domestic Relations Order yes n/a 72(t)(2)(C)
Education
qualified higher education expenses no yes 72(t)(2)(E)
Equal Payments
series of substantially equal payments yes yes 72(t)(2)(A)(iv)
ESOP
dividend pass through from an ESOP yes n/a 72(t)(2)(A)(vi)
Homebuyers
qualified first-time homebuyers, up to $10,000 no yes 72(t)(2)(F)
Levy
because of an IRS levy of the plan yes yes 72(t)(2)(A)(vii)
Medical
amount of unreimbursed medical expenses (>7.5% AGI; after 2012, 10% if under age 65) yes yes 72(t)(2)(B)
health insurance premiums paid while unemployed no yes 72(t)(2)(D)
Military
certain distributions to qualified military reservists called to active duty yes yes 72(t)(2)(G)
Returned IRA Contributions
if withdrawn by extended due date of return n/a yes 408(d)(4)
earnings on these returned contributions n/a no 408(d)(4)
Rollovers
in-plan Roth rollovers or eligible distributions contributed to another retirement plan or IRA within 60 days yes yes 402(c), 402A(d)(3), 403(a)(4), 403(b)(8), 408(d)(3), 408A(d)(3)
Separation from Service
the employee separates from service during or after the year the employee reaches age 55 (age 50 for public safety employees in a governmental defined benefit plan) yes no 72(t)(2)(A)(v),
72(t)(10)

NOTE: Governmental 457(b) distributions are not subject to the 10% additional tax except for distributions attributable to rollovers from another type of plan or IRA.

*25% instead of 10% if made within the first 2 years of participation

tax-facts-online_medium

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.  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 Retirement Planning | Tagged: , , , | 1 Comment »

new FATCA FAQs released by IRS

Posted by William Byrnes on April 18, 2014


FATCA – FAQs General

  1. Qualified Intermediaries/Withholding Foreign Partnerships/Withholding Foreign Trusts
  2. IGA Registration
  3. Expanded Affiliated Groups
  4. Sponsoring/Sponsored Entities
  5. Responsible Officers and Points of Contact
  6. Financial Institutions
  7. Exempt Beneficial Owners
  8. NFFEs
  9. Registration Update
  10. ADDITIONAL SUPPORT
  11. FATCA Registration System Technical Support 
# Questions Answers
Qualified Intermediaries/Withholding Foreign Partnerships/Withholding Foreign Trusts

Q1.

How does a Financial Institution that is not currently a Qualified Intermediary (“QI”), a Withholding Foreign Partnership (“WP”), or a Withholding Foreign Trust (“WT”) register to become one?

The process to become a QI, WP or WT has not been modified by the provisions of FATCA.

The application for Qualified Intermediary status can be found here: QI Application

Information on acquiring Withholding Foreign Partnership, or Withholding Foreign Trust status can be found here: WP/WT Application

Q2.

How do FIs that are currently QIs, WPs and WTs renew their agreements?

Existing QIs, WPs and WTs are required to renew their QI agreements through the FATCA registration website as part of their FATCA registration process.

All QI, WP, or WT agreements that would otherwise expire on December 31, 2013 will be automatically extended until June 30, 2014.  (Notice 2013-43; 2013-31 IRB 113).

Q3.

I am not currently a QI/WP/WT.  Can I use the LB&I registration portal to register for FATCA and become a new QI/WP/WT?

No.

QI/WP /WT status can only obtained by completing and submitting a Form 14345 (“QI Intermediary Application”) and Form SS-4 (“Application for Employer Identification Number”) directly to the QI Program.   Interested QIs/WPs/WT should submit the required paperwork to the QI program and separately use the FATCA registration portal to obtain a GIIN for FATCA purposes.    FFIs can not become a new QI/WP/WT through the FATCA portal.

Applications for QI/WP/WT status can be made to:

IRS-Foreign Intermediary Program
Attn:  QI/WP/WT Applications
290 Broadway, 12th floor
New York City, New York 10007

Note:  Form 14345 (“QI Intermediary Application”) should be used for WPs and WTs in addition to QIs.

Q4.

Must an FI become a QI/WP/WT in order to register under FATCA?

An FI is not required to obtain QI/WP or WT status to register under FATCA.  If at the time of FATCA registration, the FI does not have in effect a withholding agreement with the IRS to be treated as a QI, WP or WT, the FI will indicate “Not applicable” in box 6 and will continue with the registration process.

IGA Registration

Q5.

Please provide a link that lists the jurisdictions treated as having in effect a Model 1 or Model 2 IGA.

The U.S. Department of Treasury’s list of jurisdictions that are treated as having an intergovernmental agreement in effect can be found by clicking on the following link: IGA LIST

Q6.

How do Foreign Financial Institutions in Model 1 jurisdictions register on the FATCA registration website?

Financial Institutions that are treated as Reporting Financial Institutions under a Model 1 IGA (see the list of jurisdictions treated as having an IGA in effect at IGA LIST) should register as Registered Deemed-Compliant Foreign Financial Institutions.

More information on registration can be found in the FATCA Registration Online User Guide:User Guide Link (See Section 2.4 “Special Rules for Registration”)

Q7.

How do Foreign Financial Institutions in Model 2 jurisdictions register on the FATCA registration website?

Financial Institutions that are treated as Reporting Financial Institutions under a Model 2 IGA (see the list of jurisdictions treated as having an IGA in effect at IGA LIST) should register as Participating Foreign Financial Institutions.

More information on registration can be found in the FATCA Registration Online User Guide:User Guide Link (See Section 2.4 “Special Rules for Registration”)

Q8.

We are an FFI in a country that has not signed an IGA, and the local laws of our country do not allow us to report U.S. accounts or withhold tax. What is our FATCA classification?

Unless the Treasury website provides that your country is treated as having an IGA in effect, then, because of its local law restrictions, this FFI should register as a Limited FFI provided it meets the definition shown directly below. See FATCA – Archive   for a list of countries treated as having an IGA in effect.

A Limited FFI means an FFI that, due to local law restrictions, cannot comply with the terms of an FFI Agreement, or otherwise be treated as a PFFI or RDCFFI, and that is agreeing to satisfy certain obligations for its treatment as a Limited FFI.

Expanded Affiliated Groups
Q9.

For registration purposes, can an EAG with a Lead FI and 2 Member FIs be divided into: (1) a group with a Lead FI and a member FI, and (2) a member FI that will register as a Single FI?

Yes. An EAG may organize itself into subgroups, so long as all entities with a registration requirement are registered. An FI that acts as a Compliance FI for any members of the EAG is, however, required to register each such member as would a Lead FI for such members.

Q10.

What is required for an entity to be a Lead FI?

A Lead FI means a USFI, FFI, or a Compliance FI that will initiate the FATCA Registration process for each of its Member FIs that is a PFFI, RDCFFI, or Limited FFI and that is authorized to carry out most aspects of its Members’ FATCA Registrations. A Lead FI is not required to act as a Lead FI for all Member FIs within an EAG. Thus, an EAG may include more than one Lead FI that will carry out FATCA Registration for a group of its Member FIs. A Lead FI will be provided the rights to manage the online account for its Member FIs. However, an FFI seeking to act as a Lead FI cannot have Limited FFI status in its country of residence. See Rev. Proc. 2014-13 to review the FFI agreement for other requirements of a Lead FI that is also a participating FFI.

Sponsoring/Sponsored Entities

Q11.

We are a Sponsoring Entity, and we would like to register our Sponsored Entities. How do we register our Sponsored Entities?

The Sponsoring Entity that agrees to perform the due diligence, withholding, and reporting obligations of one or more Sponsored Entities pursuant to Treas. Reg. §1.1471-5(f)(1)(i)(F) should register with the IRS via the FATCA registration website to be treated as a Sponsoring Entity. To allow a Sponsoring Entity to register its Sponsored Entities with the IRS, and, as previewed in Notice 2013-69, the IRS is developing a streamlined process for Sponsoring Entities to register Sponsored Entities on the FATCA registration website. Additional information about this process will be provided by the IRS at a later date.

While a Sponsoring Entity is required to register its Sponsored Entities for those entities to obtain GIINs, the temporary and proposed regulations provide a transitional rule that, for payments prior to January 1, 2016, permit a Sponsored Entity to provide the GIIN of its Sponsoring Entity on withholding certificates if it has not yet obtained a GIIN. Thus, a Sponsored Entity does not need to provide its own GIIN until January 1, 2016 and is not required to register before that date.

Responsible Officers and Points of Contact

Q12.

What is a Point Of Contact (POC)?

The Responsible Officer listed on line 10 of Form 8957 (or the online registration system) can authorize a POC to receive FATCA-related information regarding the FI, and to take other FATCA-related actions on behalf of the FI. While the POC must be an individual, the POC does not need to be an employee of the FI. For example, suppose that John Smith, Partner of X Law Firm, has been retained and been given the authority to help complete and submit the FATCA Registration on behalf of an FI. John Smith should be identified as the POC, and in the Business Title field for this POC, it should state Partner of X Law Firm.

Q13.

Is the Responsible Officer required to be the same person for all lines on Form 8957 or the online registration (“FATCA Registration”)?

No, it is not required that the Responsible Officer (“RO”) be the same person for all lines on Form 8957 or the online registration.  It is possible, however, that the same person will have the required capacity to serve as the RO for all FATCA Registration purposes.

The term “RO” is used in several places in the FATCA Registration process.  In determining an appropriate RO for each circumstance, the Financial Institution (“FI”) or direct reporting NFFE should review the capacity requirements and select an individual who meets those requirements.  This will be a facts and circumstances determination.

Please note that the responsible officer used for registration purposes may differ from the certifying responsible officer of an FFI referenced in Treasury Regulation §1.1471-1(b)(116).  (See, however, below regarding “Delegation of RO Duties.”)

Below is a description of the required RO capacity per line:

Language from the Form 8957 Instructions and the FATCA Online Registration User Guide specifies that the RO for question 10 purposes is a person authorized under applicable local law to establish the statuses of the entity’s home office and branches as indicated on the registration form.  (See FAQ below for what it means to “establish the FATCA statuses” of the FI’s home office and branches or direct reporting NFFE.)

Part 1, Question 11b (Point of Contact authorization)

The RO identified in question 11b must be an individual who is authorized under local law to consent on behalf of the FI or direct reporting NFFE (“an authorizing individual”) to the disclosure of FATCA-related tax information to third parties.  By listing one or more Points of Contact (each, a “POC”) in question 11b and selecting “Yes” in question 11a, the authorizing individual identified at the end of question 11b (to the right of the checkbox) is providing the IRS with written authorization to release the entity’s FATCA-related tax information to the POC.  This authorization specifically includes authorization for the POC to complete the FATCA Registration (except for Part 4), to take other FATCA-related actions, and to obtain access to the FI’s (or direct reporting NFFE’s) tax information.  Once the authorization is granted, it is effective until revoked by either the POC or by an authorizing individual of the FI or direct reporting NFFE.

Part 4

The authority required for an individual to be an RO for purposes of Part 4 is substantially similar to the authority required for RO status under Treas. Reg. § 1.1471-1(b)(116).

The RO designated in Part 4 must be an individual with authority under local law to submit the information provided on behalf of the FI or direct reporting NFFE.  In the case of FIs or FI branches not governed by a Model 1 IGA, this individual must also have authority under local law to certify that the FI meets the requirements applicable to the FI status or statuses identified on the registration form.  This individual must be able to certify, to the best of his or her knowledge, that the information provided in the FI’s or direct reporting NFFE’s registration is accurate and complete.  In the case of an FI, the individual must be able to certify that the FI meets the requirements applicable to the status(es) identified in the FI’s registration.  In the case of a direct reporting NFFE, the individual must be able to certify that the direct reporting NFFE meets the requirements of a direct reporting NFFE under Treas. Reg. § 1.1472-1(c)(3).

An RO (as defined for purposes of Part 4) can delegate authorization to complete Part 4 by signing a Form 2848 “Power of Attorney Form and Declaration of Representative” or other similar form or document (including an applicable form or document under local law giving the agent the authorization to provide the information required for the FATCA Registration).

Note: While the certification in Part 4 of the online registration does not include the term “responsible officer,” the FATCA Online Registration User Guide provides that the individual designated in Part 4 must have substantially the same authority as the RO as defined for purposes of Form 8957, Part 4.

Delegation of RO Duties

While the ROs for purposes of Question 10, Question 11b, and Part 4 of the FATCA Registration may be different individuals, in practice it will generally be the same individual (or his/her delegate)).  The regulatory RO is responsible for establishing and overseeing the FFI’s compliance program.  The regulatory RO may, but does not necessarily have to, be the registration RO for purposes of 1) ascertaining and completing the chapter 4 statuses in the registration process; 2) receiving the GIIN and otherwise interacting with the IRS in the registration process; and 3) making the Part 4 undertakings.  Alternatively, the regulatory RO, or the FFI (through another individual with sufficient authority), may delegate each of these registration roles to one or more persons pursuant to a delegation of authority (such as a Power of Attorney) that confers the particular registration responsibility or responsibilities to such delegate(s).  The scope of the delegation, and the delegate’s exercise of its delegated authority within such scope, will limit the scope of the potential liability of the delegate under the rules of agency law , to the extent applicable.  The ultimate principal, whether that is the regulatory RO or the FFI, remains fully responsible in accordance with the terms and conditions reflected in the regulations, and other administrative guidance to the extent applicable under FATCA, the regulations.

Q14.

The Instructions for Form 8957 state that for purposes of Part 1, question 10, “. . .  RO means the person authorized under applicable local law to establish the statuses of the FI’s home office and branches as indicated on the registration form.”  What does it mean for an RO to have the authority to “establish the statuses of the FI’s home office and branches as indicated on the registration form”?

To have the authority to “establish the statuses” for purposes of question 10, an RO must have the authority to act on behalf of the FI to represent the FATCA status(es) of the FI to the IRS as part of the registration process.  This RO must also have the authority under local law to designate additional POCs.

Q15.

My FI plans on employing an outside organization (or individual) solely for the purpose of assisting with the registration process.  Once registration is complete, or shortly thereafter, my FI intends to discontinue its relationship with this organization.  Is this permissible under the FATCA registration system? How should my FI use the registration system to identify this relationship?

Yes, the FI or direct reporting NFFE may employ an outside organization to assist with FATCA registration and discontinue the relationship with the outside organization once registration is complete.  As part of the registration process, an FI or direct reporting NFFE may appoint up to five POCs who are authorized to take certain FATCA-related actions on behalf of the entity, including the ability to complete all parts of the FATCA Registration (except for Part 4), to take other appropriate or helpful FATCA-related actions, and to obtain access to the entity’s FATCA-related tax information.  The POC authorization must be made by an RO within the meaning of Part 1, question 10.  Part 4 must be completed by the RO or a duly authorized agent of the RO.  (See FAQ 1 for a discussion of the process for delegating authorization to complete Part 4.)

Once the services of a POC are no longer needed, the RO may log into the online FATCA account and delete the POC.  This process revokes the POC’s authorization.  At this point, the Responsible Officer can input a new POC, or leave this field blank if they no longer wish to have any POC other than the RO listed on Line 10.

If a third-party adviser that is an entity is retained to help the FI or direct reporting NFFE complete its FATCA registration process, the name of the third-party individual adviser that will help complete the FATCA registration process should be entered as a POC in Part 1, question 11b, and the “Business Title” field for that individual POC should be completed by inserting the name of the entity and the POC’s affiliation with the entity.  For example, suppose that John Smith, Partner of X Law Firm, has been retained and been given the authority to help complete the FATCA Registration on behalf of FI Y.  John Smith should be identified as the POC, and in the Business Title field for this POC, it should state Partner of X Law Firm.

Financial Institutions

Q16.

Are U.S. Financial Institutions (USFIs) required to register under FATCA? If so, under what circumstances would a USFI register?

A USFI is generally not required to register under FATCA. However, a USFI will need to register if the USFI chooses to become a Lead FI and/or a Sponsoring Entity or seeks to maintain and renew the QI status of a foreign branch that is a QI. Furthermore, a USFI with a foreign branch that is a reporting Model 1 FFI is required to register on behalf of its foreign branches (and should identify each such branch when registering). A USFI with non-QI branch operations in a Model 2 jurisdiction or in a non-IGA jurisdiction is not required to register with the IRS.

Q17.

Is a Foreign Financial Institution (“FFI”) required to obtain an EIN?

If the FFI has a withholding obligation and will be filing Forms 1042 and Forms 1042-S with the Internal Revenue Service, it will be required to have an EIN. Please see publication 515 (“Withholding of Tax on Nonresident Aliens and Foreign Entities”) for further information about U.S. Withholding requirements. SeePub. 515. An FFI is also required to obtain an EIN when it is a QI, WP, or WT (through the application process to obtain any such status) or when the FFI is a participating FFI that elects to report its U.S. accounts on Forms 1099 under Treas. Reg. §1.1471-4(d)(5).

How does a FFI apply for a EIN if it does not already have one?

If a FFI does not have an EIN, it may apply for one using Form SS-4 (“Application for Employer Identification Number”) or the online registration system. See Apply-for-an-Employer-Identification-Number-(EIN)-Onlinefor more information.

Exempt Beneficial Owners

Q18.

We are a foreign central bank of issue. Will we be subject to FATCA withholding if we do not register?

You will generally be exempt from FATCA Registration and withholding if you meet the requirements to be treated as an exempt beneficial owner (e.g. as a foreign central bank of issue described in Treas. Reg. § 1.1471-6(d), as a controlled entity of a foreign government under Treas. Reg. §1.1471-6(b)(2), or as an entity treated as either of the foregoing under an applicable IGA). A withholding agent is not required to withhold on a withholdable payment to the extent that the withholding agent can reliably associate the payment with documentation to determine the portion of the payment that is allocable to an exempt beneficial owner in accordance with the regulations. However, an exempt beneficial owner may be subject to withholding on payments derived from the type of commercial activity described in Treas. Reg. § 1.1471-6(h).

Q19.

We are a foreign pension plan. Will we be subject to FATCA withholding if we do not register?

You will be exempt from FATCA Registration and withholding if you meet the requirements to be treated as a retirement fund described in Treas. Reg. § 1.1471-6(f), or under an applicable IGA. A withholding agent is not required to withhold on a withholdable payment to the extent that the withholding agent can reliably associate the payment with documentation to determine the portion of the payment that is allocable to an exempt beneficial owner (in this case, a retirement fund) in accordance with the regulations.

NFFEs

Q20.

How should an entity seeking the FATCA status of “direct reporting NFFE” (other than a sponsored direct reporting NFFE) register for this status to obtain a GIIN in order to avoid FATCA withholding?

A direct reporting NFFE is eligible to register for this status and when registering should complete an online registration (or, alternatively, submit a paper Form 8957) based on the instructions provided in this FAQ.   For registrations occurring in years after 2014, it is anticipated that both the online registration user guide and the Instructions for Form 8957 will be updated to incorporate this information.

In general, for purposes of completing the registration of a direct reporting NFFE, substitute the words “direct reporting NFFE” for the words “financial institution” wherever  they appear in the online registration user guide (or in the Instructions for Form 8957).  Unless specific instructions for a registration question are described here in this FAQ, please use the generally applicable instructions provided in the online registration user guide (or in the Instructions for Form 8957).

Part 1

Question 1 – – Select “Single”.

Question 4 – – Select “None of the above”.

Question 6 – – Select “Not applicable”.

Question 7 – – Select “No”.  (If using the portal online, selecting “no” will automatically skip Questions 8 and 9.)

Question 8 – – Skip this question (which relates to branches)

Question 9 – – Skip all parts (a) through (c) of this question (which relate to branches).

Question 10 – – Enter the information of the individual who will be responsible for ensuring that the direct reporting NFFE meets its FATCA reporting obligations and will act as a point of contact with the IRS in connection with its status as a direct reporting NFFE.

Part 2 – – It is not necessary for a direct reporting NFFE to complete this section. (If using the portal online, selecting Single in question 1 will automatically skip Part 2.)

Part 3 – – It is not necessary for a direct reporting NFFE to complete this section. (If using the portal online, selecting “Not Applicable” in question 6 will automatically skip Part 3.)

Part 4 – – The individual who completes this part must have the authority to provide the certification.

Direct reporting NFFE QIs/WPs/WTs should renew their agreements through the existing traditional paper process.  Instructions can be found at the following link (Question IX), see:Qualified-Intermediary-Frequently-Asked-Questions

Q21.

How should a sponsor of a sponsored direct reporting NFFE register itself for this status and obtain a GIIN?

A sponsor of a sponsored direct reporting NFFE is a sponsoring entity (see Treas. Reg. § 1.1471-1T(b)(124)) and  should complete an online registration (or, alternatively, submit a paper Form 8957) as a sponsoring entity, based on the instructions provided in this FAQ.  A sponsoring entity need only complete one registration to act as the sponsor for both sponsored FFIs and sponsored direct reporting NFFEs.  For registrations occurring in years after 2014, it is anticipated that both the online registration user guide and the Instructions for Form 8957 will be updated to incorporate this information, including by incorporating the definition of sponsoring entity provided in Treas. Reg. § 1.1471-1T(b)(124).

In general, for purposes of having a sponsor register a sponsored direct reporting NFFE, substitute the words “sponsor of a direct reporting NFFE” for the words “sponsoring entity” wherever they appear in the online registration user guide (or in the Instructions for Form 8957).  Unless specific instructions for a registration question are described here in this FAQ, please use the generally applicable instructions provided in the online registration user guide (or in the Instructions for Form 8957).

Part 1

Question 1 – – Select “Sponsoring Entity”.

Question 4 – – Select “None of the above”.

Question 6 – – Select “Not applicable”.

Question 7 – – Select “No”. (If using the portal online, selecting “no” will automatically skip Questions 8 and 9)

Question 8 – – Skip this question (which relates to branches)

Question 9 – – Skip all parts (a) through (c) of this question (which relate to branches).

Question 10 – – Enter the information of the individual who will be responsible for ensuring that the direct reporting NFFE meets its FATCA reporting obligations and who will act as a point of contact with the IRS in connection with its obligations as a sponsoring entity.

Part 2 – – It is not necessary for a sponsor of a direct reporting NFFE to complete this section.  (If using the portal online, selecting Sponsoring Entity in question 1 will automatically skip Part 2.)

Part 3 – – It is not necessary for a sponsor of a direct reporting NFFE to complete this section. (If using the portal online, selecting “Not Applicable” in question 6 will automatically skip Part 3.)

Part 4 – – The individual who completes this part must have the authority to provide the certification.

Registration Update

Q22.

Why has my registration been put into “Registration Incomplete”? What can I do?

If your registration has been put into Registration Incomplete status, it is because the IRS has identified an issue with your registration.  If you are Registration Incomplete status, please review your registration for any of the following errors and update it accordingly:

  1. The FFI has identified itself as a Qualified Intermediary with a QI-EIN of which the IRS has no record.  (If you have QI, WP or WT Agreement signed with the IRS, please contact the Financial Intermediaries Team for further assistance.)

  2. The RO has been identified with initials only and no specific name has been provided.

  3. The RO does not appear to be a natural person.

  4. Notice 2013-43 stated that any registrations submitted prior to  January 1, 2014 would be taken out of submit and put into Registration Incomplete status. Thus, if your registration was submitted prior to  January 1, 2014, you must  re-submit your registration assuming that none of the other abovementioned reasons (1-3) are an issue with the FFI’s registration.

After you have updated your registration, you must resubmit in order for your registration to be processed.

Additional FAQs are available for the FATCA Registration System and the FATCA FFI List.

book coverPractical 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, 2nd Edition just published!

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance challenges (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems. The 34 chapters include many practical examples to assist a compliance officer contextualize the regulations, IGA provisions, and national rules enacted pursuant to an IGA.  Chapters include by example an in-depth analysis of the categorization of trusts pursuant to the Regulations and IGAs, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA and the IGAs within new BRIC and European country chapters.

Posted in FATCA | Tagged: , , , , | 1 Comment »

9 retirement savings tax tips

Posted by William Byrnes on April 17, 2014


You might be able to muddle through retirement without knowing each and every line of Uncle Sam’s tax code. But you’ll likely give the federal government more than its fair share of your nest egg if you don’t know what William Byrnes, author of National Underwriter’s Tax Facts, calls the big retirement plan tax facts.

Read the USA Today analysis, written by renown financial journalist Robert Powell:  “Stretching the retirement savings available for an additional 20 years of life expectancy requires correctly managing the complex retirement taxation rules established by Congress and the IRS,” says Byrnes, who is also associate dean at the Thomas Jefferson School of Law in San Diego, Calif.

The full analysis is available on USA Today at 9 retirement savings tax tips!

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What are Five Tax Credits That May Reduce Your Taxes?

Posted by William Byrnes on April 16, 2014


In Tax Tip 2014-33, the IRS revealed five tax credits that may reduce a taxpayers taxes.  Some tax credits are refundable regardless of whether the taxpayer owes any tax for the year, the IRS pointed out.

1. The Earned Income Tax Credit is a refundable credit for taxpayers who work but do not earn a lot of money.  For 2013, the EITC may have increased the tax refund by as much as $6,044.  

2. The Child and Dependent Care Credit can help a taxpayer offset the cost of daycare or day camp for children under age 13, and even the costs paid to care for a disabled spouse or dependent.

3. The Child Tax Credit can reduce a taxpayer’s taxes by as much as $1,000 for each qualified child claimed on the tax return.

4. The Saver’s Credit helps workers save for retirement. For 2013, a taxpayer may have qualified if income was $59,000 or less and the taxpayer contributed to an IRA or a retirement plan at work.

5. The American Opportunity Tax Credit can offset college costs. The credit is available for four years of post-secondary education. It’s worth up to $2,500 per eligible student enrolled at least half time for at least one academic period.

tax-facts-online_medium

 

 “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.

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6 Tax Facts About Filing The Tax Return Today (April 15) and What To Do If You Can’t Pay the Full Amount of Taxes

Posted by William Byrnes on April 15, 2014


The IRS Tax Tip 2014-53 provided a series of Tax Facts of what to do if a taxpayer cannot pay the full amount of taxes owed, which I have supplemented with a couple Tax Facts from the U.S. Post Office.

1. File the Tax Return on Time to Avoid Late Filing Penalty.  File on time to avoid a late filing penalty.  By mailing or electronically filing the tax return with the postmark before or on Wednesday April 15, a taxpayer will avoid the late-filing penalty, normally 5% per month based on the unpaid balance, that applies to returns filed after the deadline.

2. Can’t File the Tax Return Today? Then File an Extension until October 15!  A taxpayer can use IRS Free File to e-file Form 4868 (PDF) Application For Automatic Extension of Time To File U.S. Individual Tax Return. The extension request must be filed by midnight on April 15.  E-filed extension request will receive an IRS receipt.  A taxpayer may still mail the request for an extension Form 4868, as long at the postmark is before or on April 15.

3. Mail must be Postmarked before or on April 15!  Gone are the days that the post office accepts a 11.59 pm tax return and tax extension letter, postmarking it by midnight April 15.  Thus, the taxpayer must drop off at the post office or post office approved provider before the last pick up time of April 15 to ensure a postmark of April 15.  See https://tools.usps.com/go/POLocatorAction!input.action for the closest post office or post service drop off approved provider within a zip code.

4. Pay as Much of the Tax Due as Possible to Avoid Interest and Late Payment Penalties. In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 15.  The interest rate is currently 3% per year, compounded daily, and the late-payment penalty is normally 0.5 % per month.  Pay as much as possible to reduce interest charges and a late payment penalty.

5. Use a Credit Card to Pay the Tax. The interest and fees charged by a bank or credit card company may be less than IRS interest and penalties. See credit card options

6. Use the Online Payment Agreement tool.  Ask for a payment plan before the IRS sends a bill.  The best way is to use the Online Payment Agreement tool.  File Form 9465, Installment Agreement Request, with the tax return.

tax-facts-online_medium

Because of the constant changes to the tax 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. For over 110 years, National Underwriter has provided fast, clear, and authoritative answers to financial advisors pressing questions, and it does so in the convenient, timesaving, Q&A format.

“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: , , , , , | 1 Comment »

8 Things to be Aware of for Deducting Medical and Dental Expenses for 2013 !

Posted by William Byrnes on April 11, 2014


IRS Tax Tip 2014-21 points out that if a taxpayer intends to claim a deduction for medical expenses, there are new rules that apply that may affect these deductions for 2013.  The IRS listed eight things that a taxpayer should be aware of about the medical and dental expense deduction:

1. AGI threshold increase.  Starting in 2013, the amount of allowable medical expenses must exceed 10% of adjusted gross income (AGI) to be able to claim this deduction. The threshold was 7.5% of AGI in prior years.

2. Temporary exception for age 65.  The AGI threshold is still 7.5% of AGI if the taxpayer or spouse is age 65 or older.  This exception will apply through Dec. 31, 2016.

3. Must itemize.  To claim medical and dental expenses the taxpayer must itemize deductions on the federal tax return.  Thus, if a taxpayer claims the standard deduction, then no deduction for medical expenses.

4. Paid in 2013. You can include only the expenses you paid in 2013. If you paid by check, the day you mailed or delivered the check is usually considered the date of payment.

5. Costs to include.  A taxpayer can include most medical or dental costs that paid for that taxpayer, the spouse and the dependents.  Some exceptions and special rules apply. Any costs reimbursed by insurance or other sources don’t qualify for a deduction.

6. Expenses that qualify.  The costs of diagnosing, treating, easing or preventing disease. The cost of insurance premiums for medical care, as does the cost of some long-term care insurance.  The cost of prescription drugs and insulin also qualify.  For more examples of costs you can deduct, see IRS Publication 502, Medical and Dental Expenses.

7. Travel costs count.  A taxpayer may be able to claim the cost of travel for medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees.  For the use of a car, it may be possible to deduct either the actual costs or the standard mileage rate for medical travel. The rate is 24 cents per mile for 2013.

8. No double benefit.  A taxpayer can’t claim a tax deduction for medical and dental expenses paid with funds from a Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax-free – the salary used to fund these accounts is usually not included in taxable income.

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.

2014_tf_on_individuals_small_businesses-m_1Due 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.”

tax-facts-online_mediumThe 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.

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.  Use coupon code Tax15 and Save 15%!

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4 Tax Facts for Trading Services With Other Persons Taxable?

Posted by William Byrnes on April 9, 2014


The IRS published Tax Tip 2014-26: Four Things You Should Know About “Barter”

“Bartering” is the trading of one product or service for another. Often there is no exchange of cash. Small businesses sometimes barter to get products or services they need.  For example, a plumber might trade plumbing work with a dentist for dental services. 

If a taxpayer trade services with another person, “bartering”, then the value of the products or the services received by the taxpayer is taxable income.

Here are four facts that the IRS has alerted taxpayers to about bartering:

1. Barter exchanges.  A barter exchange is an organized marketplace where members barter products or services. Some exchanges operate out of an office and others over the Internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. The exchange must give a copy of the form to its members who barter and file a copy with the IRS.

2. Bartering income.  Barter and trade dollars are the same as real dollars for tax purposes and must be reported on a tax return. Both parties must report as income the fair market value of the product or service each received.

3. Tax implications.  Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.

4. Reporting rules.  How you report bartering on a tax return varies. If the taxpayer has a trade or business, then normally the taxpayer reports it on Form 1040,Schedule C, Profit or Loss from Business.

For more information, see the Bartering Tax Center.

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10 Tax Facts: Do You Qualify for the Child and Dependent Care Tax Credit To Reduce Your Taxes?

Posted by William Byrnes on April 6, 2014


In Tax Tip 2014-37, the IRS provides ten tax tips for taxpayers that pay for the care of their child or other dependent while they’re at work.  The Child and Dependent Care Credit can reduce that cost of that child care.

10 tax facts from the IRS about this important tax credit

1. A taxpayer may qualify for the credit if the taxpayer paid someone to care for a child, dependent or spouse last year.

2. The care a taxpayer paid for must have been necessary so the taxpayer could work or look for work.  This also applies to the spouse if married and filing jointly.

3. The care must have been for ‘qualifying persons.’ A qualifying person can be a taxpayer’s child under age 13.  Qualifying persons may also be a spouse or dependent who is physically or mentally incapable of self-care. T hey must also have lived with the taxpayer for more than half the year.

4.  The taxpayer and the spouse if file jointly, must have earned income, such as wages from a job.  Special rules apply to a spouse who is a student or disabled.

5. The payments for care can not go to a spouse, the parent of your qualifying person or to someone claimed as a dependent on the taxpayer’s return. Care payments also can not go to a child under the age of 19, even if the child is not claimed as a dependent.

6. The credit is worth up to 35 percent of the qualifying costs for care, depending on a taxpayer’s income. The limit is $3,000 of the total cost for the care of one qualifying person. If the taxpayer pays for the care of two or more qualifying persons, the taxpayer can claim up to $6,000 of the costs.

7. If a taxpayer’s employer provides dependent care benefits, special rules apply.

8. A taxpayer must include the Social Security number of each qualifying person to claim the credit.

9. A taxpayer must include the name, address and identifying number of each care provider to claim the credit.  This is usually the Social Security number of an individual or the Employer Identification Number of a business.

10. To claim the credit, attach Form 2441 to the tax return.

tax-facts-online_medium

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.  Use coupon code TAX15 and save 15%!

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2013 Home Office Deduction Easier To Calculate

Posted by William Byrnes on April 5, 2014


In Tax Tip 2014-36, the IRS alerted taxpayers about the new, simple calculation for the Home Office deduction.

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.

Starting this year (and applying to the 2013 tax return die in just 10 days), the IRS has provided a simpler option to calculate the deduction for business use of your home. The new option will save taxpayers time because it simplifies how to calculate and claim the deduction.  It also makes it easier for a taxpayer to keep records.  However, this new option for simplified method of calculation does NOT change the rules for who may claim the home office deduction.

6 tax facts about the home office deduction

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.

2. If a taxpayer uses the actual expense method, the home office deduction includes certain costs that the taxpayer paid for your home. For example, if the taxpayer rents a home, part of the rent paid could qualify for the home office deduction.  If the taxpayer own a home, part of the mortgage interest, taxes and utilities paid could correspondingly qualify. The amount of the deduction usually depends on the percentage of the home used for business.

3. Beginning with 2013 tax returns, 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.

4. If the taxpayer’s gross income from the business use of your home is less than the expenses, the deduction for some expenses may be limited.

5. 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.

6. 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-facts-online_medium

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: , , | Leave a Comment »

Ten Tax Facts about Capital Gains and Losses

Posted by William Byrnes on April 4, 2014


In Tax Tip 2014-27, the IRS discussed capital gains and losses.  The IRS stated that when a taxpayer sells a ’capital asset,’ the sale usually results in a capital gain or loss. A ‘capital asset’ includes most property owned and used for personal or investment purposes.

10 tax facts about capital gains and losses:

1. Capital assets include property such as a home or a car. They also include investment property such as stocks and bonds.

2. A capital gain or loss is the difference between the “basis” and the amount earned upon the sale of the asset.  The basis is usually what the taxpayer paid for the asset.

3. A taxpayer must include all capital gains in income.  Beginning in 2013, a taxpayer may be subject to the Obama Care “Net Investment Income Tax”.  The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates, and trusts that have income above statutory threshold amounts.

4. A taxpayer can deduct capital losses on the sale of investment property (such as an apartment building) but can not deduct losses on the sale of personal-use property (such as the family home).

5. Capital gains and losses are either long-term or short-term, depending on how long the property is owned.  If a taxpayer owns the property for more than one year, the gain or loss is long-term.  If owned one year or less, the gain or loss is short-term.

6. If long-term gains are more than long-term losses, the difference between the two is a “net long-term capital gain”.  If net long-term capital gain is more than net short-term capital loss, then the taxpayer has a ‘net capital gain.’

7. The tax rates that apply to net capital gains will usually depend on a taxpayer’s income.  For lower-income individuals, the rate may be zero percent on some or all of their net capital gains.  In 2013, the maximum net capital gain tax rate increased from 15 to 20 percent. A 25 or 28 percent tax rate can also apply to special types of net capital gains.

8. If capital losses are more than capital gains, the taxpayer can deduct the difference as a loss on the tax return. This loss is limited to $3,000 per year, or $1,500 if filing married but separate returns.

9. If total net capital loss is more than the deduction limit above, the losses above the allowable deduction can be carried over to next year’s tax return.  The carried over losses will be treated as if they happened next year.

10. File Form 8949, Sales and Other Dispositions of Capital Assets, with the federal tax return to report your gains and losses.   Also file Schedule D, Capital Gains and Losses with the federal tax return.

2014_tf_on_investments-m2014 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.

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Six Tax Tips When Deciding to Itemize or Take the Standard Deduction

Posted by William Byrnes on April 1, 2014


2014_tf_on_individuals_small_businesses-m_1The IRS published Tax Tip 2014-29 with 6 helpful tips for deciding whether to itemize deductions or to rely upon the standard deduction.  The IRS stated that a taxpayer should calculate the available deduction using both methods and then choose the deduction method that produces the greater deduction (thus lower amount of tax).

1. Figure the itemized deductions.  Add up deductible expenses paid during the year. These may include expenses such as:

  • Home mortgage interest
  • State and local income taxes or sales taxes (but not both)
  • Real estate and personal property taxes
  • Gifts to charities
  • Casualty or theft losses
  • Unreimbursed medical expenses
  • Unreimbursed employee business expenses

2. Know the standard deduction.  If a taxpayer does not itemize, the basic standard deduction for 2013 depends on your filing status:

  • Single $6,100
  • Married Filing Jointly $12,200
  • Head of Household $8,950
  • Married Filing Separately $6,100
  • Qualifying Widow(er) $12,200

The standard deduction is higher for persons when 65 or older or blind.

3. Check the exceptions.  Some taxpayers do not qualify for the standard deduction and therefore should itemize.  This includes married couples who file separate returns and one spouse itemizes.

4. Use the IRS’s ITA tool: Interactive Tax Assistant tool to help determine your standard deduction.

5. File the right forms.  To itemize deductions, use Form 1040 and Schedule A, Itemized Deductions. Standard deduction is on Forms 1040, 1040A or 1040EZ.

6. File Electronically.  Some taxpayers are eligible for free, brand-name software to prepare and e-file the tax return. IRS Free File will do the work for you.

tax-facts-online_medium

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.

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.”

 

Posted in Taxation, Uncategorized | Tagged: , , , | Leave a Comment »

IRS Grants Reprieve for Late Estate Tax Portability Elections

Posted by William Byrnes on March 31, 2014


Today’s generous estate tax exemption has created an unexpected problem among clients: failure to take advantage of the portability of a first-to-die spouse’s unused estate tax exemption. Unknown to many, portability is available only if you ask for it, and failure to elect portability can leave a surviving spouse’s estate facing an unexpectedly heavy tax burden, even if no estate tax was due upon the first spouse’s death.

Luckily, the IRS has provided a limited reprieve for certain clients whose inadvertent failure to make the election could leave them on the hook for an unnecessary estate tax bill.  The relief provided by the IRS, however, is limited in both time and scope, so the time to learn the rules of portability is now.

Read the analysis of William Byrnes and Robert Bloink at > ThinkAdvisor <

ThinkAdvisor.com supports the professional growth and vitality of the Investment Advisory community, from RIAs and wealth managers of all kinds, to independent broker-dealer and wirehouse representatives. We provide unparalleled access to the knowledge, information and critical resources they need to succeed at every stage in their career, including professional development, education and certification, industry news and analysis, reference tools and services, and community networking opportunities.

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Simplified Option for Claiming Home Office Deduction Now Available – May Deduct up to $1,500!

Posted by William Byrnes on March 29, 2014


2014_tf_on_individuals_small_businesses-m_1The IRS reported in Newswire (IR-2014-24) that people with home-based businesses that this year for the first time they can choose a new simplified option for claiming the deduction for business use of a home.

In tax year 2011, the most recent year for which figures are available, some 3.3 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction) totaling nearly $10 billion.  The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and record keeping burden on small businesses by an estimated 1.6 million hours annually.

The new option is available starting with the 2013 return taxpayers are filing now.  Normally, home-based businesses are required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.  Instead, taxpayers claiming the optional deduction need only complete a short worksheet in the tax instructions and enter the result on their return.  Self-employed individuals claim the home office deduction on Schedule C Line 30, farmers claim it on Schedule F  Line 32 and eligible employees claim it on Schedule A Line 21.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees, are still fully deductible.  Long-standing restrictions on the home office deduction, such as the requirement that a home office be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

IRS YouTube Video:
Simplified Home Office Deduction: English / Spanish / ASL

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Four Tax Facts about the Health Care Law for Individuals

Posted by William Byrnes on March 26, 2014


In Health Care Tax Tip 2014-06, the IRS alerted taxpayers to four basic tax tips about the new health care law.  The IRS stated that health insurance choices made now may affect the income tax return filed next year (2015).

1. Most people already have qualified health insurance coverage and will not need to do anything more than maintain qualified coverage throughout 2014.

2. If a taxpayer does not have health insurance through a job or a government plan, the taxpayer may be able to buy it through the Health Insurance Marketplace.  The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace ENDS in 5 days on March 31, 2014!

3. If a taxpayer buy health insurance through the Marketplace, the taxpayer may be eligible for an advance premium tax credit to lower your out-of-pocket monthly premiums. (Tomorrow’s blog article will provide information about this advance premium tax credit.)

4. The 2014 tax return to be filed in 2015 will have a new tax question:  did you have insurance coverage or did you qualify for an exemption?  If not, the taxpayer may owe a shared responsibility payment.

What should you do now?

If a taxpayer or the family does not have health insurance, then talk to the employer about the employer’s health coverage offered, or visit the Marketplace online.

Find out more about the health care law and the Marketplace at www.HealthCare.gov.

Find out more about the premium tax credit and the shared responsibility payment at www.IRS.gov/aca.

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

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.”

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.

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.

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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 8829Expenses for Business Use of Your Home, to calculate the amount of the home office deduction.  The taxpayer claims the deduction on Schedule CProfit 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.

tax-facts-online_medium

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.

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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?

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.

2014_tf_on_individuals_small_businesses-m_1Due 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.”

tax-facts-online_mediumThe 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.

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: , , , , | 1 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.

2014_tf_on_individuals_small_businesses-m_1Due 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.”

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.

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.

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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:

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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.

2014_tf_on_individuals_small_businesses-m_1Due 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.”

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.

tax-facts-online_medium

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.

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.

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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:

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LexisNexis Guide to FATCA Compliance – 600 pages on compliance analysis

Posted by William Byrnes on February 21, 2014


LexisNexis FATCA Compliance Manual published

book coverFifty contributing authors from the professional and financial industry provide 600 pages of expert analysis within the LexisNexis® Guide to FATCA Compliance (2nd Edition): many perspectives – one voice crafted by the primary author William Byrnes.

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of FATCA’s application for certain trading partners of the U.S. (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems. The 34 chapters include many practical examples to assist a compliance officer contextualize the regulations, IGA provisions, and national rules enacted pursuant to an IGA.  Chapters include by example an in-depth analysis of the categorization of trusts pursuant to the Regulations and IGAs, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA and the IGAs within new BRIC and European country chapters.

Non-U.S. residents may contact Nicole Hahn, LN International Accounts Manger, by e-mail or phone to order: Nicole.Hahn@lexisnexis.com or +1 518.487.3004.

This second edition of the LexisNexis® Guide to FATCA Compliance has been vastly improved based on over thirty in-house workshops and interviews with tier 1 banks, with company and trusts service providers, with government revenue departments, and with central banks. The enterprises are headquartered in the Caribbean, Latin America, Asia, Europe, and the United States, as are the revenue departments and the central bank staff interviewed.

Nine NEW chapters cover FATCA as it relates to: (1) the trust industry, (2) Ireland, (3) Spain, (4) Brazil, (5) China, (6) India, (7) Luxembourg, (8)Russia, and (9) Turkey.

Several new contributing authors joined the FATCA Expert Contributor team this edition. This second edition has been expanded from 25 to 34 chapters, with 150 new pages of regulatory and compliance analysis based upon industry feedback of internal challenges with systems implementation. The previous 25 chapters have been substantially updated, including many more practical examples to assist a compliance officer contextualize the regulations, IGA provisions, and national rules enacted pursuant to an IGA. The nine new chapters include by example an in-depth analysis of the categorization of trusts pursuant to the Regulations and IGAs, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA and the IGAs within new BRIC and European country chapters.

This second edition will provide the financial enterprise?s FATCA compliance officer the tools for developing and maintaining a best practices compliance strategy, starting with determining what information is needed for planning the meetings with outside FATCA experts. This Guide may be leveraged in combination with the tools for identification of U.S. indicia of LexisNexis Risk Solutions (http://www.lexisnexis.com/risk/).

Chapter 1 Background and Current Status of FATCA
Chapter 2 Practical Considerations for Developing a FATCA Compliance Program
Chapter 3 FATCA Compliance and Integration of Information Technology
Chapter 4 Financial Institution Account Remediation
Chapter 5 FBAR and Form 8938 Reporting and List of International Taxpayer IRS Forms
Chapter 6 Determining U.S. Ownership of Foreign Entities
Chapter 7 Foreign Financial Institutions
Chapter 8 Non-Financial Foreign Entities
Chapter 9 FATCA and the Offshore Trust Industry
Chapter 10 FATCA and the Insurance Industry
Chapter 11 Withholding and Qualified Intermediary
Chapter 12 FATCA Withholding Compliance
Chapter 13 ”Withholdable” Payments
Chapter 14 Determining and Documenting the Payee
Chapter 15 Framework of Intergovernmental Agreements
Chapter 16 Analysis of Current Intergovernmental Agreements
Chapter 17 European Union Cross Border Information Reporting
Chapter 18 The OECD Role in Exchange of Information: The Trace Project, FATCA, and Beyond
Chapter 19 Germany-U.S. Intergovernmental Agreement and its Implementation
Chapter 20 Ireland-U.S. Intergovernmental Agreement and its Implementation
Chapter 21 Japan-U.S. Intergovernmental Agreement and its Implementation
Chapter 22 Mexico-U.S. Intergovernmental Agreement and its Implementation
Chapter 23 Switzerland-U.S. Intergovernmental Agreement and its Implementation
Chapter 24 The United Kingdom-U.S. Intergovernmental Agreement and its Implementation
Chapter 25 Exchange of Tax Information and the Impact of FATCA for Brazil
Chapter 26 Exchange of Tax Information and the Impact of FATCA for The British Virgin Islands
Chapter 27 Exchange of Tax Information and the Impact of FATCA for Canada
Chapter 28 Exchange of Tax Information and the Impact of FATCA for Spain
Chapter 29 Exchange of Tax Information and the Impact of FATCA for China
Chapter 30 Exchange of Tax Information and the Impact of FATCA for Netherlands
Chapter 31 Exchange of Tax Information and the Impact of FATCA for Luxembourg
Chapter 32 Exchange of Tax Information and the Impact of FATCA for Russia
Chapter 33 Exchange of Tax Information and the Impact of FATCA for Turkey
Chapter 34 Exchange of Tax Information and the Impact of FATCA for India

Index – See more at: http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327#sthash.jNxiRHxp.dpuf

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“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.

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