Monday, October 22, 2012

U.S. Non-Resident, Non-Filer, Streamlined Compliance Initiative | Bellevue Tax Lawyer

As I mentioned in my FBAR Updates post from 6/27, on September 1, the IRS announced the instructions for the new non-resident, non-filing US taxpayer compliance initiative.  The instructions can be found, here.  

The initiative is available to non-resident U.S. taxpayers that have lived abroad since 2009, owe less than $1500 in taxes and have not filed taxes since 2009; and taxpayers that failed to properly request deferral using Treaty Form 8891.  Form 8891 is used for Canadian RRSPs and RRIFs.  The treaty relief is also permitted in the OVDP, and OVDI if your case is still open.

Eligibility for this initiative is based on four questions listed in the questionnaire:

(1) Have you lived in the U.S. for any period since January 1, 2009?
(2) Have you filed a U.S. tax return for 2009 or later?
(3) Do you owe more than $1500 in U.S. taxes for each year individually?
(4) If you are submitting returns solely for the purpose of requesting retroactive
deferral of income on Form 8891, are there any adjustments reported on the amended return to income, deductions, credits, or taxes? 

Unless you are requesting Form 8891 relief, you must answer no to all four of the questions.  If you are requesting 8891 relief, you can answer yes to question (2) if you are only filing amended returns to make the 8891 election.  If you do not meet these requirements you are not eligible for the initiative.  The questionnaire can be found, here

Unlike the OVDP, the initiative does not provide protection against criminal prosecution.  Also, once a taxpayer makes a submission under this initiative, the taxpayer is not longer eligible to participate in the OVDP.

The program does not protect the taxpayer against the risk of audit.  The IRS does not go into detail about how it will decide if a return is high risk and possibly subject to an audit.  Based on the information provided, it appears that the more complicated the tax return and the closer the taxpayer is to the $1500 a year threshold, the higher the risk, and more likely to be examined.  Otherwise, it does not provide much detail about how to determine compliance risk.  

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web.  Please do not rely on this article without consulting your tax professional.  If you are unsure about whether you should enter this program contact a tax professional.

Monday, September 17, 2012

Presidential Candidate Tax Proposals | Bellevue Tax Lawyer

Ever since the election of Ronald Reagan in 1980, it has become commonplace for presidential candidates to promise to implement various “tax cuts” if elected. Although neither incumbent Barack Obama nor former Massachusetts governor Mitt Romney have bucked this trend, there are important differences in the tax proposals that they have made during the current election cycle.

Romney has presented the outlines of a tax program that would appear to offer considerable benefit to high-income earners.  As part of a pledge to slash all tax rates by 20 percent, Romney would see the current top tax rate of 35 percent (assessed on income over $388,351 for individuals and married couples filing jointly, and $194,176 for married individuals filing separately) reduced to 28 percent.  He intends to completely eliminate the tax on capital gains and dividends for individuals earning less than $200,000, while also repealing the Alternative Minimum Tax (AMT) and the estate tax and lowering the corporate tax rate from 35 percent to 25 percent.  Romney's most radical position is his stated desire to see the 3.8 percent investment income surtax—which provides a partial means of funding Obamacare—repealed, along with Obamacare itself.

Romney’s position on other tax issues is not entirely clear, however.  While he has stated that he favors reducing “tax breaks” for high-income earners, he has not yet specified which tax breaks will be cut.  Moreover, the selection of influential Congressman Paul Ryan as his running mate is an indication that his tax positions may become yet more favorable to high-income earners.  In Ryan’s proposed federal budget for FY 2013, the top tax rate is slashed to 25 percent, three percentage points lower than in Romney’s proposal.  Ryan’s budget would also significantly limit the ability of the IRS to tax US corporate profits that are earned abroad. 

President Barack Obama’s suggested changes to tax policy are less advantageous for high-income earners.  He intends to raise the top two tax rates from 33 and 35 percent to 36 and 39.6--a move that would cost taxpayers in these brackets thousands of dollars--while keeping all other rates at current levels.  He also hopes to raise the alternative minimum tax, assessing a rate of at least 30 percent on all households earning over $1 million dollars, and raising the estate tax to 45 percent for each dollar above a $3.5 million exemption (up from a 35-percent rate applied to each dollar above a $5 million exemption).  Obama favors an increase in taxes on capital gains from 15 to 20 percent, as well as the taxation of “carried interest” by private financiers (currently taxed at 15 percent) taxed as ordinary income.  He does, however, favor lowering the corporate income tax rate to 28 percent, while also offering a tax credit for companies relocating their operations to the U.S.   Many of Obama’s programs that would benefit low-income earners are already in place, including a Special Direct Consolidation Program established for Federal Student Loansa series of tax cuts for middle-income earners, the continuation of the Bush-era and the extremely complicated Public Service Loan Forgiveness Program (an initiative that, barring Congressional repeal, will vest no earlier than 2017), and the expansive, tax code-linked Obamacare medical reforms. 

Regardless of the outcome of the election or your current earnings level, it appears that the tax picture for 2013 and beyond will be quite different than it is today.  For a free consultation regarding the tax opportunities that may be available to you, please contact The Law Offices of Aaron P. Richter,  a Seattle-based firm with expertise in Tax Controversy, Business Formation, Estate Planning, and Tax Preparation. 

Monday, August 27, 2012

The New Truth about an Offer in Compromise | Bellevue Tax Lawyer

In my previous post about submitting an offer-in-compromise, I stated that it was difficult, at best, for a taxpayer to satisfy the terms required to make an offer-in-compromise.  However, the recently updated IRS offer-in-compromise guidelines substantially improves the likelihood that a middle class tax payer will qualify for an offer and that the offer will be accepted.  As discussed in detail below, the biggest changes are related to the reduction in the number of years used to determine available future income, and the ability to include student loan payments.  

Perhaps in recognition of the slow-to-recover economy, the IRS has announced more flexible offer-in-compromise terms for taxpayers who are struggling with other expenses, such as student loan payments and state and local tax delinquencies.  These changes constitute another component of Fresh Start, an IRS initiative that also includes an expansion of the payment window for installment arrangements and penalty relief for unemployed earners and self-employed earners who saw a substantial reduction in earnings.  According to IRS Commissioner Doug Shulman, the changes to this program were intended to “help the middle class more than ever before.”

For taxpayers who have remained current with all tax filings and payments and have yet to initiate bankruptcy proceedings, the revised OIC terms constitute a useful option for achieving long-term financial stability.  The previous program, gave false hope to many taxpayers but offered little relief.  Now, however, settlements for substantially less than what is owed, and settlement acceptance rates—previously in the range of 30% of all submitted offers--are likely to reach 40% or higher. 

The prior OIC requirements were unduly difficult for many taxpayers to meet.  Under the old OIC terms, the IRS looked at five years of future income when assessing offers to pay over the course of six to 24 months, and four years of future income for offers to pay in five or fewer months; the revised OIC terms limit this to two and one, respectively.  Other payments to government entities, such as student loan payments and payments to state and local tax collectors, will be considered when weighing the merits of OIC acceptance.  Equity in income-producing assets will generally not be included in the calculation of collection potential for ongoing businesses.

With OIC revisions in place for the upcoming tax season, individuals who are seeking to settle their outstanding liabilities to the IRS may wish to consult with tax professionals about this program.  The Law Office of Aaron P. Richter, a Washington law firm that specializes in tax controversy and preparation, offers a free phone consultation (425-298-3207) to taxpayers who are interested in learning about how the changes to the OIC program will affect their ability to restructure or discharge their debts.   

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web.  Please do not rely on this article without consulting your tax professional. 

Wednesday, June 27, 2012

Bellevue Tax Lawyer | 2012 OVDP FBAR Updates

The IRS published a new webpage today detailing the requirements for the 2012 OVDP, including a new FAQ.

The rules are basically the same as the 2011 OVDI.  One item to note is that the FAQs continue to state that if you have properly reported all of your foreign income, have not been audited in a previous year, but failed to file the FBAR (Form TD F 90-22.1) do not enter the program.  Instead, the FAQs (FAQ #17) state that the taxpayer should prepare the missing FBARs and submit them with a statement explaining why they were late.

A big change for the Canadians is that the new FAQ includes an option to make a late election using Form 8891 for Canadian RRSP, RRIF, and similar accounts.  If the late filing is accepted, the amounts in these Canadian accounts is excluded from the penalty calculation.  For taxpayers in the 2009 OVDP and 2011 OVDI that haven't closed their cases, the FAQ permits them to make this election and, if the election is approved, exclude the funds in the Canadian accounts from the penalty calculation.  See the FAQs, here, and the new OVDP page, here.

Yesterday, the IRS announced a new program for US residents living abroad with minor tax issues that have also failed to file the FBAR.  The new program allows US residents living abroad with less than $1500, per year, of underreported tax liabilities to file 3 years of amended tax returns and 6 years of corrected FBARs, without FBAR penalties.  The new procedure also allows for the late filing of IRS Form 8891for Canadian RRSP, and RRIF accounts for some people.  Unfortunately, the details of the new program will not be released until September 1.  The text of the release is below:

The Internal Revenue Service today announced a plan to help U.S. citizens residing overseas, including dual citizens, catch up with tax filing obligations and provide assistance for people with foreign retirement plan issues.
"Today we are announcing a series of common-sense steps to help U.S. citizens abroad get current with their tax obligations and resolve pension issues," said IRS Commissioner Doug Shulman.

Shulman announced the IRS will provide a new option to help some U.S. citizens and others residing abroad who haven’t been filing tax returns and provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes. The new procedure will go into effect on Sept. 1, 2012.

The IRS is aware that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs). Some of these taxpayers have recently become aware of their filing requirements and want to comply with the law.

To help these taxpayers, the IRS offered the new procedures that will allow taxpayers who are low compliance risks to get current with their tax requirements without facing penalties or additional enforcement action. These people generally will have simple tax returns and owe $1,500 or less in tax for any of the covered years.

The IRS also announced that the new procedures will allow resolution of certain issues related to certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans). In some circumstances, tax treaties allow for income deferral under U.S. tax law, but only if an election is made on a timely basis.  The streamlined procedures will be made available to resolve low compliance risk situations even though this election was not made on a timely basis.

Taxpayers using the new procedures announced today will be required to file delinquent tax returns along with appropriate related information returns for the past three years, and to file delinquent FBARs for the past six years. Submissions from taxpayers that present higher compliance risk will be subject to a more thorough review and potentially subject to an audit, which could cover more than three tax years.

The IRS also announced its offshore voluntary disclosure programs have exceeded the $5 billion mark, released new details regarding the voluntary disclosure program announced in January and closed a loophole used by some U.S. citizens. See IR-2012-64 for more.
Update September 5: The IRS has posted the new details for the new program.  You can find the link for the program, here.  The questionnaire for the program is, here.  There seem to be some potential issues involved with entering this program and I will make a post about it in the next couple of days.
As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web.  Please do not rely on this article without consulting your tax professional.  If you are unsure about whether you have a requirement to file this form contact a tax professional.

Monday, May 28, 2012

Bellevue Tax Law | FBAR Deadline is June 30th

The deadline to file your 2011, TDF 90-22.1 (FBAR) is June 30th, 2012.  The FBAR is filed separately from your regular tax return and mailed to the Department of Treasury in Detroit.  

The FBAR is required to be filed even if you don’t have to file a regular tax return.  Unlike your tax return, June 30th, is the date the FBAR must be received by the Department of Treasury, NOT the date the envelope is postmarked.   So, make sure you give it at least a few days, if not a week or more, to get to Detroit on time. 

Any US person with $10,000 or more, at anytime during the year, in foreign financial accounts must file the FBAR.   The $10,000 requirement is based on the combined value of all your accounts and not each individual account.  A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution).  If the accounts are in a foreign currency you must convert the balances to US dollars based on the December 31, 2011 exchange rates found on the treasury website.  So, if you have two accounts each containing $6,000 dollars you need to file the FBAR.  The $10,000 value is based on the maximum balances at any time during the year.  Thus, if the aggregate balance of the account(s) reached $10,000 for five minutes on one day of the year, you are required to file.

A US person is any US citizen, no matter where you live, residents, and US entities.  A US citizen or resident living abroad is required to file the FBAR.  US based businesses (partnership, corporations, sole proprietorships, s-corps, etc.) and trusts are also required to file the FBAR.  If you own more than a certain percentage (usually 50%) of one of these types of business or trusts you will have to file two FBARs; one the entity and one personally. 

If you have signature authority, but are not the owner, of a foreign financial account that that meets the filing requirements you are required to file an FBAR.  The signature authority rules apply to business accounts even if you do not own 50% of the business linked to the account.  A debit card on a foreign account could be considered as having signature authority.

The penalties for not filing the FBAR are steep.  If you have any type of foreign account and do not think you are required to file; at least contact someone to verify that you are correct.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web.  Please do not rely on this article without consulting your tax professional.  If you are unsure about whether you have a requirement to file this form contact a tax professional.

Tuesday, April 10, 2012

Form 8938, Statement of Specified Foreign Assets | Bellevue Tax Lawyer

As the 2011 tax return filing deadline is quickly approaching, and the majority of my readers seem to have foreign assets, I wanted to make a quick post about the new IRS form 8938.  If you are a US person for tax purposes, form 8938 is required to be filed with your tax return when your specified foreign financial assets are in excess of the threshold.  This form is filed in addition to the FBAR and is duplicative of a lot of the information reported on the FBAR.  I won't get into the specifics of the form but will give a quick rundown of some of the details.

Specified foreign financial assets include: 
(1) any interest in a financial account maintained by a foreign financial institution.  This includes bank accounts, brokerage accounts, life insurance, annuities, and financial instruments, among other things.  
(2) Any interest in a foreign entity that is not held in a foreign financial account.  This includes stocks and securities not held in a foreign financial account, and any interest in a foreign entity not held in a foreign financial account.  A foreign entity is a foreign business such as a partnership, LLC, corporation, trust, etc...  Foreign real property does not have to be included if it is not held by a foreign entity.  This list is provided to give you an idea of what is a specified foreign asset and is not all inclusive.

The thresholds for filing are listed in the instructions for the form.  The reporting requirements begin at $50,000 for a single person living in the US.  If the value of your specified foreign financial assets exceed this please take a look at the instructions and see if you have a filing requirement or contact a tax professional to help you determine if you are required to file this form.  

In addition to reporting the assets, form 8938 also requires a taxpayer to list any tax items related to the foreign assets by form, schedule, and line number.

The instructions for Form 8938 can be found here, and Form 8938 can be found here.  

If you have any questions please contact me directly or leave a comment.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes and tax law on the web.  Please do not rely on this article without consulting a tax professional.

Monday, March 12, 2012

Foreign Trust and Corporate Tax Returns Due on March 15th | Bellevue Tax Lawyer

March 15, 2012 is the filing deadline file for 2011 corporate tax returns (1120, 1120A, 1120S), to file an amended 2008 corporate return to claim a refund a refund, or to request an extension for 2011 using Form 7004.

March 15, 2012 is also the deadline to file foreign trust returns (Form 3520-A), or to request an extension using Form 7004.

Form 3520-A is required if a "US Person" is an "owner" of a foreign trust.  

A couple of examples of foreign accounts that could be treated as a trust are a Mexican FIDEICOMISO, and foreign retirement accounts that are similar in management or structure to a US IRA.

If you own land in a restricted zone of Mexico and are not a Mexican Citizen the Mexican Constitution prohibits foreigners from owning this type of property.  To get around this restriction the land is purchased through a Mexican trust called a Fideicomiso.  This purchase structure is treated as a trust by the IRS, creates a 3520 and 3520-A reporting requirement, and possibly other reporting requirements.

Update (Jan. 7, 2013): The IRS has stated that under some conditions this structure will not be considered a foreign trust.   The conditions to determine if the Fideicomiso is or is not a foreign trust depend on the individual facts and circumstances of each arrangement.  Please consult a tax professional to determine if you have a filing requirement.   

Foreign IRA Accounts:
Many foreign retirement plans are considered foreign trusts by the IRS.  If you have an interest in a foreign retirement plan there is a chance you need to file a 3520 and 3520-A.  If you aren't sure about an account contact a tax professional as the penalties for failing to file the required forms are harsh.  

In addition to these requirements, a taxpayer may have to report these accounts on the FBAR, and Form 8938.

If you have any questions please contact me directly or leave a comment.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes and tax law on the web.  Please do not rely on this article without consulting a tax professional.

Monday, March 5, 2012

5 European Countries Agree to Disclose Bank Information with IRS | Bellevue Tax Lawyer

The IRS recently announced that an agreement has been reached between the US, Germany, Britain, France, Italy, and Spain to collect and exchange information about accounts held in those countries with the IRS.  In return, the IRS has agreed to report information about US accounts held by residents of those countries with their respective authorities.  Furthermore, the IRS stated that more agreements similar to this one are currently being negotiated.

The agreement relates to the 2010 passage of the Jobs bill which includs the FATCA provision.  FATCA requires foreign financial institutions to enter into disclosure agreements with the IRS or face harsh penalties if the institution does not report this information.  The goal of FATCA is to insure that there is no gap in the ability of the US government to determine the ownership of US assets in foreign accounts.  As more foreign financial institutions and countries enter into these disclosure agreements with the IRS the likelihood that US owners of foreign financial accounts evading detection diminishes substantially.  

As stated in my previous posts on the OVDI, the IRS is encouraging US persons with foreign financial accounts to come forward and report the foreign accounts and income.  You should consider immediate action if you have accounts in one these countries, or any foreign country (for that matter), and haven't filed FBARs and/or reported income from foreign sources.  This action should start with reporting the income for this year and filing the FBAR and other required forms.  You should also speak with a tax professional to determine your exposure to other penalties and determine the best course of action to bring your status with the IRS into compliance.

If you have any questions please contact me directly or leave a comment.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes and tax law on the web.  Please do not rely on this article without consulting a tax professional.

Thursday, January 19, 2012

Bellevue Tax Lawyer | The 2012 OVDI, FBAR Amnesty

The IRS has announced the reopening of the OVDI program.  The terms of the program are basically the same as the 2011 program with few key exceptions.  First, the penalty rate for the 2012 program is 27.5% instead of 25%.  The 12.5% and 5% rates are still available if the taxpayer meets the requirements for theses rates.  Second, the program does not have an end date and the IRS can close the initiative at any time.  Third, the IRS can change the penalty rate at any time.

The remaining terms of the new program are the same as the 2011 OVDI as discussed in the link post and summarized below:
  • The penalty is based on the highest aggregate balance for any year in the previous eight year period;
  • The penalty includes the value of any land purchased with non-compliant funds, or that has produced unreported income;
  • The taxpayer has to file new or amended FBARs for all years in question;
  • The taxpayer must file or amend tax returns for all years in question pay interest on the liability and pay a 20% penalty on the tax liability for the previous eight years;
  • Foreign trusts and other entities are included in the initiative.
Taxpayers with reportable foreign accounts that have not entered a program should consider what to do now.  As the IRS continues to increase their efforts to obtain the names of foreign account holders, through agreements or settlements with the banks, the risk of discovery increases.  This program is an opportunity for people the avoid some of the harsh penalties that can result from a regular audit and for the taxpayer to get into and remain in compliance.

If you have any questions please contact me directly or leave a comment.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes and tax law on the web.  Please do not rely on this article without consulting a tax professional.