Wednesday, June 20, 2018

TCJA Favors Corporations With Outbound Tax Planning - Part 2

On January 26, 2018 we posted TCJA Favors Corporations With Outbound Tax Planning where we
discussed that The Tax Cuts and Jobs Act (“TCJA”) imposed international tax law changes which relate directly to U.S. corporations doing business outside the United States.
 
Despite these shifts toward partial territoriality, the new law retains the Subpart F rules that apply to tax currently certain income earned by CFCs (i.e., foreign corporations that are more than 50% owned by 10% U.S. shareholders (under the new law, both the 10% and 50% standards are measured by reference to either vote or value), as well as introducing a new category of income puzzlingly called “global intangible low-taxed income” (GILTI), though it has almost nothing to do with income from intangibles.

GILTI will include nearly all income of a CFC other than ECI, Subpart F income (including Subpart F income that is excludible under the Section 954 (b)(4) high-tax exception), or income of taxpayers with very significant tangible depreciable property used in a trade or business.The GILTI tax, imposed under Section 951A, applies to U.S. shareholders (both corporate and individual) of CFCs at ordinary income tax rates.

U.S. C corporations that are shareholders of CFCs, on the other hand, are entitled under new Section 250 to deduct 50% of the GILTI inclusion, resulting in a 10.5% effective tax rate on such income.

Additionally, such corporate shareholders are permitted to claim foreign tax credits for 80% of the foreign taxes paid by the CFC that are attributable to the relevant GILTI inclusion.  Accounting for the 50% deduction and foreign tax credits, if any, a corporate U.S. shareholder’s GILTI inclusion that is subject to a rate of foreign income tax of at least 13.125% should result in no further U.S. federal income tax being due.

In addition to the above GILTI provisions, Section 250 also permits U.S. corporations to deduct 37.5% of “foreign-derived intangible income” (FDII), resulting in an effective U.S. federal income tax rate of 13.125% on such income. FDII is the portion of the U.S. corporation’s net income (other than GILTI and certain other income) that exceeds a 10% rate of return on the U.S. corporation’s tangible depreciable business assets and is attributable to certain sales of property (including leases and licenses) to foreign persons or to the provision of certain services to any person located outside the United States. 
 
Now as reported by Reuters, the corporate tax cut enacted in the Tax Cuts and Jobs Act (TCJA; P.L. 115-97, 12/22/2017) was in part designed to help dissuade U.S. companies from moving profits overseas, but may instead make the practice a lot more rewarding. Take AbbVie Inc. is a case in point.  Its Chief Executive, Richard Gonzalez, told investors earlier this year that because of the change to a territorial system, whereby only profits reported by domestic subsidiaries face U.S. tax, the U.S. drugmaker expects its tax rate to fall to 9% this year from around 22% in recent years.
 
The company has historically reported its income in lower tax jurisdictions, which is possible in part because AbbVie parks the majority of the patents for its top-selling drug, Humira, in Bermuda, a country that has a zero tax rate on corporate profits.
Despite Recording over Half Its $28.2 Billion in 2017 Sales in the US and Basing Most of Its Research Facilities There, the Suburban Chicago Company HAS NEVER Reported a Profit in Its Home Country, Its Annual Reports Show.

 
In 2017, AbbVie reported foreign earnings before income tax of $10.4 billion on international revenue of only $9.97 billion.
 
The principal anti-tax avoidance measures introduced still allow companies to benefit strongly from profit shifting. AbbVie does not address the patent locations on earnings conference calls or in its SEC filings, and declined to discuss its accounting practices or its annual U.S. losses.
 
“If the guardrails in the new territorial system were meant to prevent companies from avoiding all taxes, AbbVie’s (tax rate) is a pretty clear signal that these guardrails may not be effective,” said Matthew Gardner, senior fellow with the Institute of Taxation and Economic Policy. 
“If the Guardrails in the New Territorial System Were Meant to Prevent Companies from Avoiding All Taxes, AbbVie’s (Tax Rate) Is a Pretty Clear Signal That These Guardrails May Not Be Effective,” Said Matthew Gardner, Senior Fellow with the Institute of Taxation and Economic Policy.
AbbVie is not the only U.S. company with big operations at home but which reports relatively few profits. Pfizer Inc, Expedia Group Inc, Boston Scientific Corp, Synopsys Inc, and Microsoft Corp also do the same and are set to be big winners from the shift in territorial system, executives have said and earnings for the most recent quarter show.






Congress attached such a provision to the TCJA. Under the new Global Intangible Low Tax Income (GILTI) provision, if a company generates untaxed profits in a tax haven, it will be liable to have that profit taxed as though it arose in the U.S. However, the effective tax rate that will apply is half the U.S. corporate tax rate of 21%, or 10.5%. And if a company reports a loss in the U.S., this can reduce the tax liability further.
 
The exact mechanisms AbbVie uses to report such a low a tax rate are not public. However, analysts and academics say corporate filings often show that drug companies frequently reduce their taxes by parking patents in a low-tax haven, as AbbVie does, and then have their affiliates, which manufacture or market the drug pay the tax haven subsidiary royalty fees for the right to use the patent.
 
This arrangement sees a drug sold into a target market, like the U.S., at a high price, with the U.S. distribution arm getting a sales margin as low as 5%.
 
Sometimes the U.S. distribution profit is not enough to cover group costs incurred in the U.S. For example, many of AbbVie’s biggest costs, including $1 billion a year in interest charges and over $50 million in compensation for its top 5 executives, are covered by AbbVie’s U.S. entities, contributing to the U.S. loss, filings show.
 
That is why AbbVie can forecast a tax rate below the 10.5% GILTI rate, which some commentators have described as a new minimum tax rate.
 
Need International Tax Help?
 
 
We Can Advise on How These Tax Cuts Can Benefit You!
 
Contact the Tax Lawyers at 
Marini & Associates, P.A.  
 
 
for a FREE Tax Consultation Contact us at:
Toll Free at 888-8TaxAid (888) 882-9243
 
 
 

Tuesday, June 19, 2018

How to Know It’s Really the IRS Calling or Knocking on Your Door?

On April 19, 2017 the IRS released FS-2017-07 advising taxpayers of how to confirm that it's really the IRS who is contacting them. Many taxpayers have encountered individuals impersonating IRS officials, in person, over the telephone and via email. Don’t get scammed. The IRS wants you to understand how and when the IRS contacts taxpayers and help you determine whether a contact you may have received is truly from an IRS employee.

The IRS Initiates Most Contacts Through Regular Mail Delivered by the United States Postal Service.

However, there are special circumstances in which the IRS will call or come to a home or business, such as when a taxpayer has an overdue tax bill, to secure a delinquent tax return or a delinquent employment tax payment, or to tour a business as part of an audit or during criminal investigations.

Even then, taxpayers will generally first receive several letters (called “notices”) from the IRS in the mail.

NOTE THAT THE IRS DOES NOT:
    1. Demand that you use a specific payment method, such as a prepaid debit card, gift card or wire transfer. The IRS will not ask for your debit or credit card numbers over the phone.
     
    2. Demand that you pay taxes without the opportunity to question or appeal the amount they say you owe. Generally, the IRS will first mail you a bill if you owe any taxes. You should also be advised of your rights as a taxpayer.

    3. Threaten to bring in local police, immigration officers or other law-enforcement to have you arrested for not paying. The IRS also cannot revoke your driver’s license, business licenses, or immigration status. Threats like these are common tactics scam artists use to trick victims into buying into their schemes. 
If you owe taxes:

The IRS instructs taxpayers to make payments to the “United States Treasury.” The IRS provides specific guidelines on how you can make a tax payment at irs.gov/payments.

Here is what the IRS will do:

If an IRS representative visits you, he or she will always provide two forms of official credentials called a pocket commission and a HSPD-12 card. HSPD-12 is a government-wide standard for secure and reliable forms of identification for Federal employees and contractors. You have the right to see these credentials.

Collection

IRS collection employees may call or come to a home or business unannounced to collect a tax debt. They will not demand that you make an immediate payment to a source other than the U.S. Treasury. Learn more about the IRS revenue officers’ collection work.

The IRS can assign certain cases to private debt collectors but only after giving the taxpayer and his or her representative, if one is appointed, written notice. Private collection agencies will not ask for payment on a prepaid debit card or gift card. Taxpayers can learn about the IRS payment options on irs.gov/payments. Payment by check should be payable to the U.S. Treasury and sent directly to the IRS, not the private collection agency. Learn more about Private Debt Collectors.

Audits
IRS employees conducting audits may call taxpayers to set up appointments, but not without having first notified them by mail. After mailing an official notification of an audit, an auditor/tax examiner may call to discuss items pertaining to the audit.
Learn more about the IRS audit process.

Criminal Investigations

IRS criminal investigators may visit a taxpayer’s home or business unannounced while conducting an investigation. However, these are federal law enforcement agents and they will not demand any sort of payment. Learn more about the What Criminal Investigation Does and How Criminal Investigations are Initiated.

Beware of Impersonations

Scams take many shapes and forms, such as phone calls, letters and emails. Many IRS impersonators use threats to intimidate and bully people into paying a fabricated tax bill. They may even threaten to arrest or deport their would-be victim if the victim doesn’t comply. For a comprehensive listing of recent tax scams and consumer alerts, visit Tax Scams/Consumer Alerts.

Know Who to Contact
  • Contact the Treasury Inspector General for Tax Administration to report a phone scam. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.
  • Report phone scams to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add "IRS Telephone Scam" in the notes.
  • Report an unsolicited email claiming to be from the IRS, or an IRS-related component like the Electronic Federal Tax Payment System, to the IRS at phishing@irs.gov

How to know it’s really the IRS calling or knocking on your door: Collection

Revenue officers are IRS civil enforcement employees who work cases that involve an amount owed by a taxpayer or a delinquent tax return.  Their role involves education, investigation, and when necessary, appropriate enforcement.

Generally, home or business visits are unannounced because scheduling appointments for such matters would be inconsistent with their proactive and urgent nature. For example, many urgent and complex cases involve employers’ employment tax withholding requirement.
Revenue Officers Carry Two Forms of Official Identification.   Both Forms of Identification Have Serial Numbers and You Can Ask to See Both.
Collections - Revenue Officer Visits
    • The vast majority of collection cases begin as letters (called “notices”) sent to taxpayers because the case is unresolved.  A significant number of these cases are also previously worked by the Automated Collection System – an IRS program that tries to resolve the taxpayer’s account over the phone directly with the taxpayer after a notice sent to the taxpayer was unsuccessful at resolving the situation.  
    • A small portion of the revenue officers’ work involves proactive outreach to employers, called Federal Tax Deposit Alerts, sent at the earliest sign that a business taxpayer is falling behind on payroll tax deposits. These are generally not preceded by a notice.
Tax Audits - Revenue Agent Visits

The IRS examines or audits tax returns to verify that what the taxpayer reported is correct. This doesn’t mean that the taxpayer has made an error or been dishonest. In fact, some examinations result in a refund to the taxpayer or acceptance of the return without change.

There are various reasons the IRS may telephone or visit a taxpayer at home during an audit, but at that point the taxpayer would be well aware of the audit. 

Audit Contacts
  • After mailing an initial appointment letter we may call to confirm and discuss items needed for the audit. An audit may include an interview with the taxpayer or his or her Power of Attorney, if one is appointed, and sometimes include a tour of the taxpayer’s business operation.
  • Third party contacts, if while examining one taxpayer’s return, we need information from someone else, we will first issue a letter to that third party requesting the information.  After that we may contact them by telephone.
     
    Have a Tax Problem?
     
     
    Contact the Tax Lawyers at 
    Marini& Associates, P.A. 
     
     
    for a FREE Tax Consultation Contact Us at:
    Toll Free at 888-8TaxAid (888) 882-9243
     
     
 

Monday, June 18, 2018

Another Soccer Player Receives a Tax Red Card - Cristiano Ronaldo

The world's highest paid athlete, Cristiano Ronaldo, has been accused of tax evasion. The Real Madrid super star reeled in $93 million last year, putting him ahead of basketball giant LeBron James and La Liga rival, Lionel Messi. Ronaldo has been accused of failing to pay 14.7 million euros ($16.5 million) in taxes.

The prosecutor’s office in Madrid filed a lawsuit that alleges that the 31-year-old knowingly used offshore accounts to hide income from his image-rights payments. The charges come months after Spanish newspaper El Mundo published leaked documents revealing details of the offshore holdings of several soccer players, including Ronaldo. The tax evasion relates to a three-year period starting in 2011.

Ronaldo, who led Real Madrid to win both the Spanish league and European Cup, is just the latest high profile soccer player to face prosecution over tax affairs. Earlier a court rejected Lionel Messi’s appeal over a tax fraud conviction. Messi’s Barcelona teammate Neymar is also being prosecuted in Spain over his transfer from Brazilian team Santos in 2013.

The management team for the four-time world soccer player of the year responded earlier this year to the tax allegations against him by releasing his 2015 tax declaration. It revealed he held assets outside of Spain worth more than 203 million euros.

“This communication, which was not required by law, constitutes irrefutable proof that Cristiano Ronaldo and his representatives are in good faith, and cooperate with the authorities in a spirit of transparency and compliance with legality,” the agency Gestifute said.

The Madrid prosecutor said in his 2014 tax return Ronaldo claimed to have recorded revenue from Spanish sources between 2011 and 2013 of 11.5 million euros, though in reality that number was almost 43 million euros.

Ronaldo had appeared immune to the tax allegations which have affected a number of famous soccer players, including Lionel Messi, who was found guilty of tax evasion last year (his sentence was upheld this year).

However, last year, suspicions against Ronaldo were raised after the so-called "Football Leaks" - think Panama Papers with a hyper-focus on soccer players - suggested that Ronaldo had underreported his income.

Real Madrid’s all-time highest scorer, who is due to play in Portugal’s opening World Cup match against Spain on Friday, has according various news agencies has settled his tax evasion charges brought by the Spanish authorities, paying a EUR18.8 million fine and agreeing to accept a two-year jail sentence, although Spanish criminal law allows a sentence of less than two years for a first offence to be served on probation.  

Ronaldo was accused of evading EUR14.7 million in taxes on EUR75 million of his image rights income, which has, for years, been handled by two Irish companies.
Have Tax Problems?
 
Contact the Tax Lawyers at 
Marini& Associates, P.A.  
 
 
for a FREE Tax Consultation Contact us at:
Toll Free at 888-8TaxAid (888) 882-9243








Sources:

 Reuters

Bloomberg

Forbes

Revocation & Denial of Passport For Unpaid Taxes Is Happening NOW!


On January 18, 2018 we posted IRS to Begin Revoking US Passports of Delinquent Taxpayers in 2018! where we discussed that the IRS will start implementing new procedures required under a 2015 law to crack down on individuals with “seriously delinquent tax debts.”

The IRS issued Notice 2018-1 on January 16, 2018, which provides guidance for implementation of the new IRC 7345, added by Section 32101 of the FAST Act. Upon receipt of section 7345 certification, the State Department is generally required to deny a passport application for individuals with seriously delinquent tax debts and may also revoke or limit passports previously issued to those individuals. The notice also describes some exceptions to certification and taxpayer remedies.  “Seriously delinquent tax debt” is an individual's unpaid, legally enforceable federal tax debt totaling more than $51,000 (including interest and penalties) for which a notice of federal tax lien has been filed and all administrative remedies under IRC § 6320 have lapsed or been exhausted or a levy has been issued.


Now the IRS webpage on Revocation or Denial of Passport in Case of Certain Unpaid Taxes contains the following alert:
 

If you have seriously delinquent tax debt, IRC § 7345 authorizes the IRS to certify that debt to the State Department for action. The State Department generally will not issue a passport to you after receiving certification from the IRS.

 
Upon receiving certification, the State Department shall deny your passport application and/or may revoke your current passport. If your passport application is denied or your passport revoked and you are overseas, the State Department may issue you a limited validity passport good only for direct return to the United States.

Certification Of Individuals With Seriously Delinquent Tax Debt

Seriously delinquent tax debt is an individual's unpaid, legally enforceable federal tax debt totaling more than $51,000 (including interest and penalties) for which a:
  • Notice of federal tax lien has been filed and all administrative remedies under IRC § 6320 have lapsed or been exhausted or
  • Levy has been issued
Seriously delinquent tax debt is limited to liabilities incurred under Title 26 of the United States Code and does not include debts collected by the IRS such as the FBAR Penalty and Child Support.
Some tax debt is not included in determining seriously delinquent tax debt even if it meets the above criteria. It includes tax debt:
  • Being paid timely with an IRS-approved installment agreement
  • Being paid timely with an offer in compromise accepted by the IRS, or a settlement agreement entered with the Justice Department
  • For which a collection due process hearing is timely requested regarding a levy to collect the debt
  • For which collection has been suspended because a request for innocent spouse relief under IRC § 6015 has been made
Additionally, a passport won’t be at risk under this program for any taxpayer:
  • Who is in bankruptcy
  • Who is identified by the IRS as a victim of tax-related identity theft
  • Whose account the IRS has determined is currently not collectible due to hardship
  • Who is located within a federally declared disaster area
  • Who has a request pending with the IRS for an installment agreement
  • Who has a pending offer in compromise with the IRS
  • Who has an IRS accepted adjustment that will satisfy the debt in full
Certification will be postponed while an individual is serving in a designated combat zone or participating in a contingency operation.
Before denying a passport, the State Department will hold your application for 90 days to allow you to:
  • Resolve any erroneous certification issues
  • Make full payment of the tax debt
  • Enter a satisfactory payment arrangement with the IRS

Annual Adjustment For Inflation

The $51,000 threshold is indexed yearly for inflation
Under new Code Section 7345(f), in the case of a calendar year beginning after 2016, the dollar amount in new Code Section 7345 shall be increased by an amount equal to (1) such dollar amount, multiplied by (2) the cost-of-living adjustment determined under Code Section 1(f)(3) for the calendar year, determined by substituting “calendar year 2015” for “calendar year 1992” in Code Section 1(f)(3)(B). If any amount as adjusted under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000.

Taxpayer Notification - Notice CP 508C

The IRS is required to notify you in writing at the time the IRS certifies seriously delinquent tax debt to the State Department. The IRS is also required to notify you in writing at the time it reverses certification. The IRS will send written notice by regular mail to your last known address.

Reversal Of Certification - Notice CP 508R

The IRS will reverse a certification when:
  • The tax debt is fully satisfied or becomes legally unenforceable.
  • The tax debt is no longer seriously delinquent.
  • The certification is erroneous.
The IRS will make this reversal within 30 days and provide notification to the State Department as soon as practicable.
A previously certified debt is no longer seriously delinquent when:
  • You and the IRS enter into an installment agreement allowing you to pay the debt over time.
  • The IRS accepts an offer in compromise to satisfy the debt.
  • The Justice Department enters into a settlement agreement to satisfy the debt.
  • Collection is suspended because you request innocent spouse relief under IRC § 6015.
  • You make a timely request for a collection due process hearing regarding a levy to collect the debt.
The IRS will not reverse certification where a taxpayer requests a collection due process hearing or innocent spouse relief on a debt that is not the basis of the certification. Also, the IRS will not reverse the certification because the taxpayer pays the debt below $50,000.

Judicial Review Of Certification

The State Department is held harmless in these matters and cannot be sued for any erroneous notification or failed decertification under IRC § 7345.

If the IRS certified your debt to the State Department, you can file suit in the U.S. Tax Court or a U.S. District Court to have the court determine whether the certification is erroneous or the IRS failed to reverse the certification when it was required to do so. If the court determines the certification is erroneous or should be reversed, it can order the IRS to notify the State Department that the certification was in error.

IRC § 7345 does not provide the court authority to release a lien or levy or award money damages in a suit to determine whether a certification is erroneous. You are not required to file an administrative claim or otherwise contact the IRS to resolve the erroneous certification issue before filing suit in the U.S. Tax Court or a U.S. District Court.

Payment Of Taxes

If you can’t pay the full amount you owe, you can make alternative payment arrangements such as an installment agreement or an offer in compromise to have your certification reversed.

If you recently filed your tax return for the current year and expect a refund, the IRS will apply the refund to the debt and if the refund is sufficient to satisfy your seriously delinquent tax debt, the account is considered fully paid.

Passport Status

If your U.S. passport application is denied or your U.S. passport is revoked, the State Department will notify you in writing.

If you need your U.S. passport to keep your job, once your seriously delinquent tax debt is certified, you must fully pay the balance, or make an alternative payment arrangement to have your certification reversed.

Once you’ve resolved your tax problem with the IRS, the IRS will reverse the certification within 30 days of resolution of the issue and provide notification to the State Department as soon as practicable.

Travel

If you’re leaving in a few days for international travel, need to resolve passport issues and have a pending application for a U.S. passport, you should call the phone number listed on Notice CP 508C - If you already have a U.S. passport, you can use your passport until you’re notified by the State Department that it has been revoked.

If your passport is cancelled or revoked, after you’re certified, you must resolve the tax debt by paying the debt in full, making alternative payment arrangements or showing that the certification is erroneous.

The IRS will reverse your certification within 30 days of the date the tax debt is resolved and provide notification to the State Department as soon as practicable.




If You Face This Problem, You Should Consult with Experienced Tax Attorneys, As There Are Several Ways Taxpayers Can Avoid Having the IRS Request That the

State Department Revoke Your Passport. 


 

 
 Want To Keep Your US Passport?
 
 

Contact the Tax Lawyers at 
Marini & Associates, P.A.

 
 
for a FREE Tax Consultation Contact us at:
Toll Free at 888-8TaxAid (888)882-9243.