Monday, October 22, 2018

Qualified Opportunity Fund Benefits Foreign Investors Also.

IRS has issued proposed regs that describe and clarify the requirements that must be met by a taxpayer in order to defer the recognition of gains by investing in a qualified opportunity fund (QOF) under Code Sec. 1400Z-2, as added by the Tax Cuts and Jobs Act (TCJA, P.L. 115-97; 12/22/2017).

The proposed regs provide rules allowing a corporation or partnership to self-certify as a QOF and provide initial proposed rules on some of the requirements that must be met by a corporation or partnership in order to qualify as a QOF.

Taxpayer may rely on these regs as indicated in the regs.  (Preamble to Prop Reg REG-115420-18, Proposed Reg § 1.1400Z-2(a)-1, Proposed Reg § 1.1400Z-2(c)-1, Proposed Reg § 1.1400Z-2(d)-1, Proposed Reg § 1.1400Z-2(e)-1; IR 2018-206, 10/19/2018)

The basic concepts of the QOF provisions can be summarized as follows:

Step 1:  A QO Fund is formed and certified by the Department of Treasury.
Step 2:  An investor with a recently realized CG elects to invest this gain into the QO Fund, taking stock or a partnership interest in return.  By so doing, the investor gets to defer including the CG in income.
Step 3:  The QO Fund uses the investment to acquire “qualified opportunity zone property.”  This investment represents the QO Fund’s interest in the underlying business in the low-income community.
Step 4:  The investor holds the interest for as long as he desires or for some period of time as may be stipulated in the investment agreement with the QO Fund.
Step 5:  If the investor sells or exchanges his QO Fund interest before Dec. 31, 2026, he will recognize the deferred CG.  If the holding period is at least 5 years, the investor gets a basis allocation that will offset some of his CG (there is more basis allocation if the holding period is at least 7 years).
Step 6.  In any event, the investor’s CG deferral period ends on Dec. 31, 2026, and so if the investment is still outstanding, the deferred CG must be recognized then.  The holding periods noted in Step 5 are taken into account at this point.
Step 7:  If the investor holds his interest in the QO Fund for at least 10 years, he is entitled to a major fair market value (“FMV”) basis step-up so that any appreciation in the value of his interest can be excluded from income.
The QO Zone provisions give incentive to potential investors in QO Funds by allowing for:
(a) temporary deferral of CG recognition,
(b) a possible step-up in the basis of their investment, and
(c) possible permanent exclusion of CG from the growth of the QO Fund investment if the holding period is at least 10 years.
 Need Help Forming A
Qualified Opportunity Fund (QOF)?

Contact the Tax Lawyers at
Marini & Associates, P.A. 
 for a FREE Tax Consultation Contact us at: 
or Toll Free at 888-8TaxAid (888 882-9243). 



Friday, October 19, 2018

OVDP Ended Sept. 28 - So Now What?

We originally posted on March 13, 2018 IRS to End OVDP Sept. 28 - Last Chance for Taxpayers With Undisclosed Foreign Assets! where we discussed that the Internal Revenue Service announced in IR-2018-52 that it will begin to ramp down the 2014 Offshore Voluntary Disclosure Program (OVDP) and close the program on Sept. 28, 2018.

The number of taxpayer disclosures under the OVDP peaked in 2011, when about 18,000 people came forward. The number steadily declined through the years, falling to only 600 disclosures in 2017. 

The IRS will maintain a pathway for taxpayers who may have committed criminal acts to voluntarily disclose their past actions and come into compliance with the tax system.

1. Voluntary Disclosure

Taxpayers who willfully failed to report income and assets will no longer be able to use OVDP but should be able to comply through updated IRS compliance procedures. The IRS is in the process of reviewing the Internal Revenue Manual (“IRM”) Voluntary Disclosure Practice. Taxpayers who want more information about IRS's Voluntary Disclosure Practice can click Internal Revenue Manual (IRM) who made non-willful mistakes or omissions on their tax returns should file amended returns or delinquent returns as soon as possible. 

2. Streamlined Filing Compliance

FAQ#6.Are there any changes to the Streamlined Filing Compliance Procedures with the closure of the 2014 OVDP?No. The Streamlined Filing Compliance Procedures will remain available after the 2014 OVDP closes. The IRS encourages taxpayers who have offshore compliance issues and meet all of the qualifications of the Streamlined Filing Compliance Procedures to use these procedures while they are available.  Only taxpayers that can certify under penalties of perjury that their conduct was non-willful may use the Streamlined Filing Compliance Procedures. 


3. Delinquent FBAR Submission 

FAQ#9.Will the delinquent FBAR submission procedures and the delinquent international information return submission procedures remain available after the 2014 OVDP closes?Yes.  The delinquent FBAR procedures and the delinquent international information return procedures will remain available for eligible taxpayers after September 28, 2018. Both procedures are for taxpayers that have information reporting failures but no tax noncompliance

4. Late Returns With Reasonable Cause Statement

Taxpayers who do not need to use the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who:
  • have not filed one or more required international information returns,
  • have reasonable cause for not timely filing the information returns,
  • are not under a civil examination or a criminal investigation by the IRS, and
  • have not already been contacted by the IRS about the delinquent information returns
should file the delinquent information returns with a statement of all facts establishing reasonable cause for the failure to file.
You Should Rectify Any Unreported Offshore Accounts NOW!

As the IRS continues to combat offshore tax avoidance and evasion using: 
Click How Will the IRS Know About My Foreign Account? to learn the answers about "How will they (IRS) know about my Foreign Account?;" that noncompliant US taxpayers ask when they are considering how (or whether) to come clean and inform the IRS about their previously undisclosed foreign financial accounts.

Have Been Indicted Related To International Activities
Through The Work Of IRS
Criminal Investigation Since 2009.

The implementation of the Foreign Account Tax Compliance Act (FATCA) and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations related to undisclosed foreign financial assets. 

 Do You Have Undeclared Income From An Offshore Banks
 or Financial Advisors?
Is Your Name Being Handed Over to the IRS?
Want to Know Which Remaining IRS Program is Right for 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


The IRS Whistleblower Reward Program

The IRS estimates that the United States loses $450 billion per year to tax evasion. In 2006, Congress enacted legislation providing robust incentives for whistleblowers to report tax fraud.  Under 26 USC § 7623(b), the IRS is required to issue an award to tax whistleblowers of 15% to 30% of proceeds collected from tax fraud or tax underpayments
Who can get an award?
The IRS may pay awards to people who provide specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest or other amounts from the noncompliant taxpayer.

The IRS is looking for solid information, not an “educated guess” or unsupported speculation. We are also looking for a significant Federal tax issue - this is not a program for resolving personal problems or disputes about a business relationship.

What are the rules for getting an award?

The law provides for two types of awards. If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15 percent to 30 percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000. If the whistleblower disagrees with the outcome of the claim, he or she can appeal to the Tax Court. These rules are found at Internal Revenue Code IRC Section 7623(b) - Whistleblower Rules.
The IRS also has an award program for other whistleblowers - generally those who do not meet the dollar thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less that $200,000.

The awards through this program are less, with a maximum award of 15 percent up to $10 million. In addition, the awards are discretionary and the informant cannot dispute the outcome of the claim in Tax Court.

The rules for these cases are found at Internal Revenue Code IRC Section 7623(a) - Informant Claims Program, and some of the rules are different from those that apply to cases involving more than $2 million. 

If a whistleblower meets the requirements above, the whistleblower may be able to receive 15% to 30% of proceeds collected from tax fraud or tax underpayments.
To discuss potential representation in a tax fraud whistleblower case, click here

Want a Reward of Between 15- 30% of
Underpaid IRS Tax Liabilities for
Blowing the Whistle on a Tax Cheat? 
Contact the Tax Lawyers at
Marini & Associates, P.A.
for a FREE Tax Consultation
or Toll Free at 888-8TaxAid (888 882-9243).


Tuesday, October 16, 2018

US Taxpayers Are Receiving Automated $10,000 Penalty Assessments For Late Filed Form 5471's & 5472's - We Can Help!

On June 21, 2016 we posted  US Taxpayers Are Receiving Automated $10,000 Penalty Assessments For Late Filed Form 5471's & 5472's - We Can Help! where we discussed that we have been receiving a lot of calls from businesses who have recently received penalty notices regarding late filed or non-filed Form 5471 & 5472's. The Internal Revenue Service imposes an automatic penalty of $10,000 whenever an individual or company is late in filing an information return disclosing their interest in a foreign corporation, regardless of whether there is any associated underreported of income or tax deficiencies.

Now in a recently updated International Practice Unit (IPU), IRS has explained the Code Sec. 6679 penalty for certain U.S. persons that are required to file Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, but fail to file, fail to file on time, or file an incomplete form. The IPU includes, among other things, insight as to what constitutes reasonable cause for failing to file.
IPUs are not official IRS pronouncements of law or directives and cannot be used, cited, or relied upon as such. Nonetheless, they identify strategic areas of importance to IRS and can provide valuable insight as to how IRS examiners may audit a particular issue or transaction.

U.S. persons including businesses with at least a 10 percent interest in a foreign corporation or who are officers of a foreign corporation in which any U.S. person owns or acquires a 10 percent interest are required to file a Form 5471 with their tax return to disclose their ownership.

The IRS has begun to automatically applying the $10,000 penalty for each Form 5471 and Forms 5472
 that was filed after the due date. 

There are ways to defend against these automatic assessments and request penalty abatement. There are four defenses that you should consider when assess the penalty for filing an international information return after the due date.
  1. Follow the Delinquent Information Return Procedure - First, the taxpayer can file through the Service's procedures for delinquent international information returns. This procedure is appropriate for taxpayers who can establish reasonable cause for their failure to file or whose failure to file has caused no or nominal tax non-compliance. This procedure cannot be used, however, if the taxpayer is already under audit or investigation or has otherwise been contacted by the Service about the delinquent information returns. Under this procedure, the taxpayer files the delinquent returns with a statement of the facts establishing reasonable cause for the failure to file. In the "Frequently Asked Questions" section, the Service explains that taxpayers with tax noncompliance can use this procedure, but that the Service may impose penalties if it does not accept the taxpayer's reasonable cause explanation.
  2. Ask for a First-Time Offender Abatement (FTA) - Generally, an FTA can provide penalty relief if the taxpayer has not previously been required to file a return or has no prior penalties (except the estimated tax penalty) for the preceding three years with respect to the same IRS  File (IRM § With respect to a Form 5472 late-filing penalty, the IRM provides for an FTA if an FTA was applied to the taxpayer's related Form 1120 late-filing penalty or no penalty was assessed on the related Form 1120 (IRM §
  3. Reasonable Cause Defense - Under Section 6038 of the tax code, which lays out the information reporting requirements for individuals and businesses with an interest in foreign corporations and the penalties for delinquent filing, penalties may be abated if a reasonable cause exists for the failure to file. However, neither the statute nor the applicable regulations define a reasonable cause standard for the abatement. Treasury Regulations Section 301.6651-1(c) provide a definition of what constitutes reasonable cause for failure to file corporate income tax returns and says that "if the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time, then the delay is due to reasonable cause." and
  4. Statute of Limitations - Though a $10,000 penalty may discourage some from filing in international information return after the deadline, there is a greater exposure to not late filing and information return and that is that the statute of limitations for tax returns which is generally three years does not apply for returns that are missing the information reports and the statute remains open indefinitely. Under the indefinite statute of limitations, not only can the IRS make adjustments to items related to the international information returns, but they also can examine any other area on the tax return. 
A Category 2 filer is a U.S. citizen or resident who is an officer or director of a foreign corporation in which a USP has acquired, in one or more transactions:
  • . . . stock which meets the 10% stock ownership requirement (described below) with respect to the foreign corporation, or
  • . . . an additional 10% or more (in value or voting power) of the outstanding stock of the foreign corporation.
For purposes of both Categories 2 and 3, the stock ownership threshold is met if a USP owns 10% or more of the (i) total value of the foreign corporation's stock, or (ii) total combined voting power of all classes of stock with voting rights. (Reg. § 1.6046-1(a), Reg. § 1.6046-1(c) ). A USP is treated as having acquired stock in a foreign corporation when the person has an unqualified right to receive it. (Reg. § 1.6046-1(f)(1))

A Category 3 filer is:
  • . . . A USP who acquires stock in a foreign corporation which, when added to any stock owned on the date of acquisition, meets the 10% stock ownership requirement with respect to the foreign corporation,
  • . . . A USP who acquires stock which, without regard to stock already owned on the date of acquisition, meets the 10% stock ownership requirement with respect to the foreign corporation,
  • . . . A person who is treated as a U.S. shareholder under Code Sec. 953(c) with respect to the foreign corporation,
  • . . . A person who becomes a USP while meeting the 10% stock ownership requirement with respect to the foreign corporation, or
  • . . . A USP who disposes of sufficient stock in the foreign corporation to reduce his or her interest to less than the 10% stock ownership requirement. (Code Sec. 6046, Reg. § 1.6046-1(c))
There are a number of exceptions to the filing requirement for Category 2 and 3 filers, including when multiple persons are required to file Form 5471 and applicable schedules with respect to the same foreign corporation for the same period (in which case the form may be jointly filed).

Guidance for examiners. IRS examiners are instructed to determine whether a taxpayer who is required to file Form 5471 in fact filed a timely and accurate form. As noted above, the Form 5471 is due when the USP's income tax return is due, with extensions (and taking into account if the last day for filing was a weekend or legal holiday), and must be filed with that return. If one was not timely filed, or it wasn't complete, then penalties may be asserted unless the failure was due to reasonable cause.

While identifying Forms 5471 that were required, but not filed, for the exam year(s), examiners are instructed to consider reviewing whether similar failures occurred in earlier tax years. The IPU notes that the related income tax returns for the prior years are not required to be under exam to assess penalties under Code Sec. 6679.

There are ways to defend against these automatic assessments and request penalty abatement. These four defenses should be considered when your receive a $10,000 penalty for filing an international information return after the due date.

Has  Your Company  Been Assessed an
Automatic $10,000 Penalty for a Late Form 5471 or 5472?

Contact the Tax Lawyers at 
Marini & Associates, P.A.
for a FREE Tax Consultation
or Toll Free at 888-8TaxAid (888 882-9243)

Former Colorado Resort Owner, Race Car Driver, Sentenced To Prison Again

According to DoJ, a Scottsdale, Arizona man, who formerly resided in Pagosa Springs, Colorado, was sentenced on October 9, 2018 in the U.S. District Court for the District of Colorado to 18 months in prison for filing a false tax return.

According to court documents, William Whittington, 68, filed a false 2010 individual income tax return, on which he underreported income received from his offshore accounts and through the payment of his personal expenses by an entity over which he exercised managerial control.

From 2010 to 2012, Whittington directed that the Springs Resort & Spa, in Pagosa Springs, Colorado, a business managed by Whittington and family members at the time, pay over $1 million of his personal expenses.
The Total Additional Tax Due For Those 3 Years, 2010 Through 2012, Based On Whittington’s Failure To Report The Payment Of The Personal Expenses As Income Is $364,994.00.
 From 2003 to 2010, Whittington failed to report $9.7 million in investment income generated through two offshore bank accounts in Liechtenstein. Combined with the tax loss from the resort payment of his personal expenses, Whittington’s fraudulent conduct created a $1.8 million tax loss.

Whittington is a competitive racecar driver, whose team won the 1979 24 Hours of Le Mans.

Whittington was previously sentenced to prison in 1987 for evading income tax and importing multiple tons of marijuana. See United States v. Whittington, 918 F.2d 149 (11th Cir. 1990).

Some People Never Learn!

In addition to the term of imprisonment imposed, U.S. District Court Judge Robert E. Blackburn ordered Whittington to serve one year of supervised release.

Whittington paid approximately $1.8 million in restitution to the Internal Revenue Service as a condition of his plea agreement.
Do You Have a Tax Problem?
Contact the Tax Lawyers of
Marini & Associates, P.A.    
for a FREE Tax Consultation contact us at: or or
Toll Free at 888-8TaxAid (888) 882-9243


Wealthy People Pay Enought Taxes - Top 3% Paid Majority of Taxes in 2016

Individual income taxes are the federal government’s single biggest revenue source. In fiscal year 2018, which ended Sept. 30, the individual income tax is expected to bring in roughly $1.7 trillion, or about half of all federal revenues, according to the Congressional Budget Office.

If past statistics can offer any guidance, in 2016, $1.44 trillion income taxes were paid by 140.9 million taxpayers reporting a total of $10.2 trillion in adjusted gross income, according to data recently released by the Internal Revenue Service.

Bloomberg looked into the 2016 individual returns data in detail for some additional insights illustrated in the charts below:

Progressive Paying

Source: IRS

The top 1 percent paid a greater share of individual income taxes (37.3 percent) than the bottom 90 percent combined (30.5 percent). The top 50 percent of all taxpayers paid 97 percent of total individual income taxes. In other words, the bottom 50 percent paid 3 percent. Which small percentile of tax payers also paid 3 percent or more? You might have guessed it. It is the top 0.001 percent, or about 1,400 taxpayers. That group alone paid 3.25 percent of all income taxes. In 2001, the bottom 50 percent paid nearly 5 percent whereas the top 0.001 percent of filers paid 2.3 percent of income taxes. The individual income tax system is designed to be progressive — those with higher incomes pay at higher rates, while the indentation, or the reduction in the steepness of the “progressivity” curve, is visible at the highest levels.

The average tax rates paid by the very wealthiest has fallen in recent years from a peak of 24.1 percent in 2013 to 22.9 in 2016 and was a full four percentage points below the 26.9 percent that the top 1 percent paid on average. To put these numbers in perspective, the top 0.001 percent of taxpayers consists of 1,409 returns, the top 1 percent equals 1.4 million returns and the top 50 percent is half of the total 140.9 million returns.

The most extensive rewrite of the U.S. tax code in more than 30 years, known as TCJA act, was signed in law into early 2018. Individuals may start to feel the effects of last year’s tax overhaul when they file their returns in April. Estimates show the law’s biggest benefits go to top earners.
Need Advice On How To Cut Your Taxes? 
 Get Experienced Tax Advice
Contact the Tax Lawyers of
Marini & Associates, P.A.    
for a FREE Tax Consultation contact us at: or or
Toll Free at 888-8TaxAid (888) 882-9243