Monday, February 27, 2017

FinCEN Extends Tracking Secret Buyers of Luxury Real Estate in Manhattan & Miami

On Thursday, January 14, 2016  we posted U.S FinCEN Will Track Secret Buyers of Luxury Real Estate in Manhattan and Miami where we discussed that the Financial Crimes Enforcement Network (FinCEN) on January 13, 2016 issued a Geographic Targeting Orders (GTO) that will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies used to pay "all cash" for high-end residential real estate in the Borough of Manhattan in New York City, New York, and Miami-Dade County, Florida.

The initiative is part of a broader federal effort to increase the focus on money laundering in real estate. Treasury and federal law enforcement officials said they were putting greater resources into investigating luxury real estate sales that involve shell companies like limited liability companies, often known as L.L.C.s; partnerships; and other entities.

Now The US Treasury's Financial Crimes Enforcement Network (FinCEN) has renewed six so-called 'temporary geographic targeting orders' that require US title insurance companies to name the natural persons behind shell companies used to buy luxury residential property for cash in major metropolitan areas.
FinCEN says that 30 per cent of transactions covered by the orders – in New York City, Miami, Los Angeles, San Francisco, San Diego and San Antonio – involve a beneficial owner or purchaser representative that is also the subject of a previous suspicious activity report.

The GTOs renewed include the following major U.S. geographic areas:
  1. all boroughs of New York City;
  2. Miami-Dade County and the two counties immediately north (Broward and Palm Beach);
  3. Los Angeles County;
  4. three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties);
  5. San Diego County; and
  6. the county that includes San Antonio, Texas (Bexar County).

The monetary thresholds for each geographic area can be found in this table. A sample GTO, which becomes effective for 180 days beginning on February 24, 2017, is available here.

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Wednesday, February 22, 2017

Your FBAR Is Due in April This Year!

We previously posted Set up Your 2017 Calendar to Reflect New Filing Dates for 2016 US Tax Returns  where we discussed that on July 31, 2015, President Obama signed into law P.L. 114-41, the “Surface Transportation and Veterans Health Care Choice Improvement Act of 2015,” which includes a number of important tax provisions, including revised due dates for partnership, S corporations and C corporation returns and revised extended due dates for some returns.
Historically the Reports of Foreign Bank and Financial Accounts (FBAR) for foreign financial accounts was due on June 30 of each year, for purposes of reporting accounts for the preceding calendar year. FinCen reminds preparers and account holders that starting this year, the due date has been moved, starting for 2016 accounts, to April 15 (April 18 for 2017).
FinCEN Report Due Date Revised

The new law, for returns for tax years beginning after Dec. 31, 2015, the due date of FinCEN Report 114 will be Apr. 15, with a maximum extension of 6 months ending on Oct. 15. The IRS may also waive the penalty for failure to timely request an extension for filing the Report, for any taxpayer required to file FinCEN Form 114 for the first time.

The IRS or FinCEN need to provide clarification on the format or forms for such extensions, which may be similar to Form 4868, which is the form for requesting extensions on Individual tax returns currently. There may also be a requirement that these extensions be filed on the BSA Website as in the case of the FBAR forms.

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BEPS Impact on Income Tax Treaties Delayed for Now

The OECD made its end-November 2016 deadline to release the text of the multilateral treaty to give effect to the BEPS Actions which involve changes to tax treaties, see here. The 49 page treaty text, which is commonly referred to as the multilateral instrument or MLI, and 85 page explanatory statement (ES) contain substantive changes to existing tax treaties in a relatively small subset of provisions.

The objective of the MLI is to have a single instrument which a country can sign to update its suite of treaties by a single stroke, without having to re-negotiate each treaty individually. So, if Australia (or any other country) signs the MLI, potentially all its existing treaties could be amended in one place.

Hence this one instrument has to be flexible enough to effect amendments to over 3,000 treaties based on different treaty models, some containing the amending provisions already (eg, an arbitration clause), of varying scope and age, some with protocols, in a variety of languages, and between countries that have different views on just how much and which parts of the BEPS agenda they want to implement. That drafting challenge explains a lot about why the instrument is so obtuse.

The changes which the MLI would make are hedged around with elections, options and the possibility of reservations, which is why the text of the MLI manages to be double the length of a typical tax treaty, while perhaps leaving readers wondering exactly what it all means. (Before grappling with the details of these complexities, it is helpful to read the summary in ES pages 3-7.)

Treasury released a Consultation Paper (CP) on 19 December 2016 setting out how it is proposed that Australia react to the menu of choices on offer in the MLI with submissions due by 13 January 2017. It will be interesting to see how many submissions were received given this timing.

The MLI is already open for signature from 31 December 2016 and will not start to operate until five ratifications have been deposited with the OECD. In Australia’s case ratification will require the usual treaty review process and for a bill to pass through Parliament giving effect to whatever we sign up to. The CP indicates a target start date for the MLI in Australia of 1 January 2019, assuming sufficient ratifications by then, which in the light of the timing indicated in the MLI for coming into force and effect means passage of enabling legislation by mid-2018.

In the meantime Australia has to draw up a list of treaties it wants to be amended, sort through the
It is unlikely there will be any signatures on the MLI before the proposed signing ceremony in Paris in the week of 5 June 2017 back-to-back with the OECD Ministerial Council meeting when a sufficient number of high-profile politicians will be on hand to do the honours. The MLI provides for provisional notification of all reservations etc by countries at the time of signature and final notification at the time of depositing instruments of ratification.

For more on how and when the MLI will operate, the current likely Australian position on it and the potential impact of the new US President Click Here To Read More...

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IRS Committed to Stopping Offshore Tax Cheating; Remains on “Dirty Dozen” List of Tax Scams for 2017

The Internal Revenue Service today said avoiding taxes by hiding money or assets in unreported offshore accounts remains on its 2017 list of tax scams known as the “Dirty Dozen.”

Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 55,800 disclosures and the IRS has collected more than $9.9 billion from this initiative alone.

In addition, another 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and meet their federal tax obligations, paying approximately $450 million in taxes, interest and penalties. The IRS conducted thousands of offshore-related civil audits that resulted in the payment of tens of millions of dollars in unpaid taxes. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

"Offshore Compliance Remains a Top IRS Priority."
"We've collected $10 billion in back taxes in recent years with 100,000 taxpayers making use of our voluntary disclosure programs," said IRS Commissioner John Koskinen. "

The IRS receives more foreign account information each year, making it harder to hide income offshore. I urge taxpayers with international tax issues to come forward and get right with the system."

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their tax returns or hire people to help with their taxes.

Illegal scams can lead to significant penalties as well as interest and possible criminal prosecution. The IRS Criminal Investigation Division works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by attempting to hide income in offshore banks, brokerage accounts or nominee entities. Then access the funds using debit cards, credit cards or wire transfers. 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 bankers and others suspected of helping clients hide their assets overseas.

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  fines, as well as the possibility of criminal prosecution.

Since 2009, tens of thousands of individuals have come forward to voluntarily 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  following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs.
This program will be open for an indefinite period until otherwise announced.

Third-Party Reporting

Under the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental automatic third-party account reporting has entered its second year. The IRS continues to receive more information regarding potential non-compliance by U.S. persons because of the Department of Justice’s Swiss Bank Program. This information makes it less likely that offshore financial accounts will go unnoticed by the IRS.
agreements between the U.S. and partner jurisdictions,

Potential civil penalties increase substantially if U.S. taxpayers associated with participating banks wait to apply to OVDP to resolve their tax obligations.

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How To Differentiate Between an IRS Revenue Agent and a Revenue Officer?

According to , an IRS revenue agent's job is to conduct tax audits of individuals and businesses as well as trusts and non-profit organizations. Revenue agents generally conduct tax audits of the most complicated tax returns ranging from small “Schedule C” businesses to the largest multi-national corporations. They are also assigned to the IRS’ Offshore Voluntary Compliance Program (OVDP) to determine whether the failure to file a Form TDF 9-22.1, Foreign Bank Account Report (FBAR) will be subject to FBAR penalties.

The minimum requirement for a job as a revenue agent generally includes having a bachelor's degree or higher in accounting from an accredited college or university that included at least 30 semester hours in accounting. These 30 hours may include up to 6 semester hours in any combination of courses in business law, economics, statistical/quantitative methods, computerized accounting or financial systems, financial management or finance.

Internal Revenue Agents are not required to be CPAs although a few are. Revenue Agents determine tax liability through a tax audit which is sometimes referred to as an examination.

Revenue Agents do not collect tax. Instead, that task falls to an IRS revenue officer or R.O.

Revenue Officers are assigned to the most difficult IRS tax debt cases. Those individuals or business who the IRS has been unable to collect from through letters, phone calls and tax levies and garnishments generated by IRS computers.

Revenue Officers are not generally accountants, and they have little training in substantive tax law. Therefore, statements to revenue officers that the tax is not owed don’t generally get very far.

The IRS describes the Revenue Officer’s job as follows:

The work requires analytical skills and judgment to make a range of choices such as: how to advise the taxpayer on liquidating tax liabilities; whether to seize and sell; whether to accept a part-payment agreement; whether to recommend 100-percent penalty assessment (aka trust fund recovery penalty); whether to accept an Offer in Compromise, partial lien discharge, or subordination, or whether to initiate suit recommendations. 

Within certain parameters, Revenue Officers are given a huge amount of discretion in determining whether to accept or reject a proposed installment payment agreement or other resolution of a tax debt. Therefore, it is imperative that your tax attorney or other tax professional be skilled at advocating your position within existing IRS guidelines if your tax debt is to have any chance of favorable outcome. 

Revenue Officers are not generally accountants and they have little training in substantive tax law. Therefore, statements to Revenue Officers that the tax is not owed generally don't get very far; indeed it feels like these protestations fall on deaf ears. If your case has progressed to a Revenue Officer and you believe that you don't owe the tax, then you will need to get your case back to an IRS Revenue Agent. There are generally two ways of doing this. One way is to file an Offer in Compromise (OIC) based upon "doubt as to liability." The OIC doubt as to liability should not be confused with the more common type of Offer in Compromise-- the Offer in Compromise based upon doubt as to collectibility. 

While the OIC based upon doubt as to collectibility requires that you prove to the satisfaction of the IRS that it will be unable to collect the tax debt within a reasonable amount of time, the OIC based upon doubt as to liability has no such limitation. Also unlike an OIC based upon doubt as to collectibility, the OIC based upon doubt as to liability doesn't require the payment of a 20 percent deposit. The OIC based upon doubt as to liability is submitted on a special form -- IRS Form 656-L. It requires that you provide an explanation of why you believe that the amount of tax you are being billed for is incorrect. You should also include an explanation of why you believe the IRS would have significant litigation risks if it went to trial. 

An alternative to submitting an OIC based upon doubt as to liability is to submit a request for audit reconsideration. The audit reconsideration process is outlined in IRS Publication 3598. According to IRS Publication 3598, if you are already making payments on an installment agreement, you must continue to make those payments while your request for audit reconsideration is pending. IN the experience of our tax litigation attorneys, it is not unusual for it to take several years before an audit reconsideration request is resolved. Depending upon the circumstances, you could be in a situation where the IRS owes you a refund by the time your case is complete. However, one pitfall is that there is a statute of limitations (generally two years from the date of payment, or three years from the date the tax return was filed) to file a claim for refund. Therefore, you will need to carefully monitor the situation and may need to file a claim for refund to preserve your rights. 

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US Border Tax Runs Into Obstacles

On February 10, 2017 we posted Border Tariff or Border Adjustment Tax or US VAT? where we discussed that there's a lot of talk these days about borders and taxes in Washington. U.S. President Donald Trump wants to hit firms that outsource with a simple tariff on imports. Republicans in Congress have pitched a more complex idea, a border adjustment, built into a corporate-tax overhaul.

Trump indicated that as president he would respond to these allegedly "unfair trade practices" by imposing retaliatory tariffs on goods and services coming into the U.S. from any country that imposed an import VAT on American businesses exporting goods or services to their country. More than 160 countries have a VAT, and all of them impose an import VAT. Trump is, essentially, promising a global trade war. He vows to set U.S. tariffs at a rate that would force governments and businesses to take notice.

Now according to taxproTODAY Republican lawmakers say they need answers before they can support a plan to overhaul U.S. business taxes, especially in light of arguments from retailers and other companies that the changes would hurt consumers. But a new report suggests solid information may be hard to come by.

There’s been little real-world analysis on how quickly the U.S. dollar would adjust under a so-called border-adjusted tax to prevent consumers from getting stuck with higher prices, according to a paper released Wednesday by the conservative-leaning Tax Foundation. Even so, the Washington policy group supports the proposal from Republican House leaders that would tax U.S. companies’ imports and exempt their exports.

“Surprisingly, there has been little empirical work done on the matter,” Kyle Pomerleau, director of federal projects at the Tax Foundation, said in the report. “The literature suggests that exchange rates would adjust, but it could take time for that to translate through prices. This stickiness could have short-run impacts on consumers and different industries.”

A centerpiece of the House GOP tax plan is a proposed levy on businesses’ domestic income and their imports, while exempting their exports, a feature known as “border adjustment.” The tax would be assessed at a 20 percent rate, replacing the current 35 percent corporate income tax.

Making the tax border-adjusted apply to imports and not exports, is estimated to generate more than $1 trillion in federal revenue over a decade, according to Tax Foundation estimates. That revenue contribution could make it crucial to keeping any tax legislation deficit-neutral, a prerequisite for passing a tax bill through the Senate without Democratic votes.

‘Real Questions’

Republicans in both chambers have said they need more information on how the border-tax measure would work and who it would affect before they can endorse it. Senator Orrin Hatch, chairman of the tax-writing Finance Committee, has said “at least a handful” of senators have serious reservations about the border tax, and he personally still has questions about the proposal.

Many other countries use value-added taxes, which include border adjustments. But there are key differences between VATs and the House GOP measure and that means other countries provide little guidance for U.S. policymakers, according to many trade experts. That’s mainly because the House plan’s border-adjusted tax would include deductions for domestic labor costs and functionally replace the U.S. corporate income tax.

The tax proposal’s supporters, including House Speaker Paul Ryan and House Ways and Means Committee Chairman Kevin Brady, argue that macroeconomic factors would lead to a stronger dollar reducing the cost of imports and increasing the cost of exports evening out any effects on consumers over time.

WTO Rules

The border-adjusted tax could also face challenges from the World Trade Organization. A key issue involves WTO rules for border adjustments they’re permitted for consumption-based taxes, like VATs, but not income taxes. Ryan and Brady say their plan, which would be the first of its kind globally, moves U.S. corporate taxes closer to a consumption base.

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Monday, February 13, 2017

US Taxpayers & Their Advisors Doing Jail Time for Failing to Declare Offshore Bank Accounts!

On October 29, 2014 we posted More US Taxpayers & Their Advisors Face Jail Time for Failing to Declare Offshore Bank Accounts! where we discussed that the IRS hunt for offshore income and accounts continues unabated well beyond UBS. In fact, it’s intensifying and for those who don’t come forward before they are found, being found can be awfully painful. See list of UBS criminal convictions, so far.

Now according to Bloomberg A former client of Credit Suisse Group AG who pleaded guilty to hiding $200 million from U.S. tax authorities is at the center of a struggle between the Justice Department, which wants to send a stern message by sending tax cheats to prison, and U.S. judges, who have opted for leniency in past cases.

Dan Horsky, a retired business professor from Rochester, New York, pleaded guilty Nov. 4 to using secret Swiss bank accounts to hide assets and income from the Internal Revenue Service and New York tax authorities. Prosecutors urged a judge to send him to prison for 20 months. Horsky’s lawyers said he deserves probation because he helped with a criminal investigation of the bank and will pay at least $124 million in penalties.

U.S. District Judge T.S. Ellis III is set to impose a sentence on Friday in federal court in Alexandria, Virginia. Dozens of wealthy U.S. tax defendants who used offshore accounts have avoided prison or received terms far below those recommended by advisory guidelines, as judges have consistently ruled against Justice Department prosecutors.

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