Thursday, January 18, 2018

IRS to Begin Revoking US Passports of Delinquent Taxpayers in 2018!

Starting this month, 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.

This comes in the face of the January 10, 2018 Report of The National Taxpayer Advocate advising the Internal Revenue Service (IRS) to stop abusing its new power to revoke the passports of US citizens who owe it more than USD50,000.

According to Notice 2018-1  starting January 2018, the IRS will start implementing new procedures required under a 2015 law to crack down on individuals with “seriously delinquent tax debts.” The Fixing America’s Surface Transportation (FAST) Act, which was signed into law in December 2015, requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a 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 a levy has been issued.

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.

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TV Star Michael "The Situation" Sorrentino Pled Guilty in $8.9 Million Tax Case

According to Law360 “Jersey Shore” star Michael “The Situation” Sorrentino and his brother Marc Sorrentino have agreed to plead guilty in their criminal case over tax-related charges instead of going to trial next month, according to a government letter on January 17, 2018 to a New Jersey federal judge.

The parties told the court Tuesday that the Sorrentinos had agreed to plead guilty, and U.S. District Judge Susan D. Wigenton scheduled a hearing for Friday for the defendants to enter their guilty pleas, according to a one-page letter prosecutors sent the judge Wednesday. The parties thus asked Judge Wigenton in the letter to stay a Wednesday deadline outlined in parts of a scheduling order entered in connection with the brothers' upcoming trial.

The terms of the proposed plea deals were not immediately available.

The anticipated guilty pleas come after both brothers told Judge Wigenton during a Jan. 9 hearing that each had declined a written plea deal dated Dec. 19 without stating the specific terms of the proposed agreement.

Jury selection in the matter had been scheduled for Feb. 8, and opening statements were expected to occur the following week. The trial was slated to last about three weeks.

 In September 2014, Michael and Marc Sorrentino were indicted on one count each of conspiracy to defraud the United States, and three and two counts, respectively, of filing false tax returns for 2010 through 2012. Michael Sorrentino was also charged with allegedly failing to file a tax return for 2011.

A superseding indictment, handed down in April, added charges of tax evasion and structuring funds to evade currency transaction reports against Michael Sorrentino and a charge of falsifying records to obstruct a grand jury investigation against Marc Sorrentino.

The Sorrentinos allegedly created businesses, such as MPS Entertainment LLC and Situation Nation Inc., and failed to pay all of the federal income tax owed on about $8.9 million that Michael Sorrentino earned between 2010 and 2012, according to the superseding indictment. Those businesses earned money from setting up promotional appearances, selling merchandise and arranging book and video deals.

The brothers allegedly filed false tax returns with the Internal Revenue Service that understated gross receipts, claimed fraudulent business deductions, disguised income payments made to them and others, and underreported net business income, authorities said. They also allegedly commingled their business and personal funds and used the money from the business bank accounts to pay for personal items, such as expensive luxury cars and clothing, authorities said.

Michael Sorrentino is accused of evading his 2011 income taxes by failing to file a personal return, filing a false corporate return for Situation Nation and concealing his cash income, authorities said.

According to the superseding indictment, he made multiple cash deposits on the same day in amounts less than $10,000 into different bank accounts, a practice known as structuring, in an effort to evade the banks’ reporting requirements, authorities said.

Authorities also assert that after being served with grand jury subpoenas seeking books and records of MPS and Situation Nation, but prior to producing them to the grand jury, Marc Sorrentino falsified those documents by altering and reclassifying taxable payments to himself as nontaxable payments and as legitimate business deductions.

The brothers' former accountant, Gregg Mark, has admitted to filing false tax returns on their behalf. Mark pled guilty in December 2015 to one count of conspiracy to defraud the United States, admitting that he prepared fraudulent tax returns for the Sorrentinos for tax years 2010 and 2011. He is awaiting sentencing.

The case is U.S. v. Sorrentino et al., case number 2:14-cr-00558, in the U.S. District Court for the District of New Jersey.
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Apple to Pay $38 Billion in Repatriation Taxes

Apple, Inc. said it would make a one-time tax payment of $38 billion to repatriate overseas cash holdings and also ramp up its spending in the U.S., as it seeks to emphasize its contributions to the U.S. economy after years of taking criticism for outsourcing manufacturing to China. 
As of last September, Apple had $252 Billion
in Cash or Cash Equivalents Abroad 
However, in a report from mid-December, the Institute on Taxation and Economic Policy said Apple would be the biggest beneficiary of the repatriation proposal, calling it “the company now most notorious for its international tax avoidance.”

The institute estimated Apple should have paid under last year’s tax laws $78.6 billion in taxes on its $252.3 billion in earnings being held offshore, based on an estimated 3.9 percent tax rate it paid to other governments on its offshore earnings.

Richard Phillips, a senior policy analyst with the institute, said Apple’s announcement showed that much of what it is paying taxes on is cash. Phillips said the taxes are based on money the company has held overseas but has not paid American taxes on. He pointed to the difference between the $78.6 billion figure and the $38 billion Apple said it would pay.
“$40 Billion is a Lot of Money,” Phillips said. 

The iPhone maker, whose products are mostly made in Asian factories, said it plans a wave of investing and hiring in the United States and will create 20,000 jobs through hiring at its existing campus and the new one. It will announce the location later this year.
About a third of the new spending will be on data centers to house its iCloud, App Store and Apple Music services, a sign of the rising importance of subscription services to a company known for its computers and gadgets. The company has data centers in seven states and also on Wednesday broke ground on an expansion of its operations in Reno, Nevada, where local officials granted it tax breaks on a downtown warehouse.

The U.S spending would be a significant part of Apple’s overall capital expenditures. Globally, the company spent $14.9 billion in 2017 and expects to spend $16 billion in 2018, figures that include both U.S.-based investments in data centers and other projects and Asian investments in tooling for its contract manufacturers.

If Apple’s overall capital expenditures continue to expand at the same rate expected this year, the $30 billion investment in the U.S. could represent about a third of its capital expenditures over the next five years.
It didn’t specify how much of that spending was already planned. Apple also is expanding from $1 billion to $5 billion a fund it established last year for investing in advanced manufacturing in the U.S.

 Chief Executive Tim Cook touted the plans as building on Apple’s support for the U.S. economy. “We have a deep sense of responsibility to give back to our country and the people who help make our success possible,” he said in a statement.
Apple said its one-time tax payment was the result of recent changes to U.S. tax law, under which companies can pay a one-time tax of 15.5% on overseas cash holdings repatriated to the U.S. The company said in November that it had earmarked $36 billion to cover deferred taxes on its $252.3 billion in overseas cash holdings, assuming that it would eventually pay some tax for bringing that home.
Apple has faced criticism over the past decade for the overseas manufacturing of its iPhone, of which it has sold more than 1 billion units, rather than manufacturing devices domestically. President Donald Trump during the presidential campaign blasted the company for outsourcing. He later called on Apple to build a factory in the U.S. and last year said Mr. Cook promised to build three manufacturing plants in the U.S.
Apple’s announcement left many details of its plans unclear, and a spokesman declined to elaborate. The company didn’t say how much it planned to return of its $252.3 billion in cash and marketable securities held overseas. It also didn’t specify whether it plans to increase dividends or share repurchases, which is something its top executives had said would be a priority following the change in U.S. tax law.
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Tuesday, January 16, 2018

Apple Could Get a $4B Timing Reduction in TCJA's 15.5% Transition Tax?

According to taxproToday, Companies that stockpiled trillions of dollars offshore free of U.S. income tax may get one last break before paying up, provided their fiscal years don’t follow the calendar year.

A timing quirk in the tax overhaul that President Donald Trump signed last month may be good news for companies such as Apple Inc., Microsoft Corp. and Cisco Systems Inc., all of which began their fiscal years before Jan. 1. Firms including Alphabet Inc., Amgen Inc. and General Electric Co., with fiscal years that began on Jan. 1, appear to be shut out of the benefit.

Apple alone, which disclosed an offshore cash hoard of $252 billion as of Sept. 30, may be able to lop more than $4 billion off a future tax bill, according to Stephen Shay, a tax and business law professor at Harvard Law School who wrote about what he called the “potential loophole” last month. He characterized the boon as a side effect of the speed with which congressional Republicans passed their tax bill.

“This bill was passed on a speed train schedule with no time to think,” said Shay, who was a senior Treasury Department official during the administrations of former presidents Barack Obama and Ronald Reagan. It’s up to Treasury and the Internal Revenue Service to create rules to prevent companies from taking advantage, he said.

In passing the most extensive tax-code revisions since 1986, Congress scrapped the previous international tax system for corporations, an unusual arrangement that allowed companies to defer U.S. income taxes on foreign earnings until they returned the income to the U.S. That “deferral” provision led companies to stockpile an estimated $3.1 trillion offshore.

In switching to a new system that’s designed to focus on domestic economic activity, congressional tax writers also imposed a two-tiered levy on all that accumulated foreign income: Cash will be taxed at 15.5 percent, less liquid assets at 8 percent. Companies can pay over eight years.

The timing issue that Shay surfaced stems from a provision that, in effect, gives a company until the end of its fiscal year to measure what’s cash and what isn’t for tax purposes. Consequently, companies that began new fiscal years before Jan. 1 get an extra chance to reduce foreign cash they’ll accumulate this year, which they can do by distributing cash dividends to their U.S. parents before tallying up what’s left to be taxed, Shay wrote.

Under Separate Changes Effective Jan. 1, 2018, 
Any Dividends Would be Tax-Free in the U.S., he noted.

The law actually specifies two dates that companies should use in tallying their offshore cash piles, and they have to pay the 15.5 percent rate on whichever tally is larger. The options: The two-year average of foreign cash as of Nov. 2, the date the House introduced its tax bill; or the end of the firm’s current fiscal year, if it began before Jan. 1.

Here’s how Shay said it could work for Apple, which began its fiscal year on Oct. 1: Under the Nov. 2 formula, the company’s two-year average offshore cash stash was $234 billion. Shay said Apple’s historical earnings suggest that figure could grow to $289 billion by Sept. 30, when its year ends.

Therefore, Shay said, if Apple’s foreign subsidiaries operate on the same fiscal year, they could distribute as much as $55 billion to their parent, taking the overseas cash total down to match the Nov. 2 number. And because there’s a 7.5 percentage-point difference in the two tax rates, the company’s tax savings thanks to the distribution could amount to $4.1 billion, he said.

A spokesman for Apple didn’t respond to requests for comment; nor did spokesmen for Cisco and Alphabet. Spokesmen for Microsoft, Oracle, Amgen and GE
Declined to Comment.

The IRS didn’t respond to a request for comment. One line in the tax bill says that if federal officials determine that a company has shifted cash or cash equivalents into other assets with “a principal purpose” of trying to reduce their tax bills, the transaction will be disregarded. But Shay said that line isn’t enough to prevent abuse, and the IRS should produce detailed, concrete guidance for companies.
As it stands now, if companies use the strategy to try to reduce their tax bills, it would be up to the IRS to challenge the move—and then see whether its position holds up in court, said Eric Solomon, a co-director of the national tax practice at Ernst & Young LLP.
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Wednesday, December 27, 2017

Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017

The Internal Revenue Service advised tax professionals and taxpayers today that pre-paying 2018 state and local real property taxes in 2017 may be tax deductible under certain circumstances. 

The IRS has received a number of questions from the tax community concerning the deductibility of prepaid real property taxes. In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018.  A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017.  State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed. 

The following examples illustrate these points. 
Example 1:  Assume County A assesses property tax on July 1, 2017 for the period July 1, 2017 – June 30, 2018.  On July 31, 2017, County A sends notices to residents notifying them of the assessment and billing the property tax in two installments with the first installment due Sept. 30, 2017 and the second installment due Jan. 31, 2018.   Assuming taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017, and may claim a deduction for this prepayment on the taxpayer’s 2017 return.  

Example 2:  County B also assesses and bills its residents for property taxes on July 1, 2017, for the period July 1, 2017 – June 30, 2018.  County B intends to make the usual assessment in July 2018 for the period July 1, 2018 – June 30, 2019.  However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year.  Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until July 1, 2018.

The IRS reminds taxpayers that a number of provisions remain available this week that could affect 2017 tax bills. Time remains to make charitable donations. See IR-17-191 for more information. The deadline to make contributions for individual retirement accounts, which can be used by some taxpayers on 2017 tax returns, is the April 2018 tax deadline. 

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