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Monthly Archives: May 2018

IRS Provides for Overpayments to be Applied to Taxpayer’s Remaining 965 Installment Liability?

According to Law360, Internal Revenue Code Section 965 as enacted by the Tax Cuts and Jobs Act imposes a one-time transition tax on the deferred earnings and profits of certain foreign corporations owned by U.S. persons. This provision was enacted as a result of the United States transitioning to a quasi-territorial tax system.

As a way of lessening the impact of this acceleration of income tax on previously untaxed foreign earnings, Congress allowed the Section 965 tax liability to be deferred and paid over an eight-year period with the first installment due on April 17, 2018.

However, in regulatory guidance issued just three days before that due date, the Internal Revenue Service announced that it would apply a taxpayer’s overpayment of regular tax to the overall unsatisfied installment liability. The IRS updated the FAQs to address overpayments made by a taxpayer and In FAQ 13, the IRS declared that any estimated tax payments made for the 2017 tax year that exceeded the regular tax liability would be used to satisfy the unpaid transition tax deferred under Section 965(h). Further, FAQ 14 reflected that any excess of regular tax for the 2017 tax year and the first installment paid by the taxpayer would not be refunded to the taxpayer or credited to the 2018 tax year. Rather, the excess would be applied to the unsatisfied liability under Section 965.
This IRS position, which is inconsistent with the plain language of Section 965 and congressional intent, creates problems for both individual and corporate taxpayers.

The American Institute of Certified Public Accountants sent a letter to the commissioner of the IRS requesting that the IRS reconsider FAQ 13 and 14, so that taxpayers can apply an overpayment from the 2017 tax year to the 2018 or receive a refund.

It is possible the IRS may change its position or withdraw FAQ 13 and 14. Absent such action, a taxpayer can assert that the IRS has exceeded its authority in administering the collection of the Section 965 tax in a situation where a taxpayer has elected to pay it in installments.

A challenge to this IRS position could be made by filing a protest that an overpayment from the 2017 tax year should be applied to the 2018 or be refunded, as opposed to being used to offset the unsatisfied Section 965 liability. Presuming the IRS refused to do so, the taxpayer could challenge this decision in U.S. Tax Court, since at that point the Section 965 tax has already been collected, using the U.S. District Court or U.S. Court of Federal Claims to seek a refund of the overpayment may also be an option.

Have a International Tax Problem?


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Marini& Associates, P.A. 
 
 
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Read more at: Tax Times blog

Time to File OVDP Refund Requests Based Upon Colliot?

On May 22, 2018 we posted A Taxpayer Victory on a FBAR Penalty Case - FBAR Limited to $100M!  where we discussed the Colliot case, where a U.S. District Court found that a prior un-amended valid regulation, that caps penalties for willful violations of foreign bank account reporting at $100,000 controls even though under 31 U.S.C. § 5321, which Congress in 2004 had amended increased the maximum civil penalties for willful failure to file a FBAR to greater of $100,000, or 50 percent of the amount in the account.

For those taxpayers who made a voluntary disclosure and payment within the last two years the issue becomes, can they file for refund under this precedent, since OVDP provided that in no case will the penalties in the OVDP program be higher than the penalties provided under law?

Have Undeclared Income from an Offshore Account?
 
 
Want to Know Make Sure You Are Not Over Penalized 
If You Do Not Enter The OVDP Program?
 
 

 

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

Read more at: Tax Times blog

IRS Has 6 New Compliance Campaigns Audit Strategies for LB&I

On February 7, 2017 we posted IRS Has 13 New Compliance Campaigns for LB&I Taxpayers where we discussed our previous posted on October 9, 2015 LB&I Agents Lose Autonomy To Centralized Office That Will Be Using Data to Identify Compliance Risks For Audit! that discussed the fact that Tax practitioners will face new questions from examination teams as the IRS selects compliance risks based on data.   

This is in conformity with the Large Business and International Division's (LB&I) move from individual audits of multinationals to broader considerations involving risk assessment, which was included in January 2017 announcement regarding the new audit strategy for its LB&I division known as "campaigns," essentially, shifting its strategy toward issue-based examinations based on compliance issues that LB&I determines present greater levels of compliance risk and thereby improving return selection. IRS initially selected 13 compliance issues when it rolled out this strategy.

On May 21, 2018 the IRS Announced the Identification of 6 Large Business and International Compliance Campaigns
 
These six additional campaigns were identified through LB&I data analysis and suggestions from IRS employees. LB&I's goal is to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources.

The six campaigns selected for this rollout are:

  • 1. Interest Capitalization for Self-Constructed Assets
When a taxpayer engages in certain production activities they are required to capitalize interest expense under Internal Revenue Code (IRC) Section 263A. Interest capitalization applies to interest a taxpayer pays or incurs during the production period when producing property that meets the definition of designated property. Designated property under IRC Section 263A(f) is defined as (a) any real property, or (b) tangible personal property that has: (i) a long useful life (depreciable class life of 20 years or more), or (ii) an estimated production period exceeding two years, or (iii) an estimated production period exceeding one year and an estimated cost exceeding $1,000,000. 
The goal of this campaign is to ensure taxpayer compliance by verifying that interest is properly capitalized for designated property and the computation to capitalize that interest is accurate. The treatment stream for this campaign is issue-based examinations, education soft letters, and educating taxpayers and practitioners to encourage voluntary compliance
 

  • 2. F3520/3520-A Non-Compliance/Assessed Penalties  
 
This campaign will take a multifaceted approach to improving compliance with respect to the timely and accurate filing of information returns reporting ownership of and transactions with foreign trusts. The Service will address noncompliance through a variety of treatment streams including, but not limited to, examinations and penalties assessed by the campus when the forms are received late or are incomplete. 
 
  • 3. Forms 1042/1042-S Compliance
    Taxpayers who make payments of certain U.S.-source income to foreign persons must comply with the related withholding, deposit, and reporting requirements. This campaign addresses Withholding Agents who make such payments but do not meet all their compliance duties. The Internal Revenue Service will address noncompliance and errors through a variety of treatment streams, including examination.
     

  • 4. Nonresident Alien Tax Treaty Exemptions
This campaign is intended to increase compliance in nonresident alien (NRA) individual tax treaty exemption claims related to both effectively connected income and Fixed, Determinable, Annual Periodical income. Some NRA taxpayers may either misunderstand or misinterpret applicable treaty articles, provide incorrect or incomplete forms to the withholding agents or rely on incorrect information returns provided by U.S. payors to improperly claim treaty benefits and exempt U.S. source income from taxation. This campaign will address noncompliance through a variety of treatment streams including outreach/education and traditional examinations.
 
  • 5. Nonresident Alien Schedule A and Other Deductions
This campaign is intended to increase compliance in the proper deduction of eligible expenses by nonresident alien (NRA) individuals on Form 1040NR Schedule A. NRA taxpayers may either misunderstand or misinterpret the rules for allowable deductions under the previous and new Internal Revenue Code provisions, do not meet all the qualifications for claiming the deduction and/or do not maintain proper records to substantiate the expenses claimed. The campaign will address noncompliance through a variety of treatment streams including outreach/education and traditional examinations.
 
  • 6. NRA Tax Credits

    This campaign is intended to increase compliance in nonresident alien individual (NRA) tax credits. NRAs who either have no qualifying earned income, do not provide substantiation/proper documentation, or do not have qualifying dependents may erroneously claim certain dependent related tax credits. In addition, some NRA taxpayers may also claim education credits (which are only available to U.S. persons) by improperly filing Form 1040 tax returns. This campaign will address noncompliance through a variety of treatment streams including outreach/education and traditional examinations.
    International Tax Audit by IRS LB&I ?
     
     
    Contact the Tax Lawyers at
    Marini & Associates, P.A.
     
     
     for a FREE Tax Consultation Contact US at
    www.TaxAid.com or www.OVDPLaw.com
    or Toll Free at 888-8TaxAid (888 882-9243).
     

     
    
 
 
 

Read more at: Tax Times blog

Tax Havens Still Very Much Alive & Well!

According to National Bureau of Economic Research (NBER) there is over ARS220 billion in offshore accounts, the equivalent of almost 40 percent of Argentina’s GDP. The country ranks 5th globally for offshore account deposits, behind Russia, Saudi Arabia, Venezuela and the UAE.

Drawing on newly published macroeconomic statistics, the National Bureau of Economic Research  estimates the amount of household wealth owned by each country in offshore tax havens.

The equivalent of 10% of world GDP is held in tax havens globally, but this average masks a great deal of heterogeneity, from a few percent of GDP in Scandinavia, to about 15% in Continental Europe, and 60% in Gulf countries and some Latin American economies.

NBER used these estimates to construct revised series of top wealth shares in ten countries, which account for close to half of world GDP.

Because offshore wealth is very concentrated at the top, accounting for it increases the top

0.01% wealth share substantially, even in countries, such as Norway or Denmark, that do not
use tax havens extensively. Offshore wealth has a larger effect on inequality in the U.K., Spain,
and France, where, by our estimates, 30%–40% of all the wealth of the 0.01% richest households
is held abroad.

It has dramatic implications in Russia, where the majority of wealth at the top is held outside of the country. In the United States, offshore wealth also increases inequality, but the effect is more muted than in Europe, because U.S. top wealth shares are already very high even disregarding tax havens. In all cases, taking offshore wealth into account increases the rise in inequality seen in tax data markedly. This result highlights the importance of looking beyond tax data to study wealth accumulation among the very rich in a globalized world.

These results highlight the importance of looking beyond tax and survey data to study wealth accumulation among the very rich in a globalized world.

Need Tax Efficient Tax Planning?
 
Contact the Tax Lawyers at 
Marini & Associates, P.A.  
 
 
for a FREE Tax Consultation

Toll Free at 888-8TaxAid (888) 882-9243


 

Read more at: Tax Times blog