tag:blogger.com,1999:blog-15550338959912944582018-01-30T14:18:43.576-05:00Curtis Tax Updates<a href="http://www.curtis.com">Curtis, Mallet-Prevost, Colt & Mosle LLP </a>Curtis Mallet-Prevostnoreply@blogger.comBlogger58125tag:blogger.com,1999:blog-1555033895991294458.post-82175343472753722282016-11-10T17:32:00.003-05:002016-11-10T17:32:58.201-05:00Trump Tax Plan Highlights <br /><div style="margin: 12pt 0in 0pt;"><span style="color: windowtext; font-size: 12pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Based on Trump campaign's tax plan (</span></span><a href="https://www.donaldjtrump.com/policies/tax-plan"><span style="font-size: 12pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">https://www.donaldjtrump.com/policies/tax-plan</span></span></a><span style="font-size: 12pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">), we may see development in some areas in the near future such as: </span></span></div><span style="color: black; font-family: inherit;"> </span><br /><ul style="direction: ltr; list-style-type: disc;"><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Taxes affecting individuals</span></span></div><ul style="list-style-type: disc;"><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level2 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Reduction or Elimination</span></span></div><ul style="list-style-type: square;"><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level3 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Ordinary income tax rates could be reduced to 12%-25%-33% brackets. </span></span></div></li><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level3 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">The existing capital gain tax rate structure (maximum rate of 20%) could be retained.</span></span></div></li><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level3 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">The 3.8% Obamacare tax could be repealed. </span></span></div></li><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level3 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Alternative minimum tax could be repealed. </span></span></div></li><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level3 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Death tax could be repealed. </span></span></div></li></ul></li><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level2 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Increase or Limitation</span></span></div><ul style="list-style-type: square;"><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level3 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Carried interest could be taxed as ordinary income.</span></span></div></li><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level3 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Itemized deductions could be capped at $200,000 for married-joint filers or $100,000 for single filers.</span></span></div></li></ul></li></ul></li><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Taxes affecting corporations</span></span></div><ul style="list-style-type: disc;"><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level2 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Reduction or Elimination</span></span></div><ul style="list-style-type: square;"><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level3 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Top corporate tax rate could be reduced to 15%. </span></span></div></li><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level3 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Alternative minimum tax could be repealed.</span></span></div></li></ul></li><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 0pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level2 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Foreign Earnings</span></span></div><ul style="list-style-type: square;"><li style="font-size: 12pt; font-style: normal; font-weight: normal;"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 12pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level3 lfo1;"><span style="font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="color: black; font-family: inherit;">Corporate profits held offshore could be deemed repatriated and taxed at a one-time tax rate of 10%. </span></span></div></li></ul></li></ul></li></ul><span style="color: windowtext; font-size: 12pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><div style="font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 12pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level3 lfo1;"><em><span style="color: black; font-family: inherit;">Attorney advertising.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span>The material contained in this Client Alert is only a general review of the subjects covered and does not constitute legal advice.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span>No legal or business decision should be based on its contents.</span></em></div><div style="color: #365f91; font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 12pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level3 lfo1;"><span style="font-family: inherit;"> </span></div></span><div style="color: #365f91; font-family: "Georgia","serif"; font-size: 13pt; font-style: normal; font-weight: normal; line-height: 150%; margin-bottom: 12pt; margin-top: 0in; mso-add-space: auto; mso-list: l0 level3 lfo1;"><br /></div>Curtis Mallet-Prevosthttps://plus.google.com/101204426887469241348noreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-12340830764837216312016-09-16T17:38:00.003-04:002016-09-16T17:43:54.828-04:00Proposed Treasury Regulations Would Significantly Limit Valuation Discounts for Transfers of Interests in Family Controlled Entities <span style="mso-ansi-language: EN-US;">In early August, the IRS released proposed regulations regarding §2704 of the Internal Revenue Code.<span style="mso-spacerun: yes;"> </span>Section 2704 was enacted in 1990 in an attempt by Congress to limit valuation discounts on intra-family transfers of family controlled corporations and partnerships for gift and estate tax purposes.<span style="mso-spacerun: yes;"> <br /></span></span><br /><div style="margin: 0in 0in 12pt;"><span style="mso-ansi-language: EN-US;">Section 2704(a) treats the lapse of voting or liquidation rights in family controlled corporations or partnerships as a transfer by gift or as a transfer included in the transferor’s gross estate.<span style="mso-spacerun: yes;"> </span>Section 2704(b) generally provides that “applicable restrictions” are disregarded in valuing intra-family transferred interests.<span style="mso-spacerun: yes;"> </span>Applicable restrictions are those that (i) limit the ability of the entity to liquidate and (ii) lapse or can be removed by members of the family.<span style="mso-spacerun: yes;"> </span></span></div><div style="margin: 0in 0in 12pt;"><span style="mso-ansi-language: EN-US;">However, based on a combination of favorable tax court rulings and changes in state law since 1990, estate planners have sought significant tax savings for their clients ranging from 30-50 percent of the value of the pre-transfer interest despite the restrictions imposed by §2704.<span style="mso-spacerun: yes;"> </span></span></div><div style="margin: 0in 0in 12pt;"><u><span style="mso-ansi-language: EN-US;"><strong>Summary and Impact of Proposed Regulations</strong></span></u></div><div style="margin: 0in 0in 12pt;"><span style="mso-ansi-language: EN-US;">The proposed regulations would impose a three year look-back rule; if the transferor dies within three years of making a transfer, the value of the lapsed voting or liquidation right would be included in the transferor’s gross estate.<span style="mso-spacerun: yes;"> </span>The three year look-back rule would significantly eliminate “deathbed transfers” designed to achieve valuation discounts.<span style="mso-spacerun: yes;"> </span></span></div><div style="margin: 0in 0in 12pt;"><span style="mso-ansi-language: EN-US;">In addition to the three year look-back rule, to close what the IRS perceived as loopholes in the current §2704 regulations, the proposed regulations add the concept of “disregarded restrictions” and have also added LLCs to the types of entities covered by the regulations.<span style="mso-spacerun: yes;"> </span>Interestingly, rather than defining specific types of restrictions, disregarded restrictions are defined by their effect.<span style="mso-spacerun: yes;"> </span>Subject to certain limited exceptions, the proposed regulations would disregard most restrictions unless the interest holder has the ability to put its interest to the entity on six months’ notice for at least its pro rata share of the net value of the entity in cash or property.<span style="mso-spacerun: yes;"> </span></span></div><div style="margin: 0in 0in 12pt;"><span style="mso-ansi-language: EN-US;">In sum, if the proposed regulations are enacted in their current form, they would significantly restrict transferors’ abilities to achieve lack of control and lack of marketability discounts in connection with transfers of interests in family controlled entities.<span style="mso-spacerun: yes;"> </span></span></div><div style="margin: 0in 0in 12pt;"><u><span style="mso-ansi-language: EN-US;"><strong>Planning Considerations</strong></span></u></div><div style="margin: 0in 0in 12pt;"><span style="mso-ansi-language: EN-US;">There is significant uncertainty with respect to both the validity and interpretation of the proposed regulations.<span style="mso-spacerun: yes;"> </span>Despite the uncertainty, clients contemplating transferring non-controlling interests in family controlled entities should consider completing such transfers prior to the date the regulations become effective (generally, the date when the regulations become final). </span></div><div style="margin: 0in 0in 12pt;"><span style="mso-ansi-language: EN-US;">If the regulations are finalized, individuals may continue to achieve tax savings by transferring appreciating assets out of their estate. However, they will no longer be able to leverage the tax savings by taking many traditional discounts on the value of the transferred asset. </span></div><div style="margin: 0in 0in 12pt;"><u><span style="mso-ansi-language: EN-US;"><strong>Effective Dates</strong></span></u></div><span style="mso-ansi-language: EN-US;">The regulations generally will become effective on the date they become final, which could be before the current presidential administration ends.<span style="mso-spacerun: yes;"> </span></span><br /> <br />Curtis Mallet-Prevosthttps://plus.google.com/101204426887469241348noreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-46936102226923908432015-11-09T11:08:00.001-05:002017-08-22T14:43:03.806-04:00New Inflation-Adjusted Thresholds for Estates and Gifts Announced by IRS for 2016The Internal Revenue Service recently released Revenue Procedure 2015-53, which announced certain inflation-adjusted figures for 2016. A number of these items relate to estate, gift, and generation-skipping transfer (“GST”) tax amounts. Some of the more important items are highlighted below.<br /><br /><a name='more'></a><b><u>Estate, Gift, and GST Tax Exemption Amount</u></b><br /><br />The cumulative amount that an individual can transfer either during their lifetime or at their death without estate, gift, or GST tax liability has increased from $5,430,000 in 2015 to $5,450,000 in 2016.<br /><br /><b><u>Annual Gift Tax Exclusion Amount</u></b><br /><br />For calendar year 2016, the maximum amount that an individual can gift tax free to any number of donees remains unchanged at $14,000 per donee. If a married couple elects to split gifts, that couple can gift up to $28,000 per donee.<br /><br /><b><u>Annual Gift Tax Exclusion Amount to Spouse Who is Not a U.S. Citizen</u></b><br /><br />The amount that a married individual can gift tax free to a spouse who is not a U.S. citizen has increased from $147,000 in 2015 to $148,000 in 2016.Neelam Pandyahttps://plus.google.com/109411685323255891299noreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-72638164974565153792015-08-07T08:06:00.001-04:002015-08-07T08:07:13.081-04:00New Law Revises Due Dates for Corporation and Partnership ReturnsThe recently enacted Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the “Act”) made significant changes in the deadlines for filing many corporate and partnership tax returns. These changes will be effective for returns filed for taxable years beginning after December 31, 2015. <br /><br /><a name='more'></a>Partnerships will have to file their U.S. partnership returns (IRS Form 1065) two months and 15 days after the close of its taxable year as opposed to the existing rule of three months and 15 days. Thus, for example, a calendar year partnership’s tax return will be due on March 15 whereas previously it was due April 15. The Act also increases the automatic extension period for partnership returns from 5 to 6 months. Thus, the extended due date for calendar-year partnerships will continue to be September 15. <br /><br />Most C corporations will have to file their U.S. corporation returns (IRS Form 1120) three months and 15 days after the close of its taxable year as opposed to the existing rule of two months and 15 days. Thus, for example, a calendar year corporation’s tax return will be due on April 15 whereas previously it was due March 15. The Act also provides for an automatic 5-month extension for most C corporations. Thus, the extended due date for calendar-year corporations will continue to be September 15. The extension period will be increased to 6 months for returns for tax years beginning on or after January 1, 2026. The filing deadline for S corporation returns remains unchanged. <br /><br />These changes only apply to the filing dates for federal returns. Filing dates for state corporate and partnership income tax returns will remain the same unless the states act individually to change their own deadlines. <br /><br /> Neelam Pandyahttps://plus.google.com/109411685323255891299noreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-58287342047612142082015-08-07T04:51:00.005-04:002015-08-07T04:52:49.285-04:00FBAR Deadline Changed to April 15As part of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the “Act”) signed into law by President Obama on July 31, 2015, the deadline for filing Foreign Bank Account Reports (“FBARs”) has been changed from June 30 to April 15, thereby coinciding with the due date for an individual to file her or his federal income tax return. <br /><br /><a name='more'></a>For 2015 FBARs, the filing deadline remains June 30, 2016. FBARs for all years beginning in 2016 will be April 15 of the following year, the same due date for filing individual tax returns. The Act directs the Treasury Department to issue regulations allowing for a maximum 6-month extension (the same period as individual tax returns) to file the FBAR and to automatically extend the filing date for U.S. citizens and residents living outside the country until June 15; previously no extensions were permitted. It also gives the Internal Revenue Service the authority to waive penalties for first-time FBAR filers who miss the new April 15 deadline and do not ask for an extension.<br /><br />Neelam Pandyahttps://plus.google.com/109411685323255891299noreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-79674250571202791272015-03-03T12:58:00.000-05:002015-03-03T12:58:25.059-05:00Recent Proposals on Taxing Offshore EarningsSeveral recent proposals have been made for a one-time preferential corporate tax rate to encourage or, in some instances, force U.S. companies to pay tax on previously untaxed foreign income. These proposals may indicate that a legislative compromise among the proposals could be reached this year. <br /><br />Under current law, U.S. multinational companies are subject to worldwide taxation but generally may receive credits for foreign taxes paid and may defer U.S. tax on active earnings of their foreign subsidiaries until these profits are paid as dividends to the U.S.<br /><br /><a name='more'></a>The recent proposals to tax offshore earnings include the following: <br /><br /><table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; mso-border-bottom-alt: solid windowtext .5pt; mso-border-insideh: none; mso-border-insidev: none; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;"> <tbody><tr style="mso-yfti-firstrow: yes; mso-yfti-irow: 0; page-break-inside: avoid;"> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 149.4pt;" valign="top" width="199"> <div align="center" class="MsoNormal" style="margin: 6pt 0in; text-align: center;"><b style="mso-bidi-font-weight: normal;">Proposed By<o:p></o:p></b></div></td> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 103.5pt;" valign="top" width="138"> <div align="center" class="MsoNormal" style="margin: 6pt 0in; text-align: center;"><b style="mso-bidi-font-weight: normal;">Rate<o:p></o:p></b></div></td> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 225.9pt;" valign="top" width="301"> <div align="center" class="MsoNormal" style="margin: 6pt 0in; text-align: center;"><b style="mso-bidi-font-weight: normal;">Operative Rules<o:p></o:p></b></div></td> </tr><tr style="mso-yfti-irow: 1; page-break-inside: avoid;"> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 149.4pt;" valign="top" width="199"> <div class="MsoNormal" style="margin: 6pt 0in;"><b style="mso-bidi-font-weight: normal;">President Barack Obama (D)</b>, as part of the Administration’s Fiscal Year 2016 Budget released on February 2, which has no legislative effect. </div></td> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 103.5pt;" valign="top" width="138"> <div class="MsoNormal" style="margin: 6pt 0in;"><u>14%</u> one-time <u>mandatory</u> tax, plus an annual <u>19%</u> minimum tax </div></td> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 225.9pt;" valign="top" width="301"> <div class="MsoNormal" style="margin: 6pt 0in;">The one-time 14% tax would be on earnings accumulated by a controlled foreign corporation (CFC) and not previously subject to U.S. tax. A limited credit would be allowed for the amount of foreign taxes associated with the previously untaxed earnings, multiplied by 40% (i.e., the ratio of 14%, the one-time tax rate, to 35%, the maximum U.S. corporate tax rate for 2015). The 14% tax would be payable ratably over 5 years. </div><div class="MsoNormal" style="margin: 6pt 0in;">The 19% minimum tax would be on future earnings, reduced (but not below zero) by 85% of the per-country foreign effective tax rate (calculated by comparing foreign earnings with their associated foreign taxes over a 60-month period).<span style="mso-spacerun: yes;"> </span>The 19% minimum tax base would also be reduced by an “allowance for corporate equity” (ACE).<span style="mso-spacerun: yes;"> </span></div></td> </tr><tr style="mso-yfti-irow: 2; page-break-inside: avoid;"> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 149.4pt;" valign="top" width="199"> <div class="MsoNormal" style="margin: 6pt 0in;"><b style="mso-bidi-font-weight: normal;">Reps. John Delaney (D-Md.)</b> and <b style="mso-bidi-font-weight: normal;">Richard Hanna (R-Ny.)</b>, introduced legislation into the House of Representatives (H.R. 625) on January 30. </div></td> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 103.5pt;" valign="top" width="138"> <div class="MsoNormal" style="margin: 6pt 0in;"><u>8.75%</u> one-time <u>mandatory</u> tax</div></td> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 225.9pt;" valign="top" width="301"> <div class="MsoNormal" style="margin: 6pt 0in;">Generally, the “Subpart F” income of a CFC, which is subject to current taxation, would be increased by any post-1986 untaxed foreign income, and reduced by a 75% deduction for the amount so included, for an effective tax rate of 8.75% (25% taxable portion, multiplied by 35% corporate tax rate).* </div><div class="MsoNormal" style="margin: 6pt 0in;">No foreign tax credit would be allowed with respect to the deductible portion. The tax would be payable ratably over 8 years. </div></td> </tr><tr style="mso-yfti-irow: 3; page-break-inside: avoid;"> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 149.4pt;" valign="top" width="199"> <div class="MsoNormal" style="margin: 6pt 0in;"><b style="mso-bidi-font-weight: normal;">Sen. John McCain (R-Ariz.)</b> and <b style="mso-bidi-font-weight: normal;">Rep. Trent Franks (R-Ariz.)</b>, introduced legislation into the Senate (S. 397) and the House of Representatives (H.R. 788), on February 5. </div></td> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 103.5pt;" valign="top" width="138"> <div class="MsoNormal" style="margin: 6pt 0in;"><u>8.75%</u> (or <u>5.25%,</u> where applicable) one-time <u>voluntary</u> tax</div><div class="MsoNormal" style="margin: 6pt 0in;"><o:p> </o:p></div><div class="MsoNormal" style="margin: 6pt 0in;"><o:p> </o:p></div></td> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 225.9pt;" valign="top" width="301"> <div class="MsoNormal" style="margin: 6pt 0in;">A 75% deduction for dividends received from CFCs would be allowed, for an effective tax rate of 8.75% (25% taxable portion, multiplied by 35% corporate tax rate).*</div><div class="MsoNormal" style="margin: 6pt 0in;">No foreign tax credit would be allowed with respect to the deductible portion. A lower 5.25% rate would be available if the company expands payroll by 10% through net job creation or higher payroll. The legislation includes a penalty of $75,000 that generally would apply for every full-time position that is eliminated. </div></td> </tr><tr style="mso-yfti-irow: 4; mso-yfti-lastrow: yes; page-break-inside: avoid;"> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 149.4pt;" valign="top" width="199"> <div class="MsoNormal" style="margin: 6pt 0in;"><b style="mso-bidi-font-weight: normal;">Sens. Rand Paul (R-Ky.)</b> and <b style="mso-bidi-font-weight: normal;">Barbara Boxer (D-Calif.)</b>, as described in a “White Paper” released on their websites on January 29, but not yet introduced into the Senate.</div></td> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 103.5pt;" valign="top" width="138"> <div class="MsoNormal" style="margin: 6pt 0in;"><u>6.5%</u> one-time <u>voluntary</u> tax</div></td> <td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) windowtext; border-style: none none solid; border-width: 0px 0px 1pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 225.9pt;" valign="top" width="301"> <div class="MsoNormal" style="margin: 6pt 0in;">According to the description in the White Paper, the special 6.5% rate generally would apply only to dividends of previously untaxed foreign income that exceed the company’s average dividends in recent years. </div><div class="MsoNormal" style="margin: 6pt 0in;">The tax would be payable ratably over 5 years. A portion of the income subject to the special rate must be used for increased hiring, wages and pensions, and research and development, and funds cannot be used for executive remuneration, shareholder dividends, or stock buybacks for three years after the program ends.</div></td> </tr></tbody></table><br /><br />*This bill’s provisions operate by way of amendment to existing Section 965 of the Internal Revenue Code of 1986, as amended. <br /><br />Anne Tousignant Millerhttps://plus.google.com/108865705487389263902noreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-72544175684066423192014-06-25T16:27:00.000-04:002014-06-25T16:27:04.474-04:00IRS Releases New Rules on Taxpayer Voluntary Compliance ProgramsOn June 18, 2014, the IRS announced two major changes to its Offshore Voluntary Compliance Programs, which offer taxpayers with undisclosed income from offshore accounts an opportunity to correct their tax reporting. A Streamlined Procedure is now offered to taxpayers residing inside and outside of the U.S. if their failure to report was non-willful. The Offshore Voluntary Disclosure penalty on accounts in foreign banks and financial institutions under criminal investigation is now almost double the usual penalty.<br /><br /><a name='more'></a>The Streamlined Procedure is now available to both “non-resident” and “resident” (as defined specially for this purpose) U.S. taxpayers who certify under penalties of perjury that their failure to report income, pay tax, and submit required information returns was non-willful. Non-residents will pay no penalties; a penalty of 5% of the highest aggregate balance or value of foreign financial assets will apply to residents. <u>Unlike Offshore Voluntary Disclosure Programs, the Streamlined Program does not provide protection against criminal prosecution.</u><br /><br />Taxpayers who are currently participating in an Offshore Voluntary Disclosure Program or who apply prior to July 1, 2014, and who otherwise meet the Streamlined Procedure’s eligibility requirements, may request the IRS to apply the Streamlined Procedure’s reduced or eliminated offshore penalty to them. If the IRS approves a request, all other terms of the Offshore Voluntary Disclosure Program will continue to apply. <br /><br />The Offshore Voluntary Disclosure Program remains largely the same for most taxpayers. However, the offshore penalty, 27.5%, will increase to 50% if it becomes public that a financial institution in which the taxpayer holds an account or another party facilitating the taxpayer’s offshore arrangement is under investigation by the IRS or Department of Justice. The 50% penalty will take effect with respect to financial institutions and facilitators who are specifically <a href="http://www.irs.gov/Businesses/International-Businesses/Foreign-Financial-Institutions-or-Facilitators">identified</a> by the Department of Justice on or after August 4, 2014. <br /><br />The current list of such financial institutions and facilitators is:<br /><br /><ol type="1"><li>UBS AG</li><li>Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.</li><li>Wegelin & Co.</li><li>Liechtensteinische Landesbank AG</li><li>Zurcher Kantonalbank</li><li>swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG</li><li>CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates</li><li>Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.</li><li>The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)</li><li>The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates</li></ol><br />ttattannoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-62899604729128485412014-04-08T09:56:00.001-04:002014-04-08T09:56:37.240-04:00U.S. Shareholders of PFICs Must File Annual Report for 2013 and Future YearsOn December 31, 2013, Temporary Treasury Regulations under Section 1298(f) of the Code were published. Under these rules, for the calendar years 2013 and thereafter, direct and indirect U.S. shareholders who are the first U.S. persons in a chain of ownership with respect to a passive foreign investment company (“PFIC”) must annually file a Form 8621 for each PFIC owned. Ownership of PFIC stock through another U.S. person may also trigger reporting requirements in circumstances where the U.S. shareholder is required to include an amount in income with respect to the PFIC. Certain exceptions may apply for U.S. shareholders who have in effect qualified electing fund (“QEF”) or mark-to-market (“MTM”) elections, or whose holdings fall below certain value thresholds.<br /> <br /><a name='more'></a>PFIC shareholders who were required to file Form 8621 under the previous rules or other sections of the Code must continue to file.<br /> <br />Under the new rules, many additional U.S. taxpayers may be required to file Form 8621:<br /><br /><ol type="circle"><li>The first U.S. person in a chain of ownership with respect to PFIC stock who owns such stock through a foreign investment vehicle, such as partnerships, hedge funds, certain brokerage accounts, and retirement funds.</li> <li>A U.S. person treated as the owner of a domestic or foreign grantor trust that directly or indirectly owns stock of a PFIC.</li> <li>A U.S. person who is the beneficiary of a foreign estate or nongrantor trust which directly or indirectly owns PFIC stock.</li><li>A U.S. person who indirectly owns an interest in PFIC stock through a U.S. investment vehicle, U.S. estate, or U.S. nongrantor trust, if the U.S. person is treated as receiving an excess distribution (or recognizing gain that is treated as an excess distribution) with respect to the PFIC. Exceptions may apply if the U.S. person has a valid QEF or MTM election in effect and the first U.S. person in the chain of ownership (i.e., the investment vehicle, estate, or nongrantor trust) complies with the filing requirement.</li></ol><br />Absent a showing of reasonable cause, if a U.S. shareholder is required but fails to file Form 8621, the statute of limitations on the shareholder’s U.S. federal income tax return will not begin to run.<br /> <br />To avoid duplicative reporting of foreign assets, a U.S. shareholder of PFIC stock is not required to report a PFIC under Section 6038D (Information Reporting With Respect to Foreign Financial Assets) if the person reports the PFIC on a timely filed From 8621 and the person’s report under Section 6038D (on Form 8938) indicates, as provided on the form, that the person complied with its Form 8621 filing requirement with respect to the PFIC.<br /><br /> ttattannoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-74961516760811178792013-10-31T13:16:00.004-04:002013-10-31T13:33:52.019-04:00New York Offers Tax Exemptions to New Businesses in Designated Tax-Free AreasIn June 2013, New York State enacted the START-UP NY program to encourage new businesses to move to New York, especially upstate New York, by offering a full tax exemption from New York state taxes for businesses locating in tax-free areas on or near certain institutions of higher education. The START-UP NY program may provide significant benefits and should be considered by out-of-state businesses operating in high tax states or foreign businesses seeking to establish or expand their U.S. presence. <br /><br /><a name='more'></a>The tax benefits from the program are scheduled to commence on January 1, 2014 and the last date for businesses to be accepted into the program is December 31, 2020. <br /><br /><b>Benefits:</b> The program offers a host of tax benefits for a 10-year period including:<br /><ul style="list-style-type: circle;"><li>The business being exempt from:</li><ul style="list-style-type: circle;"><li>New York state income taxes<sup><a href="#fn1" id="ref1">1</a></sup>;</li><li>State and local sales taxes;</li><li>State and local real estate transfer taxes on leases of property to the business; and</li><li>The organization tax, and the Metropolitan Commuter Transportation District mobility tax.</li></ul></ul><ul style="list-style-type: circle;"><li>Employees being exempt from:</li><ul style="list-style-type: circle;"><li>All New York state and New York City incomes taxes on wages from the business during the first 5 years that the business participates in the program; and</li><li>New York state and New York City income taxes on the first $200,000 ($300,000 if married) of wages in years 6 through 10.</li></ul></ul><b>Eligibility and Restrictions:</b> The eligibility requirements will likely be subject to discussions with New York State and the participating institutions. To take part in the program, businesses must (i) apply directly to a participating college or university, (ii) be located on property affiliated with a participating school, (iii) support the school’s academic mission and (iv) create net new jobs. Each participating school will determine how the business supports its academic mission as part of the application process. Net new jobs mean full-time wage paying jobs.<br /><br />The following types of business will not be eligible for the program:<br /><ul style="list-style-type: circle;"><li>Retail and wholesale businesses;</li><li>Restaurants;</li><li>Real estate brokers;</li><li>Law firms;</li><li>Medical practices;</li><li>Real estate management companies;</li><li>Hospitality;</li><li>Finance and financial services;</li><li>Businesses providing personal services;</li><li>Businesses providing business administration or support services;</li><li>Accounting firms;</li><li>Businesses providing utilities; and</li><li>Energy production and distribution companies.</li></ul><b>Geographic Regions:</b> The program primarily benefits SUNY campuses and private universities located north of Westchester County. Businesses located in New York City or Nassau, Suffolk or Westchester Counties may only participate if they are “high-tech businesses” or in the formative stages of development.<br /><br /><hr /><sup id="fn1">1. It does not appear as though businesses locating in New York City under the program would be exempt from New York City income taxes.<a href="#ref1" title="Jump back to footnote 1 in the text.">↩</a></sup><br /><br />ttattannoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-23481514611830834552013-07-29T14:19:00.004-04:002013-07-29T14:19:53.235-04:00FBARs Must Be Filed Electronically The Treasury Department will no longer accept FBARs in paper form. Beginning August 1, 2013, all FBARs must be filed electronically. U.S. persons with a financial interest in, or signature authority over, foreign financial accounts with an aggregate value exceeding $10,000 during any year are required to file a an FBAR – “Report of Foreign Bank and Financial Account” on Form TD F 90-22.1 -- by June 30 of the following year. FBARs must now be filed online through the BSA E-Filing System of the Financial Crimes Enforcement Network (“FinCEN”). Noncompliance may result in civil penalties. <br /><br /><br /><a name='more'></a>The BSA E-Filing System requires users to first submit a User Application Form and select a user ID and password. Once a user has been granted access, he or she must then download a Forms Reader, which will enable the user to complete the FBAR and submit it online. If an attorney or CPA has documented authority from the person legally obligated to file an FBAR, the attorney or CPA is permitted to sign and submit FBARs on the client’s behalf through a single BSA E-Filing account established for the attorney or CPA. In the absence of documented authority, filings must be signed and submitted through an account unique to each client.<br /><br />Individuals and financial institutions who have difficulty filing electronically, for example because they are located in remote locations and lack Internet access or due to natural disasters, may contact FinCEN’s Regulatory Helpline at 1 800-949-2732 (or 1-703-905-3975 from outside the U.S.) to determine possible alternatives for timely reporting. <br /><br />For more information, or to file an FBAR, go to <a href="http://bsaefiling.fincen.treas.gov/Enroll_Individual.html">http://bsaefiling.fincen.treas.gov/Enroll_Individual.html</a>.<br /><div><br /></div>Curtisnoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-26338179992367976052013-07-22T13:19:00.000-04:002013-07-22T15:45:49.966-04:00Amendments to Immigration Reform Bill to Prevent “Taxpatriation”Certain members of Congress are upset that more than 670 people expatriated from the United States in the first quarter of 2013, the largest quarterly number since the IRS started publishing the names of expatriates in 1998. While the press has actively reported on the immigration reform bill before Congress (the “Immigration Bill”), little notice has been taken of the two significant amendments proposed by Senators Reed (D-RI), Schumer (D-NY), and Casey (D-PA) on June 12, 2013,<sup><a href="#fn1" id="ref1">1</a></sup> which would “punish” both past and future expatriates. While the Immigration Bill passed the Senate on June 27, 2013, <u>without</u> the two expatriation amendments, it is impossible to predict when and where these amendments may reappear.<br /><br /><a name='more'></a><br />In 1996, the Reed Amendment, so named because it was proposed by Senator Reed, changed the immigration law to allow the Attorney General to refuse re-entry to former U.S. citizens who renounced their citizenship “for the purpose of avoiding taxes.” The Reed Amendment appears to have never been enforced,<sup><a href="#fn2" id="ref2">2</a></sup> presumably because the Reed Amendment placed the burden of proof on the government to determine whether an expatriate had renounced citizenship to avoid taxes. Nonetheless, the Reed Amendment was significant because it took a first step towards linking tax and immigration law rules. Senators Reed, Schumer, and Casey’s proposed amendment to the Immigration Bill would breathe life into the “spirit” of the Reed Amendment.<br /><br />In 2008, Congress enacted Section 877A of the Internal Revenue Code, which provided that “covered expatriates”<sup><a href="#fn3" id="ref3">3</a></sup> generally are treated as selling their worldwide assets for their fair market value on the day before they expatriate. They must pay the tax due on the gain deemed recognized. Covered expatriates generally are persons who expatriated on or after June 17, 2008 (i) with average annual net income tax of more than $155,000 for the past five taxable years, (ii) with net worth of greater than $2,000,000, or (iii) who fail to certify that they have met their tax obligations for the past five years.<br /><br />The first proposed amendment would make “covered expatriates” <u>automatically inadmissible</u> to the United States, <u>unless</u> the expatriate satisfies the burden of showing the Department of Homeland Security by “clear and convincing evidence” that tax avoidance was not <u>one</u> of the principle purposes for their expatriation. The second proposed amendment would generally impose a 30% tax on the U.S. source capital gains of “specified expatriates.” A specified expatriate is a covered expatriate who is unable to establish to the IRS that the loss of citizenship did not result in a “substantial reduction” in taxes. Specified expatriates who are subject to Section 877A are deemed to have a basis in their assets equal to the fair market value of the assets on their <u>expatriation date</u>. The second proposed amendment would be retroactive to <u>ten years before the amendment is enacted</u>.<br /><br />The two proposed amendments would meaningfully impact expatriates. The question remains how an expatriate can prove to the Department of Homeland Security by clear and convincing evidence that the purpose of their expatriation was not tax avoidance. It will be difficult for an expatriate to prove that avoidance of U.S. taxes was not one of his or her principle purposes for expatriating when he or she is no longer paying U.S. taxes. Additionally, the retroactive aspect of the second amendment is likely to generate debate and litigation.<br /><br /><hr /><br /><sup id="fn1">1. It was originally introduced into the Senate in 2012 by Senator Schumer and four co-sponsors as S. 3205, “Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy Act” (“Ex-Patriot Act”) in response to the press reporting that Facebook co-founder Eduardo Saverin expatriated before Facebook’s IPO and avoided U.S. tax on as much a $3 billion of gain. The expatriation of singer-songwriter Denise Rich provided more fuel for its supporters.<a href="#ref1" title="Jump back to footnote 1 in the text.">↩</a></sup><br /><br /><sup id="fn2">2. No regulations were issued and the Attorney General was never authorized to receive information from the IRS to determine if tax motivation existed.<a href="#ref2" title="Jump back to footnote 2 in the text.">↩</a></sup><br /><br /><sup id="fn3">3. An expatriate for this purpose generally is a U.S. citizen renouncing U.S. citizenship or a “long-term” resident relinquishing a “green card.” A long-term resident generally is a person who had a green card for 8 of the 15 years before it was relinquished.<a href="#ref3" title="Jump back to footnote 3 in the text.">↩</a></sup><br /><br />ttattannoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-43347742184136276762013-05-24T13:17:00.003-04:002013-05-24T13:18:52.957-04:00IRS Releases New FATCA Forms<br />On May 17, 2013, the U.S. Internal Revenue Service ("IRS") released a new draft Form W-8BEN, "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)" and a new draft Form W-9, "Request for Taxpayer Identification Number and Certification." The new draft forms incorporate changes necessitated by the implementation of the Foreign Account Tax Compliance Act ("FATCA"). The new draft Form W-8BEN will be used by individuals to certify foreign status for U.S. withholding tax, U.S. tax treaty benefit and FATCA withholding purposes. The new draft Form W-9, "Request for Taxpayer Identification Number and Certification" will be used by U.S. individuals and entities to certify U.S. status and provide a tax identification number in order to avoid U.S. backup withholding and FATCA withholding.<br /><br /><a name='more'></a><br /><br />The existing Form W-8BEN is currently used by both individuals and entities to certify foreign status. It will be replaced by two separate forms, the new <a href="http://www.irs.gov/pub/irs-dft/fw8ben--dft.pdf" target="_blank">Form W-8BEN</a> for individuals, and<a href="http://www.irs.gov/pub/irs-utl/formw8benentityexeccirculation2.pdf" target="_blank"> Form W-8BEN-E</a>, "Certificate of Status of Beneficial Owner for United States Tax Withholding (Entities)" for entities. A draft Form W-8BEN-E was released in June 2012 (a prior draft of the new Form W-8BEN for individuals was also released at that time). The new draft Form W-8BEN contains two changes from the prior draft released in June 2012. It requires the individual to provide a date of birth if the individual does not have a foreign tax identification number, and it requires the individual to agree to provide a new form within 30 days if any certification on the form becomes incorrect. Instructions for the new Form W-8BEN and the draft Form W-8BEN-E have not yet been released.<br /><br />The existing Form W-9 is currently used by both individuals and entities to certify U.S. status. The <a href="http://www.irs.gov/pub/irs-dft/fw9--dft.pdf" target="_blank">new draft Form W-9</a> contains two changes from the current Form W-9. It adds a line where a taxpayer can provide an "exemption from FATCA reporting code," and adds a new certification that the FATCA code is correct. The FATCA reporting code and certification will be used for U.S. persons exempt from FATCA withholding in order to prove their exempt status with respect to accounts maintained outside of the United States at foreign financial institutions.<br /><div><br /></div><div><br /></div>Curtisnoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-74650026367648196852013-04-24T12:56:00.000-04:002013-04-24T13:00:54.234-04:00Fiscal Cliff Update - Estate, Gift and GST TaxOn January 1, 2013 Congress passed the American Taxpayer Relief Act (the “Act”), which President Obama signed into law on January 2nd in order to avoid the so-called “fiscal cliff.” The Act permanently extended a number of temporary and expiring tax cuts and has significant impact on estate, gift, and generation-skipping transfer (“GST”) tax laws. On April 10, 2013 President Obama released his most recent budget proposal, which potentially may impact some of the “permanent” provisions of the Act. Where applicable, the budget’s impact on the Act is noted below.<br /><br /><a name='more'></a><strong>FEDERAL ESTATE, GIFT AND GST TAX IN 2013</strong><br /><ul style="list-style-type: square;"><li>The Act makes permanent the federal estate, gift, and GST tax lifetime exemption amount of $5,000,000, indexed for inflation. For 2013, the applicable exemption amount will be $5,250,000. The maximum rate for estate, gift, and GST taxes increased from 35% to 40%, but is below the 55% rate that would have gone into effect had the Act not been signed. President Obama’s budget proposal would raise the maximum rate for estate, gift, and GST taxes to their 2009 levels of 45%, and would also lower the applicable lifetime exemption amount for estate and GST taxes to $3,500,000, and for gift tax to $1,000,000. These lifetime exemptions would not be indexed for inflation. These proposed changes would not take effect until 2018.</li></ul><ul style="list-style-type: square;"><li>The federal estate and gift taxes remain “unified,” meaning that any amount of exemption used during a decedent’s lifetime will reduce, dollar-for-dollar, the amount of exemption that is available to such decedent’s estate at death. Similarly, any lifetime use of the GST exemption reduces the amount of exemption available at death.</li></ul><ul style="list-style-type: square;"><li>The Act also makes permanent the concept of “portability,” which allows a decedent’s surviving spouse to make use of the deceased spouse’s unused exemption. Portability, however, only applies to estate and gift tax exemptions; a deceased spouse’s unused GST tax exemption is not portable. Portability is also a purely federal concept. To date, no state has adopted portability.</li></ul><ul style="list-style-type: square;"><li>Though not specifically provided for in the Act, the 2013 gift tax annual exclusion increased from $13,000 to $14,000 per donee, or $28,000 if a husband and wife elect to split their gifts in 2013. The gift tax annual exclusion for gifts made to non-citizen spouses increased from $139,000 to $143,000.</li></ul><ul style="list-style-type: square;"><li>The Act also extends the deduction available to a decedent’s estate for federal estate tax purposes for state estate and inheritance taxes paid.</li></ul><strong>POSSIBLE FUTURE LEGISLATIVE CHANGES</strong><br /><br /><em>Grantor Retained Annuity Trusts (GRATs) & Sales to Intentionally Defective Grantor Trusts (IDGTs)</em><br /><ul style="list-style-type: square;"><li>GRATs and sales to IDGTs are common estate planning techniques used to take advantage of the low interest rate environment. For the month of April, for example, the Section 7520 rate, which is the interest rate used to value annuities or interests for a term of years, is 1.4%. In short, the idea behind a GRAT or a sale to an IDGT is that a donee contributes assets to a trust, and receives, either via a fixed annuity or via annual payments on a promissory note, assets back from the trust over a period of years. To the extent the assets in the GRAT or the IDGT appreciate in excess of the applicable interest rate, that appreciation in value is kept in the trust and passes to the beneficiaries of the trust free of estate or gift taxes. With such low interest rates, it’s easy to see why these are such popular techniques now. President Obama’s budget proposal contains various provisions which would impose restrictions on the use of GRATs and sales to IDGTs.</li></ul><em>Duration of GST Tax Exemption</em><br /><ul style="list-style-type: square;"><li>Under existing law, the use of the GST exemption can shelter trusts for the benefit of grandchildren and more remote generations from the GST tax for an indefinite period, indeed in perpetuity in certain jurisdictions. President Obama’s budget proposal would limit the duration of the GST exemption to 90 years, thereby subjecting any GST trust to GST tax after the expiration of that period.</li></ul><strong>PLANNING FOR 2013 AND BEYOND</strong><br /><ul style="list-style-type: square;"><li>Review your existing estate plan and determine whether the dispositive provisions are still appropriate given the adoption of the new exemptions and rates of tax, and in light of the President’s budget proposal.</li></ul><ul style="list-style-type: square;"><li>Consider using your gift tax annual exclusion and also consider use of your remaining gift tax exemption.</li></ul><ul style="list-style-type: square;"><li>Consider the impact of your state’s estate tax, if any. If you are currently domiciled in a state with an estate or inheritance tax (for example, New York, New Jersey or Connecticut), you may wish to consider making federally taxable gifts to lessen your potential state estate tax liability. This may be an especially attractive option for domiciliaries of states without a separate state gift tax. Connecticut is currently the only state in the country with a separate state gift tax.</li></ul><ul style="list-style-type: square;"><li>Consider taking advantage of low interest rates by use of a GRAT or a sale to an IDGT before any possible future legislation limits or removes the viability of these options.</li></ul><ul style="list-style-type: square;"><li>Consider making gifts of fractional interests in closely held business entities to take advantage of discounts for lack of control and lack of marketability. This planning technique was not addressed in the President’s budget proposal.</li></ul><ul style="list-style-type: square;"><li>Consider GST tax planning.</li></ul>Please contact us if you have any questions concerning any of the Federal estate, gift or GST tax aspects of the Act or any of the proposed estate planning techniques listed above.<br /><br /><br />ttattannoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-48588807879426035332013-01-18T11:03:00.000-05:002013-01-18T11:03:34.961-05:00The Treasury Department issued final regulations on the Foreign Account Tax Compliance Act (FATCA)On January 17, 2013, the Treasury issued final regulations on the Foreign Account Tax Compliance Act (FATCA), and announced that Norway has joined the United Kingdom, Mexico, Denmark, Ireland, Switzerland, and Spain as countries that have signed or initialed model agreements relating to FATCA compliance. The voluminous final regulations, expanding over hundreds of pages, will be published in the federal register on January 28, and the pre-publication version is available here: <a href="https://www.federalregister.gov/articles/2013/01/28/2013-01025/information-reporting-by-foreign-financial-institutions-and-withholding-on-certain-payments-to">https://www.federalregister.gov/articles/2013/01/28/2013-01025/information-reporting-by-foreign-financial-institutions-and-withholding-on-certain-payments-to</a>.<br /><span class="fullpost"><br /></span><span class="fullpost">FATCA was enacted in 2010 to require foreign financial institutions ("FFIs") to report to the IRS information about financial accounts held by U.S. taxpayers (or by foreign entities in which U.S. taxpayers hold a substantial ownership interest). In order to avoid withholding under FATCA, an FFI will have to enter into an agreement with the IRS to identify U.S. accounts, report certain information to the IRS regarding U.S. accounts, and withhold a 30 percent tax on certain U.S.-connected payments to account holders who are unwilling to provide the required information. </span><br /><span class="fullpost"><br /></span><span class="fullpost"> The regulations finalize the step-by-step process for U.S. account identification, information reporting, and withholding requirements, build on intergovernmental agreements that foster international cooperation, phase in the timelines for due diligence, reporting and withholding and align them with the intergovernmental agreements, expand and clarify the scope of payments not subject to withholding, refine and clarify the treatment of investment entities, and clarify the compliance and verification obligations of FFIs. </span>Curtisnoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-28853911447237897832013-01-03T15:52:00.001-05:002013-01-03T15:52:53.074-05:00Congress passes the "American Taxpayer Relief Act of 2012" On January 1, 2013, Congress passed legislation, the "American Taxpayer Relief Act of 2012", to avert some of the January 1, 2013 tax increases resulting in the so-called fiscal cliff. The text of the legislation is available at <a href="http://www.gpo.gov/fdsys/pkg/BILLS-112hr8enr/pdf/BILLS-112hr8enr.pdf" style="font-family: Arial; font-size: small;" title="http://www.gpo.gov/fdsys/pkg/BILLS-112hr8enr/pdf/BILLS-112hr8enr.pdf">http://www.gpo.gov/fdsys/pkg/BILLS-112hr8enr/pdf/BILLS-112hr8enr.pdf</a>.<br /><br />Highlights include:<br /><ul><li>The maximum income tax rate remains at 35% for taxpayers whose taxable income is under $400,000 (or $450,000 for married couples filed jointly). The maximum income tax rate for taxpayers whose taxable income exceeds these thresholds is 39.6%. </li><br /><li>Marginal income tax rates on long-term capital gains and dividends, currently 15%, continue for taxpayers whose taxable income is under $400,000 (or $450,000 for married couples filed jointly). The maximum marginal rate is 20% for taxpayers whose taxable income exceeds these thresholds. </li><ul><br /><li> Note that a new 3.8% surtax enacted by the 2010 healthcare reforms also took effect January 1, 2013 on investment income of taxpayers with modified gross income over $200,000 for individuals (or $250,000 for joint filers). </li></ul><br /><li><span class="fullpost">T</span>he overall limitation on itemized deduction and the personal exemption phaseout apply only to taxpayers whose adjusted gross income exceeds $250,000 (or $300,000 for joint filers). </li><br /><li>The $5 million unified exemption amount (indexed after 2011) with portability for estate and gift tax is permanently extended, but with a new top rate at 40%. </li><br /><li>The alternative minimum tax exemption amount is increased permanently, to $50,600 (or $78,750 for joint filers) in 2012 and indexed thereafter. </li></ul>In addition, certain business tax relieves are also permanently extended including, for example, the reduction in recognition period for S corporation built-in gains tax, the look-through treatment of payments between related controlled foreign corporations, and the extension of certain bonus depreciations.Curtisnoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-16251578338464968792012-11-29T17:42:00.000-05:002012-11-29T17:42:19.130-05:00US and Mexico Sign Intergovernmental FATCA Agreement on Tax ComplianceOn November 19, 2012, the U.S. and Mexico signed an intergovernmental agreement ("IGA") to improve international tax compliance including with respect to the Foreign Account Tax Compliance Act ("FATCA"). FATCA generally requires a foreign financial institution ("FFI") to identify U.S. account holders and report information regarding them to the Internal Revenue Service. If an FFI fails to comply, the FFI will be subject to a 30% U.S. withholding tax on income it receives on its U.S. investments. <span class="fullpost"><br /></span><br /><span class="fullpost">More than 50 countries have engaged in discussions with the U.S. in response to FATCA. Mexico became the third country (the U.K. and Denmark were the first two countries) to enter into an IGA. Like the IGAs with the U.K. and Denmark, the US-Mexico IGA requires annual, automatic information exchange, on a reciprocal basis, with respect to financial accounts in 2013 and subsequent years. Under the IGA, Mexico will automatically provide to the U.S. information it collected from Mexican FFIs on financial accounts in Mexico held by U.S. residents, and the U.S. will also automatically provide Mexico with information it collects on financial accounts in the U.S. held by Mexican residents. Generally, the two governments will exchange the information within 9 months after the year-end. However, the information relating to accounts in 2013 is not required to be exchanged until September 30, 2015. <br /><br />We will soon post a comprehensive summary of the US-Mexico IGA. </span>Curtisnoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-37330978317966660102012-05-08T16:49:00.000-04:002012-05-08T16:49:26.782-04:00Information Reporting Requirements for Individuals with Foreign Financial Assets in 2011As part of Congress’s expanded effort to ensure that foreign financial assets are reported to the IRS, individual taxpayers (including U.S. citizens, resident aliens (even if electing to be taxed as a resident of a foreign country under provisions of a U.S. income tax treaty), and certain nonresident aliens) must report the ownership of foreign financial accounts, securities, and other foreign financial assets if the total value of those assets during the year was more than the applicable threshold (generally, more than $50,000 end-of-year balance or more than $75,000 at any time during the year). Individual taxpayers reporting foreign financial assets must complete Form 8938, attach it to their annual income tax return, and file by the due date (including extensions) for that return. This new reporting requirement applies independently of, and in addition to, any required FBARs which are not filed with tax returns but rather filed separately by mail to Detroit, Michigan. Failure to file a complete and correct Form 8938 may result in significant penalties.<span class="fullpost"><br /><br />The information required by Form 8938 is extensive unlike an FBAR, which only requires summary information. In particular, assuming the applicable threshold is satisfied, Form 8938 requires taxpayers to (1) identify all foreign depositary, foreign security, and foreign custodial accounts, as well as other foreign financial assets not in a financial account reported on Form 8938 (including foreign stock and securities issued by foreign persons), owned during the year; (2) provide the maximum account balance or value of each asset during the year; and (3) list the amount of U.S. tax return items (for example, interest, dividends, gains, losses, deductions, and credits) attributable to these assets. In most cases, the maximum account balance or value of the asset will be its fair market value. A third-party appraisal of such maximum fair market value is not required, though taxpayers should be aware of specific rules that apply when translating the value of assets denominated in foreign currency into U.S. dollars for purposes of Form 8938. In addition, contrary to suggestions made by others, Form 8938 does not require any detailed reporting on activity in an account. <br /><br />To address some of the confusion caused by the parallel FBAR and foreign financial asset (FATCA) reporting regimes applicable to individuals, we include the following comparison chart: <br /><br /><table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="width:100%; border-collapse: collapse; border: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><td></td> <td style="border-left: none; border: solid windowtext 1.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div align="center" class="MsoNormal" style="text-align: center;"><b><u>FBAR</u></b></div></td> <td style="border-left: none; border: solid windowtext 1.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div align="center" class="MsoNormal" style="text-align: center;"><b><u>FATCA</u></b></div></td> </tr><tr> <td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Purpose</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Collect information re foreign financial accounts</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Collect taxes</div></td> </tr><tr> <td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">IRS</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">IRS auditor does not have FBAR</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Auditor has both Form 8938 and tax return</div></td> </tr><tr> <td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Threshold Amounts</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Aggregate $10,000 or more</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Aggregate $50,000 or more</div><div class="MsoNormal">$50,000 is presumed met if insufficient information given</div></td> </tr><tr> <td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Reporting Form</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">TD F 90-22.1, filed in </div><div class="MsoNormal">Detroit</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Form 8938, to be attached to Form 1040</div></td> </tr><tr> <td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Foreign hedge funds, private equity funds, etc.</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Issue reserved</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">YES</div></td> </tr><tr> <td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Statute of Limitations (“<b>S/L</b>”) on penalty</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">6 years</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">3 years after <u>entire</u> return and Form 8938 are filed. Effective for returns filed for 2011.</div></td> </tr><tr> <td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Filing Deadline</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">June 30</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">When tax return is due (including any extensions)</div></td> </tr><tr> <td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Penalties</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">Nonwillful -$10,000</div><div class="MsoNormal">per year</div><div class="MsoNormal">Willful – Greater of $100,000 or 50% of account balance for each non-complaint year + possibly criminal penalties</div></td> <td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; padding: 0in 5.4pt 0in 5.4pt; width: 159.6pt;" valign="top" width="213"><div class="MsoNormal">$10,000/30 days; max = $50,000</div><div class="MsoNormal">40% on any understatement of gross income derived from an undisclosed foreign financial asset</div></td> </tr></tbody></table></span>Curtisnoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-10925771339866006162012-05-08T15:24:00.002-04:002012-05-15T16:53:27.801-04:00Unique 2012 Estate and Gift Tax OpportunitiesThe current U.S. estate and gift tax exclusion amounts (“exclusions”) are as high as they ever have been. In 2012, a U.S. individual can give away $5,120,000 without paying any U.S. gift tax. For a married couple, the aggregate amount is $10,240,000. Currently, the maximum U.S. estate and gift tax rates are 35%. New York levies no gift tax but imposes a graduated estate tax up to 16% on New York taxable estates over $1,000,000.<br /><br />Unless federal legislation is enacted before December 31, 2012, the $5,120,000 tax exclusions will revert to $1,000,000 in 2013, and the maximum U.S. estate and gift tax rate will increase to 55%. The President’s 2013 budget proposes that the gift tax exclusion be reduced to $1,000,000 per person, whereas the estate and GST tax exclusions would be lowered to $3,500,000. While no one can predict with any confidence what the new transfer tax exclusions and rates will be, we encourage clients to consider the unique planning opportunities in 2012.<br /><br /><span class="fullpost">If a person makes a $5,120,000 gift today, there would be no U.S. gift tax.<a href="http://www.blogger.com/blogger.g?blogID=1555033895991294458#1"><sup>[1]</sup></a> In addition, the post-gift income from and any future appreciation on the gift would escape U. S. estate tax. For persons resident in states such as New York, the gift would not be subject to state gift tax and would also escape state estate tax. Set forth below are some illustrations of the possible benefits of 2012 gifts.<br /><br />If a New York person dies in 2012 with a taxable estate of $11 million, his or her U.S. estate tax would be $1,628,600 and New York estate tax would be $1,226,800, for total estate taxes of $2,855,420, passing $8,144,580 to the family.<a href="http://www.blogger.com/blogger.g?blogID=1555033895991294458#2"><sup>[2]</sup></a><br /><br />If the same person (having not made any prior taxable gifts) makes a $5,000,000 gift in 2012, his total estate (U.S. and New York State) taxes (assuming 2012 rates) would be $2,390,020, for a net family benefit of $8,609,980 or a tax savings of $465,400. If the person dies in 2013, assuming no new legislation, we estimate the total estate taxes would be $3,350,000 for a net benefit of $7,650,000 or a tax savings of $2,045,000.<br /><br />In addition, future estate tax on a gift made to descendants in trust can be deferred for many years through a “Dynasty Trust.” While transfers in trust for more than one generation may incur a generation-skipping tax (“GST”), in 2012 there is also a $5,120,000 exemption from GST. Like the estate and gift tax, the GST exemption is scheduled to revert to $1,000,000 in 2013.<a href="http://www.blogger.com/blogger.g?blogID=1555033895991294458#3"><sup>[3]</sup></a><br /><br />Gifts can be outright or in trust. They can consist of cash, securities, real property or tangible personal property. There are myriad ways to structure gifts, including techniques to leverage the potential estate and gift tax savings, such as valuation discounts or sales to a grantor trust and techniques in which the donor retains an interest in the gift, such as a grantor retained annuity trust (“GRAT”) or a qualified personal residence trust (“QPRT”).<a href="http://www.blogger.com/blogger.g?blogID=1555033895991294458#4"><sup>[4]</sup></a> The recommended structure will depend on the individual’s circumstances.<br /><br />Please contact us if you would like to discuss how you might take advantage of this opportunity.<br /><br /></span><br /><table border="0" cellpadding="0" cellspacing="0"><tbody><tr><td style="background-color: transparent; border-bottom: #ebe9ed; border-left: #ebe9ed; border-right: #ebe9ed; border-top: #ebe9ed; padding-bottom: 0in; padding-left: 5.4pt; padding-right: 5.4pt; padding-top: 0in; width: 239.4pt;" valign="top" width="319"><div class="MsoNormal" style="margin: 6pt 0in 0pt;"><span style="font-family: Arial; mso-bidi-font-size: 12.0pt; mso-bidi-font-weight: bold;"><span style="font-size: x-small;"><strong>Robert W. Sheehan, Partner</strong></span></span></div><div class="MsoNormal" style="margin: 3pt 0in 0pt;"><span lang="IT" style="font-family: Arial; font-size: 9pt; mso-ansi-language: IT;">E-mail</span><span lang="IT" style="color: #999999; font-family: Arial; font-size: 9pt; mso-ansi-language: IT; mso-bidi-font-size: 10.0pt;">: <span style="mso-spacerun: yes;"> </span>rsheehan@curtis.com</span><span lang="IT" style="font-family: Arial; mso-ansi-language: IT; mso-bidi-font-size: 12.0pt; mso-bidi-font-weight: bold;"></span></div><div class="MsoNormal" style="margin: 3pt 0in 0pt;"><span lang="IT" style="font-family: Arial; font-size: 9pt; mso-ansi-language: IT;">Tel.:</span><span lang="IT" style="color: #999999; font-family: Arial; font-size: 9pt; mso-ansi-language: IT; mso-bidi-font-size: 10.0pt;"><span style="mso-spacerun: yes;"> </span>212 696-6176</span></div><div class="MsoNormal" style="margin: 0in 0in 0pt;"><br /></div></td><td style="background-color: transparent; border-bottom: #ebe9ed; border-left: #ebe9ed; border-right: #ebe9ed; border-top: #ebe9ed; padding-bottom: 0in; padding-left: 5.4pt; padding-right: 5.4pt; padding-top: 0in; width: 239.4pt;" valign="top" width="319"><div class="MsoNormal" style="margin: 6pt 0in 0pt;"><span style="font-size: x-small;"><strong><span style="font-family: Arial; mso-bidi-font-size: 12.0pt; mso-bidi-font-weight: bold;">Alan</span><span style="font-family: Arial; mso-bidi-font-size: 12.0pt;"> S. Berlin, Partner</span></strong></span></div><div class="MsoNormal" style="margin: 3pt 0in 0pt;"><span style="font-family: Arial; font-size: 9pt;">E-mail:<span style="mso-spacerun: yes;"> </span><span style="color: #999999;">aberlin</span></span><span style="color: #999999; font-family: Arial; font-size: 9pt; mso-bidi-font-size: 10.0pt;">@curtis.com</span></div><div class="MsoNormal" style="margin: 3pt 0in 12pt;"><span style="font-family: Arial; font-size: 9pt;">Tel.:<span style="mso-spacerun: yes;"> </span></span><span style="color: #999999; font-family: Arial; font-size: 9pt; mso-bidi-font-size: 10.0pt;">212 696-6038</span></div><div class="MsoNormal" style="margin: 0in 0in 0pt;"><br /></div></td></tr><tr style="mso-yfti-irow: 1;"><td style="background-color: transparent; border-bottom: #ebe9ed; border-left: #ebe9ed; border-right: #ebe9ed; border-top: #ebe9ed; padding-bottom: 0in; padding-left: 5.4pt; padding-right: 5.4pt; padding-top: 0in; width: 239.4pt;" valign="top" width="319"><div class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-family: Arial; mso-bidi-font-size: 12.0pt; mso-bidi-font-weight: bold;"><span style="font-size: x-small;"><strong>Tina E. Albright, Partner</strong></span></span></div><div class="MsoNormal" style="margin: 3pt 0in 0pt;"><span style="font-family: Arial; font-size: 9pt;">E-mail: <span style="mso-spacerun: yes;"> </span></span><span style="color: #999999; font-family: Arial; font-size: 9pt; mso-bidi-font-size: 10.0pt;">talbright@curtis.com</span></div><div class="MsoNormal" style="margin: 3pt 0in 0pt;"><span style="font-family: Arial; font-size: 9pt;">Tel.:<span style="mso-spacerun: yes;"> </span></span><span style="color: #999999; font-family: Arial; font-size: 9pt; mso-bidi-font-size: 10.0pt;">212 696-6150</span></div><div class="MsoNormal" style="margin: 0in 0in 0pt;"><br /></div></td><td style="background-color: transparent; border-bottom: #ebe9ed; border-left: #ebe9ed; border-right: #ebe9ed; border-top: #ebe9ed; padding-bottom: 0in; padding-left: 5.4pt; padding-right: 5.4pt; padding-top: 0in; width: 239.4pt;" valign="top" width="319"><div class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: x-small;"><strong><span style="font-family: Arial; mso-bidi-font-size: 12.0pt; mso-bidi-font-weight: bold;">William L. Bricker, Jr.</span><span style="font-family: Arial; mso-bidi-font-size: 12.0pt;">, Partner</span></strong></span></div><div class="MsoNormal" style="margin: 3pt 0in 0pt;"><span style="font-family: Arial; font-size: 9pt;">E-mail:<span style="mso-spacerun: yes;"> </span><span style="color: #999999;">wbricker</span></span><span style="color: #999999; font-family: Arial; font-size: 9pt; mso-bidi-font-size: 10.0pt;">@curtis.com</span></div><div class="MsoNormal" style="margin: 3pt 0in 0pt;"><span style="font-family: Arial; font-size: 9pt;">Tel.:<span style="mso-spacerun: yes;"> </span></span><span style="color: #999999; font-family: Arial; font-size: 9pt; mso-bidi-font-size: 10.0pt;">212 696-6039</span></div><div class="MsoNormal" style="margin: 0in 0in 0pt;"><br /></div></td></tr><tr style="mso-yfti-irow: 2;"><td style="background-color: transparent; border-bottom: #ebe9ed; border-left: #ebe9ed; border-right: #ebe9ed; border-top: #ebe9ed; padding-bottom: 0in; padding-left: 5.4pt; padding-right: 5.4pt; padding-top: 0in; width: 239.4pt;" valign="top" width="319"><div class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-family: Arial; mso-bidi-font-size: 12.0pt; mso-bidi-font-weight: bold;"><span style="font-size: x-small;"><strong>J. Dinsmore Adams, Jr., Counsel</strong></span></span></div><div class="MsoNormal" style="margin: 6pt 0in 0pt;"><span style="font-family: Arial; font-size: 9pt;">E-mail</span><span style="color: #999999; font-family: Arial; font-size: 9pt; mso-bidi-font-size: 10.0pt;">: <span style="mso-spacerun: yes;"> </span>dadams@curtis.com</span></div><div class="MsoNormal" style="margin: 6pt 0in 0pt;"><span lang="IT" style="font-family: Arial; font-size: 9pt; mso-ansi-language: IT;">Tel</span><span lang="IT" style="color: #999999; font-family: Arial; font-size: 9pt; mso-ansi-language: IT; mso-bidi-font-size: 10.0pt;">.:<span style="mso-spacerun: yes;"> </span>212 696-6940</span></div><div class="MsoNormal" style="margin: 0in 0in 0pt;"><br /></div></td><td style="background-color: transparent; border-bottom: #ebe9ed; border-left: #ebe9ed; border-right: #ebe9ed; border-top: #ebe9ed; padding-bottom: 0in; padding-left: 5.4pt; padding-right: 5.4pt; padding-top: 0in; width: 239.4pt;" valign="top" width="319"><div class="MsoNormal" style="margin: 12pt 0in 0pt;"><span style="font-size: x-small;"><strong><span lang="IT" style="font-family: Arial; mso-ansi-language: IT; mso-bidi-font-size: 12.0pt; mso-bidi-font-weight: bold;">Marco A. Blanco</span><span lang="IT" style="font-family: Arial; mso-ansi-language: IT; mso-bidi-font-size: 12.0pt;">, Partner</span></strong></span></div><div class="MsoNormal" style="margin: 3pt 0in 0pt;"><span lang="IT" style="font-family: Arial; font-size: 9pt; mso-ansi-language: IT;">E-mail:<span style="mso-spacerun: yes;"> </span><span style="color: #999999;">mblanco</span></span><span lang="IT" style="color: #999999; font-family: Arial; font-size: 9pt; mso-ansi-language: IT; mso-bidi-font-size: 10.0pt;">@curtis.com</span></div><div class="MsoNormal" style="margin: 3pt 0in 0pt;"><span style="font-family: Arial; font-size: 9pt;">Tel.:<span style="mso-spacerun: yes;"> </span></span><span style="color: #999999; font-family: Arial; font-size: 9pt; mso-bidi-font-size: 10.0pt;">212 696-6113</span></div><div class="MsoNormal" style="margin: 0in 0in 0pt;"><br /></div></td></tr><tr><td style="background-color: transparent; border-bottom: #ebe9ed; border-left: #ebe9ed; border-right: #ebe9ed; border-top: #ebe9ed; padding-bottom: 0in; padding-left: 5.4pt; padding-right: 5.4pt; padding-top: 0in; width: 239.4pt;" valign="top" width="319"><div class="MsoNormal" style="margin: 0in 0in 0pt;"><br /></div></td><td style="background-color: transparent; border-bottom: #ebe9ed; border-left: #ebe9ed; border-right: #ebe9ed; border-top: #ebe9ed; padding-bottom: 0in; padding-left: 5.4pt; padding-right: 5.4pt; padding-top: 0in; width: 239.4pt;" valign="top" width="319"><div class="MsoNormal" style="margin: 12pt 0in 0pt;"><span style="font-size: x-small;"><strong><span lang="IT" style="font-family: Arial; mso-ansi-language: IT; mso-bidi-font-size: 12.0pt; mso-bidi-font-weight: bold;">Eduardo A. Cukier</span><span lang="IT" style="font-family: Arial; mso-ansi-language: IT; mso-bidi-font-size: 12.0pt;">, Partner</span></strong></span></div><div class="MsoNormal" style="margin: 3pt 0in 0pt;"><span lang="IT" style="font-family: Arial; font-size: 9pt; mso-ansi-language: IT;">E-mail:<span style="mso-spacerun: yes;"> </span><span style="color: #999999;">ecukier</span></span><span lang="IT" style="color: #999999; font-family: Arial; font-size: 9pt; mso-ansi-language: IT; mso-bidi-font-size: 10.0pt;">@curtis.com</span></div><div class="MsoNormal" style="margin: 3pt 0in 0pt;"><span style="font-family: Arial; font-size: 9pt;">Tel.:<span style="mso-spacerun: yes;"> </span></span><span style="color: #999999; font-family: Arial; font-size: 9pt; mso-bidi-font-size: 10.0pt;">212 696-6107</span></div><div class="MsoNormal" style="margin: 0in 0in 0pt;"><br /></div></td></tr></tbody></table><br /><br /><br /><a href="" id="1">1. </a>The basic exclusion for 2012 is $5 million which when indexed for inflation becomes $5,120,000. This figure assumes U.S. citizenship and does not account for previous taxable gifts. <br /><br /><a href="" id="2">2. </a>Assuming death after 2012 and using 2001 rates which will be in effect in 2013 until legislation passes, the total estate taxes would be $5,395,000 for a net benefit of $5,605,000. <br /><br /><a href="" id="3">3. </a>Indexed for inflation. <br /><br /><a href="" id="4">4. </a>The donor must survive the term of the GRAT or QPRT to achieve the potential estate tax savings.Curtisnoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-22646613491322722982012-04-26T14:01:00.000-04:002012-05-08T16:38:12.467-04:00IRS Issues Regulations Requiring the Reporting of Bank Interest Paid to Nonresident AliensOn April 17, the Treasury Department issued final regulations that require banks to report U.S. bank deposit interest paid to nonresident alien individuals who reside in designated countries having Exchange of Information Agreements<a href="#1"><sup>[1]</sup></a> with the United States. Concurrently with the regulations, the IRS released Revenue Procedure 2012-24 which designates approximately 80 countries as having such agreements with the United States. <br /> <br /><span class="fullpost"> The preamble to the regulations states that the new regulations are “essential to the U.S. Government’s efforts to combat offshore tax evasion” because the IRS’ ability to obtain information from foreign jurisdictions is dependent on its ability to reciprocate. The IRS will provide information only upon a specific request. Upon receiving a request, the IRS will evaluate the requesting country’s current practices with respect to information confidentiality and will require the requesting country to explain the intended permitted use of the information under the relevant Exchange of Information Agreement and to justify the relevance of that information to the intended permitted use. The IRS will not provide information on deposit interest to a country if it determines that the country is not complying with its obligations to (1) protect the confidentiality of that information or (2) use the information solely for collecting and enforcing taxes.<br /><br />Currently, the U.S. has an agreement with one country, Canada, under which it will provide information on an automatic basis. However, a number of countries including France, Germany, Italy, Spain and the United Kingdom have announced that they are in discussions to enter into automatic exchange agreements with the United States.<br /><br />The regulations apply to payments of interest made on or after January 1, 2013. Payors must report the interest on Form 1042-S.<br /><br />The Treasury Decision announcing the regulations is at: <a href="https://www.federalregister.gov/articles/2012/04/19/2012-9520/guidance-on-reporting-interest-paid-to-nonresident-aliens.">https://www.federalregister.gov/articles/2012/04/19/2012-9520/guidance-on-reporting-interest-paid-to-nonresident-aliens.</a><br /><br />Revenue Procedure 2012-24 is at <a href="http://www.irs.gov/pub/irs-drop/rp-12-24.pdf">http://www.irs.gov/pub/irs-drop/rp-12-24.pdf</a>. <br /><br /><a id="1">1</a> The Exchange of Information Agreement may be either a standalone, bilateral agreement or contained within an income tax treaty.<br /><br /></span>Curtisnoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-89522850802359848692012-02-22T15:50:00.001-05:002012-02-22T15:52:14.224-05:00The White House and the Treasury Department Unveils the President’s Framework for Business Tax ReformToday the White House and the Department of Treasury issued a joint report on the President’s Framework for Business Tax Reform. The report is at <a href="http://www.treasury.gov/resource-center/tax-policy/Documents/The-Presidents-Framework-for-Business-Tax-Reform-02-22-2012.pdf">http://www.treasury.gov/resource-center/tax-policy/Documents/The-Presidents-Framework-for-Business-Tax-Reform-02-22-2012.pdf</a>. <br /><br />This report outlines what the President believes should be five key elements of business tax reform: eliminate tax loopholes and subsidies, broaden the base and cut the corporate tax rate to spur growth; strengthen manufacturing and innovation; strengthen the international tax system to encourage domestic investment; simplify and cut taxes for small businesses; and restore fiscal responsibility. <br /><span class="fullpost"><br />According to the report, the President’s Framework would reduce the corporate tax rate from 35 percent to 28 percent, noting however that at least several considerations relating to the corporate tax base (such as reforming depreciation schedules and limiting deductibility of interest) would be necessary for implementing the reduction. The Framework would also effectively cut the top corporate tax rate on manufacturing income to 25 percent or an even lower rate by reforming the domestic production activities deduction, and would expand, simplify and make permanent the Research and Experimentation tax credit; allow small businesses to expense up to $1 million in investments; and double the amount of deductible start-up expenses from $5,000 to $10,000. On the other hand, some of the other notable proposals in the Framework include imposing minimum tax on overseas profits, taxing carried interest as ordinary income, and eliminating certain temporary business tax provisions that have been deficit-financed. </span>Curtisnoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-44975257611846566772012-02-22T13:19:00.002-05:002012-02-22T13:21:39.857-05:00Curtis Helps Omani Companies with Foreign Shareholdings Win Landmark Tax Judgment in Oman Supreme CourtMuscat, February 22, 2012 – Lawyers from Curtis, Mallet-Prevost, Colt & Mosle LLP helped two Oman-based clients of the firm win an important tax judgment handed down this week by Oman’s Supreme Court.<br /><br />The Court decided in favour of the two Curtis clients, who were represented by James Harbridge and Kamilia Al Busaidy, that Omani companies who have shareholdings in companies outside Oman should not have to pay tax on dividends received between the inclusive period of 2002 through 2004, the years being considered in the matter. <br /><span class="fullpost"><br />“The issue was hugely important for our clients, one of which is a multi-national oil and gas entity and the other concentrating in the cement business,” said Mr. Harbridge, partner in the Curtis Muscat office. “The result highlights Curtis’ perseverance on our clients’ behalf.”<br /><br />This decision overturned earlier decisions of the Omani Primary and Appeal Courts in 2010 that these overseas dividends were taxable, pursuant to a 2004 Supreme Court judgment. It is expected that the written Supreme Court judgment will make it clear that the ruling also applies to the tax years immediately prior and after: 2000, 2001 and 2005-2009 inclusive.<br /><br />The favourable Supreme Court judgments therefore imply that tax payers who have received overseas dividends during the applicable years should not be taxed on this income, if they have already disputed the charges or if their assessments are yet to be completed. They are deemed to have accepted their tax liability if they have already paid tax in these respective years. <br /><br />Following the judgment, dividends paid in the applicable years to any Omani company on shareholdings in foreign companies will no longer be viewed as taxable income. <br /><br />Curtis, Mallet-Prevost, Colt & Mosle LLP is a leading international law firm providing a broad range or services to clients around the world. Curtis has 15 offices in the United States, the Middle East, Europe, Central Asia, and Latin America. The firm’s international orientation has been a hallmark of its practice for nearly two centuries. For more information about Curtis, please visit www.curtis.com or follow Curtis on Twitter (twitter.com/curtislawfirm) and Facebook.com/Curtis.Careers).<br /></span>Curtisnoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-62232740276287978212012-02-08T15:40:00.006-05:002012-02-09T11:48:40.138-05:00Proposed FATCA Regulations Are Released TodayThe long-anticipated proposed regulations on implementation of the Foreign Account Tax Compliance Act (FATCA) were issued today. The IRS news release is at <a href="http://www.irs.gov/newsroom/article/0,,id=254068,00.html">http://www.irs.gov/newsroom/article/0,,id=254068,00.html</a>, and the text of the proposed regulations is at <a href="http://www.irs.gov/pub/newsroom/reg-121647-10.pdf">http://www.irs.gov/pub/newsroom/reg-121647-10.pdf</a>. A public hearing is scheduled for May 15, 2012; comments must be received by April 30, 2012.<span class="fullpost"><br /><br />FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. To avoid withholding under FATCA, a participating FFI must enter into an agreement with the IRS to identify U.S. accounts, report certain information to the IRS regarding U.S. accounts, verify its compliance with its obligations pursuant to the agreement, and ensure that a 30-percent tax on certain payments of U.S. source income is withheld when paid to non-participating FFIs and account holders who are unwilling to provide the required information. <br /><br />The proposed regulations lay out a step-by-step process for U.S. account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, and U.S. withholding agents. Registration of participating FFIs will take place through an online system which will become available by January 1, 2013. FFIs that do not register and enter into an agreement with the IRS will be subject to withholding on certain types of payments relating to U.S. investments. <br /><br />According to the IRS, the proposed regulations would implement FATCA in stages to minimize burdens and costs consistent with achieving the statute’s compliance objectives, and the rules are intended to allow time for resolving local law limitations to which some FFIs may be subject. The IRS also states that the Treasury Department and the IRS will continue to work closely with businesses and foreign governments to implement FATCA effectively. The United States, France, Germany, Italy, Spain, and the United Kingdom announced today the intent to develop framework for intergovermental approach to sharing information under FATCA. The joint statement is at <a href="http://www.treasury.gov/press-center/press-releases/Documents/020712%20Treasury%20IRS%20FATCA%20Joint%20Statement.pdf">http://www.treasury.gov/press-center/press-releases/Documents/020712%20Treasury%20IRS%20FATCA%20Joint%20Statement.pdf</a>. Notably, Switzerland is not a party to the joint statement. <br /><br />The proposed regulations generally would become effective on the date of being adopted as final regulations. <br /></span>Curtisnoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-81775435736380009282012-02-08T12:10:00.002-05:002012-02-08T12:15:15.437-05:00Implementation of FATCA Guidance May Take Intergovernmental Approach, Remarked Acting Treasury SecretaryAt the New York State Bar Association Tax Section’s Annual Meeting on January 24, 2012, Acting Assistant Treasury Secretary for Tax Policy Emily S. McMahon remarked on issues in the IRS implementing the Foreign Account Tax Compliance (“FATCA”). Generally, foreign institutions must enter into an agreement with the IRS to implement due diligence and reporting requirements, or suffer a 30% withholding tax on a broad range of payments.<span class="fullpost"><br /><br />Consistent with her prior remarks, Ms. McMahon hinted that the Treasury Department is “open to exploring an intergovernmental approach . . . that would address legal impediments to direct reporting” and that would be “mutually beneficial” to the United States and foreign governments. She also noted that the Treasury Department’s regulations will seek to minimize the administrative burden of FATCA and focus its application on circumstances that present a higher risk of tax evasion. For example, with respect to existing accounts, the regulations will permit substantial reliance on documentation previously collected during account opening procedures; for new accounts, the regulations will seek to align the review required for FATCA purposes with the procedures that financial institutions already follow to comply with anti-money laundering and “know-your-customer” rules. <br /><br />In addition, the regulations will provide expanded categories of financial institutions that are “deemed compliant” with FATCA, as well as a previously announced exception for retirement plans. The regulations will phase-in FATCA reporting requirements over an extended transition period. <br /><br />She noted that the Treasury Department is trying to resolve conflicts with privacy or other laws in foreign countries by communicating with a number of major U.S. trading partners about bilateral approaches to overcome legal impediments and facilitate FATCA compliance. The United States has in place a network of agreements with more than 60 countries, which already permit the a foreign government to provide the IRS with FATCA type account information. <br /><br />Ms. McMahon suggested that one solution may be to allow a foreign financial institutions to report the information required by FATCA to their home country government, which would then transmit the information to the IRS. She noted that the Treasury Department expects to offer foreign countries reciprocity by providing information on U.S. accounts. Information regarding U.S. bank accounts is already available upon request to the IRS. Regulations have been proposed to ensure that the IRS has this information when requested by a foreign government. Information exchange agreements have been designed to safeguard such confidential information and to limit its use to legitimate tax enforcement purposes. <br /><br />Finally, the Treasury Department will continue to develop multilateral, global approaches to the exchange of financial account information for tax purposes over the long term, under multilateral frameworks such as the Global Forum on Transparency and Exchange of Information, the OECD Treaty Relief and Compliance Enhancement project, and the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters. <br /><br /></span>Curtisnoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-72411071031478925052012-01-18T17:00:00.000-05:002012-01-18T17:02:58.028-05:00IRS Announced Third Offshore Voluntary Disclosure ProgramOn January 9, 2012, the IRS announced that it is reopening the Offshore Voluntary Disclosure Program (“OVDP”) designed to bring taxpayers with direct or indirect undisclosed foreign financial accounts into compliance with United States tax laws. The IRS news release is available at: <a href="http://www.irs.gov/newsroom/article/0,,id=252162,00.html">http://www.irs.gov/newsroom/article/0,,id=252162,00.html</a>.<span class="fullpost"><br /><br />The 2012 program is very similar to the 2011 OVDP but has a few key differences. The maximum penalty has been raised from 25% in the 2011 OVDP to 27.5%. Unlike the prior programs, there is no set deadline for people to apply under the 2012 program; it will remain open indefinitely. However, the IRS may change the terms of the 2012 program prospectively (e.g., the IRS could increase penalties or even end the program entirely at any point). As with the 2011 ODVP, the penalty may be reduced in certain limited cases to 12.5% or 5%. Participants must file all original and amended tax returns and include payments for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. <br /><br />The IRS indicated that more details will be available within the next month on IRS.gov and will be updating key Frequently Asked Questions and providing additional specifics on the offshore program.<br /></span>Curtisnoreply@blogger.comtag:blogger.com,1999:blog-1555033895991294458.post-40582263413410106452011-12-15T12:14:00.002-05:002012-05-08T16:52:48.429-04:00IRS Issues Guidance on Tax Returns and FBARs Filings by Dual Citizens Residing Outside the U.S.On December 7, 2011, the IRS issued guidance (FS-2011-13) for dual citizens of the United States and a foreign country who have failed to timely file United States federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs). FS-2011-13is available at <a href="http://www.irs.gov/newsroom/article/0,,id=250788,00.html">http://www.irs.gov/newsroom/article/0,,id=250788,00.html</a>. <br /> <br />FS-2011-13 notes that penalties for dual citizens who fail to file their U.S. tax returns or FBARs will not be automatically imposed. As discussed in more detail in FS-2011-13, such taxpayers will not owe U.S. tax penalties if there is no U.S. tax owed (e.g., due to the application of the foreign earned income exclusion or foreign tax credits) or if the failure was due to reasonable cause. <br /><span class="fullpost"><br /><br /><em>Reasonable Cause for Failure to File Tax Returns</em><br /><br />Whether a failure to file is due to reasonable cause is based on a consideration of facts and circumstances. Reasonable cause relief is generally granted by the IRS if the taxpayer exercised ordinary business care and prudence in meeting the tax obligations but nevertheless failed to meet them. According to the guidance, reasonable cause may be established if the taxpayer shows that the taxpayer was not aware of specific obligations to file returns or pay taxes, depending on all facts and circumstances such as education, history of being subject to federal income tax or penalties, recent changes in the tax forms or law that the taxpayer could not reasonably be expected to know, and the level of complexity of a tax or compliance issue. The guidance also notes that a taxpayer may have reasonable cause for noncompliance due to ignorance of the law if a reasonable and good faith effort was made to comply with the law or the taxpayer was unaware of the requirement and could not reasonably be expected to know of the requirement.<br /><br /><em>Reasonable Cause for Failure to File FBARs</em><br /><br />The guidance notes that factors that might weigh in favor of a determination that an FBAR violation was due to reasonable cause include reliance upon the advice of a professional tax advisor who was informed of the existence of the foreign financial account, that the unreported account was established for a legitimate purpose and there were no indications of efforts taken to intentionally conceal the reporting of income or assets, and that there was no tax deficiency (or there was a tax deficiency but the amount was de minimis) related to the unreported foreign account. Factors that might weigh against a finding of reasonable cause include whether the taxpayer’s background and education indicate that he should have known of the FBAR reporting requirements, whether there was a tax deficiency related to the unreported foreign account, and whether the taxpayer failed to disclose the existence of the account to the person preparing his tax return. <br /></span>Curtisnoreply@blogger.com