NEW LAW ENACTED ENFORCING AND BROADENING REPORTING OF FOREIGN ENTITIES, ASSETS, ETC
The President recently signed into law the “Hiring Incentives to Restore Employment Act of 2010” (the HIRE Act, P.L. 111-47 ). The HIRE Act includes a comprehensive set of measures to reduce offshore noncompliance by giving IRS new administrative tools to detect, deter and discourage offshore tax abuses, as well as a three-year delay (through 2020) of implementation of worldwide allocation of interest—the liberalized rule for allocating interest expense between U.S. sources and foreign sources for purposes of determining a taxpayer’s foreign tax credit limitation. An overview of these provisions follows.
Increased disclosure of beneficial owners
Reporting on certain foreign bank accounts. The Act imposes a 30% withholding tax on certain income from U.S. financial assets held by a foreign institution unless the foreign financial institution agrees to disclose the identity of any U.S. individual with an account at the institution (or the institution’s affiliates) and to annually report on the account balance, gross receipts and gross withdrawals/payments from such account. Foreign financial institutions would also be required to agree to disclose and report on foreign entities that have substantial U.S. owners. Congress expects that foreign financial institutions will comply with these disclosure and reporting requirements in order to avoid paying this withholding tax. These provisions are effective generally for payments made after 2012.
Reporting on owners of foreign corporations, foreign partnerships and foreign trusts. The Act requires foreign entities to provide withholding agents with the name, address and tax identification number of any U.S. individual that is a substantial owner of the foreign entity. Withholding agents are to report this information to the U.S. Treasury Department. The Act exempts publicly-held and certain other foreign corporations from these reporting requirements and provides the Treasury Department with the regulatory authority to exclude other recipients that pose a low risk of tax evasion. Any withholding agent making a withholdable payment to a foreign entity that does not comply with these disclosure and reporting requirements is required to withhold tax at a rate of 30%. These provisions are effective generally for payments made after 2012.
Extending bearer bond tax sanction to bearer bonds designed for foreign markets. Bearer bonds (i.e., bonds that do not have an official record of ownership) allow individuals seeking to evade taxes with the ability to invest anonymously. Recognizing the potential for U.S. individuals to take advantage of bearer bonds to avoid U.S. taxes, Congress took a number of steps in the 1980′s to eliminate bearer bonds in the U.S. First, they prevented the U.S. government from issuing bearer bonds that would be marketed to U.S. investors. Second, they imposed sanctions on issuers of bearer bonds that could be purchased by U.S. investors. The Act extends many of these sanctions to bearer bonds that are marketed to foreign investors and prevents the U.S. government from issuing any bearer bonds. These provisions apply to debt obligations issued after Mar. 18, 2012.
Foreign financial asset reporting
Disclosure of information with respect to foreign financial assets. The new law requires individuals to report offshore accounts and other foreign financial assets with values of $50,000 or more on their tax returns. Individuals who fail to make the required disclosures are subject to a penalty of $10,000 for the tax year; an additional penalty can apply if Treasury notifies an individual by mail of the failure to disclose and the failure to disclose continues. These provisions apply for tax years beginning after Mar. 18, 2010. The act give the IRS a lot of discretion to define what exactly a “financial asset” might be. It is very possible their definition may be very broad and includes many assets not previously thought of as financial assets.
Penalties for underpayments attributable to undisclosed foreign financial assets. For tax years beginning after Mar. 18, 2010, the Act imposes a penalty equal to 40% of the amount of any understatement that is attributable to an undisclosed foreign financial asset (i.e., any foreign financial asset that a taxpayer is required to disclose and fails to disclose on an information return).
New 6-year limitations period. For returns filed after Mar. 18, 2010, as well as for any other return for which the assessment period has not yet expired as of Mar. 18, 2010, the Act imposes a new six-year limitations period for omissions of items from a tax return that exceed $5,000 and are attributable to one or more reportable foreign assets. The Act also clarifies that the statute of limitations does not begin to run until the taxpayer files the information return disclosing the taxpayer’s reportable foreign assets.
Other disclosure provisions
New reporting rule for PFICs. Effective on Mar. 18, 2010, activities with respect to passive foreign investment companies (PFICs) are subject to a new reporting rule. Unless otherwise provided by IRS, each U.S. person who is a shareholder of a PFIC must file an annual information return containing such information as IRS may require. A person that meets this new reporting requirement could, however, also have to meet the new reporting rule requiring disclosure of information with respect to foreign financial assets (see above). It is anticipated that IRS will exercise its regulatory authority to avoid duplicative reporting.
The Other Individual Mandate: Tax Prep
Where, as they say, is the outrage? For all of the indignation over the new health insurance mandate, I am amazed at the serenity at which we accept another (near) mandate: That we must pay somebody to help us do our taxes.
The government does not specifically require us to hire paid tax preparers or buy commercial software, of course. But it has, in effect, left millions of taxpayers with no real choice. Congress has created a tax code that makes it nearly impossible for many Americans to file returns without paid help. And even those who could (most non-itemizers for instance) are so intimidated by the whole process that they pay people to help them anyway.
Thus, in 2005, 89 percent of individual taxpayers either used commercial software or hired paid preparers to help them do their civic duty. Just 11 percent, according to my colleague Eric Toder, filed returns on their own.
Yet, we just shrug and pay our $59 for commercial software or pony up between a few hundred and a few thousand dollars to paid preparers. No constitutional challenges. No state attorneys general at the barricades. Many of us, in fact, are likely to spend more money hiring a human being to do our taxes than we’ll pay in penalties for refusing to buy insurance ($95 in 2014 increasing to $695 by 2016). Indeed, I’m willing to bet that more of us will pay somebody to prepare a tax return than will purchase medical coverage, despite the insurance mandate.
What’s worse, many of those we trust to do our returns are incompetent or worse. Professor Larry Lokken, a Tax Policy Center affiliated scholar, wrote a couple of nice blog posts last year on this troublesome business. At least the private companies from which we’ll have to purchase insurance are minimally competent.
When you buy insurance, you receive an obvious benefit. What do you get for the dough you put out for tax prep? New IRS data suggest that doing taxes on your own has become so difficult and time-consuming that paying someone actually drives down your compliance costs. A strong case can be made that it is in fact not possible for many of us to file a tax return without paying for help. Don’t believe me? Try to manage the Alternative Minimum Tax on your own.
On April 8, Elaine Maag and Bill Gale of TPC, John Guyton of the Internal Revenue Service, former H&R Block executive Robert Weinberger, and I will be discussing some of the implications of paid tax prep. You’re welcome to register here to join us in person or on the Web (and unlike commercial tax software, it’s free).
There are plenty of ways to fix filing hell. Here are two possible solutions: Simplify the tax code by dumping complex special interest tax breaks (which would also have the benefit of lowering rates); Or, the IRS could make filing a lot easier by automatically filling in the information you get on your 1099s and W2s on an electronic 1040. That could at least help people with very simple returns. I know, Intuit will do everything it can to kill this idea and conservatives will rail about Big Brother—except the government already has all this information.
In the meantime, where is the Tea Party? Where are the whack-a-doodle radio and TV talkers? Where is the mavericky former governor of Alaska? Where is the outcry for a simpler tax system? Where is the outrage?
Power Of Attorney And The IRS
There is an IRS publication which discusses who can represent you before the IRS and what forms or documents – like powers of attorney – are used to authorize a person to do that. Usually, attorneys, certified public accountants (CPAs), enrolled agents, and enrolled actuaries can represent taxpayers before the IRS. Under special circumstances, other individuals, including unenrolled return preparers, can represent you. To learn more, read Publication 947 on the IRS website. To speak with a qualified tax lawyer about this and other tax problems and tax solutions, call Mitchell A. Port at (310) 559-5259.
Writing Off My Dog
March 29, 2010 by Tax Blog
Filed under Questions & Answers
Today TaxMama hears from Sid in the TaxQuips Forum, who has a dog walking/training sole proprietorship. “My question concerns expenses for my dog, who is the face of my business (appearing on all my advertising material) and whom I use all the time for training demonstrations to attract clients. Can I deduct any of her expenses, such as medical care, medical insurance, food, etc? If so, under what category would I include these expenses on my tax form?”
http://taxmama.com/forum/taxquips/petcaresmallbusiness/
Dear Sid,
Please be very careful with deductions related to your pet.
Really, how much time do you really spend, using your dog in your business? Do you have a log of the times you use her for demonstrations, to take advertising pictures, etc.?
If you are not really engaging your dog’s services for several hours of every day, I wouldn’t go there.
For instance, if you had a store and the dog provided security in your shop all day – I’d certainly write off his feed and supplies at the store.
If you insist on using the expenses, build up a solid file of data related to how she works in your business – pictures, time cards, etc.
Then use the insurance under “Insurance” (goodness, how original), the supplies, as “supplies”, the medical expenses on one of the blank lines on Page 2 of your Schedule C – “medical expense dog training” – etc.
Just be logical. Remember, you have blank lines on Page 2. If you need more lines than that? Then only use ONE line on that page. Write – “See Attached Schedule” and include a worksheet listing all the expenses.
Good luck and pray you are never audited.
And remember, you can find answers to all kinds of questions about writing off your pets and other tax issues, free. Where? Where else? At www.TaxMama.com .
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Ask TaxMama Issue 545- Health Care and More
March 26, 2010 by Tax Blog
Filed under Questions & Answers
Dear Family,
The phones have been ringing all morning. Usually, Friday mornings I get to work quietly to prepare this for you early in the morning (at least here, on the West Coast). Last night and early this morning the wind blew away all the smog. This dawned gloriously in California with the sun gleaming, reflecting off walls. Squirrels and birds frolicking. Flowers are blooming – and wow – the lilacs are budding! Rick will be thrilled. He planted the tree for me and didn’t believe it would bloom in California. Hooray!
Well, in legislative news, we do have the long-awaited Health Care Bill. AND the reconciliations?! Wow…that was fast. Most provisions will take effect over several years.
President Obama signed the Health Care Bill this week. ABC News outlined a history of the Health Care Bill. They didn’t start it with Hilary Clinton and her efforts to design legislation when she was first lady. Ironically, she is part of the adminsration that finally brought it off.
http://abcnews.go.com/Politics/health-care-bills-key-moments/story?id=10206872
House Speaker Nancy Pelosi signed the Reconciliation Bill and was rewarded with a chocolate birthday cake and song for her 70th birthday. Doncha hate it when that happens!
This is a landmark event for his presidency. Whether you like this bill or not – it is of resounding importance. It will have as ubiquitous an impact on Americans as the Social Security Act has had on young and old. There will be consequences. You have heard about the concerns of hospitals and emergency rooms who have been treating inidgents and undocumented aliens, who will no longer have the funding to help them. You have heard about Americans being penalized if they don’t buy health insurance, once the requirements take effect. Somehow, all of this will get sorted out. Health care will not collapse in this country. Live will go on. Never fear.
The only thing I see that takes effect this year – 2010 through 2013, eligible employers may qualify for a tax credit for up to 35 percent of their contribution toward the employee’s health insurance premium. Everything else will affect future years. You will be reading about this for months to come.
There is so much information in this legislation. There is so much different impact to a variety of taxpayers – individuals and employers, that it will take a while to absorb. I will try to outline as much as possible next week, with a time line of what takes effect when and impacts whom.
The Parenting Summit ends today.
Jacqueline Green and 12+ speakers have been providing their top parenting tips for free since last week. If you missed it, there’s an audio replay to catch all the interviews.
http://www.1shoppingcart.com/app/?af=1151375
If you missed it, listen to the replay of TaxMama and the H&R Block Tax Specialists
Tax Tips for Individuals
http://vur.me/taxmama/TaxRadio
Tax Tips for Bloggers, Writers and Journalists
http://vur.me/taxmama/Tax4Writers
I will be posting our show outlines in Special Reports later today. They will be open to everyone.
http://taxmama.com/category/special-reports/
AccountingWeb.com – How the HIRE Act affects businesses – and some tips you need to know.
http://www.accountingweb.com/
This week TaxMama’s TaxWatch explains five ways the home-buyer tax credit might cause you problems.
http://www.marketwatch.com/Journalists/Eva_Rosenberg
CBS News in Albany explored the problems people are having getting their refunds.
http://www.cbs6albany.com/news/time-1272267-first-credit.html
In IRS News today you will learn the ten things the irs wants you to know about identity theft. You will also get the locations of the 180 IRS offices that will be open this Saturday. Isn’t that helpful? In fact, you’ll learn that IRS will be opening on a few more Saturdays over the next few months to help taxpayers in need. Nary a Sunday, though. Not an iota of extra help for Orthodox Jews or 7th Day Adventists.
http://taxmama.com/category/asktaxmama/irs-news/
Incidentally, if you want to make a difference, IRS is seeking volunteers for the Taxpayer Advocacy Panel. 
http://www.irs.gov/newsroom/article/0,,id=220433,00.html
MARCH SPECIAL – Tax Professionals interested in taking the EA Exam, I just want you to know that we’ll be giving the next 50 people who sign up this handy dandy tote to hold all your books, notes and discs.
In today’s Money Funny you learning about making it stiff.
http://taxmama.com/category/asktaxmama/money-funnies/
In TaxQuips this week we learn about education credits and student loans, offices in boats, working in many states, music teachers teaching at home…sometimes.
http://taxmama.com/category/tax-quips/
As always, we love your feedback, opinions and ideas.
You are what makes all this fun – and interesting!
Please use the Comments link online.
http://taxmama.com/asktaxmama/ask-taxmama-issue-545/
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Your TaxMama® is watching…out for you.
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==========================————————————————————-
TAX CALENDAR
http://www.taxmama.com/taxcalendar.html————————————————————-
03/31/2010 Electronic filing of W-3’s with Social Security Admin including issued W-2’s
03/31/2010 Electronic filing of US transmittal of US information Returns
04/15/2010 Last Day to set up and fund IRAs and Roth IRAs for previous year
04/15/2010 Individual Personal Returns due
04/15/2010 Personal Returns due – Nonresident, US income, etc.
04/15/2010 Personal Returns due – Easy Form Return
04/15/2010 Personal Returns due – Not Itemizing Return Form
04/15/2010 Personal Return – Extensions due
04/15/2010 US Gift and Generation-Skipping Transfer Tax Return
04/15/2010 US Gift and Generation-Skipping Transfer Tax Return Extension Due
04/15/2010 Partnership Returns due
04/15/2010 Issue K-1’s with Partnership Returns
04/15/2010 Electing Large Partnership Returns due
04/15/2010 Estate & Trusts Returns are due; Bankruptcy fillings use the same form
04/15/2010 Partnership, Estate & Trusts Returns – Extensions due
04/15/2010 Individuals, Farmers & Fishermen Pay 1st Quarter Estimated Tax Payment
04/15/2010 Corporations – 1st Quarter Estimate Tax payment Due
04/15/2010 Estates & Trusts 1st Estimated Tax Payment
04/15/2010 Employers Make Monthly Payroll tax deposit on the 15th of each month————————————————————-
From TaxMama® to You!————————————————————-
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More on IRS Commissioners Position on Offshore Disclosure and International Enforcement
The Journal of Accountancy has just interviewed the IRS Commissioner. The following two questions addressed the IRS on the recent Offhsore Voluntary Disclosure Program and US tax enforcement abroad:
Ten Things the IRS Wants You to Know About Identity Theft
Criminals use many methods to steal personal information from taxpayers. They can use your information to steal your identity and file a tax return in order to receive a refund. Here are 10 things the IRS wants you to know about identity theft so you can avoid becoming the victim of a scam artist.
- Identity thieves get your personal information by many different means, including stealing a wallet or purse or accessing information you provide to an unsecured Internet site. They even look for personal information in your trash. They also pose as someone who needs information through a phone call or e-mail.
- The IRS does not initiate contact with a taxpayer by e-mail.
- If you receive an e-mail scam, forward it to the IRS at phishing@irs.gov.
- If you receive a letter from the IRS leading you to believe your identity has been stolen, respond immediately to the name, address or phone number on the IRS notice.
- Your identity may be stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don’t know.
- If your Social Security number is stolen, it may be used by another individual to get a job. That person’s employer would report income earned to the IRS using your Social Security number, making it appear that you did not report all of your income on your tax return.
- If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or credit report, you need to provide the IRS with proof of your identity. You should submit a copy of your valid government-issued identification – such as a Social Security card, driver’s license, or passport – along with a copy of a police report and/or a completed Form 14039, IRS Identity Theft Affidavit.
- Show your Social Security card to your employer when you start a job or to your financial institution for tax reporting purposes. Do not routinely carry your card or other documents that display your SSN.
- If you have previously been in contact with the IRS and have not achieved a resolution, please contact the IRS Identity Protection Specialized Unit, toll-free at 1-800-908-4490.
- For more information about identity theft – including information about how to report identity theft, phishing and related fraudulent activity – visit the IRS Identity Theft Resource Page, which you can find by typing “Identity Theft” in the search box on the IRS.gov home page.
Links:
- Suspicious e-Mails and Identity Theft
- Identity Theft and Your Tax Records
- Department of the Treasury’s identity theft resource page
- Federal Trade Commission’s (FTC) consumer Web site
- FTC’s OnGuardOnLine Web site
- Firstgov
YouTube Videos:
Phishing — Malware: English | Spanish | ASL
- Ask TaxMama :: Where taxes are fun and answers are free
- www.TaxQuips.com :: The number ONE free tax podcast online
Ten Things the IRS Wants You to Know About Identity Theft
March 26, 2010 by Tax Blog
Filed under Questions & Answers
Criminals use many methods to steal personal information from taxpayers. They can use your information to steal your identity and file a tax return in order to receive a refund. Here are 10 things the IRS wants you to know about identity theft so you can avoid becoming the victim of a scam artist.
- Identity thieves get your personal information by many different means, including stealing a wallet or purse or accessing information you provide to an unsecured Internet site. They even look for personal information in your trash. They also pose as someone who needs information through a phone call or e-mail.
- The IRS does not initiate contact with a taxpayer by e-mail.
- If you receive an e-mail scam, forward it to the IRS at phishing@irs.gov.
- If you receive a letter from the IRS leading you to believe your identity has been stolen, respond immediately to the name, address or phone number on the IRS notice.
- Your identity may be stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don’t know.
- If your Social Security number is stolen, it may be used by another individual to get a job. That person’s employer would report income earned to the IRS using your Social Security number, making it appear that you did not report all of your income on your tax return.
- If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or credit report, you need to provide the IRS with proof of your identity. You should submit a copy of your valid government-issued identification – such as a Social Security card, driver’s license, or passport – along with a copy of a police report and/or a completed Form 14039, IRS Identity Theft Affidavit.
- Show your Social Security card to your employer when you start a job or to your financial institution for tax reporting purposes. Do not routinely carry your card or other documents that display your SSN.
- If you have previously been in contact with the IRS and have not achieved a resolution, please contact the IRS Identity Protection Specialized Unit, toll-free at 1-800-908-4490.
- For more information about identity theft – including information about how to report identity theft, phishing and related fraudulent activity – visit the IRS Identity Theft Resource Page, which you can find by typing “Identity Theft” in the search box on the IRS.gov home page.
Links:
- Suspicious e-Mails and Identity Theft
- Identity Theft and Your Tax Records
- Department of the Treasury’s identity theft resource page
- Federal Trade Commission’s (FTC) consumer Web site
- FTC’s OnGuardOnLine Web site
- Firstgov
YouTube Videos:
Phishing — Malware: English | Spanish | ASL
- Ask TaxMama :: Where taxes are fun and answers are free
- www.TaxQuips.com :: The number ONE free tax podcast online
More than 180 Local IRS Offices Open this Saturday to Help Taxpayers
Courtesy of IRS
WASHINGTON — The IRS announced today that Internal Revenue Service offices will be open, nationwide, on Saturday, March 27 from 9 a.m. to 2 p.m., local time to help taxpayers. The location of participating offices is listed on IRS.gov.
“We are holding these special open houses to give taxpayers who are struggling in these difficult economic times more opportunity to work directly with IRS employees to resolve their tax issues,” said IRS Commissioner Doug Shulman. “We will host more than 180 open houses this Saturday.”
During the expanded open-house hours on Saturday, taxpayers will be able to address economic hardship issues, make payment arrangements or get help claiming any of the special tax breaks in last year’s American Recovery and Reinvestment Act, including the:
—Homebuyer tax credit – a refundable credit equal to 10 percent of the purchase price up to a maximum of $8,000 ($4,000 if married filing separately). A first-time homebuyer is an individual who, with his or her spouse if married, has not owned any other principal residence for three years prior to the date of purchase of the new principal residence for which the credit is being claimed.
—American Opportunity Credit—a federal education credit to offset part of the cost of college under the new American Opportunity Credit. This credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Income guidelines are expanded and required course materials are added to the list of qualified expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
—Making Work Pay credit—In 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.
—Expanded Earned Income Tax Credit – there is now a new tax classification for EITC recipients who have three or more children and a higher credit amount – up to $5,657
In addition to IRS help, community organizations partner with the IRS. Volunteer Income Tax Assistance (VITA) programs assist people who earned $49,000 or less and Tax Counseling for the Elderly (TCE) programs assist individuals 60 and over with their 2009 income tax return preparation and electronic filing. Many of these sites have Saturday hours while others offer assistance at various times during the week. To locate the partner sites in this area call 1-800-906-9887.
In addition to the open houses this Saturday, the IRS will open many of its offices on three additional Saturdays in the spring and early summer.
- Ask TaxMama :: Where taxes are fun and answers are free
- www.TaxQuips.com :: The number ONE free tax podcast online
- http://taxmama.com/asktaxmama/irs-offices-open/ ::
More than 180 Local IRS Offices Open this Saturday to Help Taxpayers
March 26, 2010 by Tax Blog
Filed under Questions & Answers
Courtesy of IRS
WASHINGTON — The IRS announced today that Internal Revenue Service offices will be open, nationwide, on Saturday, March 27 from 9 a.m. to 2 p.m., local time to help taxpayers. The location of participating offices is listed on IRS.gov.
“We are holding these special open houses to give taxpayers who are struggling in these difficult economic times more opportunity to work directly with IRS employees to resolve their tax issues,” said IRS Commissioner Doug Shulman. “We will host more than 180 open houses this Saturday.”
During the expanded open-house hours on Saturday, taxpayers will be able to address economic hardship issues, make payment arrangements or get help claiming any of the special tax breaks in last year’s American Recovery and Reinvestment Act, including the:
—Homebuyer tax credit – a refundable credit equal to 10 percent of the purchase price up to a maximum of $8,000 ($4,000 if married filing separately). A first-time homebuyer is an individual who, with his or her spouse if married, has not owned any other principal residence for three years prior to the date of purchase of the new principal residence for which the credit is being claimed.
—American Opportunity Credit—a federal education credit to offset part of the cost of college under the new American Opportunity Credit. This credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Income guidelines are expanded and required course materials are added to the list of qualified expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
—Making Work Pay credit—In 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.
—Expanded Earned Income Tax Credit – there is now a new tax classification for EITC recipients who have three or more children and a higher credit amount – up to $5,657
In addition to IRS help, community organizations partner with the IRS. Volunteer Income Tax Assistance (VITA) programs assist people who earned $49,000 or less and Tax Counseling for the Elderly (TCE) programs assist individuals 60 and over with their 2009 income tax return preparation and electronic filing. Many of these sites have Saturday hours while others offer assistance at various times during the week. To locate the partner sites in this area call 1-800-906-9887.
In addition to the open houses this Saturday, the IRS will open many of its offices on three additional Saturdays in the spring and early summer.
- Ask TaxMama :: Where taxes are fun and answers are free
- www.TaxQuips.com :: The number ONE free tax podcast online
- http://taxmama.com/asktaxmama/irs-offices-open/ ::