NEW HIRE ACT PASSED IN EARLY 2010 HAS SOME CHANGES FOR FOREIGN TRUSTS AND FIDEICOMISOS

A widely distributed article recently published by some attorneys contains some dire warnings about the  adverse income tax  consequences of the new foreign trust provisions in the HIRE Act passed early in 2010 with respect to Fideicomisos (which the IRS currently requires file Forms 3520 and 3520A  because the IRS currently holds Fideicomisos  to be foreign trusts).  The conclusions in this article are  most likely not correct if the Fideicomiso has no income and contains property held for investment or held for personal use by the beneficiary (not a rental property). The IRS has not at this time ( nor is it likely to  in the near future)  issued any regulations further explaining the effect of the provisions of the new law on Fideicomisos and foreign trusts.  If and when those regulations are issued, they might change the general rule for income taxation of trust income contained in the following paragraph which will most likely apply to the new Act provisions.

Under general trust tax law involving income and distributions from trusts to beneficiaries, unless the trust generates taxable income, the mere fact that personal use of foreign trust real property by a beneficiary is treated as a distribution to that beneficiary, will not cause the personal use to be taxed to the owner or beneficiary of the Fideicomiso because distributions from trusts are only taxable to the extent of the trusts DNI (Distributable Net Income).

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Ask TaxMama Issue 562 – Tax Holidays and More

Dear Family,

This has been an interesting week. I got to do some political lobbying and met a passionate woman. Rebecca Madigan gave up a perfectly good job to pursue the cause of small business-owners, affiliate marketers, generally, folks who work from home. Rebecca started the Peformance Marketing Association (PMA) to help set standards for ‘performance marketing’ – otherwise known as affiliate marketing. She has been traveling the US to help convince state legislatures not to pass laws creating “nexus” for companies who don’t have a real presence in their state. For tax purposes, Nexus, essentially, means any kind of business presence. (Read Chapter 12 of Small Business Taxes Made Easy. We went to see the Honorable Felipe Fuentes, Speaker of the California State Assembly, to help acquaint him with the issues. Most astute – his questions demonstrated a high level of familiarity with the issues and the legal activity surrounding the cases in the courts. While California has just been skirting the edges of this issues so far, I think the information we brought Mr. Fuentes may have clarified the reality for him – taxing small, out of state merchants will not raise revenue. They will simply fire their California affiliates (folks in California whose websites have ads or links to the out of state merchants’ website). That means, people who may have been earning a few hundred dollars a month, or several thousand dollars will lose their income. Which means California loses tax revenue – AND may have another batch of folks back out there on unemployment.

Well, estate tax reform, even temporarily, has bit the dust yet again about a week ago. An attempt to include it in the Unemployment extension bill failed. But they will keep on trying. Meanwhile, the unemployment fund was extended. Those of you still unemployed will get your benefits, retroactive to May. 99 months and rising!

I am hearing from friends and readers, landing a decent paying job is getting harder and harder. If you’re still unemployed after a year, perhaps it’s time to look around and see what need you can fill? Perhaps it’s time to start a business?

If not that, if you’d rather sit on unemployment until it runs out – and keep trying to get a job at your old salary level, here’s an idea. Go out and do some volunteering. Not only will it get you out of the house, and draw you out of your depression – you might make the one perfect contact who will find you that job you want. Meanwhile, you’ll have a good time.

Speaking of the newly unemployed…it seems the good people of Bell, California have decided to encourage their 3 most highly paid officials to resign last night. There’s a lot of anger, resulting from a news (was it the Los Angeles Times?)expose’ of the $800,000 salary of the city manager of one of the poorest cities in the country. True, $800,000 is a bit much. After all, the President of the United States earns only half that amount! Even if the mayor does waive his wages for the rest of his term – and all those other people have resigned, the problem isn’t over. Those civil servants have pensions that will be paying them over half a million dollars per month. Naturally, both the Los Angeles County and State of California district attorneys are investigating. Since the State District Attorney is Jerry Brown, running for Governor, you can be certain he’s going to make it his mission to root out the corruption and correct the unearned pensio n.
http://www.latimes.com/news/local/la-me-0723-bell-charter-20100723,0,3917129.story

This month’s MarketWatch column outlines some of the new laws that may affect your wallet, and taxes. There have been a lot of laws passed lately – and more to come.
http://www.marketwatch.com/Journalists/Eva_Rosenberg

EA Class News
Wow! People are passing and passing Part 1. We had lots of fun last night going over the Partnership sample tax return. Tomorrow, we grill the class on Partnership questions and problems. Join us!
www.irsexams.com

Shh…don’t tell anyone. You can get a 10% discount on the EA Class if you register for TaxMama’s Family first. Then ask me for the discount code.
http://taxmama.com/membership/family-membership/

Upcoming Events

August 13, 2010 10:00 – noon PT
Taxes for Writers, Bloggers and Journalists
If you’re earning money from your website, your articles or your blog, you must take this class.
http://taxmama.com/business/web-workshop-for-writers/

August 19, 2010 at 8:00 am – 9:00 am PT
The next Tax Roundtable is next month. Will you be joining us?
At the last meeting – we covered a lot topics – you can tune in, the replay is here:
http://taxmama.com/category/tax-roundtables/
Just scroll down to July’s event.
Upcoming on CPE LINK – with CPE for CPAs, EAs, and more
http://taxmama.com/earn-cpe-without-leaving-the-office/

September 1 at 12:00pm PT
Doing Tax Research Online for Free
Identify reliable sources of tax information,
how to use them and understand them.

September 15 at 10:00 PT – Roger B. Adams, EA (with minor assist from TaxMama)
Understanding Tax Treaties
Learn the fundamental principles of the purpose and application of tax treaties. Why should you care? Because there are over five million Americans living outside of the U.S., over two million of whom live in the Western hemisphere (principally in Canada and Mexico).

SELF-STUDY at CPE LINK:

Homebuyers Credits for Tax Professionals
The specific laws related to your clients.
How to get it rigth the first time. What to watch out for.
And how to overcome IRS Rejections.
Other TaxMama News:

At Equifax this week, you learn about energy credits available to you; Ilyce Glink helps you protect your home, in case of unemployment; Dan Solin explains how Sec 529 College Savings plans work; Linda Rey helps you insure your summer fun; and the Equifax experts explain how things get updated to your credit report.
http://www.equifax.com/blog/tax/en_ff
This week’s AccountingWeb.com blog has a really nifty tool for you. You get to see how your tax liability would look under three different tax plans. Try it, it’s fun!
http://www.accountingweb.com/blogs/accountingweb/talk-taxmama

In Money Funnies this week, we explore the generation gap.
http://taxmama.com/category/asktaxmama/money-funnies/

In IRS News, we learn the Top 10 Things Every Taxpayer Should Know about Identity Theft
http://taxmama.com/category/asktaxmama/irs-news/
In TaxQuips this week TaxMama gives you advice and resources to help you learn about investments and improve your credit score. We help Tim, who got bad advice from friends. And end the week, pointing you to sales tax holidays in your area.
http://taxmama.com/category/tax-quips/
Do you know how to report your income if you work in two different states? Bruce McFarland explains it all. And Jessica Dorsett, CPA outlines how to record asset purchases on your company’s books.
http://blog.taxqueries.com/

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-562

TaxNerd gear makes a bold statement year-round.
It helps attract the opposite sex!
Shop at www.taxnerd.net or http://www.zazzle.com/taxmama*

Hugs from your favorite TaxNerd,
http://www.zazzle.com/taxmama*

Eva Rosenberg, EA

Your TaxMama® is watching…out for you.

www.TaxMama.com
www.snurl.com/homebiz-tax
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www.IRSExams.com
www.TaxNerd.net

==========================————————————————————-
TAX CALENDAR
http://taxmama.com/tax-calendar-2010/————————————————————-

08/02/2010 2nd Quarter Payroll Taxes Due
08/02/2010 Employer’s Deposit Federal Unemployment (FUTA)
08/02/2010 Employers File Annual Return for Employee Benefits Plan 5500
08/02/2010 Employers File Annual Return for Employee Benefits Plan 5500-EZ
08/02/2010 Employers File request for Extension filing Employee Benefits Plan Return
08/02/2010 2nd Quarter Federal Excise Tax Return & Payment Voucher
08/16/2010 Employers Make Monthly Payroll tax deposit on the 15th of each month
08/31/2010 Time for businesses to consider setting up retirement plans
————————————————————-
From TaxMama® to You!————————————————————-

Follow TaxMama®’s Tweets – http://twitter.com/TaxMama

You are invited to put a TaxQuips Widget on your phone, social networking page, website, or… You’ll get the TaxQuips as soon as they published – long before they are distributed in by e-mail. It’s a nifty gadget. Just pick up the code and paste into your site or application.
http://www.widgetbox.com/widget/taxmamas-taxquips-daily-tax-podcasts

Download TaxMama’s 2010 iphone Tax Calendar. My gift to you.
http://snurl.com/taxcalendar

Never miss a tax deadline again!
The customizable tax calendar is here.
Add or Remove dates. Add your own reminders – get alerts.
http://snurl.com/itaxmamapro

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Top 10 Things Every Taxpayer Should Know about Identity Theft

Taxpayers need to be careful to protect their personal information. Identity thieves use many methods to steal personal information and then they use the information to file a tax return and get a refund. Here are 10 things the IRS wants you to know about identity theft so you can avoid becoming the victim of an identity thief.

1. The IRS does not initiate contact with a taxpayer by e-mail.

2. If you receive a scam e-mail claiming to be from the IRS, forward it to the IRS at phishing@irs.gov.

3. Identity thieves get your personal information by many different means, including:

• Stealing your wallet or purse
• Posing as someone who needs information about you through a phone call or e-mail
• Looking through your trash for personal information
• Accessing information you provide to an unsecured Internet site.

4. If you discover a website that claims to be the IRS but does not begin with ‘www.irs.gov’, forward that link to the IRS at phishing@irs.gov.

5. To learn how to identify a secure website, visit the Federal Trade Commission at www.onguardonline.gov/tools/recognize-secure-site-using-ssl.aspx

6. If your Social Security number is stolen, another individual may use it to get a job. That person’s employer may report income earned by them to the IRS using your Social Security number, thus making it appear that you did not report all of your income on your tax return.

7. Your identity may have been 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 you receive such 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.

8. 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, Identity Theft Affidavit. As an option, you can also contact the IRS Identity Protection Specialized Unit, toll-free at 800-908-4490. You should also follow FTC guidance for reporting identity theft at www.ftc.gov/idtheft.

9. 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 Social Security number.

10. For more information about identity theft – including information about how to report identity theft, phishing and related fraudulent activity – visit the IRS Identity Theft and Your Tax Records Page, which you can find by searching “Identity Theft” on the IRS.gov home page.

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Top 10 Things Every Taxpayer Should Know about Identity Theft

Taxpayers need to be careful to protect their personal information. Identity thieves use many methods to steal personal information and then they use the information to file a tax return and get a refund. Here are 10 things the IRS wants you to know about identity theft so you can avoid becoming the victim of an identity thief.

1. The IRS does not initiate contact with a taxpayer by e-mail.

2. If you receive a scam e-mail claiming to be from the IRS, forward it to the IRS at phishing@irs.gov.

3. Identity thieves get your personal information by many different means, including:

• Stealing your wallet or purse
• Posing as someone who needs information about you through a phone call or e-mail
• Looking through your trash for personal information
• Accessing information you provide to an unsecured Internet site.

4. If you discover a website that claims to be the IRS but does not begin with ‘www.irs.gov’, forward that link to the IRS at phishing@irs.gov.

5. To learn how to identify a secure website, visit the Federal Trade Commission at www.onguardonline.gov/tools/recognize-secure-site-using-ssl.aspx

6. If your Social Security number is stolen, another individual may use it to get a job. That person’s employer may report income earned by them to the IRS using your Social Security number, thus making it appear that you did not report all of your income on your tax return.

7. Your identity may have been 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 you receive such 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.

8. 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, Identity Theft Affidavit. As an option, you can also contact the IRS Identity Protection Specialized Unit, toll-free at 800-908-4490. You should also follow FTC guidance for reporting identity theft at www.ftc.gov/idtheft.

9. 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 Social Security number.

10. For more information about identity theft – including information about how to report identity theft, phishing and related fraudulent activity – visit the IRS Identity Theft and Your Tax Records Page, which you can find by searching “Identity Theft” on the IRS.gov home page.

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The Young Rule!

(Or the Generation Gap)

Bob, A self-confident college student was walking along the beach one day, when met an elderly gentleman, Mr. Franklin. They started talking. Young Bob explained to Mr. Franklin why it must be impossible for the older generation to understand or even identify with Bob’s generation.

As Bob explained, his voice grew loud enough for others around him to hear him clearly. People started to gather round and listen.

Bob said, “You grew up in a different world, a very simple world. Our generation has always had television, jet planes, space travel, moon walks, nuclear and solar energy, computers with unlimited capabilty, cell phones and connectivity wherever we go.”

Mr. Franklin listened and waited respectfully until Bob finished his litancy. After a moment of silent contemplation of the enormity of Bob’s message, Mr. Franklin, agreed. “You’re right Bob. We didn’t have any of those things when we were young. So we invented them and created them for you.”

“Now Bob, what are you doing for the next generation?”

The applause of the gathered crowd was deafening!

Courtesy of Floyd Greenman, EA in Chatsworth, CA

Please remember to send us your humor.
Clean jokes preferred.

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State and Local Tax Policy Blogs

Masters in Accounting was created as a nonprofit resource to serve students considering enrolling in a masters in accounting program. Actively maintained, Masters in Accounting is a nonprofit website which lists and links to every accredited masters in accounting program as well as answers some basic questions about the degree so that students have a single unbiased resource from which they can begin their research.

This blog was listed in the “101 Top Tax Policy Blogs” featured in Masters in Accounting.

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Raise Your Credit Score

Today TaxMama wants to speak to you about your credit score and how fix it and raise it.

Dear Family,

These days, many people are in financial distress, some due to circumstances totally out of their control – like totally sound companies going under due to the financial debacle on Wall Street, Main Street, and on their own block. Credit has been hard to come by. So it’s more important than ever to protect and fix your credit rating and FICO Scores. Here are some ways to deal with this yourself. Some of these resources won’t cost you a dime.

1) You already know that I am writing a tax blog for the Equifax folks. They are one of three major credit agencies who determine your credit rating – Equifax, Experian and TransUnion. So start with the Equifax credit experts. They are also blogging, providing helpful tips and ideas – and will answer your questions.

2) BottomLine Secrets has a complimentary e-mailed newsletter. Today’s issue contains a reprint of this article by John Ulzheimer of Credit.com – You Need Higher Credit Scores Than Ever.

3) Liz Weston is one of my favorite nationally syndicated financial columnists. I’ve been reading her in the LA Times for a couple of decades – and besides, I really like her! Her website, AskLizWeston.com provides a wealth of information for you. Liz has written the best-selling book on credit , now in it’s third edition – Your Credit Score may be just what you need.

4) Philip Tirone provides you with 7 Steps to a 720 Credit Score. If that isn’t enough and you need more handholding, consider his Credit Advantage Teleseminar. Interestingly enough, he let’s you name your price for this $1,000 package. I entered $75 – and the system did not seem to object. I met Philip in San Francisco earlier this year at Alex Mandossian’s TeleSeminar Secrets Reunion. He strikes me as a highly credible fellow.

And remember, you can find answers to all kinds of questions about credit, and other tax issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Please post all Comments and Replies in the new TaxQuips Forum

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Congress, the Bush Tax Cuts, and the Perils of Pauline

If you think this year’s battles over health care, stimulus, climate change, and financial regulation have been nasty, just wait ‘til Washington tackles the Bush tax cuts.
 
Democratic leaders on Capitol Hill say they will consider the fate of those tax cuts–due to expire at year’s end– just before the congressional elections. That will set up a high-stakes brawl on a political and economic high-wire.

Washington often gets bogged down in symbolism. And there will be plenty of that in this donnybrook. But this argument is also about real money. Huge piles of it. At issue: $3.5 trillion in tax revenues over the next decade, $200 billion in 2011 alone.

There are two very different ways to think about all that cash. On one hand, nearly three-quarters of households will pay more in taxes in 2011 than they will this year if the Bush tax cuts expire and the Alternative Minimum Tax (AMT) is allowed to bite millions of middle-income households.

On the other, if the tax cuts are extended, the overall average tax rate would fall from 23.5 percent to 20.7 percent by 2012 (relative to current law).

Then there is the economic environment. With the economy still on uncertain footing, do we want to raise anyone’s taxes next year? And what would be the short-term impact if Congress does what President Obama wants and extends the tax cuts only for those making $250,000 or less? Would the economy suffer if high-earners had to pay pre-Bush rates? Few economists think so.  

Finally, there is the politics. Nearly every congressional Republican will oppose allowing any of the tax cuts to expire, even for high-earners. “No new taxes” is a no-brainer for most Rs. By contrast, Democrats are torn. Lawmakers such as Senate Budget Committee Chairman Kent Conrad (D-ND), usually a fiscal hawk, are also against ending any of the tax breaks, given the fragile economy. But most Democrats prefer to restore the top rates of 36 percent and 39.6 percent. And polls suggest many voters agree with them.

Unlike most recent congressional debates, the Democrats may have the procedural upper hand this time. With health care, for instance, Republicans would have “won” by blocking congressional action. Gridlock would have preserved the status quo, an outcome favored by about half of voters–and overwhelmingly supported by the GOP base. 

But this time, stalemate means the Bush tax cuts expire for everyone. For most households, that will feel like a tax increase—an outcome favored by a handful of budget wonks but very few real people. Democrats believe this will give them the leverage they need to force the GOP to deal. Republicans, by contrast, feel they’d be able to blame the ruling Democrats for failing to tackle the pending tax hike.

My best guess is that, in the end, Congress will extend the Bush tax cuts for all but the highest earners. And it will probably do so for a year or two. But after watching Congress fail to address the expiring estate tax last year, no outcome would shock me.     

 

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Tax Holidays Coming Up

Today TaxMama wants to tell you about the upcoming tax holidays in your neck of the woods.

Dear Family,

Although it still feels like summer to you, your state and retailers are geared up for getting your children back to school. Each year, around this time, several states around the nation offer sales tax holidays to their resident shoppers. The purpose is twofold. First, to help make it just a little cheaper to get your child ready to return to school or college in the fall. The second is to provide a sales spike for retailers.

Retailers have a love-hate relationship with this holiday. While their sales may increase – it can cost some retailers a fortune to re-configure their point of sale systems (POS = computerized cash registers). The larger the variety of merchandise inventory, the more items have to be re-coded to NOT charge sales tax. Then, after a few days, they have to re-code their computers to re-set all the sales tax tags.

That’s not your problem. YOU can reap the rewards. August brings sales tax holidays to Alabama, Connecticut, Florida, Illinois, Iowa, Louisiana, Maryland, Missouri, New Mexico, North and South Carolina, Oklahoma, Tennessee, Texas, and Virginia.

There will be holidays in September, too – in Louisiana and West Virginia.

Each state has a different list of excluded items, and different limits to the total purchases. In fact, some states have holidays on the purchase of energy efficient appliances. You’ll find the current list here, on the Federation of Tax Administrators’ website.

Incidentally, the site also has a compilation of state tax amnesty programs – historically, from 1982 through to the present.

And remember, you can find answers to all kinds of questions about tax holidays, tax amnesties, and other tax issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

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Tax Advice From Friends

Today TaxMama hears from Tim in the TaxQuips Forum. He tells us. “I’m a career military guy and bought a house in 1994. In 1996 we were transferred and turned the property into a rental house. Over the first few years of this period I depreciated the home; but stopped in 2002 on the advice of a friend (not wise). Is it possible to amend my past tax returns to capture the lost deductions? How do I go about re-starting the depreciation on my 2010 tax return?

Dear Tim,

What a terrific friend!

I don’t mean to chide you. But that’s one of my pet peeves, listening to well-meaning, but ignorant friends, instead of consulting a tax professional for tax advice.

Friends are terrific – to have fun with, and socialize with. But…it’s like asking some well-meaning buddy to fix a cavity in your tooth, rather than a dentist. Yeah, he heard some tips about how to do that. Don’t bother going to a dentist who spent years studying – or a tax professional who is constantly studying the new tax laws.

Generally, I would tell you that you have lost all the depreciation for 2002 – 2006. That statute of limitations for refunds expires three years after you file the tax return. However, any wise tax professional would tell you there IS a way to recoup all these lost deductions. And you may not even have to file an amended return – if you haven’t filed your 2009 tax return.

If you have, you have two choices:

1) File an amended 2009 return and get it all back now, with interest.

2) or Wait until you file your 2010 return and get caught up then.

Oh, how do you get it all back? Simple, just file a Form 3115 with the correct depreciation calculation and take all missed depreciation as a deduction in one year.

IRS issued a special procedure to make this possible, back in 2002.

You can try to do it yourself. Read Vern Hoven’s article before you do. (The link to it is in the post above.) Better yet, for this one thing, find a tax pro who understands how to do this. Not all do.

And remember, you can find answers to all kinds of questions about depreciation catch-up, and other tax issues, free. Where? Where else? At www.TaxMama.com.

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