Tuesday, June 2, 2020

IRS Reminder: June 15 Tax Deadline Postponed to July 15 for Taxpayers Who Live Abroad

The Internal Revenue Service in IR-2020-109 reminded people who live and work abroad that they have until Wednesday, July 15, 2020, to file their 2019 federal income tax return and pay any tax due. The usual deadline is June 15.

This extension was included in a wide range of Coronavirus-related relief announced in early April. The extension generally applies to all taxpayers who have an income tax filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020.

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This means that anyone, including Americans who live and work abroad, nonresident aliens and foreign entities with a U.S. filing and payment requirement, have until July 15 to file their 2019 federal income tax return and pay any tax due.  Visit IRS.gov/Coronavirus for details.

Need more time beyond July 15?
Individual taxpayers who need additional time to file beyond the July 15 deadline can request a filing extension to Oct. 15 in one of two ways:

An Extension To File Is Not An Extension To Pay.

This
Taxes Are Still Due By July 15.

Businesses that need additional time to file income tax returns must file Form 7004 - Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.

Combat zone extension
Members of the military qualify for an additional extension of at least 180 days to file and pay taxes if either of the following situations apply:

  • They serve in a combat zone or they have qualifying service outside of a combat zone or
  • They serve on deployment outside the United States away from their permanent duty station while participating in a contingency operation. This is a military operation that is designated by the Secretary of Defense or results in calling members of the uniformed services to active duty (or retains them on active duty) during a war or a national emergency declared by the President or Congress.

Deadlines are also extended for individuals serving in a combat zone or a contingency operation in support of the Armed Forces. This applies to Red Cross personnel, accredited correspondents, and civilian personnel acting under the direction of the Armed Forces in support of those forces.

Spouses of individuals who served in a combat zone or contingency operation are generally entitled to the same deadline extensions with some exceptions. 

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TC Rules $24.8M Transfers To Fla. Man Aren't Gifts But $1.9 Million in Penalties Not Timely

A Florida man failed to prove that nearly $25 million in transfers to him were gifts that he didn’t need to report as taxable income, but the IRS can’t collect any of the nearly $1.9 million it assessed in penalties because it didn’t approve the penalties in time, the U.S. Tax Court ruled. 

Burt Kroner argued that the transfers were gifts under tax code Section 102, which depended on the intention of David Haring, the transferor. Kroner said he developed a close personal relationship with Haring as a result of a long business relationship. 
Kroner said Haring gifted the money to hime. 

But the court found in its June 1, 2020 opinion that Kroner’s story was unconvincing and the testimony of two other witnesses in his support wasn’t credible. 

“Petitioner’s Story Is Simply Insufficient To Prove That He And Mr. Haring Had Anything More Than A Business Relationship Where Occasionally Personal Matters Were Discussed,” Judge Joseph Robert Goeke Said.

Kroner was nonetheless able to avoid a 20% penalty for tax underpayment because the court found that the IRS didn’t satisfy a requirement under tax code Section 6751(b) for an immediate supervisor to approve an initial determination of a penalty. 

  • The IRS had argued that a letter to Kroner on potential penalties sent before getting supervisory approval wasn’t the initial determination. 
  • The IRS said it was meant to invite Kroner to submit more information when there was an understanding that he wouldn’t pursue an administrative appeal at that time. 
The court rejected that argument, noting that the letter proposed the penalties and gave Kroner a chance to file a protest with the IRS Appeals Office. 

The case is Kroner v. Comm’r, T.C., No. 23983-14, 6/1/20.

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U.S. Tax Court Said it Will Conduct Remote Proceedings This Fall

According to Law360, the US Tax Court said it will conduct remote proceedings during its fall trial calendar session because of the novel coronavirus pandemic and will allow the public to listen to the sessions. 

The court issued an administrative order Friday setting procedures for holding remote proceedings. Tax Court Judge Cary Pugh told Law360 on Monday that it is unclear what cities around the country will be accessible for proceedings in the fall, so the court can't follow its usual practice of sending judges to different cities for trials. 

Under the remote procedures, "the parties have a lead time to work the cases out, and we have some certainty with scheduling," Judge Pugh said.

"We can't just keep having a backlog," the judge said. "Parties come to Tax Court to have their cases resolved, and this is the safest way we can do it."

The Tax Court previously 
canceled trial sessions for March and April because of COVID-19, the respiratory disease caused by the novel coronavirus. The court then closed its building in Washington, D.C., but still allowed people to file petitions and other documents to abide by statutory deadlines. Mail sent to the building is being held until the court reopens.

Virtual Tax Court sessions will use videoconferencing software Zoomgov, which does not require a personal Zoom account and will not cost anything, according to the order issued Friday. People can attend virtual sessions using a computer or tablet's audio and video feed, or dial in to an audio-only feed over the phone.

The audio feed will allow journalists and the public to listen to the proceedings, similar to how other federal courts are conducting virtual sessions, Judge Pugh said. The U.S. Supreme Court has been holding oral arguments by teleconference. 

Parties must still participate in pretrial matters such as scheduled conference calls and pretrial calls; otherwise a judge may dismiss a case and enter a decision against the nonparticipating party, according to the order.

The order also adjusted certain trial deadlines. Before the pandemic, the court required parties to send a pretrial memo 14 days ahead of trial, but that memo is now due 21 days ahead of trial, according to the order. Pretrial memos are also now required to be filed for small tax cases, or those with $50,000 or less at stake, 21 days in advance, more than the previous seven days before trial.

On Friday the Tax Court also issued an administrative order that supersedes prior procedures for limited entry of appearances by attorneys representing clients before the court. Normally, an entry of appearance at the court is effective until a case is resolved, or the court grants an attorney's motion to withdraw. In 2019, the court began to allow limited entries of appearance during a trial session specific to the dates when the representation would be in effect.

Judge Pugh told Law360 that the court spent a lot of time coming up with the procedures but that they may change depending on their effectiveness and comments from other judges and practitioners.


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Monday, June 1, 2020

TIGTA Says High-Income Nonfilers Owing Billions are Not Being Worked By The IRS?


Highlights of Reference Number:  2020-30-015 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

The gross Tax Gap is the estimated difference between the amount of tax that taxpayers should pay and the amount paid voluntarily and on time.  The average annual gross Tax Gap is estimated to be $441 billion for Tax Years 2011 through 2013, and approximately $39 billion (9 percent) is due to nonfilers, taxpayers who do not timely file a required tax return and timely pay the tax due for such delinquent returns.  According to the IRS, high-income nonfilers, although fewer in number, contribute to the majority of the nonfiler Tax Gap.

WHY TIGTA DID THE AUDIT

In past audits, TIGTA identified serious lapses with the IRS’s nonfiler strategy.  This audit was initiated to determine whether the IRS is effectively addressing high-income nonfilers and if the new nonfiler strategy and related plans sufficiently include this segment of nonfilers.

WHAT TIGTA FOUND

The IRS is still in the process of conducting testing; however, the new nonfiler strategy appears to approach nonfiling in a more strategic manner.  However, the strategy has not yet been implemented, and TIGTA identified that the new nonfiler program is spread across multiple functions with no one area being primarily responsible for oversight.  

In addition, more needs to be done to address high-income nonfilers.  TIGTA analyzed the Individual Master File Case Creation Nonfiler Identification Process inventory for Tax Years 2014 through 2016 and identified 879,415 high-income nonfilers that did not have a satisfied filing requirement, with an estimated tax due of $45.7 billion.  

Of the 879,415 high-income nonfilers, TIGTA identified:

·    The IRS did not work 369,180 high-income nonfilers, with estimated tax due of $20.8 billion.  Of the 369,180 high-income nonfilers, 326,579 were not placed in inventory to be selected for work and 42,601 were closed out of the inventory without ever being worked.  In addition, the remaining 510,235 high-income nonfilers, totaling estimated tax due of $24.9 billion, are sitting in one of the Collection function’s inventory streams and will likely not be pursued as resources decline.

The IRS removed high-income nonfiler cases from inventory, resulting in 37,217 cases totaling $3.2 billion in estimated tax dollars 
that will not likely be worked by the IRS.

In addition, due to the policy on working single tax year cases without regard to how many returns have not been filed by a taxpayer, the IRS is missing out on opportunities to bring repeat high-income nonfilers back into compliance.  

WHAT TIGTA RECOMMENDED

TIGTA made seven recommendations, including designating a senior management official with appropriate resources and specific nonfiler duties to address nonfilers, not pausing the nonfiler program, working multiple tax year cases, and not removing high-income nonfiler cases from the inventory without resolution.  


The IRS disagreed with one of the recommendations, agreed with two recommendations, and partially agreed with four recommendations.  


  • The IRS disagreed with placing the nonfiler program under its own management structure.  
  • The IRS agreed not to pause the Individual Master File Case Creation Nonfiler Identification Process in the future, absent unusual circumstances.
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What You Need to Know About Form BE-10 - US Direct Investment Abroad & COVID-19

Every five years the US Department of Commerce Bureau of Economic Analysis (“BEA”) conducts a benchmark survey to gauge US investment abroad through a specific form (the “BE-10 Report”).

The BE-10 Report examines the 2019 fiscal year, and the deadline to comply with the filing requirements is 29 May 2020 for US persons required to file fewer than 50 forms, or 30 June 2020 for US persons required to file more than 50 forms. 

An extension of time to file for new filers is available (1) until June 30, 2020, for filers with less than 50 forms, (2) until July 31, 2020, for filers with between 50 and 100 forms, and (3) until August 31, 2020, for filers with more than 100 forms. To receive the extension, filers must request the extension by fax or email using BEA’s extension request form.

Reporting is mandatory and does not require a direct request to the filer from BEA. Failure to file BE-10 report may lead to significant civil penalties including monetary fines of between $2,500 and $25,000 (subject to inflationary adjustments). In some circumstances, criminal penalties and even imprisonment may be warranted.

BEA uses surveys to collect data about U.S.-owned business activities in other countries. The data are needed for statistics measuring the scale of direct investment abroad and the effects these activities have on the U.S. economy.

Data from these surveys contribute to many of BEA's international and national economic statistics and help answer questions such as:

  • Which countries get the most direct investment from U.S. parent companies?
  • Which industries are U.S. companies investing in abroad?

These statistics aid decision-making by Congress and federal officials; help analysts and researchers study the impact of direct investment on employment, wages, productivity, and tax revenues; and help American businesses make informed decisions about hiring, growth, and investment. All surveys of U.S. direct investment abroad are mandatory and confidential.

A foreign affiliate is a business enterprise located outside the United States in which a U.S. person or business holds a 10 percent or more voting interest.


Filing during the COVID-19 outbreak

BEA's surveys are used to produce accurate and objective statistics on the U.S. economy. Survey responses covering 2020 are particularly needed to ensure accurate measurement of the U.S. economy during the COVID-19 outbreak.

Because the present situation has temporarily reduced our capacity to send and receive paper mail, we may contact survey respondents via email. We understand that the virus already may have had profound effects on the ability of survey respondents to comply with the surveys. To assist you, we suggest:

  • Use our secure eFile system at www.bea.gov/efile or fax to submit completed forms. At present we have limited ability to receive physical copies of completed survey forms, extension requests, or other documents that are mailed or couriered to us.
  • Extensions are available if needed.
  • Provide estimates if necessary. We realize that the data requested in our surveys might be unavailable at this time or access to required records may be limited.

BEA survey staff continue to be available to assist survey respondents.

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FBAR vs. Form 8938 Treatment of Financial Accounts Located in a U.S. Territory or Possession


The ABA posted Foreign Asset Reporting and U.S. Territories where they discuss that Puerto Rico, American Samoa, Guam, The United States Virgin Islands, The Northern Mariana Islands—these are all United States territories or possessions. Individuals born in these territories are deemed by law to be either United States citizens or United States nationals. Yet these locations are separated from the contiguous United States by vast bodies of water. Many U.S. citizens from the contiguous United States have never been to any of the territories. Travel from the contiguous United States to any one of these territories involves a multiple-hour trip by either air or sea. In many ways, these locations seem foreign and exotic to most Americans.


The FBAR, Form 8938, Form 3520, Form 5471, Form 8621—these are all information reporting forms used to report various types of foreign assets to different bureaus within the U.S. Department of the Treasury, such as the Internal Revenue Service (the IRS) or the Financial Crimes Enforcement Network (FinCen). When most people think of “foreign” assets, they think of assets located in foreign countries, such as Switzerland, Israel, China, the United Kingdom, or Russia.

What about an asset, such as a bank account, located in a U.S. territory or possession? Is it a foreign or a domestic asset? The answer, unfortunately, is not so simple.An asset located in a U.S. territory or possession may or may not be considered “foreign” depending on the type of information reporting form. In addition, an individual’s residence in a U.S. territory or possession may impact whether or not they must report an asset located in that territory. This difference in treatment becomes most apparent when comparing the treatment of U.S. territories and possessions on the FBAR Form versus their treatment on Form 8938.

FBAR vs. Form 8938 Treatment of Financial Accounts Located in a U.S. Territory or Possession

The obligation to file Form 8938 depends on three factors: 

    (i) the filing status of the taxpayer; 
    (ii) the residence of the taxpayer; and 
    (iii) the aggregate value of the taxpayer’s specified foreign financial assets. 

For example, an unmarried taxpayer residing in the United States must file Form 8938 if her specified foreign assets exceed $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year. 

At the other end of the spectrum, married taxpayers residing outside the United States and filing a joint Form 1040 income tax return must file Form 8938 if their specified foreign assets exceed $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year. 

In between there are various other threshold amounts for married taxpayers residing in the United States and either filing separately or jointly, unmarried taxpayers residing outside the United States, and married taxpayers residing outside the United States but filing separately. 

Failure to file a Form 8938 may result in a $10,000 penalty, with an additional penalty of $10,000 for each 30-day period during which the Form 8938 is not filed, up to a maximum of $50,000. If the failure to disclose a specified foreign financial asset on Form 8938 also results in an underpayment of tax, then there is a 40 percent accuracy-related penalty on the underpayment.

With respect to a financial account located in a U.S. territory or possession, the asset will be reported differently on the two forms. For FBAR purposes, such an account is treated as a U.S. account and therefore does not need to be reported on the FBAR. That same account, however, is considered a foreign account for purposes of Form 8938 and must be reported on that form.

This difference in treatment can be traced to the different statutes that govern the FBAR and Form 8938. The obligation to file an FBAR is derived from Title 31 of the U.S. Code, specifically 31 U.S.C. § 5314, which requires U.S. persons to maintain records and file reports with respect to that person’s financial accounts held at a foreign financial institution. Title 31 deals with monetary instruments, including topics such as money laundering. The definition section of Title 31 defines the term “United States” as including U.S. possessions and territories.

    
    (6)     “United States” means the States of the United States, the District of Columbia, and, when the Secretary prescribes by                   regulation, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands, American                      Samoa, the Trust Territory of the Pacific Islands, a territory or possession of the United States, or a military or                               diplomatic establishment.

The practical effect of this definition is that U.S. territories and possessions are not deemed foreign for Title 31 purposes. As a result, a financial account in a U.S. territory or possession is deemed a United States-based account, and therefore does not need to be reported on the FBAR. This is confirmed by the FBAR regulations.

By contrast, the obligation to file Form 8938 is derived from Title 26 of the U.S. Code, specifically § 6038D. Title 26, of course, is the Internal Revenue Code that deals with topics related to the U.S. federal tax system. Title 26’s definition section defines the term “United States” as excluding U.S. possessions and territories.

    
    (9)    United States.--The term ‘United States’ when used in a geographical sense includes only the States and the District of                 Columbia.

The practical effect of this definition is that U.S. territories and possessions are deemed foreign for Title 26 purposes. Thus, a financial account in a U.S. territory or possession is deemed a foreign account and must be reported on Form 8938, a fact confirmed by the regulations governing Form 8938.

Because of these different statutory definitions, it appears that a legislative change may be needed to harmonize the FBAR and Form 8938 in their treatments of accounts based in U.S. territories. That said, the FBAR was first introduced in the 1970s, and Form 8938 was introduced in mid-2010. 

There does not appear to be any legislative fix on the horizon for the differing manner in which these forms treat such accounts. Taxpayers and their professional advisers must therefore be mindful of the fact that accounts that do not need to be reported on the FBAR may nonetheless need to be reported on Form 8938.

For more  regarding FBAR vs. Form 8938
Treatment of Residents of U.S. Territories or Possessions and  the Treatment of U.S. Territories or Possessions on Other Information Reporting Forms see the ABA posted Foreign Asset Reporting and U.S. Territories. 

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