Thursday, December 22, 2011

M&A Holliday Wishes

Marini & Associates

wishes everyone

a Merry Christmas,

Happy Hanukkah and a

Happy and Prosperous

 New Year !
Tax Litigation

Tax Collections &  

Tax Planning

¡Feliz Navidad y Prospero Año Nuevo! 

Wednesday, December 21, 2011

3rd Time Is The Charm for the New Form 8938 Just Released!

The United States Internal Revenue Service has at long last posted to its website the instructions and form for reporting non-U.S. (foreign) financial assets under section 6038D of the Internal Revenue Code. This new Form applies from January 1, 2011 for tax returns filed from January 1, 2012 onwards.

Form 8938, "Statement of Foreign Financial Assets", is used to report the ownership of specified foreign financial assets.

The reporting thresholds requiring filing for the 7 million U.S. taxpayers living outside of the United States are:
• Single taxpayers/married filing separately: $200,000 on the last day of the year or $300,000 anytime during the year.
• Married filing jointly living abroad: $400,000 on the last day of the year or $600,000 at anytime during the year.

The limits requiring filing for taxpayers living within the United States are:
• Single taxpayers/married filing separately: $50,000 on the last day of the year or $75,000 anytime during the year.
• Married filing jointly: $100,000 on the last day of the year or $150,000 at anytime during the year.

This new form will add several hundred pages of additional information reporting to U.S. tax returns for millions of individuals.

The value of all pension plans will be reported annually, the value of every investment, every partnership, every insurance policy, every PayPal account - even online gambling accounts and accounts held as funeral plans or to give to the grandchildren when they are old enough will have to be disclosed. Valuing all these assets alone will make completing every U.S. tax return hugely more time consuming.

Monday, December 19, 2011

Ready or Not - Foreign Asset Reporting is Here!

On December 16, 2011, the Internal Revenue Service issued temporary and proposed regulations relating to provisions that require foreign financial assets to be reported to the IRS for tax years beginning after March 18, 2010. The actual proposed and temporary regs provide that:

1. The foreign asset reporting requirement applies to individuals required to file 1040 or 1040-NR and to domestic entities, although only the individual form, Form 8938, is available now.

2. The taxpayer characteristics for the filing is in some respects more favorable, than the statute.
a. Unmarried taxpayers living in the US: The total value of specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year
b. Married taxpayers filing a joint income tax return and living in the US: The total value of specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year
c. Married taxpayers filing separate income tax returns and living in the US: The total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
d. Taxpayers living abroad.
i. Status is other than a joint return and the total value of specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or
ii. Married filing joint return and the value of specified foreign assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year. These thresholds apply even if only one spouse resides abroad.
e. Married individuals who file a joint annual return for the taxable year will file a single Form 8938 that reports all of the specified foreign financial assets in which either spouse has an interest.
3. Assets Covered. 

a. Both foreign financial and non-financial assets are covered.
b. Exceptions from reporting are made for assets reported on certain other tax forms. These include: Form 3520, Form 3520-A, Form 5471, Form 8621, Form 8865, or Form 8891. The value of specified foreign financial assets reported on these forms are included in determining the total value of assets for Form 8938 purposes, but the assets do not need to be reported on Form 8938. In this situation, the taxpayer identifies on Form 8938 which and how many of these form(s) report the specified foreign financial assets.
c. A beneficial interest in a foreign trust or a foreign estate is not a specified foreign financial asset of a specified person unless the specified person knows or has reason to know of the interest.
d. For Section 6038D purpose, an individual has an interest in the financial account if potential tax attributes or transactions related to the account would be reported on the individual’s tax return. The concept of signature authority does not apply for Section 6038D purposes.
4. Noncompliance.
a. Taxpayers required to file Form 8938 who do not are subject to penalties – a $10,000 failure to file penalty, an additional penalty of up to $50,000 for continued failure to file after IRS notification, and a 40 percent penalty on an understatement of tax attributable to non-disclosed assets.
b. The statute of limitations is extended to six years after a taxpayer’s return is filed if the taxpayer omits $5,000 from gross income attributable to a specified foreign financial asset, without regard to the reporting threshold or any reporting exceptions.
c. If the taxpayer fails to file or properly report an asset on Form 8938, the statute of limitations for the taxable year is extended until the taxpayer provides the required information. If the failure is due to reasonable cause, the statute of limitations is extended only with regard to the item or items related to such failure and not the entire tax year.

5. FBAR filing is required.

6. Entity filing is required pursuant to the proposed regs. There is no form yet to make the filing.

Friday, December 16, 2011

IRS Audits of Quiet Filers Have Begun.

I recently attended an ABA conference where multiple representatives from the IRS including, Senior Litigation Counsel Kevin M. Downing, were speakers and they all reiterated that the IRS has a program in place to audit Quiet Filers, who chose not to make a voluntary disclosure but rather chose solely to amend their tax returns to include their previously unreported income from their foreign bank accounts.

Issues that were not answered include:

1.     What FBAR penalty will apply?

o   the civil penalty for willfully failing to file an FBAR, greater of $100,000 or 50 percent of the total balance of the foreign account per violation. See 31 U.S.C. § 5321(a)(5).

o   the civil penalty for non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation. See 31 U.S.C. § 5321(a)(5)(B) or

o   the penalty of 25% (or more) of the total balance of the foreign account in conformity with OVCI #2?

2.     How will the IRS collect these FBAR penalties under title 31? (File in FDC to reduce them to an enforceable judgment?)

3.     Is the Quite Filer only subject to a 3 year statute limitations for income tax assessments, where the understatement of income is less and 25% of the taxpayers AGI?

4.     Does the fraud provision stop the Statute of Limitations from running?

We are sure there's are even more issues. Stay tuned as these issues and more get developed, during the various IRS audits of Quiet Filers, which has already begun.

Thursday, December 15, 2011

IRS Releases Guidance on Foreign Financial Asset Reporting

IRS NEWSWIRE WASHINGTON—The Internal Revenue Service in coming days will release a new information reporting form that taxpayers will use starting this coming tax filing season to report specified foreign financial assets for tax year 2011.

Form 8938 (Statement of Specified Foreign Financial Assets) will be filed by taxpayers with specific types and amounts of foreign financial assets or foreign accounts. It is important for taxpayers to determine whether they are subject to this new requirement because the law imposes significant penalties for failing to comply.

The Form 8938 filing requirement was enacted in 2010 to improve tax compliance by U.S. taxpayers with offshore financial accounts. Individuals who may have to file Form 8938 are U.S. citizens and residents, nonresidents who elect to file a joint income tax return and certain nonresidents who live in a U.S. territory.

Form 8938 is required when the total value of specified foreign assets exceeds certain thresholds.  For example, a married couple living in the U.S. and filing a joint tax return would not file Form 8938 unless their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.

The thresholds for taxpayers who reside abroad are higher. For example in this case, a married couple residing abroad and filing a joint return would not file Form 8938 unless the value of specified foreign assets exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

Instructions for Form 8938 explain the thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted, and what information must be provided.

Form 8938 is not required of individuals who do not have an income tax return filing requirement.

The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR (Report of Foreign Bank and Financial Accounts). 

Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification.  A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed. Special statute of limitation rules apply to Form 8938, which are also explained in the instructions.

Form 8938, the form’s instructions, regulations implementing this new foreign asset reporting, and other information to help taxpayers determine if they are required to file Form 8938 can be found on the FATCA page of

Temporary & Proposed Regulations on Reporting of Specified Foreign Financial Assets released by IRS

The Internal Revenue Service Dec. 14 released temporary regulations (T.D. 9567) relating to the provisions of the Hiring Incentives to Restore Employment (HIRE) Act that require foreign financial assets to be reported to IRS for taxable years beginning after March 18, 2010.

The temporary regulations provide guidance concerning the requirement that individuals attach a statement to their income tax return on foreign financial assets in which they have an interest. The temporary regulations affect individuals required to file Form 1040, U.S. Individual Income Tax Return, and certain individuals required to file Form 1040-NR, Nonresident Alien Income Tax Return.

The temporary regulations also serve as the text of proposed regulations contained in a cross-reference notice of proposed rulemaking (REG-130302-10). The proposed regulations describe requirements for certain domestic entities to report foreign financial assets in the same manner as an individual.

This document is unpublished, but on 12/19/2011 it is scheduled to be published.

Wednesday, December 14, 2011

Swiss Upper House Approves U.S.-Swiss Double Taxation Treaty

The Swiss parliament’s upper house gave its approval to proposed amendments to a new U.S.-Swiss double taxation treaty that would make it easier for U.S. authorities to seek information on secret bank accounts held by U.S. taxpayers with Swiss banks.

The Council of States, the Swiss equivalent of the U.S. Senate, approved the amendments by a large majority, with 27 representatives voting in favor and five against. The vote clears the way for a final decision on the amendments in the National Council, the parliament’s lower house. The 200 members of the National Council are due to vote on the matter Dec. 21.

The treaty is designed to replace a 1996 treaty. Both provide for judicial assistance in cases of tax fraud, but the new treaty defines the framework for this more precisely and admits tax evasion as well as fraud, in some cases, as grounds for a request for assistance. Under previous agreements, Switzerland limited cross-border cooperation to cases of suspected tax fraud.

Tuesday, December 13, 2011

IRS Will Not Acquiesce on Tax Court's Fraud Finding in ‘Norris'

The Internal Revenue Service announced in Action on Decision 2011-05 that it will not acquiesce on a U.S. Tax Court finding that, after weighing each of the 11 badges of fraud equally, the service did not establish taxpayers' intent to fraudulently evade taxes.

In Norris v. Commissioner, T.C. Memo. 2011-161, the Tax Court found that the service was only able to prove four badges of fraud in regard to William and Sharon Norris's failure to pay taxes on the income from illegal gambling machines in their convenience store in 1996.

William pleaded guilty to tax evasion for 1998, and IRS issued a notice of deficiency claiming the pair failed to report income for 1996 and 1998. While the Tax Court found the couple was collaterally estopped from claiming they intended to evade taxes for 1998, it said the service failed to prove they intended to evade the 1996 taxes, as well.

Monday, December 12, 2011

Estate Taxes - As Filing Deadline Approaches it Create Challenges for Form 8939.

Executors filing the Internal Revenue Service's Form 8939 to elect into the modified carryover basis regime for people who died in 2010 must file the form as completely as possible, keeping in mind that amendments are limited.

You've got one chance to get this thing right and you have a do-over within six months, but you've got to file something by Jan. 17, 2012.

No protective election is permitted and no extension of time is permitted.

Form 8939 allows executors to opt out of the estate tax for 2010 decedents and into a carryover basis regime in which executors can allocate a basis increase of $1.3 million to assets passing to any person, and an additional $3 million to assets passing to a surviving spouse.

Friday, December 9, 2011

Whistleblower Can Remain Anonymous During Litigation

The U.S. Tax Court, in an issue of first impression, said Dec. 8 that a whistleblower can remain anonymous in court proceedings prosecuting a whistleblower claim in order to protect the former executive's privacy concerns while serving as a confidential informant (Whistleblower 14106-10W v. Commissioner, T.C., No.14106-10W, 137 T.C. No. 15, 12/8/11).

Judge Michael Thornton said “Petitioner's request to seal the record or alternatively to proceed anonymously presents novel issues of balancing the public's interests in open court proceedings against petitioner's privacy interests as a confidential informant.”

Although the court granted summary judgment for the Internal Revenue Service on whether the whistleblower was entitled to an award, Thornton concluded that granting the request for anonymity struck a reasonable balance between the petitioner's privacy interests as a confidential informant and the relevant social interests.

The parties were ordered to redact information that would tend to reveal the petitioner's identity as the case progresses through appeals and additional litigation.

Thursday, December 8, 2011

IRS Spells Out FBAR Rules For Dual Citizens, Details Penalty Relief for Failure to File

The Internal Revenue Service spelled out the rules for U.S. and dual citizens who want to comply with U.S. requirements to report their foreign bank accounts, noting they will not be subject to penalties in all cases where they have failed to file.

IRS said it is aware that some taxpayers who are citizens of both the United States and a foreign country are only now realizing they are required to file a Report of Foreign Bank Account (FBAR) and want to come into compliance.

In a new fact sheet (FS-2011-13) dated Dec. 7, the agency explained that taxpayers who owe no U.S. tax will not have to pay failure to file or failure to pay penalties. “In addition, no FBAR penalty applies in the case of a violation that IRS determines was due to reasonable cause,” the fact sheet said. The document provided a detailed explanation of FBAR filing requirements and the circumstances in which penalties will and will not be imposed.

Florida Gov. Scott Proposes $35 Million in Tax Relief for Businesses

Florida Gov. Rick Scott (R) Dec. 7 unveiled his $66.4 billion spendingplan for fiscal year 2012-13—a budget that would contain $35 million in tax-relief proposals for businesses.

Scott proposed increasing the corporate income tax exemption from $25,000 to $50,000. Such a move, he said, would eliminate the tax liability for more than 25 percent of businesses currently paying the tax.

The exemption hike would be the second in as many years. In June, Scott signed a bill (H.B. 7185) that, as of Jan. 1, 2012, will increase the corporate income tax exemption from $5,000 to $25,000.

The hike would effectively eliminate the 5.5 percent tax rate for nearly half of the 30,000 Florida businesses that currently pay the tax.

Wednesday, December 7, 2011


We've all had a new client come in the door and the first thing we want to know is their tax history.

Well, if you know what to ask for, then the Florida Department of Revenue has a specific form that provides a breakdown of taxes the DOR believes our client owes from past filing periods. The breakdown is by filing period and type of tax. This form can reveal issues that even the client didn't know about. 

First, as with any matter before the Florida Department of Revenue, you must have a valid Power of Attorney. Once the POA is in place, simply ask for a Florida DOR Form ZT09.

If you call the DOR and ask for this form, don't be surprised if the person on the other end of the line has never heard of the form.

It is a tool used by auditors to assess what other taxes may be outstanding prior to an audit. Convince them that it is available and don't let go until they find someone that can get it for you.


Monday, December 5, 2011

IRS to go easy on American residents in Canada

After protest from Ottawa, ambassador says IRS will institute new rules that will waive penalties for people filing late. Americans living in Canada who've neglected to pay their U.S. taxes are getting a big break from Uncle Sam.

The U.S. Internal Revenue Service is poised to waive potentially massive penalties for Americans who agree to come clean and don't owe any taxes, The Globe and Mail has learned.

The new rules will be announced within weeks by the IRS, according to David Jacobson, the U.S. Ambassador to Canada, who has been swamped with complaints from anxious Canadians.

The policy shift will come in the form of new guidance from the IRS, expected to be issued before the end of December. U.S. officials said the statement will make it clear that:

  1. If a U.S. citizen files tax returns late and owes no taxes, there are no penalties for failure to file.
  2. U.S. citizens who were unaware of the bank account reporting requirement can file previous reports now, along with a statement explaining why they're late. No penalty will be imposed if the IRS determines that there is reasonable cause.
  3. Individuals who took part in earlier amnesty programs this year and in 2009 can reapply and get back penalties already paid.
U.S. officials would also not say what would happen to people who owe relatively small amounts to the IRS.

The change doe not address the concerns of Canadian financial institutions, which complain they'll face massive costs trying to track all their U.S. account holders.  The new U.S. bank reporting rules, slated to come in 2014, could violate Canadian privacy laws.