Thursday, May 31, 2012

Tax Delinquents May Have Passports Canceled & Be Questioned at Air & Sea Ports

Almost unnoticed, Congress is close to approving a law under which the Internal Revenue Service (IRS) will be able to revoke the passports of Americans who owe substantial unpaid taxes.

It would allow federal officials to revoke or deny passports to delinquent taxpayers who owe the Internal Revenue Service $50,000 or more.

The provision passed the Senate in February and is before the House now. Revenues it generates would be used to help fund a highway-transportation bill that extends provisions set to expire on June 30.
The measure comes on the heels of a 2011 Government Accountability Office study requested by Senate Finance Committee Chairman Max Baucus (D., Mont.) and then-ranking Republican member Charles Grassley (R., Iowa).

The GAO report found that for the year it studied—2008—the State Department issued passports to more than 224,000 citizens who owed about $6 billion in tax. Most of it was for individual income taxes, and nearly two-thirds was more than three years old. 

The report also gave details of 15 cases in which passport recipients owe lots of unpaid tax.

The biggest Tax Debtor owed $46.6 million and was part-owner of a professional sports team. Another owed nearly $40 million and had traveled to 10 foreign countries in the recent past. The report said that the IRS had filed tax liens against both individuals but large amounts of tax still were uncollected.

If a taxpayer has an outstanding tax debt but can't be found, the IRS can alert Homeland Security officials to question the person on his way into the U.S. Typically, they will ask where the person is going and for how long, so the IRS can get in touch, but they can't arrest a taxpayer.

Because of the potential for abuse, people should know what's allowed and what isn't.

If you have US Tax Problems, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at or or Toll Free at 888-8TaxAid (888 882-9243).

For more on this story go to the WallStreet Journal.

Wednesday, May 30, 2012

Fast Track Settlement - A Process for Prompt Resolution of Large Business and International Tax Issues

IRS has recently released Publication 4539, which provides taxpayers with an overview of the Fast Track Settlement (FTS) process. The pub includes information on who can use FTS, advantages to its use, and how a taxpayer can start the FTS process.
Corporate taxpayers under examination by IRS's Large Business and International Division (LB&I) can get an expedited resolution of their case while it is still within LB&I's jurisdiction by participating in IRS's FTS program. The FTS program, which is jointly administered by LB&I and IRS's Office of Appeals, gives LB&I personnel and taxpayers an opportunity to mediate their disputes with an Appeals Official acting as a neutral party.
According to IRS, use of FTS provides taxpayers with a way to resolve audit issues during the examination process in 120 days or less. FTS is a key part of IRS's initiative to reduce the amount of time that the examination and resolution processes take.

According to IRS Commissioner Douglas Shulman, 83% of cases accepted into FTS resulted in a resolution.

FTS is generally available for all cases within LB&I's Compliance jurisdiction and certain cases outside of LB&I's jurisdiction. According to IRS, it works best with a limited number of unagreed issues. FTS can also be used in conjunction with LB&I's Compliance Assurance Process (CAP), which allows participating large corporations to work collaboratively with an IRS team to identify and resolve potential tax issues before the tax return is filed each year.

FTS can be used to settle most factual and legal issues, listed transactions, appeals and compliance coordinated issues, and issues requiring hazards of litigation settlement (i.e., where IRS considers its odds of winning a case and factors this into its decision of whether to settle or go to trial).

However, FTS isn't available in situations involving issues that are designated for litigation (i.e., where IRS essentially wants to litigate an issue, generally to establish judicial precedent, and thus won't consider settling it absent a taxpayer's complete concession), issues for which the taxpayer has submitted a request for Competent Authority assistance, "whipsaw" issues, and issues that have been excluded from the FTS process by a Chief Counsel Notice or equivalent publication.

According to Pub 4539, the advantages of using FTS include:
  • Quick resolution (i.e., within 120 days) of audit issues;
  • One-page application;
  • Consideration of the hazards of litigation (which can be considered by appeals officers and IRS counsel, but not IRS examining agents);
  • Preventing the accrual of "hot" interest (i.e., the additional 2% interest imposed on large corporate underpayments under Code Sec. 6621(c));
  • Withdrawal from the process at any time; and
  • Retention of all traditional appeal rights (see below).
When it appears that there might be unagreed issues raised during a taxpayer's exam, the taxpayer and LB&I team manager should have an early discussion regarding the possible use of FTS. Before the Form 5701 (Notice of Proposed Adjustment) is issued, the taxpayer and LB&I team should first agree on all of the facts and circumstances, and exhaust LB&I resolution authority on the issues.
After a Form 5701 is issued, and IRS receives a written response from the taxpayer, either of the parties may suggest participation in the FTS program. If the other party agrees, they contact the LB&I FTS Coordinator or the Appeals FTS Program Manager to determine if FTS is appropriate.

Both parties must complete and execute an application for FTS. The Form 5701 and taxpayer's written response should both be included in the FTS application package to help the FTS Program manager understand the dispute and determine whether the issue is sufficiently developed to be resolved via FTS. If the issue isn't ready, the LB&I FTS Coordinator and Appeals FTS Program Manager will advise the parties on what additional development might improve the odds of acceptance into FTS, or suggest other Alternative Dispute Resolution processes.

Both the taxpayer and those that have the authority to represent the taxpayer must be present during FTS. A Form 2848, Power of Attorney and Declaration of Representative, can be used.

If the parties decide that a resolution cannot be reached, the case will be closed promptly. The taxpayer retains all traditional appeal rights if the case or issue isn't settled. The administrative file will be returned to LB&I without Appeals' notes, but any written documents disclosed by the taxpayer during the FTS process will become available to be used by LB&I in its determination.
After the taxpayer, LB&I, and the Appeals Official sign the FTS Session Report acknowledging a basis of settlement, the Appeals Official will draft the appropriate settlement document to reflect the parties' agreed treatment of the issue.

An alternative to FTS is the Early Referral to Appeals. According to Pub 4539, this option is best utilized relatively early in the examination process when there are one or more developed, unagreed issues, and there are other undeveloped examination issues. Here, the developed, unagreed issues are referred to Appeals, while the other issues continue to be developed in LB&I.

Friday, May 25, 2012

Partnership dissolution before death caused assets to be included in estate at full value

Estate of Lois L. Lockett, TC Memo 2012-123

The Tax Court has found that a family limited partnership terminated under state law when one partner, an individual, became the entity's sole owner. As a result, the individual owned 100% of the former entity's assets at her death and they were taxable in her estate at full fair market value. The Court also determined that some transfers from the entity to the decedent's children were loans and others were gifts.

Background. The gift tax is imposed on the transfer of money or other property by gift. (Code Sec. 2501(a)) The gift tax applies whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. (Code Sec. 2511) The gift tax does not apply to a transfer for full and adequate consideration in money or money's worth. (Reg. § 25.2511-1(g)(1))

The gross estate of a decedent includes the value at the time of death of all her property, real or personal, tangible or intangible, wherever situated (Code Sec. 2031), including interests in property owned at death (Code Sec. 2033).

This case involved the estate of Lois L. Lockett (Mrs. Lockett), who died on Oct. 14, 2004. Her husband predeceased her and his will established a trust for her benefit (Trust A.) As part of her estate planning, in 2000, Mrs. Lockett participated in the creation of Mariposa Monarch, LLP, an Arizona limited liability limited partnership (Mariposa). A formal agreement for Mariposa was not signed, however, until 2002. The agreement named Mrs. Lockett's sons, Joseph and Robert, as general partners, and Mrs. Lockett, Joseph, Robert, and Trust A as limited partners. Soon after the agreement was signed, Mrs. Lockett and Trust A began funding the partnership. In May 2003, Trust A was terminated and Mrs. Lockett became the owner of Trust A's limited partnership interest in Mariposa.

In 2002, Mariposa made transfers to Joseph and Robert. In 2004, additional transfers were made to them and a transfer was made to a Meredith, a grandchild of Mrs. Lockett.

On the date of Mrs. Lockett's death, Mariposa held assets worth over $1 million. On its Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, the estate reported Mrs. Lockett as the 100% owner of Mariposa at her death. The estate valued Mrs. Lockett's 100% ownership interest in Mariposa at $667,000. The estate applied control and marketability discounts in determining the value of Mrs. Lockett's 100% ownership interest in Mariposa.

Subsequently, IRS issued two deficiency notices, taking inconsistent positions with respect to the transfers. One asserted that the transfers were gifts while the other said they were loans and the receivables for them were assets of the estate.

The Tax Court observed that the parties were in agreement that Mariposa transferred $335,000, $135,000, and $5,000 to Joseph, Robert, and Meredith, respectively. The only dispute was whether the transfers at issue were loans or gifts. The estate contended that the transfers were in form and substance loans. IRS countered that while they were in form loans, in substance, they were gifts. The Tax Court found as follows:

  • A $315,000 transfer to Joseph was a loan,
  • A $20,000 transfer was a gift,
  • A $135,000 transfer to Robert was a loan, and
  • A $5,000 transfer to Meredith was a gift.

IRS argued that Mariposa was not a valid partnership under state (Arizona) law because only Mrs. Lockett contributed assets to the partnership, and thus there was no association of two or more persons. It further argued that Mariposa was not a valid partnership under Arizona law because it did not operate a business for profit. The estate argued that a valid partnership was formed under Arizona law because the partnership was formed with two limited partners, Mrs. Lockett and Trust A, and two general partners, Robert and Joseph. The estate further argued that Mariposa operated a business for profit. The Tax Court found as follows:

  • Mariposa operated a business for profit.
  • Robert and Joseph at no time held interests in Mariposa.
  • Trust A contributed assets to Mariposa and was a limited partner.
  • There was an association of two persons to carry on as co-owners a business for profit in 2002-Trust A and Mrs. Lockett..
  • Trust A was terminated effective Dec. 31, 2002. As a result, Mrs. Lockett became the owner of Trust A's limited partnership interest in Mariposa. Since Trust A was the only other partner in Mariposa, upon termination of Trust A, Mrs. Lockett became the sole partner in Mariposa.
  • Arizona law provides that a partnership is dissolved and its business wound up upon the occurrence of an event agreed to in the partnership agreement resulting in the winding up of the partnership business. The Mariposa agreement provided Mariposa would be dissolved upon the acquisition by a partner of all the interests of the other partners. Therefore, Mrs. Lockett's acquisition of Trust A's limited partnership interest caused the dissolution of Mariposa under Arizona law.

Mrs. Lockett held a legal and beneficial interest in all the assets of Mariposa on the date of her death. As a result, the Tax Court held that 100% of the fair market value of those assets on Oct. 14, 2004, had to be included in her gross estate under Code Sec. 2031 and Code Sec. 2033. The parties agreed that the Mariposa assets were worth $1,106,841 on the date of Mrs. Lockett's death. Thus, the estate was liable for an estate tax deficiency that was to be determined under Tax Court rules.

Second Circuit Court of Appeals Reverses Stockbroker's Tax Evasion Conviction

The U.S. Court of Appeals for the Second Circuit reversed a New York stockbroker's conviction April 30 on charges of tax evasion for 1996 and 1997 due to insufficient evidence, and vacated her convictions for mail fraud and tax evasion for 1995 on the grounds the counts were improperly joined (UnitedStates v. Litwok, 2d Cir., No. 10-1985-cr, 4/30/12).

The taxpayer, Evelyn Litwok of East Hampton, operated a number of private equity companies from her home and, while she owed nearly $1.5 million in taxes for the years at issue, failed to file personal tax returns. The Second Circuit found there was insufficient evidence to prove that she engaged in an affirmative act relating to 1996 and 1997 and reversed her conviction.

Additionally, the court found the trial record shows no link between Litwok's alleged mail fraud by filing a false insurance claim and her failure to report income. The Second Circuit vacated her conviction on those counts and remanded the case to the U.S. District Court for the Eastern District of New York.

Had the evidence against Litwok been overwhelming on both counts, or had the District Court admitted the tax evasion evidence and the mail fraud evidence with appropriate limiting instructions to the jury, we may well have reached a different conclusion and deemed the error harmless. See id. at 100–01 (citing Lane, 474 U.S. at 450). But the evidence was certainly not overwhelming, and the District Court gave no such limiting instructions.

In summary, the misjoinder of Counts One and Two prejudicially affected the jury's deliberations on each of these counts. We therefore vacate the judgment of conviction as to these counts and remand to the District Court for further proceedings. Having found the evidence insufficient to sustain Litwok's convictions of tax evasion for 1996 and 1997, we need not address her arguments that these offenses were also misjoined with Count One.

For the foregoing reasons, we REVERSE the judgment of conviction for tax evasion for the years 1996 and 1997 (Counts Three and Four), VACATE the judgment of conviction as to the counts of mail fraud and tax evasion for the year 1995 (Counts One and Two), and REMAND to the District Court for further proceedings consistent with this opinion.

Tax Court Ruled that Permanent Resident's Wages Paid by German Government Not Tax Exempt

The wages of a permanent resident of the United States that were paid by Germany and a foreign government office were not exempt from taxation under the tax code and a North Atlantic Treaty agreement, the U.S. Tax Court held May 1 (Harrison v.Commissioner, T.C., No. 15074-10, 138 T.C. No. 17, 5/1/12).

The Tax Court concluded that Rosemary Harrison was not exempt under Internal Revenue Code Section 893(a) and was not a part of the civilian component within the meaning of the Agreement Between the Parties to the North Atlantic Treaty Regarding the Status of Their Forces (NATO SOFA).

The place where Harrison was employed, the German Defense Administration, is a miscellaneous foreign government office as classified by the U.S. Department of State in its listing of German missions. The entity is not part of and does not carry out diplomatic or consular operations.

Wednesday, May 23, 2012

Philip Marris Agrees to Pay $500MM to Resolve LILO and SILO Leasing Transactions

         RICHMOND, VA – May 22, 2012 – Altria Group, Inc. (Altria) (NYSE: MO) today announced that it has executed a Closing Agreement (Agreement) with the Internal Revenue Service (IRS) that, subject to court approval, resolves the federal income tax treatment for all prior tax years of certain leveraged lease transactions (referred to by the IRS as lease-in/lease-out (LILO) and sale-in/lease-out (SILO) transactions) entered into by Altria’s wholly-owned subsidiary, Philip Morris Capital Corporation (PMCC).

Altria expects to pay approximately $500 million in federal and state income taxes and related estimated interest as a result of the Agreement. Of this amount, Altria expects to pay approximately $450 million in federal income taxes and related estimated interest with respect to the 2000 through 2010 tax years by the end of the second quarter of 2012. The payment is net of federal income taxes that Altria paid on gains associated with sales of assets leased in the LILO and SILO transactions from January 1, 2008 through December 31, 2011. Of the $500 million, Altria also expects to pay approximately $50 million of state taxes and related estimated interest. The tax component of these payments represents an acceleration of federal and state income taxes that Altria would have otherwise paid over the lease terms of the LILO and SILO transactions. 
Pursuant to the Agreement, the IRS will not assess against Altria any additional taxes or any penalties in any open tax year through the 2010 tax year related to the LILO and SILO transactions; nor will the IRS impose penalties with respect to any prior tax years.
Altria also has agreed to dismiss, with prejudice, the pending litigation in federal court related to the tax treatment of the LILO and SILO transactions and to relinquish its right to seek refunds for federal taxes and interest previously paid.

"Pennies on the Dollar" - IRS Expands Offers in Compromise!

The IRS has completely revamped its offer in compromise guidelines to greatly increase the number of taxpayers who will be able to qualify. The new guidelines are announced in a news release by the IRS (IR-2012-53, May 21,2012).
Our tax attorneys will be revisiting many of the offers in compromise that are pending, and we recommend that all tax lawyers, enrolled agents, and CPAs who have clients who have submitted unsuccessful offers in compromise in the past review their clients' current financial condition to see if they will qualify under the new offer in compromise guidelines.

The most revolutionary change that our tax attorneys have noted is the methodology of calculating the offer amount. The amount of the offer in compromise has always been determined by the amount of the reasonable collection potential (RCP). RCP is determined by adding the realizable value of the taxpayer's assets to his Future Income (FI). Thus Offer amount = RCP +FI. 

Future income is defined as an estimate of the taxpayer's ability to pay based on an analysis of gross income, less necessary living expenses, for a specific number of months into the future. In the past a taxpayer who could pay the offer amount in 5 monthly payments would multiply his monthly available income by 48 months to arrive at Future Income. A taxpayer who wanted to pay the offer amount over a 24 month period was required to multiply his monthly available income by 60 months to arrive at his Future Income. In both cases Future Income was added to the realizable value of the taxpayer's assets to arrive at RCP, or the offer amount. 

Under the new offer in compromise guidelines Future Income will be arrived at by multiplying the monthly available income by 12 if the offer can be paid in 5 monthly payments or less. If the taxpayer needs 24 months to pay the offer amount in full then the Future Income will be determined by multiplying the monthly available income by 24. The deferred payment option which allows payment over the life of the statute is no longer available. Our tax attorneys have formulated a simple example. 

A taxpayer who has $50,000 in realizable equity in assets, and monthly future income of $2,000 will pay $74,000 if the offer amount can be paid in 5 months or less, and $98,000 if the offer will be paid over a 24 month period. This compares to offer amounts under the old guidelines of $146,000, or $170,000, respectively. The higher the monthly future income, the greater the discrepancy.

The new guidelines also include changes to the necessary living expenses:

1. Payments on delinquent State taxes may be allowed in full or in part.

2. Minimum payments on student loans guaranteed by the federal government will be allowed for the taxpayer's post-high school education (note it says nothing about loans incurred by parents to pay for their children's' tuition).

3. When the taxpayer owns a vehicle that is six years or older or has mileage of 75,000 miles or more, the IRS will allow additional operating expenses of $200 or more per vehicle.

4. The first $400 per vehicle of retired debt will not be added back to monthly available income.

Another welcome modification; the calculation of so-called "dissipated assets" has been radically altered. While the exact details are subject to numerous exceptions, and clarifications, in general assets which have been dissipated three years or more prior to the submission of the offer in compromise will not be included in the RCP. For example, if the offer is submitted in 2012, any asset dissipated prior to 2010 should not be included.

One thing that hasn't changed is that zealous advocacy on the part of tax attorneys, CPAs and enrolled agents will still be essential to negotiate the best possible deal with the IRS. Careful planning on the timing of offers is also essential.

One of the few negatives is that even before these changes were announced the IRS was overwhelmed with the number of offers in compromise it was receiving. Things are likely to get worse. Our tax lawyers are guessing that very few offers in compromise will take less than a year for the IRS to process.

Another negative is that this is bound to bring unscrupulous "offer mills" out of the woodwork. Even with the new guidelines an offer in compromise is not for everyone, and the danger is that desperate taxpayers will wind up giving up their hard-earned dollars in the hopes of realizing a benefit which is not available to them.  

If you have owe $100,000 or more to the IRS, and you would like to learn more about your options, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at or or Toll Free at 888-8TaxAid (888 882-9243).

Monday, May 21, 2012

Use of Offshore Insurance Scams & Merchant Accounts to Evade Taxes - IRS Zeroing in on.

According to senior government officials, the government is continuing to crack down on offshore tax avoidance in a variety of ways, including a new focus on the use of offshore insurance companies and offshore merchant accounts to hide assets.

Officials described many facets of an overall goal to stopping tax evasion, speaking to the Civil and Criminal Tax Penalties Committee May 12 at the spring meeting of the American Bar Association Section of Taxation.

, said in addition to multiple investigations of banks that are ongoing, the government has initiatives in earlier stages that it expects will be productive as well.         

IRS is looking at offshore insurance scams that involve “protected cell corporations,” in which a taxpayer's money goes into a cell that is separate from all the company's other investors, John McDougal, a special trial attorney in the IRS Office of Chief Counsel said.
In this structure, he said, “it appears that you're one of many shareholders in the company, but it's really designed to disguise the fact that you're controlling your own funds in your own protected cell. That's really subject to abuse and we're going to be looking at this.”          

In a second area, the government is looking at offshore merchant accounts used by U.S.-based businesses to divert their credit card income offshore. He said the government has already issued a John Doe summons in this area to identify a few cases it can examine and potentially get information that it could use for additional summonses.

As those efforts go forward, he said, IRS is using information it has gleaned from its Offshore Voluntary Disclosure Program to target banks engaging in helping taxpayers hide assets overseas.

If you have IRS Tax Problems, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at or or Toll Free at 888-8TaxAid (888 882-9243).


IRS Announces More Flexible Offer-in-Compromise Terms to Help a Greater Number of Struggling Taxpayers Make a Fresh Start

IR-2012-53, May 21, 2012

The Internal Revenue Service today announced another expansion of its "Fresh Start" initiative by offering more flexible terms to its Offer in Compromise (OIC) program that will enable some of the most financially distressed taxpayers clear up their tax problems and in many cases more quickly than in the past.

"This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years," said IRS Commissioner Doug Shulman. "It is part of our multiyear effort to help taxpayers who are struggling to make ends meet."

Today’s announcement focuses on the financial analysis used to determine which taxpayers qualify for an OIC. This announcement also enables some taxpayers to resolve their tax problems in as little as two years compared to four or five years in the past.

In certain circumstances, the changes announced today include:
  • Revising the calculation for the taxpayer’s future income.
  • Allowing taxpayers to repay their student loans.
  • Allowing taxpayers to pay state and local delinquent taxes.
  • Expanding the Allowable Living Expense allowance category and amount.
In general, an OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or a through payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. OICs are subject to acceptance on legal requirements.

The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place common-sense changes to the OIC program to more closely reflect real-world situations.

When the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months, down from four years, and two years of future income for offers paid in six to 24 months, down from five years. All offers must be fully paid within 24 months of the date the offer is accepted. The Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise, has been revised to reflect the changes.

Other changes to the program include narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential. In addition, equity in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.

Related Items:

Monday, May 14, 2012

Principal of Red Sea Management Sentenced to 20 Years.

Jonathan Curshen, 47, the principal of Red Sea Management and Global Securities and Honorary Consul to Costa Rica for St. Kitts & Nevis was sentenced to 20 years in prison for a $7 Million Stock Manipulation Fraud in Miami on Friday last week.
Curshen and his co-defendant, Las Vegas stock promoter Nathan Montgomery, were involved in a scheme to illegally manipulate the stock price of CO2 Tech.

The evidence further showed that, from approximately 2003 through 2008, Curshen operated Red Sea as a money laundering hub in Costa Rica that established bank accounts and brokerage accounts in the United States and Canada under false pretenses and through nominee owners. The evidence further showed that Curshen and his co-conspirators laundered the proceeds of the stock fraud from accounts in the United States to an account in Canada, all in an effort to conceal and disguise the nature and source of the proceeds.

Stock promoters Barham and Weidenbaum were sentenced yesterday to 30 months and 26 months in prison, respectively. Michael Krome, a securities attorney from New York, who participated in the conspiracy and evaded federal securities registration requirements, was sentenced yesterday to 34 months in prison. Reynolds is scheduled to be sentenced at a later date.

Facebook's Co-Founder Just Defriended America

Face book's Mark Zuckerberg may get all the hype in the romping road show run-up to the company’s historic IPO.

But the latest news-grabbing Facebook co-founder is Eduardo Saverin, best known for his bitter legal battle with Mr. Zuckerberg as portrayed in the move The Social Network.

Now Mr. Saverin may become even more renowned for renouncing his U.S. citizenship ahead of the company’s IPO. In fact, it turns out he did it a good deal ahead of the IPO, and that’s likely to matter.

If you want to "Expatriate" save US taxes, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at or or Toll Free 888 882 9243 (888 8 TaxAid).

Swiss Bank Whistle-Blowers Have Handed Over Data to U.K.

Bloomberg - Whistle-blowers at two Swiss banks have handed over client account data to U.K. tax authorities, according to two people with knowledge of the matter.

The Revenue Authorities are examining the data before writing to U.K. resident account holders and sharing the information with other countries.

At least one of the banks is foreign-owned and has clients spanning more than 100 jurisdictions.

If you have unreported Foreign Bank Income, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at or or Toll Free 888 882 9243 (888 8 TaxAid).


Foreign Banks refuse to handle accounts of Americans.

That's what some of the world's largest wealth-management firms are saying ahead of Washington's implementation of the Foreign Account Tax Compliance Act, known as Fatca, which seeks to prevent tax evasion by Americans with offshore accounts.

HSBC Holdings, Deutsche Bank, Bank of Singapore and DBS Group Holdings all say they have turned away business. "I don't open US accounts, period," said Su Shan Tan, head of private banking at Singapore-based DBS, Southeast Asia's largest lender, who described regulatory attitudes toward US clients as "Draconian."

The government needs to be tougher on offshore tax crimes than it has been, said US Representative Richard Neal, a Massachusetts Democrat and one of the original sponsors of the legislation. Fatca, introduced after Zurich-based UBS said in 2009 that it aided tax evasion by Americans and agreed to pay $780 million (Dh2,868 million) to avoid prosecution, is already helping to improve banking transparency, he said.

"Most of the hedge funds I know in Asia won't take American clients," said Faber.
Bank of Singapore, the private-banking arm of Oversea-Chinese Banking, ranked strongest in the world for the last two years by Bloomberg Markets magazine, has turned away millions of dollars from Americans because it doesn't want to deal with the regulatory hassle, according to Chief Executive Officer Renato de Guzman. The bank had $32 billion under management as of the beginning of the year.

At industry meetings he attends in Singapore, not accepting US clients is "quite a prevailing sentiment," de Guzman said. There are 18 private banks operating in Singapore, including units run by UBS, Credit Suisse Group, Deutsche Bank and HSBC, he said.

For more go to:

Friday, May 11, 2012

It may be better to take a hit on FATCA?

The Association of Investment Companies (AIC) has suggested to members with modest investments in US securities that they may be better off not signing up to controversial tax initiative FATCA and taking the penalty charge.

FATCA, or the Foreign Account Tax Compliance Act, is a set of measures designed to fight offshore tax evasion by US citizens. It will be a significant cost and administrative burden for financial institutions and investment companies.

For companies which do not derive a significant proportion of their revenues from the US and have few US investors, the cost of complying outweighs the 30% withholding penalty, the AIC said.

The number of US shareholders with stakes in UK registered trusts is minimal, argues the AIC.

“If you are not invested in the US, or have minimal exposure, it might be better to take the modest hit from the 30% withholding tax as opposed to racking up much more substantial costs from all the administration in complying,” said Ian Sayers, director general at the AIC .

“For these trusts the impact would be too small, so it is not worth signing up.

“VCTs, for example, are predominately made up of UK retail money and UK investments, so they may not have to sign up and in fact will be better off not complying.”

FATCA timetable

Autumn 2012: IRS to publish final model FFI agreement.
January 2013: Entities can start signing IRS agreements.
January 2014: Start of withholding of US-source income to non-participating entities.
January 2015: Start of withholding of US-source gross proceeds to non-participating entities, also reporting of ‘passthru payments’ commences.
January 2017: Institutions required to withhold on their payments to other non-participating institutions.

For more go to IFALogo   

10 Strategies Used by the Rich to Pay No Taxes!

If you have lots of money, Tuesday, April 17, was one of the best tax days since the early 1930s: Top tax rates on ordinary income, dividends, estates, and gifts remain at or near historically low levels. That’s thanks, in part, to legislation passed in December 2010 by the 111th Congress and signed by President Barack Obama. Starting next January, rates may be headed higher.

For the 400 U.S. taxpayers with the highest adjusted gross income, the effective federal income tax rate—what they actually pay—fell from almost 30 percent in 1995 to just over 18 percent in 2008, according to the Internal Revenue Service. And for the approximately 1.4 million people who make up the top 1 percent of taxpayers, the effective federal income tax rate dropped from 29 percent to 23 percent in 2008. It may seem too fantastic to be true, but the top 400 end up paying a lower rate than the next 1,399,600 or so.

That’s not just good luck. It’s often the result of hard work, as suggested by some of the strategies below. Much of the income among the top 400 derives from dividends and capital gains, generated by everything from appreciated real estate—yes, there is some left—to stocks and the sale of family businesses. As Warren Buffett likes to point out, since most of his income is from dividends, his tax rate is less than that of the people who clean his office.

For more go to Blumberg Business Week.

FinCEN - Extra Customer Due Diligence burden on Banks

The US Treasury Department has published new and more stringent rules for financial institutions to follow when verifying beneficial ownership of their accountholders. The proposal is open to public comment until 4th May 2012.

US Federal Register

Tuesday, May 8, 2012

Swiss bank Pictet gave data to U.S. in tax probe

ZURICH (Reuters) - Swiss bank Pictet said on Sunday it handed over bank account details to U.S. authorities probing cases of tax evasion, as a newspaper reported it had accepted funds from two former UBS clients suspected of having cheated on taxes.

Pictet said in a statement the data handover took place in November 2010 via the Swiss tax office, which had received a request for assistance from its U.S. counterparts.

This is the latest episode in an ongoing dispute between the United States and Switzerland over wealthy Americans accused of avoiding taxes by hiding money in secret Swiss accounts.

Eleven Swiss banks - including Credit Suisse and Julius Baer but not Pictet - are under scrutiny by the United States for aiding U.S. citizens suspected of tax dodging.

Banking secrecy has helped the Swiss build up a $2 trillion offshore wealth management industry.

The investigation into the 11 Swiss banks was fed by data culled in a crackdown on UBS, which that bank settled in 2009 by handing over thousands of client data, paying a fine and admitting wrong-doing.

In a related interview with the SonntagsZeitung, Patrick Odier, president of the Swiss Bankers Association, said another case like that of Wegelin & Co. could not be ruled out.

Wegelin, Switzerland's oldest bank, buckled under the pressure of a long-running campaign by U.S. tax authorities and broke itself up in January. Wegelin had accepted money from UBS clients suspected of dodging tax.

"U.S. authorities could have enough material to weigh on banks other than those on the 11-bank list," Odier said.

Switzerland is trying to get investigations into 11 banks dropped in return for the payment of fines and the transfer of U.S. client names. It is also seeking a deal to shield the remainder of its 300 or so banks from U.S. prosecution.

Swiss Finance Minister Eveline Widmer-Schlumpf has said she hoped for a deal before the end of the year.

"We need to draw a line under it, so there are no more charges," Odier said.

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FATCA timelines and release dates

On May 7th, at the 26th Annual Tax Reporting & Withholding Conference in Arlington, VA, IRS representatives discussed timelines and release dates pertaining to Chapter 4 (FATCA) implementation.

§  Final regulations are still expected to be released at the end of this summer.

§  Draft FFI Agreements should be available by the end of June.

§  There may still be some flexibility in the implementation deadlines; however, the IRS needs to know how much time is needed for each portion and requested specific comments.

§  Coordinating rules for FATCA and Chapter 3 (U.S. nonresident withholding) and Chapter 61 (backup withholding) are in process.

§  There is work being undertaken to develop a model intergovernmental agreement; however, no specifics were provided on when a model intergovernmental agreement would be provided.

In addition, the IRS said that there will be a Form W-8 for individuals, and a Form W-8 for entities. The Form W-8 for entities is expected to be complex.

Monday, May 7, 2012

US Tax Court Protects Transfers of Family Business

The recent US Tax Court ruling in Wandry v Commissioner of Internal Revenue Service (IRS) has been welcomed by tax advisers to family businesses.

The case was brought by a Colorado couple, Dean and Joanne Wandry. They owned a limited liability company called Norseman, worth about US$11 million in 2004. At that point they consulted a tax planning adviser on how to transfer shares in the business to their children and grandchildren without incurring gift tax. At the time, the federal lifetime gift tax exemption was US$1 million, plus US$11,000 per gift.

The difficulty with such transfers is that a closely held family business is often hard to value accurately. Even if the owner obtains a professional valuation at the time of the gift, the IRS will often challenge it later. So, if the owner gives away a fixed percentage of the company, which he calculates will fall within the gift tax exemption, the IRS may later decide that it exceeded the exemption. Then a tax charge of up to 35 per cent of the excess becomes payable.

The Wandrys avoided this by specifying the value of their gifts in cash terms. They made nine gifts adding up to a total value of US$1.099 million, which was within the exemption. The actual fraction of the company equity to be given away was left open in the transfer deed. It was to be calculated later, depending on whether the IRS accepted the Wandrys' own valuation of the business.
The IRS did indeed challenge the Wandrys' valuation, claiming that it was a 20 per cent underestimate. Moreover, it did not accept that the Wandrys could adjust the number of company shares transferred to their children so as to make the transfer again fall within the gift tax exemption. Accordingly it imposed a tax charge on the gifts.

The Wandrys appealed, and now the Federal Tax Court has upheld their appeal. The judge ruled that the couple intended to make a gift equal to their exemptions, so that they never actually transferred any more than that amount. Thus no tax was due on the gifts.

The decision allows tax-free transfers from one generation to another "with certainty and in an orderly manner", according to tax expert David Kautter. Previously the only certain way of avoiding an unexpected gift tax charge due to an IRS revaluation was to allocate the excess gift to a charity - a method that had its own drawbacks.

However, the IRS is not likely to be happy about the decision and may yet appeal it. Thus business owners who rely on Wandry to take advantage of the current US$5.12 million gift-tax exemption may be taking a risk.

Even if the IRS does not appeal, it may seek a change in the law to reverse the Wandry ruling - though not with retrospective effect.