Saturday, February 28, 2015

What You Should Know About Estate Tax Treaties?

In today's world of high-speed technology and rapid intercontinental travel, there are many people who have cross-border tax situations; American citizens owning assets outside the United States and nonresident aliens owning assets in the United States. Unfortunately they occasionally die, and if one of these people happens to be your client, it is imperative that you take advantage of the numerous estate tax treaties between the United States and some 20 other countries to minimize the federal estate tax (FET).

Unfortunately, as I learned in my 32 years at the IRS, many attorneys and accountants are either unaware of the treaties or afraid to try to work with them resulting in substantially higher taxes paid by the decedents' estates.  It is not the IRS agents job, when examining a tax return, to apprise the estate that they could have substantially reduced the tax liability through the utilization of a treaty. The IRS criteria is substantially correct so if the FET is correctly calculated under the Internal Revenue Code, the agent is not required divulge the ability of the estate to reduce its tax via utilization of a tax convention.

The situation can arise within two contexts: the American citizen who owns property in and is taxed by a foreign country or a foreign citizen who owns assets in the United States which are subject to FET. In the former case it is critical to see what the foreign country taxed, the amount of the tax, and the calculation of the credit under the tax convention. 

For example an American citizen decedent with property in various countries, in addition to determining the FET, needs to calculate the section 2014 credit available to reduce that tax. The first step is to obtaining tax returns from the various foreign jurisdictions and obtaining receipts or evidence of payments to each respective countries tax entity. 

You then need to review the treaties, determine which of the decedent's assets of fell within the protection of the treaties, and calculate the tax. The calculation can be somewhat difficult because the IRS requires two levels of calculation, the former based on the amount of tax paid in the foreign country and the latter a function of the amount of US tax allocable to the assets located in the foreign country and taxed by the foreign country. 

Therefore not every euro, franc or other currency paid will be matched with a similar credit in the United States. The purpose of the treaties is to avoid double taxation but the treaties cannot always match assets and credits identically.

The nonresident alien owning property in the United States problem is, to some extent, even more complex. Most of the estate tax treaties are based on domicile in the foreign country, not citizenship. For instance, we had a client who was a citizen of the UK but domiciled in the Isle of Man.  Because of the domiciliary, we were unable to use the UK tax convention to assist the estate.

The results can be relatively astounding in terms of dollars. I was recently retained by a local firm to review the 706NA (nonresident alien estate tax return) prepared by a local accountant. He opined that the estate of approximately $200,000 in FET. When I looked at the return, it was obvious to me that he had no inkling that there was a tax convention between the US and the country in question. By applying the treaty, I was able to reduce the tax by $187,000.

The moral of the story is if you have a decedent who was either a US citizen owning property abroad or a nonresident alien owning assets in the United States, look to see whether a treaty can assist you in substantially reducing the tax.

In my 32 years with the IRS, I never saw a situation where an estate was worse off using the Internal Revenue Code than using the treaty. If the situation ever arose, however, use of the treaty is optional so one can always rely on the IRC as the basis for determining the tax.

Have an Estate Tax Audit  Problem?


Estate Tax Audits Require an Experienced Tax Attorney

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 for a FREE Tax Consultation Contact US at
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Robert S. Blumenfeld  - Senior Estate Tax Audit Counsel
Mr. Blumenfeld concentrates his practice in the areas of International Tax and Estate Planning, Probate Law, and Representation of Resident and Non-Resident Aliens before the IRS.

Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International. 

While with the IRS, he examined approximately 2,000 Estate Tax Returns and litigated various international and tax issues associated with these returns.As a result of his experience, he has extensive knowledge of the issues associated with and the preparation of U.S. Estate Tax Returns for Resident and Non-Resident Aliens, Gift Tax Returns, Form 706QDT and Qualified Domestic Trusts.

OECD Announces New Country-by-Country Reporting Standard Starting in 2016!

On 02/06/15 the OECD and G20 countries have agreed three key elements that will enable implementation of the BEPS Project:

  • a mandate to launch negotiations on a multilateral instrument to streamline implementation of tax treaty-related BEPS measures;
  • an implementation package 
    • for country-by-country reporting in 2016 and 
    • government-to-government exchange mechanism to start in 2017;
  • criteria to assess whether preferential treatment regimes for intellectual property (patent boxes) are harmful or not.
“These are important steps forward, which demonstrate that progress is being made toward a fairer international tax system,” OECD Secretary-General Angel Gurría said. “These decisions signal the unwavering commitment of the international community to put an end to base erosion and profit shifting, in line with the ambitious timeline endorsed by G20 leaders.”  

The new guidance presented to the G20 country leaders requires country-by-country reporting by multinationals with a turnover above €750 million in their countries of residence starting in 2016.
Tax administrations will begin exchanging the first country-by-country reports in 2017. 
The OECD noted that countries have emphasized the need to protect tax information confidentiality. The guidance confirms that the primary method for sharing such reports between tax administrations is through automatic exchange of information, pursuant to government-to-government mechanisms such as bilateral tax treaties, the multilateral convention on mutual agreement assistance, or tax information exchange agreements.
The G20-OECD BEPS Action Plan sets out 15 key elements of international tax rules to be addressed by year-end 2015.
The guidance confirms that the primary method for sharing such reports between tax administrations is through automatic exchange of information, pursuant to government-to-government mechanisms such as bilateral tax treaties, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, or Tax Information Exchange Agreements (TIEAS). In certain exceptional cases, secondary methods, including local filing can be used.

Could a pair of form templates be some of most revolutionary tax tools to emerge from decades of debate 
over global tax rules?

The OECD announced the first seven steps of a major overhaul of international tax systems, ahead of a meeting of G20 finance ministers in Australia the weekend of September 13 & 14, 2014 . The Base Erosion and Profit Shifting (BEPS) Action Plan is aimed at curbing aggressive tax schemes used by multinational companies to avoid paying taxes.

Endorsed by a total of 44 countries, including all OECD members and the G20 nations, the recommendations include plans to eliminate double non-taxation or “hybrid mismatching” (where a company uses treaty arrangements to avoid paying tax in two jurisdictions), to establish multilateral tax agreements to streamline international tax rules (as opposed to the current system of more than 3000 bilateral agreements), and create a standard for companies to report their activities and profits in each jurisdiction where they operate.

It’s that last point where these potentially revolutionary new forms comes into play. They can be found in the full 'Action 13' report, Guidance on Transfer Pricing Documentation and Country-by-Country Reporting.

The form is a template that shows the sort of information multinational businesses will, if these rules are adopted, be forced to collect and provide to tax authorities. It requires multple levels of comprehensive information on incomes, earnings and taxes paid for every jurisdiction in which the company operates.

According to some tax experts, it’s a huge step forward that will not only bring transparency to complex cross-border intra-company arrangements, but it will also arm tax authorities with data they couldn’t previously access. British tax expert and activist Richard Murphy puts it this way:
“There is no other way to get this data. Profit is, after all, a residual measure after every other allocation has been made. So, we now know that full country-by-country reporting accounts will be prepared in the future.

“And that means something else, which is that no multinational corporation can ever argue ever again that it does not have this data or that it would be too costly to publish it.  The time has come for that sham to be dropped. We need country-by-country reporting data on public record and we now know we can have it.”
Taxation law expert Anthony Ting from Sydney University in Australia said the added transparency would also allow tax authorities to quickly identify and red flag operations where rules were bent or abused:
“…the country-by-country reporting regime would have a deterrent effect. As the tax benefits from an international tax avoidance structure would be disclosed to tax authorities around the world, the risk of a tax investigation would be much higher. Multinationals would likely think twice before engaging in aggressive tax structures.”

Brian Jenn, an attorney-adviser in Treasury's Office of International Tax Counsel, said February 26, 2015 that the U.S. government will develop a “form for taxpayers to file that looks like the country-by-country reporting template.” "The U.S. will share this form with other tax administrations under bilateral tax treaties and tax information exchange agreements."

"The U.S. will try to meet the aspirational time line in the OECD guidance that would require companies to file their first template by Dec. 31, 2017."

Not As Confident In World Wide Tax Planning?

Think That You May Have A Tax Problem?


Contact the Tax Lawyers at 
Marini & Associates, P.A.

for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888 882-9243).


IRS Releases Winter 2015 Statistics of Income Bulletin

The Internal Revenue Service today announced that the Winter 2015 issue of the Statistics of Income Bulletin is now available. Articles provide the most recent data available from various tax and information returns filed by U.S. taxpayers. This particular issue includes articles on the following topics:

  • Sole Proprietorship Returns, 2012—Profits for almost 24 million returns with sole proprietorship activity for Tax Year 2012 increased during 2011, reaching $304.9 billion. In constant dollars, total non farm sole proprietorship profits increased 6 percent, following a 3-percent increase between 2010 and 2011. The professional, scientific, and technical services sector reported the largest profits of any sector followed by the health care and social assistance sector. In comparison, the real estate and rental and leasing sector and the construction sector reported the larg¬est percentage increases in profits.

  • Foreign Recipients of U.S. Income, 2011—U.S.-source income paid to foreign persons, as reported on Form 1042-S, totaled $568.5 billion for Calendar Year 2011, up almost 2 percent from 2010. Withholding taxes on this income fell by about 12 percent to almost $9 billion in 2011. Almost 90 percent of all U.S.-source income paid to foreign persons was exempt from withholding tax. The residual U.S.-source income subject to tax was withheld at an average rate of 15 percent.

  • Individual Tax Returns Filed by Dependents, 1987‒2011—To help customers, who use individual tax data published in Statistics of Income’s annual publications, SOI has separated the data collected from tax returns filed by dependents (dependent returns) from the data collected from all individual tax returns. Prior to the Tax Reform Act of 1986 (TRA86), all taxpayers received the benefit of taking a personal exemption, including those claimed as a dependent on another person’s tax return. The figures and tables in this article include only post-1986 tax data. Individual tax returns filed by dependents represented between 5.5 percent (1987) and 9 percent (2011) of all returns filed during the 25-year period.

  • Partnership Returns, 2012—  Partnerships filed more than 3 million tax returns for the year, representing more than 25 million partners. The real estate and leasing sector contained nearly half of all partnerships and just over a quarter of all partners. Domestic limited liability companies made up the majority of all partnerships, surpassing all other entities for the 11th consecutive year. Total receipts for all partnerships increased more than 9 percent over 2011 to $6.6 trillion.

Have A Tax Problem?


Contact the Tax Lawyers at 
Marini & Associates, P.A.

for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888 882-9243).

Friday, February 27, 2015

FATCA Update! - 112 FATCA Agreement To Date!

Since our last FATCA update which we posted on Monday, December 1, 2014, FATCA Update! - 101 FATCA Agreement To Date! the following 11 countries have signed FATCA agreements with the US  bringing the total to 112 jurisdictions with FATCA agreement including : 

  1. The U.S. and Seychelles sign agreement to implement FATCA. Seychelles is about to sign a Model 1B inter-governmental agreement (IGA) with the US to implement the US Foreign Account Tax Compliance Act. The Seychelles Revenue Commission will collect the information from domestic financial institutions and exchange it with the US Internal Revenue Service annually.
  2. The U.S. and Singapore sign agreement to implement FATCA. According to the Treasury Department, the U.S. and Singapore signed an intergovernmental agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA) on Dec. 9, 2014.
  3. The U.S. and Iceland & Cyprus sign agreement to implement FATCA. Iceland and Cyprus have signed intergovernmental Model 1 agreements with the U.S. to implement the Foreign Account Tax Compliance Act on Dec. 2, 2014 & Dec. 9, 2014.
  4. The U.S. and Republic of Moldova sign agreement to implement FATCA. According to the Treasury Department, the U.S. and Republic of Moldova signed an intergovernmental agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA) on Nov. 26, 2014.
  5. The U.S. and Turks and Caicos Islands sign agreement to implement FATCA. According to the Treasury Department, the U.S. and Turks and Caicos Islands signed an intergovernmental agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA) on Dec. 1, 2014.

IGAs allow government-to-government sharing of information on U.S.-owned accounts in foreign banks under FATCA. Without the accords, financial institutions would be faced with direct reporting to the IRS

Do You Have Unreported Foreign Income?

Is Your Foreign Account in

Any of the Countries Mentioned Below?

Contact the Tax Lawyers at 
Marini & Associates, P.A.  
for a FREE Tax Consultation
Toll Free at 888-8TaxAid ((888) 882-9243)
See Below For Types of FATCA Agreements Signed

By Each Country and Links to the Actual Agreements.

The following jurisdictions are treated as having an intergovernmental agreement in effect (scroll down for a list of jurisdictions with agreements in substance):
Jurisdictions that have signed agreements:
Model 1 IGA
Model 2 IGA

Jurisdictions that have reached agreements in substance as of June 30, 2014 and have consented to being included on this list (beginning on the date indicated in parenthesis):
Model 1 IGA
  • Algeria (6-30-2014)
  • Anguilla (6-30-2014)
  • Antigua and Barbuda (6-3-2014)
  • Azerbaijan (5-16-2014)
  • Bahrain (6-30-2014)
  • Belarus (6-6-2014)
  • Cabo Verde (6-30-2014)
  • China (6-26-2014)
  • Colombia (4-23-2014)
  • Croatia (4-2-2014)
  • Dominica (6-19-2014)
  • Dominican Republic (6-30-2014)
  • Georgia (6-12-201)
  • Greenland (6-29-2014)
  • Grenada (6-16-2014)
  • Guyana (6-24-2014)
  • Haiti (6-30-2014)
  • India (4-11-2014)
  • Indonesia (5-4-2014)
  • Kosovo (4-2-2014)
  • Kuwait (5-1-2014)
  • Malaysia (6-30-2014)
  • Montenegro (6-30-2014)
  • Panama (5-1-2014)
  • Peru (5-1-2014)
  • Portugal (4-2-2014)
  • Romania (4-2-2014)
  • St. Kitts and Nevis (6-4-2014)
  • St. Lucia (6-12-2014)
  • St. Vincent and the Grenadines (6-2-2014)
  • Saudi Arabia (6-24-2014)
  • Serbia (6-30-2014)
  • Seychelles (5-28-2014)
  • Slovak Republic (4-11-2014)
  • South Korea (4-2-2014)
  • Thailand (6-24-2014)
  • Turkey (6-3-2014)
  • Turkmenistan (6-3-2014)
  • Ukraine (6-26-2014)
  • United Arab Emirates (5-21-2014)
  • Uzbekistan (6-30-2014)
Model 2 IGA
  • Armenia (5-8-2014)
  • Iraq (6-30-2014)
  • Nicaragua (6-30-2014)
  • Paraguay (6-6-2014)
  • San Marino (6-30-2014)
  • Taiwan (6-23-2014)*

*Consistent with the Taiwan Relations Act, the parties to the agreement would be the American Institute in Taiwan and the Taipei Economic and Cultural Representative Office in the United States.
Jurisdictions that have reached agreements in substance as of November 30, 2014 and have consented to being included on this list (beginning on the date indicated in parenthesis):

Model 1 IGA
  • Angola (11-30-2014)
  • Cambodia (11-30-2014)
  • Greece (11-30-2014)
  • Holy See (11-30-2014)
  • Iceland (11-30-2014)
  • Kazakhstan (11-30-2014)
  • Montserrat (11-30-2014)
  • Philippines (11-30-2014)
  • Trinidad and Tobago (11-30-2014)
  • Tunisia (11-30-2014)
Model 2 IGA
  • Macao (11-30-2014)