IRS Has Updated FAQs for SFOP and SDOP Streamlined Processes!

The US Internal Revenue Service has updated its guidance on its Streamlined Procedures for Voluntary Disclosure of Offshore Assets. The main changes relate to taxpayers' certification of their Non-Wilfulness and the treatment of joint returns requiring amendment where the other spouse does not desire to cooperate.

1. IRS Has Provided Some Detail Regarding the Supportive Narratives for the Form(s) 14653 & 14654 Certification of Non-Willfulness.  (SFOP FAQ #6 - SDOP FAQ #13)  

Taxpayers using either the Streamlined Foreign Offshore Procedures (SFOP) or the Streamlined Domestic Offshore Procedures (SDOP), will be required to certify, in accordance with the specific instructions set forth below, that the failure to report all income, pay all tax and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22,1) was due to non-willful conduct. The IRS on numerous occasions has indicated that they were getting narratives that did not contain enough detail to support the taxpayers' certifications of Non-Willfulness. 

 New SFOP FAQ #6

Q6.

What facts do I need to include in completing the narrative statement of facts portion of the Form 14653?

Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Include the whole story including favorable and unfavorable facts. Specific reasons, whether favorable or unfavorable to you, should include your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Additionally, explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it. And explain your contacts with the account/asset including withdrawals, deposits, and investment/management decisions. Provide a complete story about your foreign financial account/asset. The following points address common situations that may apply to you: We realize that many taxpayers failed to acknowledge their financial interest in or signature authority over foreign financial accounts on Form 1040, Schedule B. If you (or your return preparer) inadvertently checked “no” on Schedule B, line 7a, simply provide your explanation. We realize that some taxpayers that owned or controlled a foreign entity (e.g., corporation, trust, partnership, IBC, etc.) failed to properly report ownership of the entity or transactions with the foreign entity. If you (or your return preparer) inadvertently failed to report ownership or control of the foreign entity or transactions with the foreign entity, explain why and include your understanding of your reporting obligations to the IRS and to foreign jurisdictions. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. Also provide background such as how you came into contact with the advisor and frequency of communication with the advisor. If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.

New SDOP FAQ #13

Q13

What facts do I need to include in completing the narrative statement of facts portion of the Form 14654?

Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Include the whole story including favorable and unfavorable facts. Specific reasons, whether favorable or unfavorable to you, should include your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Additionally, explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it. And explain your contacts with the account/asset including withdrawals, deposits, and investment/management decisions. Provide a complete story about your foreign financial account/asset. The following points address common situations that may apply to you: ·         We realize that many taxpayers failed to acknowledge their financial interest in or signature authority over foreign financial accounts on Form 1040, Schedule B. If you (or your return preparer) inadvertently checked “no” on Schedule B, line 7a, simply provide your explanation. ·         We realize that some taxpayers that owned or controlled a foreign entity (e.g., corporation, trust, partnership, IBC, etc.) failed to properly report ownership of the entity or transactions with the foreign entity. If you (or your return preparer) inadvertently failed to report ownership or control of the foreign entity or transactions with the foreign entity, explain why and include your understanding of your reporting obligations to the IRS and to foreign jurisdictions. ·         If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. Also provide background such as how you came into contact with the advisor and frequency of communication with the advisor. ·         If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.

2. IRS Also Provides Advice Regarding the Treatment of Joint Returns Requiring Amendment Where the Other Spouse does not Desire to Cooperate. (SFOP FAQ #7 - SDOP FAQ #14.) 

 SFOP FAQ #7

Q7.

In one or more of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, I filed joint income tax returns. But my spouse/former spouse will not sign joint amended returns or a joint certification on Form 14653 for a Streamlined submission. What can I do? Am I precluded from using the Streamlined Foreign Offshore Procedures?

We understand that in certain cases (including but not limited to separation or divorce), your spouse/former spouse may not be willing to sign joint amended income tax returns or a joint certification on Form 14653. You may submit a joint amended income tax return with only your signature to Streamlined Foreign Offshore Procedures so long as your joint amended return shows a net increase in tax. Please explain your inability to secure your spouse’s/former spouse’s signature in the narrative statement of facts on Form 14653. And write “SFO FAQ 7” in red ink in the area for your spouse’s signature on the amended returns and Form 14653. As a matter of routine processing, the Service will request the other spouse’s signature on joint amended returns with only one signature. If at the time the Service makes a request for your spouse’s/former spouse’s signature on a joint amended return or joint certification you are still unable to secure your spouse’s/former spouse’s signature, please respond to the inquiry by referencing this FAQ. You may not submit a joint amended income tax return with only your signature to Streamlined Foreign Offshore Procedures showing a net decrease in tax or an increase in credit.

SDOP FAQ #14

Q14  In one or more of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, I filed joint income tax returns. But my spouse/former spouse will not sign joint amended returns or a joint certification on Form 14654 for a Streamlined submission. What can I do? Am I precluded from using the Streamlined Domestic Offshore Procedures?

We understand that in certain cases (including but not limited to separation or divorce), your spouse/former spouse may not be willing to sign joint amended income tax returns or a joint certification on Form 14654. You may submit a joint amended income tax return with only your signature to Streamlined Domestic Offshore Procedures so long as your joint amended return shows a net increase in tax. Please explain your inability to secure your spouse’s/former spouse’s signature in the narrative statement of facts on Form 14654. And write “SDO FAQ 14” in red ink in the area for your spouse’s signature on the amended returns and Form 14654. As a matter of routine processing, the Service will request the other spouse’s signature on joint amended returns with only one signature. If at the time the Service makes a request for your spouse’s/former spouse’s signature on a joint amended return or joint certification you are still unable to secure your spouse’s/former spouse’s signature, please respond to the inquiry by referencing this FAQ. You may not submit a joint amended income tax return with only your signature to Streamlined Domestic Offshore Procedures showing a net decrease in tax or an increase in credit.

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U.S FinCEN Will Track Secret Buyers of Luxury Real Estate in Manhattan and Miami

The Financial Crimes Enforcement Network (FinCEN) today January 13, 2016 issued a Geographic Targeting Orders (GTO) that will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies used to pay "all cash" for high-end residential real estate in the Borough of Manhattan in New York City, New York, and Miami-Dade County, Florida.

 

FinCEN is concerned that all-cash purchases – i.e., those without bank financing – may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures. To enhance availability of information pertinent to mitigating this potential money laundering vulnerability, FinCEN will require certain title insurance companies to identify and report the true "beneficial owner" behind a legal entity involved in certain high-end residential real estate transactions in Manhattan and Miami-Dade County.

With these GTOs, FinCEN is proceeding with its risk-based approach to combating money laundering in the real estate sector. Having prioritized anti-money laundering protections on real estate transactions involving lending, FinCEN’s remaining concern is with the money laundering vulnerabilities associated with all-cash real estate transactions. This includes transactions in which individuals use shell companies to purchase high-value residential real estate, primarily in certain large U.S. cities.

 

"We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium U.S. real estate to secretly invest millions in dirty money," said FinCEN Director Jennifer Shasky Calvery. "Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering. But cash purchases present a more complex gap that we seek to address. These GTOs will produce valuable data that will assist law enforcement and inform our broader efforts to combat money laundering in the real estate sector."

Under specific circumstances, the GTOs will require certain title insurance companies to record and report to FinCEN the beneficial ownership information of legal entities purchasing certain high-value residential real estate without external financing. They will report this information to FinCEN where it will be made available to law enforcement investigators as part of FinCEN’s database.

The information gathered from the GTOs will advance law enforcement’s ability to identify the natural persons involved in transactions vulnerable to abuse for money laundering. This would mitigate the key vulnerability associated with these transactions – the ability for individuals to disguise their involvement in the purchase.

FinCEN is covering certain title insurance companies because title insurance is a common feature in the vast majority of real estate transactions. Title insurance companies thus play a central role that can provide FinCEN with valuable information about real estate transactions of concern. The GTOs do not imply any derogatory finding by FinCEN with respect to the covered companies. To the contrary, FinCEN appreciates the assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors.

The GTOs will be in effect for 180 days beginning on March 1, 2016. They will expire on August 27, 2016.

It is the first time the federal government has required real estate companies to disclose names behind all-cash transactions, and it is likely to send shudders through the real estate industry, which has benefited enormously in recent years from a building boom increasingly dependent on wealthy, secretive buyers.

The initiative is part of a broader federal effort to increase the focus on money laundering in real estate. Treasury and federal law enforcement officials said they were putting greater resources into investigating luxury real estate sales that involve shell companies like limited liability companies, often known as L.L.C.s; partnerships; and other entities.

The Treasury’s program will affect billions of dollars in real estate transactions. In Manhattan, the initiative requires buyers in sales of more than $3 million to be reported; in Miami-Dade County, it requires reporting on sales of more than $1 million. In Manhattan, 1,045 residential sales cost more than $3 million in the second half of 2015, worth some $6.5 billion in aggregate, according to PropertyShark, a real estate data company.

In addition to starting in only two markets, the requirement runs from March through August. If Treasury officials find that many sales involved suspicious money, they may develop permanent reporting requirements across the country.
 

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Sources

Treasury Department 

The New York Times 

 

 

 

 

 

 

 

 



  


 

IRS Withdraws Proposed Charitable Donation Rules

 

The Internal Revenue Service withdrew proposed regulations Thursday giving nonprofits the option to report the names and Social Security numbers of donors giving $250 or more, instead of providing contributors with written acknowledgements of gifts, citing strong opposition over privacy concerns. See Law360 for more.
 

 

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IRS Issues Proposed Country-by-Country Reporting Rules!

The OECD in October released its final recommendations under its project to combat tax base erosion and profit shifting, which included a plan for having companies file reports in their home jurisdictions detailing their business activities such as taxes accrued, profits and number of employees.

The IRS has now proposed rules requiring large companies to report information for each country of operation including the amount of revenue, profit or loss, capital and accumulated earnings, consistent with OECD recommendations designed to combat base erosion and profit shifting. The rules (REG-109822-15) would apply to U.S. parent companies with at least $850 million in annual revenue for the preceding annual accounting period, for the taxable year beginning on or after the rules are made final, ensuring that, for most companies, they won't take effect before Jan. 1, 2017.

The proposed regulations affect U.S. persons that are the parent of a MultiNational Enterprise (MNE) group, with annual revenue for the preceding annual accounting period of $850 million or more.
The ultimate parent of a U.S. MNE group is a U.S. business that controls a group of businesses, at least one of which is organized or is a tax resident outside of the United States, that are required to consolidate their accounts for financial reporting purposes under U.S. generally accepted accounting principles (GAAP), or that would be required to consolidate their accounts if equity interests in the U.S. business were publicly traded on a U.S. securities exchange.

Under the proposals, a business is generally considered a tax resident when the business is liable for tax based on place of management, place of organization or another similar criterion. A business will not be considered a tax resident if it is liable for tax solely on income from sources or capital situated within the jurisdiction. The proposed regulations also provide rules for determining the tax jurisdiction of residence of a business that is resident in more than one tax jurisdiction or that is a permanent establishment.

The regulations require the parent to report for each constituent entity, the entity’s resident tax jurisdiction, the tax jurisdiction in which the entity is organized or incorporated (if different from the resident tax jurisdiction), the main business activity or activities of the entity and each entity’s tax identification number.

The information included in the reports will be exchanged with other jurisdictions to give tax administrators a clearer idea of risks posed by companies' transfer pricing practices and other strategies.

The regulations require the parent to report the following information for each tax jurisdiction in which a constituent entity is resident:

1. Revenues generated from transactions with other constituent entities of the U.S. MNE group;
2. Revenues not generated from transactions with other constituent entities of the U.S. MNE group;
3. Profit (or loss) before income tax;
4. Income tax paid on a cash basis to all tax jurisdictions, including any taxes withheld on payments received;
5. Accrued tax expense recorded on taxable profits (or losses), reflecting only the operations in the relevant annual accounting period and excluding deferred taxes or provisions for uncertain tax positions;
6. Stated capital;
7. Accumulated earnings;
8. Number of employees on a full-time equivalent basis in the relevant tax jurisdiction; and
9. Net book value of tangible assets other than cash or cash equivalents.

The information for each tax jurisdiction must be presented as an aggregate from all of the constituent entities that are resident in the same tax jurisdiction. In addition, the required information must be reported, in the aggregate, for any constituent entity or entities that have no resident tax jurisdiction.

The proposed regulations also contain provisions to implement the exchange of information with foreign jurisdictions without running afoul of taxpayer confidentiality rules in the tax code.

The OECD has said that it wants multinational companies to file the reports beginning with their 2016 tax years. The group has also recommended that companies be required to file a so-called master file providing a blueprint of their financial activities and a local file on transfer pricing transactions, but government officials have said the U.S. may not adopt those provisions.

The BEPS project is seen by some as a way for OECD countries to tax a larger share of U.S. multinationals' income.

Don't Have Support For Your Intercompany Pricing?

 

 

 

 

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Toll Free at 888-8TaxAid (888)882-9243.

Sources

BNA
CCH
 

Eight Tips for Taxpayers Who Owe Taxes

While most taxpayers get a refund from the IRS when they file their taxes, some do not. The IRS offers several Payment Options for those who owe taxes. Here are eight tips for those who owe federal taxes.

1. Tax bill payments.  If you get a bill from the IRS this summer, you should pay it as soon as possible to save money. You can pay by check, money order, cashier’s check or cash. If you cannot pay it all, consider getting a loan to pay the bill in full. The interest rate for a loan may be less than the interest and penalties the IRS must charge by law.
2. Electronic Funds Transfer.  It’s easy to pay your tax bill by electronic funds transfer. Just visit IRS.gov and use the Electronic Federal Tax Payment System. You may also use EFTPS to pay your taxes by phone at 800-555-4477.
3. Credit or debit card payments.  You can also pay your tax bill with a credit or debit card. Even though the card company may charge an extra fee for a tax payment, the costs of using a credit or debit card may be less than the cost of an IRS payment plan. To pay by credit or debit card, contact one of the processing companies listed at IRS.gov.
4. More time to pay.  You may qualify for a short-term agreement to pay your taxes. This may apply if you can fully pay your taxes in 120 days or less. You can request it through the Payment Agreement application at IRS.gov. You may also call the IRS at the number listed on the last notice you received. If you can’t find the notice, call 800-829-1040 for help. There is generally no set-up fee for a short-term agreement.
5. Installment Agreement.  If you can’t pay in full at one time and can’t get a loan, you may want to apply for a monthly payment plan. If you owe $50,000 or less, you can apply using the IRS Payment Agreement application. If approved, IRS will notify you immediately. You can arrange to make your payments by direct debit. This type of payment plan helps avoid missed payments and may help avoid a tax lien that would damage your credit.
   
   Taxpayers may also apply using IRS Form 9465, Installment Agreement Request. If you owe more than $50,000, you must also complete Form 433F, Collection Information Statement. For approved payment plans the one-time user fee is $105 for standard and payroll deduction agreements. The direct debit agreement fee is $52. The fee is $43 if your income is below a certain level.
6. Offer in Compromise.  The IRS Offer-in-Compromise program allows you to settle your tax debt for less than the full amount you owe. An OIC may be an option if you can't fully pay your taxes through an installment agreement or other payment alternative. The IRS may accept an OIC if the amount offered represents the most IRS can expect to collect within a reasonable time. Click here to see if you may be eligible before you apply. We will notify you of other options if an OIC is not right for you.
7. Fresh Start.  If you’re struggling to pay your taxes, the IRS Fresh Start initiative may help you. Fresh Start makes it easier for individual and small business taxpayers to pay back taxes and avoid tax liens.
8. Check withholding. You may be able to avoid owing taxes in future years by increasing the taxes your employer withholds from your pay. To do this, file a revised Form W-4, Employee’s Withholding Allowance Certificate, with your employer. The IRS Withholding Calculator tool at IRS.gov can help you fill out a new W-4. 

For more information on

 IRS's Fresh Start program...
 

 

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Transfer Pricing Moves Ahead & OECD and G20 Broaden Intra-Group Services Provisions

This Post was Contributed by Robert Feinschreiber and Margaret Kent.  Transfer pricing methodologies are beginning to spread far beyond the narrow confines of section 482.

Consider two very recent examples:

1.       Argentina had enacted revenue raising measures designed to penalize companies that would shift profits from Argentina to a tax haven. Argentina used an OECD BEPS transfer pricing rationale in enacting these anti-tax-haven provisions. Most Argentinian enterprises that make use of tax havens use Panama for that tax haven purpose, in part because of the commonality of language. Panama sued Argentina, arguing that the Argentinian tax restrictions are an artificial trade constraint. Panama brought suit at the World Trade Organization (WTO). Other countries are now involved. Panama won the initial round at the WTO, but Panama has joined the OECD’s Global Forum, a measure that would ultimately bring the country into compliance with the OECD’s Transfer Pricing Guidelines. Panama’s attack is similar to the attack on DISC before GATT three decades ago.

2.       The plaintiffs in a class action suit based on the 1934 SEC Exchange Act argued that the defendant, Hutchinson Technology, through Bank of America and Merrill Lynch, violated SEC rules. The rules in question involve valuation rules emanating from transfer pricing concepts, i.e., the Proxy failed to disclose “the range, median and mean revenue and EDITPA multiples,” paragraph 47. The case was filed November 30, 2015 in Minneapolis. The plaintiffs asserted that omission is material, and the Proxy is misleading.

3.       Remember, worldwide transfer pricing rules begin across 82 countries beginning January 1, 2016.    

Additionally, the OECD and the G20 finalized the BEPS program in late 2015, which substantially updated the services transfer pricing rules and deleted the pre-existing 2010 guidance. The new OECD and the G20 provisions addressed the transfer pricing intra-group services provisions that arise when one member of a multinational enterprise group provide services for other members of the group. Click here for more information on these changes.

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Have An Unpaid Tax Bill? Your US Passport Is In Jeopardy of being Revoked in 2016!

On Tuesday, December 1, 2015 we posted Have An Unpaid Tax Bill? Your Passport Could Soon be Revoked!  where we discussed that a recent bill known as the  H.R. 22, Fixing America’s Surface Transportation Act (FAST Act), which It includes amendments to the tax code that would allow authorities to revoke or deny the passport of any US taxpayer who has unpaid taxes in excess of $50,000 or who have not obtained or won’t provide a Social Security number, has been approve by the conference committee.

The applicable provision in the FAST Act is entitled "Revocation or denial of passport in case of certain unpaid taxes (sec. 52101 of the Senate amendment, sec. 32102 of the House amendment, sec. 32101 of the conference agreement and secs. 6320 and 6331 and new secs. 7345 and 6103(k)(11) of the Internal Revenue Code)" 

Well the highway funding bill was signed by President Obama on December 4, 2015,  which now gives the US government the right to revoke or deny the passports of US persons who owe more than USD50,000 in federal taxes (including penalties and interest). The new provision is expected to become effective on January 1, 2016.

The new law adds a new Internal Revenue Code (section 7345) which authorizes the Treasury Secretary to certify, to the Secretary of State (Secretary), that a taxpayer has a "seriously delinquent tax debt'". A "seriously delinquent tax debt" is greater than USD50,000 and one for which the IRS has either filed a lien or levy. Upon receiving the certificate, the Secretary can deny, revoke, or limit the taxpayer's US passport. The notice must spell out that the taxpayer is entitled to file a lawsuit in the US Tax Court or a federal district court to challenge this certification.

All the existing remedies for addressing an IRS lien or levy continue to apply! Therefore, this new provision of denying a passport will not apply to taxpayers who have entered into installment agreements or offers-in-compromise, or who have requested collection due process hearings or innocent spouse relief.

US citizens living abroad should ensure that their IRS tax affairs are in order before December 31, 2015, in order to ensure that they do not have any issues with their US passport.
 

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