IRS 2019 Tables on Foreign-Controlled US Corporations Shows a Combined $15.9 Trillion of Assets And $6.4 Trillion of Receipts

The IRS, under its Statistics of Income (SOI) program, has published tables for the Tax Year 2019 Foreign-Controlled Domestic Corporation study. (IRS Tax Stats Dispatch 2022-06)

The tables are based on data from the Form 1120 series for domestic corporations with 50%-or-more stock ownership by a single foreign "person." The data are classified by industry group, country, and age of the corporation.

According to SOI, there were 134,000 federal income tax returns filed by foreign-controlled domestic corporations (FCDCs) for tax year 2019. These returns accounted for 2.1% of all corporate returns filed for that year.

"However, the FCDCs were often large companies, with a combined $15.9 trillion of assets and $6.4 trillion of receipts," SOI stated. 

"They reported 13.9% of the assets and 17.9% of the receipts of all corporations." Manufacturing companies accounted for $2.9 trillion of the FCDC receipts.

Domestic companies with owners based in Japan produced $1 trillion of receipts, followed by owners from the United Kingdom and the Netherlands, with $900 billion each.

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Domestic Streamline Denied - Too Many Accounts & Too Much in The Foreign Accounts To Be Non-Willful

According to Law360, the estate of a dual U.S.-Canadian citizen owes penalties of more than $157,000 for her failure to disclose accounts in Canada and New Zealand, the U.S. Court of Federal Claims ruled in Flint et al. v. U.S., case number 21-1202, in the U.S. Court for Federal Claims.

The court found on August 23, 2022 that Margaret J. Jones failed to file the required disclosures of foreign bank and financial accounts for more than $3 million kept in Canada and New Zealand, where her husband was born. 

Judge Marian Blank Horn threw out claims by Jones' estate for breach of contract and illegal extraction, rejecting arguments that the U.S. government violated an agreement with her over the acknowledgement of the funds.

After Jones' husband died in 2011, she admitted in her tax filings that the foreign accounts existed, according to court filings. In an effort to pay the money she owed, Jones enrolled in an Internal Revenue Service program known as the Streamlined Domestic Offshore Procedures. Designed to encourage disclosure of previously undisclosed offshore accounts, the program allows participants to work with the IRS to come into full tax compliance.

Jones' Estate Said The IRS Then Used This Self-Disclosure To Impose An FBAR Penalty Of $157,000 For Failing To Disclose The Existence Of The Foreign Bank Accounts.

"The government lured Mrs. Jones in based upon the IRS promise and the explicit provisions of the contract," the estate said in its complaint. "They then later switched their position and alleged her good faith misunderstanding of the law was irrelevant and she should be strictly liable for other 'willfully blind' penalties."

The accounts date back nearly six decades to when Jones' husband began placing funds in them, around the end of World War II. By the time the IRS caught up, they held millions across 11 accounts, according to Tuesday's ruling.

Jones knew about the accounts but never told her tax preparer, the government said, indicating that she was willfully attempting to hide the assets. It therefore assessed a penalty even after she admitted to the existence of the accounts.

To qualify for the for streamlined programs, the IRS defines non-willful as “conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirement of the law.”

The court was unpersuaded by the claims that Jones was tricked by the government. Judge Horn said the government had not in fact changed its position, and noted that the contract specified that the taxpayer may have to pay penalties if found to have deliberately hidden assets.

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Penalty Relief for Late 2019 and 2020 Filings Including 5471, 5472, 3520 & 3520-A

To help struggling taxpayers affected by the COVID-19 pandemic, the Internal Revenue Service today issued Notice 2022-36,which provides penalty relief to most people and businesses who file certain 2019 or 2020 returns late. 

To Qualify For This Relief,
Any Eligible Income Tax Return Must Be Filed
On Or Before Sept. 30, 2022.

Returns covered include: 

• Form 1040, U.S. Individual Income Tax Return;
• Form 1040-C, U.S. Departing Alien Income Tax Return;
• Form 1040-NR, U.S. Nonresident Alien Income Tax
  Return;
• Form 1041, U.S. Income Tax Return for Estates and Trusts;
• Form 1065, U.S. Return of Partnership Income
• Form 1120-S, U.S. Income Tax Return for an S corporation
• Form 1120, U.S. Corporation Income Tax Return;
• Form 1120-C, U.S. Income Tax Return for Cooperative Associations;
• Form 1120-F, U.S. Income Tax Return of a Foreign Corporation;
• Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation;
• Form 990-T, Exempt Organization Business Income Tax Return

The waiver also covers late penalties for foreign tax disclosures for those years, including

• Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, and or Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, is attached to a late-filed Form 1120 or Form 1065;
• Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, and Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner.

However, As Currently Drafted, Only Corporations And Partnerships Are Entitled To This Relief For Late Filing
Penalties For Form 5471 & Form 5472!

The relief also covers a broad range of information returns, including many 1099s and information returns related to health insurance coverage. There are exceptions, including returns subject to fraud penalties. 

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The Republican Scare Tactics Regarding IRS funding Has to STOP!

According to Procedurally Taxing, one key aspect of the .Inflation Reduction Act is its $80 billion in proposed new Internal Revenue Service funding over a ten-year period. There have been a number of excellent main stream media summaries of the funding, including Laura Saunders’ WSJ article What $80 Billion More for the IRS Means for Your Taxes[$] and Alan Rappeport’s NYT article  Yellen Directs I.R.S. to Embark on $80 Billion Overhaul Plan[$]

While we all try to avoid being partisan on this site, this past weekend Leslie Book, a professor of law at Villanova University (my alma mater) wrote an Op-Ed for NBC Think about the potentially dangerous rhetoric that politicians have been using to describe the funding. In the Op-Ed Leslie Book describes that

Sen. Rick Scott, a Florida Republican, is one of several lawmakers attempting to misinform the public about the Inflation Reduction Act, or IRA, and the much-needed infusion of cash it will provide to the IRS. In a letter sent on Tuesday, he warned constituents not to apply for positions with the IRS, pledging to “defund” the jobs if Republicans gain control of Congress after the midterms.

The senator’s warning to not apply for a public sector job was unusual. But more concerning was how the letter blatantly misstates facts and attempt to scare the public into thinking that the IRS will use the additional funding provided to hire thousands of armed agents and threaten Americans’ life and liberty.

Unfortunately, rather than appealing for a common sense of calm, several of Scott’s peers are actually doubling down. Sen. Ted Cruz, the junior senator from Texas, echoed Scott’s sentiments on Twitter, where he claimed the “Democrats are making the IRS bigger than the Pentagon, the Department of State, the FBI, and the Border Patrol COMBINED! Those IRS agents will come after you, not billionaires and big corporations!”

This Isn’t Just Misinformation, This Is Information That Is Designed To Radicalize And The Consequences, As We’ve Already Seen,
Could Indeed Be Disastrous.

This rhetoric is, quite simply, disconnected from reality. 

The IRA that Biden signed into law this past Tuesday provides a stable stream of funds over a 10-year period that will enable the IRS to hire replacement and new employees at an agency that has been struggling to perform basic tasks like processing tax returns and answering phones. 

On top of its current considerable challenges, the IRS has an aging work force, with an estimated 52,000 of its current 83,000 employees past or close to retirement age. 

Meanwhile, Congress is leaning on the IRS to not only collect revenues but increasingly to deliver benefits like pandemic relief stimulus payments, health care subsidies and refundable credits for things like child care, wage subsidies and electric vehicle purchases.

There are real consequences from these lies. The rhetoric can lead to physical harm for IRS employees. Recall that just over a decade ago, a longtime IRS employee was killed when a disgruntled pilot with an anti-IRS grudge flew a plane into an IRS office. 

The IRS has long been a target of extremists, and the single largest incident of domestic terror in the U.S. involved an attack on a federal building in Oklahoma, with IRS employees and their children at the building’s day care center among the victims. 

It is time for politicians to tamp down the rhetoric and focus on improving the IRS. Can our elected officials wean themselves from the polarizing and dangerous demonizing of the IRS? Let’s hope so, before someone else gets killed.

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Inflation Reduction Act of 2022 Is Law

On August 12 we posted Inflation Reduction Act (aka Build Back "SOMEWHAT" Better) Passes Senate, where we discussed that the Senate debated a revised version of Democrats' Inflation Reduction Act (H.R. 5376), following changes made as a result of negotiations with Arizona Sen. Kyrsten Sinema, which passed the Senate. The House of Representatives tested bill on August 12 and the president has since signed the bill.

What's in the Inflation Reduction Act?

Revenue and spending in the legislation breaks down as follows, according to the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT):1

Amount	Source
	REVENUE
$313 billion	15% corporate minimum tax *
$288 billion	Prescription drug pricing reform **
$124 billion	Enhanced IRS tax enforcement **
$725 billion	Total revenue raised
	INVESTMENTS
$369 billion	Energy security and climate change investment ***
$64 billion	Affordable Care Act extension **
$433 billion	Total investments
$292+ BILLION	TOTAL DEFICIT REDUCTION

* Joint Committee on Taxation ** Congressional Budget Office *** Both

Following are highlights of some of the most notable features of the Inflation Reduction Act of 2022:

15% corporate minimum tax

The bill introduces a new 15% minimum tax on corporations to help pay for climate and health care measures. The tax applies to companies that generate $1 billion in annual earnings. The Joint Committee on Taxation (JCT) estimates the tax will raise $313 billion in revenue over the next decade. Exemptions from the tax demanded by Sen. Kyrsten Sinema (D-Ariz.) to secure her 'yes' vote include:

• Exemption for companies that use accelerated depreciation to help pay for new investments.
• Exclusion of small businesses that are subsidiaries of private equity firms.

Prescription drug pricing reform

The bill allows Medicare to negotiate prices for some drugs for the first time. This is a policy Democrats have attempted to enact, over objections from the pharmaceutical industry, for many years. The provisions are expected to save $288 billion over 10 years according to analysis by the CBO.

Specifically, the legislation would let Medicare negotiate lower prices for 10 high-cost drugs beginning in 2026.
 This would jump to 20 drugs by 2029. Companies that refuse to negotiate will be subject to an up to 95% sales tax on that drug. The bill includes a ceiling on the negotiated price of the specified drug. Moderate Democrats, including Sen. Sinema, inserted a requirement that price negotiations only apply to older drugs (9 years for most/13 years for biologic drugs).

• 95% Sales tax penalty levied on companies that refuse to negotiate drug prices with Medicare.
• The bill caps out-of-pocket drug costs at $2,000 a year for Medicare beneficiaries, starting in 2025.
• It also caps insulin costs for people on Medicare at $35 a month. The original proposal called for a cap on both Medicare and private insurance patients, but Republicans voted against extending protection to those on private plans.

Other drug cost caps, which mostly apply to Medicare beneficiaries, are in the legislation as well. Those who get insurance under private plans are largely excluded from these caps because Senate rules limit how expansive such provisions can be.

A further protection mandates that drug companies that raise prices on Medicare faster than the rate of inflation must pay rebates to the government for the price difference.

Enhanced IRS tax enforcement

The Inflation Reduction Act of 2022 allocates $80 billion to increase enforcement by the IRS. Supporters of the measure hope that additional employees and better technology will allow the IRS to catch more tax cheats, especially among the ultra-wealthy. The CBO believes this could boost IRS revenue by at least $124 billion over the next decade.

Stock buybacks will be subject to an additional tax once the legislation becomes law. A 1% excise tax on buybacks is expected to generate $74 billion by 2031.

In a bid to recoup tax revenue lost to private equity, the act imposes a limit on losses businesses can deduct from their taxes. These measures are designed to prevent wealthy individuals from reducing or even wiping out their income tax liability.

Energy security and climate change investment

The largest investment made by the Inflation Reduction Act of 2022 is for energy security and climate change. It totals $369 billion and consists of the following:3

Business Incentives and Tax Credits

• Incentives to businesses to deploy lower-carbon and carbon-free energy sources.
• Tax credits for energy production and investments in wind, solar, and geothermal energies.
• Tax credits for investment in battery storage and biogas. 
• Tax credits for investments in nuclear energy, hydrogen energy coming from clean sources, biofuels, and technology that captures carbon from fossil fuel power plants.
• Bonuses for companies based on worker pay and the manufacture of steel, iron, and other components in the U.S.

 

New tax credit rules make EV tax credit hard to get:3

• EV must be made in North America.
• Eliminates credits for pricey EVs, i.e., Hummer EV, Lucid Air, and Tesla Model S and Model X. 
• Lowers tax credit on new EVs with battery minerals sourced from countries other than the U.S.

Business and Consumer Incentives

• Incentives to companies and consumers who make cleaner energy choices.
• Tax credits for residential clean energy costs including rooftop solar, heat pumps, and small wind energy systems. 30% credit through 2032—phases down after 2032.
• Electric vehicle tax credits of up to $7,500 on new EVs and $4,000 on used.
• Tax credit for energy efficiency in commercial buildings.
• Grants and loans to help companies reduce emissions of gas methane from oil and gas.
• Fees levied on producers with excess methane emissions.
• $27 billion toward additional incentives for clean energy technology.

 

Some provisions of the Inflation Reduction Act of 2022 actually increase fossil fuel production on public lands.

Use of Public Lands

• New requirements to hold lease sales that open up new oil and gas production.
• Reinstatement of a recent offshore oil and gas lease sale that was struck down on environmental grounds.
• Requirement that the Interior Department hold at least three more offshore oil and gas lease sales by next October.
• Minimum royalties increase for companies that extract oil and gas on public lands and waters.
• Added royalty for public land and water extraction of gas that is later burned off or released as waste instead of sold as fuel.

Miscellaneous Provisions

• $3 billion for environmental justice block grants—community-led programs that address harms from climate change and pollutants, including $20 million for technical assistance at the community level, through fiscal 2026.
• $3+ billion for air pollution monitoring in low-income communities with $117 million going to communities in close proximity to industrial pollutants.
• Excise tax increase from 9.7 to 16.4 cents per barrel on imported petroleum and crude oil products to fund the cleanup of industrial disaster site increases.
• Permanent extension of the tax on coal production that funds the Black Lung Disability Trust Fund, which finances claims from workers with the condition.

Affordable Care Act extension

The legislation extends financial assistance to help people enrolled in ACA through 2025.
Without this action, extra assistance would have stopped at the end of 2022. The provision also expands eligibility to allow more middle-class people to receive premium help. The extension of ACA help is estimated to cost $64 billion by the CBO.

Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

Source:

Investopedia