IRS Wrights Off 5X More Than it Collects?

We previously posted, IRS To Realign Compliance Operations where we discussed Starting Oct. 20, the IRS is realigning its tax compliance organizations serving individual and small business taxpayers. This may be a result of the fact that IRS Collection Action Can Be Delayed For A Long Time - Forbes forbes.com
 

If you want to contemplate a real IRS scandal, you might take a look at a recent TIGTA report .  The report indicated that in fiscal 2013, the IRS wrote off $16.1 billion in tax debts, which is five times as much as field agents collected.

• The overwhelming bulk of tax collections are from compliant taxpayers just paying.  
• There are also automated collections.  
• Field collections is more of a backstop.  
• Still you would think that they would collect more than they write off.

The steps that TIGTA recommended to address the situation strike me as rearranging the deck chairs on the Titanic.  They mainly concern figuring out how to better pick the cases to pursue.

With a significant growth in delinquent accounts and a reduction in the number of employees,  it is essential that the field inventory selection process identifies the cases that have the highest risk and potential for collection. This requires IRS officials to make decisions about how to ensure that the cases in the queue with the best collection potential are identified, selected, and assigned to be worked.

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Ireland's plan to close a "Double Irish" tax loophole could cost Apple and Google Billions of Dollars

Following pressure from the United States and EU, the Dublin government said it planned to change a rule underpinning this system which allows a company to be registered in Ireland but not resident there for tax purposes. In his budget, Ireland's Finance Minister Michael Noonan has also announced changes to the intellectual property tax regime in the hope of keeping Ireland an attractive destination for business. Ireland's plan to close a "Double Irish" tax loophole could cost U.S. companies including Apple and Google billions of dollars. Analysts and tax advisers predict that corporations which need access to the EU's 500 million consumers will find it difficult to set up equally effective schemes in other member states. From January 2015, all companies newly incorporated in Ireland will be classed as Irish tax-residents.  Companies already benefiting from the scheme can continue to do so until 2020, when the preferential 'double Irish' tax system will cease to apply.  Ireland has been an attractive base for U.S. multinationals for decades, thanks to a tax regime which allows companies to channel profits made in their major markets through the country and into tax havens, paying little tax along the way. International anger about corporate tax avoidance has made the Group of 20 biggest economies rethink international tax rules. It has also prompted EU investigations into tax deals between some member states and big companies. The changes announced by Noonan are the latest in a series of international attacks on the contrived tax structures used to shift profits into tax havens. Corporate filings show that technology companies have channeled tens of billions of dollars in profits which attract little or no taxation elsewhere, through Ireland under the current rules. Ireland is not the only country that has allowed companies to channel profits into tax exempt firms. Amazon operates a structure whereby all its European sales are channeled through a Luxembourg company, which in turn channels profits into a tax-exempt partnership, also registered in the Grand Duchy. However, this arrangement is being investigated by the European Commission, which suspects Luxembourg may have broken EU rules by giving the online retailer excessively generous treatment in return for creating jobs. Have an International Tax Problem? Contact the Tax Lawyers at Marini & Associates, P.A.     for a FREE Tax Consultation at: www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid ((888) 882-9243) Sources: Reuters WSJ   Walkers (PDF file) Pinsent Masons Irish government (2015 budget) Finfacts Bloomberg

(Reuters) -

So What is the Fatca Deadline for Trusts?

The Financial Times (FT) ran a story on Saturday 18 October about confusion over the Foreign Account tax Compliance Act (FATCA) deadline for trusts. Trustees of private family trusts are being urged to register with the US tax authority or risk non-compliance with new counter-tax avoidance legislation.

Investment-based trusts that are managed by a discretionary fund manager are considered, according to the US tax authority’s definitions, to be “financial institutions” and must therefore meet FATCA requirements.

The first step is to apply for a so-called “global intermediary identification number” or GIIN. Failure to meet Fatca’s reporting obligations could result in a 30 per cent withholding tax on income on behalf of the IRS.


Although experts offer differing interpretations of what trustees must do and by when; it’s certainly true that the US has provided no clear deadline for trusts that need to register with the IRS under a Model 1 IGA.

As the FT notes, the collective view of the three professional bodies, STEP, Law Society of England & Wales and ICAEW, that have produced joint guidance on FATCA for trustees is that, for those that need to, it would be prudent to ensure that the registration process on the IRS website is completed by October 25, 2014.

While the IRS registration system has performed well over the summer, the risk of last minute problems as Financial Institutions rush to register cannot be ruled out.

The late October recommendation is thus based on a cautious view, but we note that registration on the IRS website is not the end of the process.

The key requirement for trusts (or corporate trustees) who need to register is 

that they appear on the published list of Financial Institutions by January 1, 2015.

There is a lag between registering on the IRS website and appearing on the published list.

Moreover, many trustees are now being asked to confirm their FATCA status by Financial Institutions they transact with. Clearly, as the end of the year approaches, these requests are likely to become ever more insistent.

Do You Have A FATCA Problem?

Contact the Tax Lawyers at 

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for a FREE Tax Consultation

at: www.TaxAid.us or www.TaxLaw.ms or

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

Sources:


Financial Times

STEP Blog

STEP FATCA Guidance

Definition of Willfulness in OVDP Streamline Program Intentionally Left Vague!

According to the IRS website, Streamlined Filing Compliance Procedures, the streamlined procedures are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part.

We previously posted on Wednesday, October 1, 2014, So What Does "Non-Willful" Really Mean Under The Streamlined OVDP - Take #2? where we discussed that until the IRS gives us their specific interpretation of "Non-Willfulness" under the 2014 Streamline Program; you might want to consult the IRS's Internal Revenue Manual (IRM) for guidance! 

More specifically:

• IRM 4.26.16.4.5.3 FBAR Willfulness Penalty - Willfulness  
• IRM 4.26.16.4.5.4 FBAR Willfulness Penalty - Evidence.

This is most likely what the IRS will be consulting  in making their determination of whether your clients are "Non-Willful" and qualify for the 2014 Streamlined OVDP Program!

 
The validity of this conclusion is further supported by Jennifer Best, senior attorney-adviser for services and enforcement, who recently indicated that the IRS has deliberately refrained from offering a lot of examples about what constitutes willful failure to disclose offshore assets. 

Taxpayers are only allowed to use the Internal Revenue Service's streamlined offshore voluntary disclosure program, when they have failed to report foreign income or foreign financial accounts or assets, if they can certify that their failure to do so was non-willful.  

As reported in DTR on 10/17/14, Best told a group at an American Law Institute Continuing Legal Education program in Washington, every taxpayer has a unique set of circumstances, therefore the definition of the term was intentionally left broad!

In other words, after you review IRM 4.26.16.4.5.3 and  IRM 4.26.16.4.5.4; if you have any doubts that your client is non-willful, then your client does not qualify for the streamline program!

Need Help Determining

if You Qualify for the

  2014 Streamlined Program?

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Tax Litigation Attorney?

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The Swiss government released Q&A's on Automatic Exchange of Information

Friday, October 10, 2014, we posted Swiss Consider Automatic Exchange of Information Pursuant to Model 1 FATCA Agreement! where we discussed that the mandates definitively adopted by the Federal Council are:

1. The introduction of the automatic exchange of information is to be negotiated with the EU.
2. Regarding implementation of the Foreign Account Tax Compliance Act (FATCA), a Model 1 FATCA agreement should be with negotiated with the United States. With the new agreement, data would be exchanged automatically between the competent authorities on a reciprocal basis.
3. Negotiations on the automatic exchange of information will be initiated with further selected countries. In an initial phase, consideration will be given to countries with which there are close economic and political ties and which, if appropriate, provide their taxpayers with sufficient scope for regularization.
4. The introduction of the automatic exchange of information with foreign countries will be conducted by means of agreements with partner countries. Moreover, implementing legislation will be required in national law. This is currently being prepared by the Federal Department of Finance and will be submitted to parliament together with the negotiated agreements. The existing legislative framework excludes the automatic exchange of information.

On October 8, 2014 the Swiss government's Federal Department of Finance FDF issued Questions and answers on the automatic exchange of information, which provide the following: 

General

Which information is automatically exchanged with the OECD standard?

The information to be transmitted includes account and tax identification numbers as well as the

names, addresses and dates of birth of taxpayers abroad with an account in a country other than

the country of origin, all types of income and account balances. The standard covers both natural

persons and legal entities. The actual beneficial owners of the account in accordance with the

international provisions on combating money laundering (FATF) must be identified in application

of the OECD standard and the FATF recommendations.

How is the automatic exchange of information conducted?

The information on taxpayers abroad with an account in a country other than the country of origin

is transmitted to national tax authorities by banks as well as certain collective investment vehicles

and insurance companies. These authorities then automatically forward the data to the tax

authority in the relevant partner country once per year.

What happens with the data that is exchanged?

Client data may be used solely for the agreed purpose, i.e. to establish a correct tax assessment

in this case. However, the standard does not indicate how precisely the national tax authorities

are to do this (e.g. spot checks or extensive data reviews). Data protection has to be ensured.

How does the new global standard affect the competitiveness of Switzerland's financial centre?

The global standard creates a level playing field for all financial centres around the world. For

Switzerland, this means that tax-related banking secrecy will no longer apply for foreign clients.

Furthermore, Switzerland will be less vulnerable internationally. As a result, legal certainty will

increase and the key strengths of the financial centre, such as neutrality, political and economic

stability, own strong currency, high-quality services and international expertise, will be shown to

greater advantage. Competitiveness would be boosted on the whole.

How will compliance with the new global standard be monitored in the future?

The Global Forum on Transparency and Exchange of Information for Tax Purposes, which has

approximately 120 member states, is currently preparing methods and criteria for checking

implementation of the new global standard in the individual countries in the future. Switzerland is

actively involved.

Introduction in Switzerland

 At the earliest, when could Switzerland introduce the automatic exchange of information?

The Federal Council aims to be able to submit the legal basis for the automatic exchange of

information as well as the first agreements negotiated with partner states to parliament for approval in 2015. 

If parliament and possibly voters agree, Swiss financial institutions could start to collect overseas taxpayers' account data in 2017 and the first exchange of data could take place in 2018.

A series of countries wish to introduce the automatic exchange of information in 2016 and data

transfers from 2017. Why has Switzerland not done like these early adopters?

The legislative procedures in Switzerland do not allow the automatic exchange of information to

be introduced before 2017/2018.

Which legislative amendments are necessary in order for Switzerland to be able to implement the

new global standard?

The introduction of the automatic exchange of information with foreign countries will be conducted

by means of agreements with partner countries, which have to be approved by parliament here.

Moreover, implementing legislation will be required in national law. This is currently being

prepared by the Federal Department of Finance and will be submitted to parliament together with

the first agreements which have been negotiated. The existing legislative framework excludes the

automatic exchange of information.

How will Switzerland use data on Swiss taxpayers with accounts abroad that it receives within the

scope of the reciprocal exchange of information?

The domestic use of data received from abroad is up to the individual countries. Given that the

cantonal or communal tax administrations are responsible for tax assessments in Switzerland, the

Federal Tax Administration will forward the financial information received from abroad to the

competent assessment authorities for the application and enforcement of Swiss tax law.

Will the automatic exchange of information apply domestically too in the future?

The international standard forms the basis for the cross-border exchange of client data between

tax authorities. However, this says nothing about transparency within the states. That is for the

individual states to decide. The exchange of information in the national context is a political

debate that will have to be conducted separately in each state, irrespective of the international

standard.

Partner countries

With which countries will Switzerland enter into a bilateral agreement on the automatic exchange of information?

The primary focus is on the EU and its member states, as well as the United States. Negotiations on the automatic exchange of information with other selected countries are to be examined. In an initial phase, consideration would be given to countries with which there are close economic and political ties and which provide their taxpayers with sufficient scope for regularisation and which are considered to be important and promising in terms of their market potential for Switzerland's financial industry.

Could Switzerland introduce the automatic exchange of information even with countries with

which it has not achieved a solution for the regularisation of the past?

It is in the interests of both partner countries to find an arrangement for any previously untaxed

assets before the automatic exchange of information is introduced. Otherwise, there will be a risk

of outflows to dubious jurisdictions, which is undesirable for both of the countries involved.

Consequently, Switzerland will implement the automatic exchange of information as a matter of

priority with countries that provide their taxpayers with sufficient scope for regularisation.

Will Switzerland make better market access a condition for reaching an agreement on the

automatic exchange of information?

Cross-border business is hampered without market access. Following the implementation of the

automatic exchange of information, there are no longer tax grounds for restricting market access.

If there are opportunities for improving the current situation regarding market access in a given

country, the automatic exchange of information could be agreed more quickly with that country

than with others.

EU savings tax agreement

The EU member states formally adopted the revised directive on the cross-border taxation of

natural persons' savings income in the form of interest payments on 24 March 2014. Is

Switzerland now striving for the automatic exchange of information within the scope of the

negotiations on extending the EU savings tax agreement?

Yes. In view of the rapidly progressing international implementation of the automatic exchange of

information, it no longer makes sense to settle the interest sub-segment with a separate solution.

Relationship with the United States

What will it take for Switzerland to be able to switch from the existing Model 2 to Model 1 for the

implementation of the Foreign Account Tax Compliance Act (FATCA) with the United States?

The FATCA agreement between Switzerland and United States makes provision for such a

change. The negotiations on a Model 1 agreement should commence in the near future. After the

signing of such an agreement, another consultation would be carried out and the agreement,

together with a dispatch, would be submitted to parliament for approval.

What is the difference between the FATCA Model 1 and Model 2?

Model 2 makes no formal provision for the automatic exchange of information. Information can be

transferred directly from the financial institution to the US authority only if the client has consented

to the transfer. If the client does not consent, data is exchanged only upon the United States'

request, whereby the person affected can take part in the procedure. In the case of Model 1, the

data is exchanged automatically via the two countries' tax authorities.

With regard to the automatic exchange of information standard (AEOI standard), will the United

States get preferential treatment in relation to transparency of financial constructs?

The United States has approved the OECD's AEOI standard as a member of the G20 and OECD.

The OECD's AEOI standard is designed in a reciprocal manner and provides for the identification

of the beneficial owners of legal entities and structures. The OECD's documents state that it is

compatible with the AEOI standard that US financial institutions do not have to identify the

beneficial owners of investment companies that have not concluded an agreement as a Foreign

Financial Institution (FFI) with the United States and are located in a state that has not concluded

a FATCA agreement with the United States (no look-through principle).

The arrangement, which features a very narrow scope of application, is justified by referring to the

fact that FATCA is a system that was introduced before the introduction of the OECD's AEOI

standard and underlies it, and it is expected that the United States will look through these cases

also in the medium term. What is also crucial is that the United States levies withholding tax of

30% on the gross amount of all revenue and sales proceeds from US securities in the case of

non-participating FFIs. The withholding tax levied in this way on gross revenue is prohibitively

high. Moreover, it is expected that this arrangement is temporary.

If it transpires when implementing the automatic exchange of information standard that certain

regulations are being used as loopholes, the Global Forum will point this out. Upon

implementation, Switzerland too will thoroughly check whether other countries, particularly

competing financial centres, are complying fully with the standard. If they are not, it will play its

part accordingly in the Global Forum.

Have Un-Reported Income From a Swiss Bank?

Value Your Freedom?


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Deutsche Bank is the Latest Swiss Bank which is Turning Over Names of its US Depositors!

The Swiss subsidiary of Deutsche Bank is cooperating with the IRS and Justice Department to disclose accounts belonging to or affiliated with Americans. U.S. law requires taxpayers holding more than $10,000 in offshore financial assets (such as bank accounts) to report those accounts or face huge penalties. Reporting must be done annually and is done on both Schedule B of one’s income tax return and also on an FBAR form (Foreign Bank Account Report).

According to the Wall Street Journal, “Deutsche Bank to Aid U.S. Justice Department in Swiss Tax Evasion Probe;” Deutsche Bank is cooperating with the U.S. Justice Department in turning over the names of its U.S. account holders with undeclared accounts. The Justice Department believes that Deutsche Bank has been complicit in helping its American clients dodge U.S. taxes.

The Wall Street Journal reports that Deutsche Bank’s Swiss unit has approximately 13,000 clients some of which include Americans.

Although the bank will avoid prosecution, it will still be subject to stiff fines. Those fines can be reduced if the bank can get U.S. customers to waive their privacy rights under Swiss law. Customers who refuse to permit disclosure will likely see their accounts closed and later face prosecution in the U.S. 


On Thursday, August 7, 2014 we posted, "Swiss Banks Have Sent U.S. Client Data To The IRS! Swiss Banks Have Sent U.S. Client Data To The IRS!" Where we discussed that according to Bloomberg - Swiss banks will on the whole meet the deadline for delivering information on offshore accounts to the U.S., improving their chances of settling with the Justice Department this year.



As many as 106 banks have entered the Justice Department’s program to volunteer information on how they helped clients hide money from the Internal Revenue Service, in exchange for leniency. (See our post "Offshore Swiss Bank Account? This May Be Your Last Chance To File A Voluntary Disclosure!")

While some members of the Swiss Parliament continue to fight the repeal of Swiss bank secrecy laws, the IRS is expected to get the names of both present and former holders of Swiss accounts.

Some banks will try to mitigate penalties by providing documents to the Justice Department to support their claims that they encouraged clients to disclose accounts to the IRS through its offshore voluntary disclosure program.  

"In some cases they’re providing the names of account holders

through a purported exception to Swiss banking secrecy

or pursuant to a valid request"

“Some banks are being very creative about what constitutes a waiver of secrecy privileges in order to turn over the account holder name to the Justice Department to reduce their penalties. They’re doing whatever they can to reduce the bank’s fine.”

Taxpayers who wish to take advantage of the OVDP 

Must Act Quickly!  

The US Can Use Swiss Data for Enforcement Actions!  

The new agreement makes clear that “personal data provided by the Swiss banks… will be used and disclosed only for purposes of law enforcement (which may include regulatory action) in the United States or as otherwise permitted by US law.”

 

Have Un-Reported Income From a Swiss Bank?

Value Your Freedom?

Contact the Tax Lawyers at

Marini & Associates, P.A.

  

for a FREE Tax Consultation Contact US at

www.TaxAid.us or www.TaxLaw.ms

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