March 29, 2011
The IRS released its 2010 IRS Data Book earlier this month, showing trends in agency activities for the fiscal year (see IRS Collected $2.3 Trillion in FY2010). The statistics showed that the IRS audited 18.4 percent of taxpayers whose incomes exceeded $10 million last year, compared to 10.6 percent in 2009, according toBloomberg.com.
Those whose adjusted gross incomes ranged from $5 million and $10 million had the largest jump in audit rates, at 11.6 percent last year, a 55 percent increase, compared to 7.5 percent in 2009. Those who earned between $75,000 and $100,000 a year had only a 0.64 percent audit rate, giving them the best odds of avoiding an audit. Audit rates for those earning between $1,000 and $75,000 last year remained about the same as the prior year, according to the Huffington Post.
The IRS audited 1.58 million tax returns last year, or approximately 1.11 percent of all the tax returns it received. The audits cost the IRS 53 cents for every $100 it collected last year, up 3 cents from 2009. IRS criminal investigations also jumped 14.2 percent in 2010 compared to 2009.
March 20, 2011
IRS and immigration are working together. If a foreign executive visits the United States five times a year and works here and if eachh trip is for a week. The visitor owes U.S. income tax on one-tenth (5/52) of his foreign salary. The IRS tax scheme is outlined below:
- The Taxation of Nonresident Alien US Visitors
- Who Must File an Income Tax Return
- What Income Is Taxed
- What Tax Forms You May Need
- Income Tax Withholding
- When and Where To File
- Departing Aliens and the Sailing or Departure Permit
- Write us if you need help US nonresident tax planning for or filing your US nonresident tax returns.
March 16, 2011
The Internal Revenue Service has paid a $1.1 million reward to an anonymous whistleblower for information that exposed an alleged tax fraud scheme by Enron, Bankers Trust and others before the company collapsed. Many of these schemes involved use of offshore accounts and entities to avoid US taxation.
It is one of the few whistleblower rewards the new IRS Whistleblower Office has made since Congress created the IRS Whistleblower Office and a new tax whistleblower program in 2006. The IRS made the award under the previous whistleblower program (known as the IRS 211 program), which allowed the IRS to award whistleblowers nothing or up to 15 percent of the tax funds the IRS recovered as a result of the whistleblower’s information.
The whistleblower, a Wall Street banker who has chosen to remain anonymous to protect his job and career, received the maximum reward of 15 percent.
This same program is being used to catch expatriates living and working abroad with unreported foreign income and assets. Your foreign banker, investments advisor, friend, neighbor or accountant can decide it is more profitable to turn you in to the IRS, than to remain loyal to you. Be careful out there!
March 10, 2011
March 8, 2011
IRS's Deputy Commissioner for Services and Enforcement has issued a Memorandum carrying the penalty framework to be applied to voluntary disclosure requests containing offshore issues, i.e., the 2011 Offshore Voluntary Disclosure Initiative (2011 OVDI). The memo reveals that the penalty framework will be available to anyone that makes a voluntary disclosure after the first disclosure initiative ended in 2009 (the 2009 OVDI). It also opens up the possibility of a refund for those who paid the penalty under the original voluntary disclosure but would have paid less if the new disclosure initiative had applied to them.
Penalty framework of 2011 Program. The new memo from IRS's Deputy Commissioner for Services explains how IRS personnel should execute agreements to resolve tax liabilities related to offshore issues of taxpayers who make voluntary disclosure requests under the second settlement offer. It applies to all offshore voluntary disclosures received after the close of the 2009 OVDI.
Observation: When the first settlement offer was extended to Oct. 15, 2009, IRS made a point of saying that there would be no further extensions and reiterated that taxpayers who did not voluntarily disclose their hidden accounts by the new deadline faced much harsher civil penalties, where applicable, and possible criminal prosecution (see Federal Taxes Weekly Alert 09/24/2009).
For taxpayers that make voluntary disclosure requests, and fully cooperate with IRS both civilly and criminally, the agreements are to take the following shape:
· All taxes and interest due for 2003—2010 are to be assessed. However, for accounts opened or received within this period, all taxes and interest due starting with the year the account opened or was received are to be assessed. The taxpayer also must file or amend all returns, including information returns and Form TOF 90-22.1, Report of Foreign Bank and Financial Accounts, commonly known as an FBAR.
· An accuracy-related penalty must be assessed on all years (no reasonable cause exception may be applied), and failure-to-file and failure-to-pay penalties also must be assessed, where applicable.
· Instead of all other penalties that may apply, including FBAR and information return penalties, an offshore penalty is to be assessed equal to 25% (or 12.5% or 5% if required conditions are met) of the amount in foreign financial accounts/entities and the value of foreign assets acquired with untaxed funds or producing untaxed income in the year with the highest aggregate account/asset value.
The 25% penalty is reduced to 12.5% if the taxpayer's highest aggregate account balance (including the fair market value of assets in undisclosed offshore entities and the fair market value of any foreign assets that were either acquired with improperly untaxed funds or produced improperly untaxed income) in each of the years covered by the 2011 OVDI is less than $75,000.
The 25% penalty is reduced to 5% if the taxpayer: (a) did not open or cause the account to be opened (unless a new account had to be opened upon the death of the owner of the account); (b) exercised minimal, infrequent contact with the account (e.g., to request the account balance); (c) didn't, except for a withdrawal closing the account and transferring the funds to a U.S. account, withdraw more than $1,000 from the account in any year covered by the voluntary disclosure; and (d) can establish that all applicable U.S. taxes have been paid on funds deposited to the account (only account earnings have escaped U.S. tax). For funds deposited before Jan. 1, '91, if no information is available to establish whether such funds were appropriately taxed, it will be presumed that they were. The penalty is also reduced to 5% for taxpayers who are foreign residents and who were unaware that they were U.S. citizens.
The new memo says examiners and their managers have no authority to negotiate different offshore penalty percentages for 2011 OVDI cases.
Refund in the works for some? The new memo says that taxpayers who participated in the 2009 OVDI (whose cases have been resolved and closed with a Form 906 closing agreement) who believe the facts of their case qualify them for the 5% or 12.5% reduced penalty criteria of the 2011 OVDI, but who paid a higher penalty amount under the original settlement agreement, should inform IRS. Upon receipt of this information, the case must be assigned to an examiner to review and make a determination. If a 2009 OVDI case is still open and the facts meet the criteria for the reduced 5% or 12.5% penalty of the 2011 OVDI, the examiner is to assert the reduced penalty as appropriate.
The memo says more guidance will be forthcoming regarding applications of the 2011 OVDI rules to 2009 OVDI cases.
The Memorandum can be viewed on the IRS website at http://www.irs.gov/pub/newsroom/2011_ovdi_field_directive_memo_signed.pdf.
March 6, 2011
OPERATE YOUR BUSINESS FROM A FOREIGN COUNTRY AND SAVE US TAXES, REDUCE YOUR EXPENSES AND PERHAPS IMPROVE YOUR LIFESTYLE.
By Don D. Nelson, Attorney at Law, CPA
You can operate your sole proprietorship or corporate business from a foreign country and secure terrific US tax advantages. Depending on the country you chose, you may reduce your living expenses, and improve your lifestyle. We have helped hundreds of small business owners move their businesses abroad to achieve the maximum US tax savings and achieve an improved lifestyle. As an attorney and CPA we can offer you international legal and tax expertise which is difficult to find except with the largest and most expensive international law and accounting firms.
You can take advantage of the US offshore tax breaks with all types of businesses including almost all internet based businesses, programming, consulting, employee recruiting businesses, and many other types of businesses. What are the US tax advantages?
- For 2010 there is a $91,500 exclusion for both you and your spouse(who also gets an exclusion) from US income taxes on the salary you earn abroad from your business operated abroad if you qualify under the physical presence test or the bonafide residence test.
- You get to deduct part of your foreign housing costs (the foreign housing exclusion or housing deduction) abroad including rents paid, utilities, and maintenance on your personal residence.
- You can claim credits against your US tax for all or part of the foreign income taxes you might have to pay on your income.
- Your can eliminate your US social security or self employment tax burden.
- With the proper structure you can still maintain a US business address and keep your US phones.
- You can set up US pension plans for shelter any earnings in excess of your foreign earned income exclusion.
- You can use a foreign corporation to shelter your business income from US tax until the funds are paid out to you as a salary or as dividends.
- You can stop paying expensive taxes to a US state in most situations.
- Deduct on your tax return the expenses of moving yourself and your business abroad.
- We can help you avoid tax and compliance mistakes which can cost you tens of thousands of dollars in penalties and interest.
With the proper planning you can achieve in most situations significant tax savings relocating your business and your family. Please email or call us secure our expert assistance. We have been helping expats with their foreign businesses and relocation for over 30 years. Email: firstname.lastname@example.org