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Wednesday, February 19, 2014

IR-2014-16: IRS Releases the “Dirty Dozen” Tax Scams for 2014; Identity Theft, Phone Scams Lead List

The IRS has released its dirty dozen list regarding tax scams.  Note that "Hiding Income Offshore" is once again on the list.  Of note is their list of structures that have been used by individuals to hide income, such as "offshore banks, brokerage accounts or nominee entities . . . foreign trusts, employee-leasing schemes, private annuities or insurance plans . . ."  This is why it is essential for proper reporting to be done, not just for individuals but for their related entities as well.



Despite the end of this section, which states that taxpayers should come forward to "pay their fair share," taxpayers who fail to report will oftentimes find themselves having to pay far more than their fair share.



IR-2014-16: IRS Releases the “Dirty Dozen” Tax Scams for 2014; Identity Theft, Phone Scams Lead List

Monday, July 1, 2013

Getting married this summer? The IRS has published some tax tips!

The IRS just published some helpful tax tips for newlyweds.  Here is IRS Summertime Tax Tip 2013-01:

Tax Tips for Newlyweds

Late spring and early summer are popular times for weddings. Whatever the season, a change in your marital status can affect your taxes. Here are several tips from the IRS for newlyweds.

  • It’s important that the names and Social Security numbers that you put on your tax return match your Social Security Administration records. If you’ve changed your name, report the change to the SSA. To do that, file Form SS-5, Application for a Social Security Card. You can get this form on their website at SSA.gov, by calling 800-772-1213 or by visiting your local SSA office.
  • If your address has changed, file Form 8822, Change of Address to notify the IRS. You should also notify the U.S. Postal Service if your address has changed. You can ask to have your mail forwarded online at USPS.com or report the change at your local post office.
  • If you work, report your name or address change to your employer. This will help to ensure that you receive your Form W-2, Wage and Tax Statement, after the end of the year.
  • If you and your spouse both work, you should check the amount of federal income tax withheld from your pay. Your combined incomes may move you into a higher tax bracket. Use the IRS Withholding Calculator tool at IRS.gov to help you complete a new Form W-4, Employee's Withholding Allowance Certificate. See Publication 505, Tax Withholding and Estimated Tax, for more information.
  • If you didn’t qualify to itemize deductions before you were married, that may have changed. You and your spouse may save money by itemizing rather than taking the standard deduction on your tax return. You’ll need to use Form 1040 with Schedule A, Itemized Deductions. You can’t use Form1040A or 1040EZ when you itemize.
  • If you are married as of Dec. 31, that’s your marital status for the entire year for tax purposes. You and your spouse usually may choose to file your federal income tax return either jointly or separately in any given year. You may want to figure the tax both ways to determine which filing status results in the lowest tax. In most cases, it’s beneficial to file jointly.

For more information about these topics, visit IRS.gov. You can also get IRS forms and publications at IRS.gov or by calling 800-TAX-FORM (800-829-3676).


Thursday, June 6, 2013

Have accounts overseas? Reporting deadlines approach!

For those with foreign financial accounts, it's very important that reporting deadlines aren't missed.  Don't forget there are BOTH IRS and Treasury Department filing requirements.

Here is IR-2013-54 from the IRS, which details some of the requirements:

Issue Number:   IR-2013-54

IRS Reminds Those with Foreign Assets of U.S. Tax Obligations

WASHINGTON – The Internal Revenue Service reminds U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2012, that they may have a U.S. tax liability and a filing requirement in 2013.

The filing deadline is Monday, June 17, 2013, for U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular due date of their tax return. Eligible taxpayers get two additional days because the normal June 15 extended due date falls on Saturday this year. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for additional information additional information on extensions of time to file.

Nonresident aliens who received income from U.S. sources in 2012 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 17 depending on sources of income. See Taxation of Nonresident Aliens on IRS.gov.

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B to their tax return. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets.

Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds. Instructions for Form 8938 explain the thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted and what information must be provided.

Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2012 must file Treasury Department Form TD F 90-22.1. This is not a tax form and is due to the Treasury Department by June 30, 2013. For details, see Publication 4261: Do You Have a Foreign Financial Account? Though this form can be filed on paper, Treasury encourages taxpayers to file it electronically.

Taxpayers abroad can now use IRS Free File to prepare and electronically file their returns for free. This means both U.S. citizens and resident aliens living abroad with adjusted gross incomes (AGI) of $57,000 or less can use brand-name software to prepare their returns and then e-file them for free.

Taxpayers with an AGI greater than $57,000 who don’t qualify for Free File can still choose the accuracy, speed and convenience of electronic filing. Check out the e-file link on IRS.gov for details on using the Free File Fillable Forms or e-file by purchasing commercial software.

A limited number of companies provide software that can accommodate foreign addresses. To determine which will work best, get help choosing a software provider. Both e-file and Free File are available until Oct. 15, 2013, for anyone filing a 2012 return.

Any U.S. taxpayer here or abroad with tax questions can use the online IRS Tax Map to get answers. An International Tax Topic Index page was added recently. The IRS Tax Map assembles or groups IRS forms, publications and web pages by subject and provides users with a single entry point to find tax information.  

Have accounts overseas? Reporting deadlines approach!

For those with foreign financial accounts, very important reporting deadlines aren't missed.  Don't forget there are BOTH IRS and Treasury Department department filing requirements.

Here is IR-2013-54 from the IRS, which details some of the requirements:

Issue Number:   IR-2013-54

IRS Reminds Those with Foreign Assets of U.S. Tax Obligations

WASHINGTON – The Internal Revenue Service reminds U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2012, that they may have a U.S. tax liability and a filing requirement in 2013.

The filing deadline is Monday, June 17, 2013, for U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular due date of their tax return. Eligible taxpayers get two additional days because the normal June 15 extended due date falls on Saturday this year. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for additional information additional information on extensions of time to file.

Nonresident aliens who received income from U.S. sources in 2012 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 17 depending on sources of income. See Taxation of Nonresident Aliens on IRS.gov.

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B to their tax return. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets.

Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds. Instructions for Form 8938 explain the thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted and what information must be provided.

Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2012 must file Treasury Department Form TD F 90-22.1. This is not a tax form and is due to the Treasury Department by June 30, 2013. For details, see Publication 4261: Do You Have a Foreign Financial Account? Though this form can be filed on paper, Treasury encourages taxpayers to file it electronically.

Taxpayers abroad can now use IRS Free File to prepare and electronically file their returns for free. This means both U.S. citizens and resident aliens living abroad with adjusted gross incomes (AGI) of $57,000 or less can use brand-name software to prepare their returns and then e-file them for free.

Taxpayers with an AGI greater than $57,000 who don’t qualify for Free File can still choose the accuracy, speed and convenience of electronic filing. Check out the e-file link on IRS.gov for details on using the Free File Fillable Forms or e-file by purchasing commercial software.

A limited number of companies provide software that can accommodate foreign addresses. To determine which will work best, get help choosing a software provider. Both e-file and Free File are available until Oct. 15, 2013, for anyone filing a 2012 return.

Any U.S. taxpayer here or abroad with tax questions can use the online IRS Tax Map to get answers. An International Tax Topic Index page was added recently. The IRS Tax Map assembles or groups IRS forms, publications and web pages by subject and provides users with a single entry point to find tax information.  

Saturday, June 30, 2012

New IRS Program for U. S. Citizens Overseas: Dual Citizens/Those with Foreign Retirement Plans who haven't filed.

New IRS Program for U. S. Citizens Overseas: Dual Citizens/Those with Foreign Retirement Plans who haven't filed:
irs.gov/businesses/sma…

Allows people who owe little tax but failed to file FBARs and tax returns to avoid penalties by becoming compliant. Even late filed retirement elections can be fixed.

The catch? Must be a current nonresident.


- Posted using BlogPress from my iPad

Saturday, April 28, 2012

Are you an employer with a 401(k)? Is your plan compliant?

Are you an employer with a 401(k) plan?

Service providers will soon be required to disclose all of their fees and service charges to plan sponsors (employers).

Beware, as in addition to disclosure to plan sponsors, service providers will also be required to disclose fees and service charges to employees of the employer.

The law requires that fees be reasonable. Dissatisfied employees will be able to complain to the US Department of Labor. Many will be surprised at the amount of the fees.

As such, now is the time to have your plan reviewed by a qualified professional. Said professional should not only check the fee is reasonable, but also inquire as to whether the plan itself is compliant, and has made all the proper elections.

If problems are found, then attorneys and accountants can be brought in to file for governmental voluntary correction programs.

Remember, if employer is caught with significant plan violations by the IRS or the US Department of Labor, then these voluntary correction programs may be unavailable. Significant fines can be assessed for plan violations, and plans can even be disqualified. As such, it pays to be proactive and have your plans reviewed. Many companies rely on third-party administrators to administer their plans. However, the plan sponsor (employer) is still ultimately responsible for any violations.

On a final note, fees are an important factor in determining whether a service provider is appropriate. However, fees should not be the only consideration.

- Posted using BlogPress from my iPad

Sunday, January 15, 2012

Financial Snake Oil: Asset Protection Scams

Here's a typical ad for asset protection services:

Shelter your home, auto, savings, and everything else you own from creditors!

Divorce-proof your assets!

Block the IRS from levying your wages or seizing your property!

Gain total financial privacy!

Open a bank or brokerage account without providing your Social Security number!

The litigation explosion, Why you should have a corporation - even if you don't own a business!

Sounds great, right?  Google "bullet proof asset protection" (in quotes) and almost 14 thousand websites show up.  

Here's the problem: bullet proof asset protection is a lie.  Oh, and that "ad" above?  It's from Bill Reed, and according to Webwire, "A federal judge in St. Louis has permanently barred William S.Reed, the founder of a so-called “asset protection” business, from preparing fraudulent liens for customers and helping customers conceal their funds by having shell corporations own their bank accounts, the Justice Department announced today."

Certainly, there are legitimate things one can do to better protect assets.  However, 1) nothing is 100% effective, 2) nothing will allow you to completely avoid your tax obligations, 3) nothing will allow you to commit fraud and crime unimpeded.

I am writing this article because from time to time I see high-pressure "planners" pitch expensive "trusts" to unsuspecting people here in Cobb County, Georgia.  They claim that the trusts will avoid creditors, taxes, and medicaid recovery.  Typically, these are just revocable trusts.  Since they are revocable, they don't protect against anything and are really just for avoiding the probate process.  In Georgia, revocable trusts are subject to the creditors of one's estate at death if there are insufficient assets in the probate estate.  As such, they are NOT asset protection tools.  Moreover, these trusts tend to be written by attorneys in other states.  What a terrible situation to have to deal with: a trust or a Will that has a different state's law apply for no legitimate reason.  Remember: attorneys make a lot more money from bad Wills and trusts going to court then they do from planning.  Probate litigation can easily cost tens of thousands of dollars.  It is important therefore to make sure that the attorney you hire is very experienced, even if you have a small estate.  The process here in Georgia to probate is generally the same regardless of the size of the estate, and I have seen plenty of $20,000 estates end up having $20,000 of attorneys fees due to poorly drafted documents.  I have pretty much never seen a non-attorney completely and properly draft their own Will (but again just going to some random attorney won't fix the problem....attorneys need to be licensed in your state and experienced at drafting Wills.  Even better if they have probate court experience defending their documents).

Now, back to the problems with "bullet proof asset protection".

Problem #1: Judges: Judges dislike defendants telling them they can't do something.  Many of the asset protection planners have no courtroom experience.  A judge isn't going to listen to the idea that a defendant cannot bring back assets that they embezzled because of some fancy Cook Island trust.  As has been shown in some famous cases, such as the Lawrence case, the judge will simply incarcerate the defendant standing right in front of them for contempt, until such time as the assets are repatriated.  The worst part about this is that this defendant may very well be unable to bring the assets back, yet the judge won't care.  Why?  Because the defendant is responsible for the problem, as the defendant put the assets in the trust.  

I had a law professor once tell me, "If you cannot explain something to a judge on a 4th grade level, then you are going to lose."  Although this may be a bit of an exaggeration, it is not much of one. Judges like short and simple explanations (and explanations that respect the judges power).  Therefore, weaving a complex web of corporations, trusts, secret bank accounts, etc. will simply look like deception to a judge.

Silly arguments don't go over too well.  Several years ago snake oil salesmen pitched Nevada corporations as "bullet proof asset protection" due to this made up idea of "bearer shares".  The idea was that you set up a Nevada corporation, and had shares which state that whoever holds the shares owns the corporation.  You then give the shares away to a person, who gives them away to another person.  Then, if called into court, you could "truthfully" state that you do not know who actually owns the corporation.  The problem with this?  Each transfer of the corporation would be a taxable event, and would be reportable on tax returns.  Failure to so report could mean either 1) this whole bearer share thing is a sham that should be ignored by the court, or 2) that the parties are committing tax fraud.  If tax returns are filed, then they can easily be obtained by a Plaintiff.  Nevada has since amended their laws to specifically disallow bearer shares, since this scam was giving Nevada a bad reputation. 

Problem #2: Divorce, particularly with minor children:  Judges have taken a dim view of the use of asset protection trusts to avoid child support obligations, and have not hesitated to incarcerate those who defy repatriation orders (even when it truly has been impossible to bring back assets).

Problem #3: Fraudulent transfers: Court can look back several years and undo transfers of assets that were for less than full value.  

Problem #4: Bankruptcy:  Bankruptcy judges have a great deal of power to bring assets back into the bankruptcy estate.  Moreover, failure to list assets can be a reason to deny a discharge and dismiss a bankruptcy (which would make a debtor continue to be liable to creditors).  Don't forget, these bankruptcy courts can use the same fraudulent laws to undo transfers for less than value.  I saw this happen to investors who bought distressed real estate a few years ago from desperate people who then declared bankruptcy.  The bankruptcy trustees argued that the real estate was bought for less than reasonably equivalent value and that therefore the sales of the property should be undone (and notice that there does not actually have to be any bad intent, just that it was for less than reasonably equivalent value).

Problem #5: The very determined creditor: Many of the asset protection plans are more like deterrents to litigation than they are "bullet proof".  A determined creditor could sue anywhere, and could even utilize tools such as involuntary bankruptcies (which may expand the types of assets that could be available to creditors, in addition to being able to utilize the powers of the bankruptcy trustee).  Contrary to much of what is written on the internet, it is often much cheaper to initiate litigation than it is to conduct extensive background checks, and then to develop what assets and entities there are through the discovery process.

Problem #6: The IRS:  Don't cheat them.  Bad idea.  There is extensive reporting now for US citizens and tax residents (see some of my other blog posts).  The consequences for failure to file can be dire, including criminal penalties.  A department at the Treasury Department that looks into failure to file foreign bank account reports is titled "Global Financial Crimes".

Problem #7: Scams:  I had clients be pitched by Stanford Group before Stanford Group was seized by the government (the clients fortunately did not invest with them). Part of their pitch was that by holding your money offshore it was asset protected.  The problem? The government claims the entire operation was a Ponzi scheme.  Don't forget, you can get judgments against wrongdoers, but that doesn't bring the money back if it has already been spent, and the con artist is insolvent.

Problem #8: Loss of control over assets:  This problem exists even in legitimate plans.  If you have complete control over an asset so can your creditors generally.  Most of the assets protection structures will have at least some restrictions over your control of an asset, which may be unattractive.

Problem #9: Medicaid Recovery:  Like fraudulent transfers, medicaid has a lookback period for transfer that are for less than equivilent value.  Also, if you continue to use an asset, such as a house, it may not be considered transferred.

The solution?:  Make sure that you do your planning before there are any lawsuits and while you are solvent. Be especially careful if you are thinking you will need nursing home medicaid in the next few years (and use a good elder care planner).  Obviously, don't commit fraud and crimes.  Have legitimate non-asset protection reasons for whatever structure you set up.  Don't try to just hide assets as you could be forced to answer discovery questions anyway, and committing perjury is not a wise asset protection plan.  Use counsel that is experienced in asset protection and is familiar with the court process, possible IRS challenges, etc.  There aren't too many solutions to the loss of control problem mentioned above, and there will simply have to be cost/benefit/risk analysis done of any proposed structure.