tag:blogger.com,1999:blog-17115371573816280472024-03-09T00:44:11.594-05:00The Buzz About TaxesTake the headache out of searching for answers on taxes. Check out my blog for the latest news for Individuals & Small Business Owners. Drop a word! Spread the buzz! The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.comBlogger142125tag:blogger.com,1999:blog-1711537157381628047.post-4250086315919804942024-03-01T05:00:00.006-05:002024-03-01T05:00:00.251-05:00What, Why, When, And Who Needs Form W-8 BEN? <p> </p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjpAOE5-yHkUzHPO9NdPnrSH7S4Ul5KcEAk4pGPW7MfNJL13QnVqmp1HEdbgfmU2xS7edIAazvfr2kPecbV0D1IMbbiqjYE2Eo_senNS2NTtoGezdSpUKpRE2it3wlD-doU5Vlw2AVROMHc1RY4DtOcoQOCsK5351XPZ4HIt1ccuBAS3MwpkMPz-jy3EAjM/s5000/pexels-c%C3%A9line-7325997.jpg" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="5000" data-original-width="3476" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjpAOE5-yHkUzHPO9NdPnrSH7S4Ul5KcEAk4pGPW7MfNJL13QnVqmp1HEdbgfmU2xS7edIAazvfr2kPecbV0D1IMbbiqjYE2Eo_senNS2NTtoGezdSpUKpRE2it3wlD-doU5Vlw2AVROMHc1RY4DtOcoQOCsK5351XPZ4HIt1ccuBAS3MwpkMPz-jy3EAjM/s320/pexels-c%C3%A9line-7325997.jpg" width="222" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Pic Courtesy: pexels.com pexels-céline-7325997</td></tr></tbody></table><span style="font-size: medium;"><br /><span>I thought I would start off this post with how I started writing my blog and posting it on Twitter back in 2013. It is funny though isn't it, making this a "Back In The Day" post about Social Media, considering how quickly everything changes on Social Media? You see tax veterans jostling for space with not-veterans disbursing minuscule sound bytes of tax knowledge on popular platforms. I admit, I too have jumped on that wagon. I want to make sure I am one of the voices who talk about the right way of doing things without sensationalizing tax issues. </span></span><p></p><p><span style="font-size: medium;">Why are we talking about this? Lately, I have had individuals contact me asking about a US payor withholding 30% tax before disbursing their payments and what they could do to mitigate the withholding. On a closer look, we found that the payors DID NOT need to withhold 30% tax, but guess where they got their advice from? We will come back to that later. </span></p><p><span style="font-size: medium;">But first we will address the What, Why, When, and Who of Form W-8 BEN? </span></p><p><span style="font-size: medium;"><b>WHAT? WHY?:</b> Form W-8 BEN is required to be filed by foreign persons <b><i>for claiming exemption from or reducing the rate of tax withholding</i></b> on their US source income under Chapters 3 and 4 of the Internal Revenue Code.</span></p><p><span style="font-size: medium;">Chapter 3 deals with the source and types of income and chapter 4 deals with establishing status as a foreign person. </span></p><p><span style="font-size: medium;">Generally, these US income sources are:</span></p><p></p><ul style="text-align: left;"><li><span style="font-size: medium;">Interest </span></li><li><span style="font-size: medium;">Certain OID Interest</span></li><li><span style="font-size: medium;">Dividends</span></li><li><span style="font-size: medium;">Rents</span></li><li><span style="font-size: medium;">Royalties</span></li><li><span style="font-size: medium;">Premiums</span></li><li><span style="font-size: medium;">Annuities</span></li><li><span style="font-size: medium;">Compensation for, or in expectation of, services performed</span></li><li><span style="font-size: medium;">Substitute payments in a securities lending transaction</span></li><li><span style="font-size: medium;">Other FDAP {fixed or determinable annual or periodic} gains, profits or income such as: </span></li><ul><li><span style="font-size: medium;">Foreign partner's distributive share of income under §1446.</span></li><li><span style="font-size: medium;">Amount realized from the transfer of partnership interest, if the gain from the transfer can be treated as effectively connected gain under §864.</span></li></ul></ul><p></p><p></p><div><span style="font-size: medium;">The tax @ 30% is imposed on gross amount of payment and is generally collected by withholding at source under §1441 on the above types of income.</span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">Other US income sources that may require a Form W-8 BEN are:</span></div><p></p><div><ul style="text-align: left;"><li><span style="font-size: medium;">Broker proceeds;</span></li><li><span style="font-size: medium;">Short-term (183 days or less) OID;</span></li><li><span style="font-size: medium;">Bank deposit interest;</span></li><li><span style="font-size: medium;">Foreign source interest, dividends, rents, or royalties;</span></li><li><span style="font-size: medium;">Proceeds from a wager placed by a nonresident alien individual in the games of blackjack, baccarat, craps, roulette, or big-6 wheel; and</span></li><li><span style="font-size: medium;">Amounts of United States source gross transportation income, as defined in section 887(b)(1), that are taxable under section 887(a).</span></li></ul><div><span style="font-size: medium;"><b>WHEN?: </b>Give Form W-8 BEN to the person requesting it before the payment is made to you, credited to your account, or allocated<b>. </b>The payor retains this form in their records. It is <b>not submitted</b> to the Internal Revenue Service. </span></div></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">Submit Form W-8 BEN when requested by the withholding agent, payer, or FFI <b><i>whether or not</i></b> you are claiming a reduced rate of, or exemption from, withholding.</span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">The Form generally remains in effect for three calendar years starting with the period in which it was first provided. </span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">If there is a change in circumstances, the payor/ withholding agent must be notified within 30 days of the change. A new Form must be submitted. </span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">There are other expiration dates for purposes of chapter 4 and periods of validity for chapter 3. Links provided in Bibliography below. </span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;"><b>WHO?:</b> You must provide a to the withholding agent/ payor/ payment settlement entity, the Form W-8 BEN if you are any of the following: </span></div><div><ul style="text-align: left;"><li><span style="font-size: medium;">A non-resident individual/ person who is a beneficial owner of an amount subject to withholding. </span></li><li><span style="font-size: medium;">An account holder of a Foreign Financial Institution documenting yourself as a nonresident alien. </span></li><li><span style="font-size: medium;">A Single owner of a Disregarded Entity. </span></li><li><span style="font-size: medium;">A seller of a life insurance contract under §6050Y. </span></li></ul><div><span style="font-size: medium;">If you become a US citizen/ resident alien/ tax resident by passing the Substantial Presence Test, you will need to notify the withholding agent/ payor of the change within 30 days and provide a Form W-9 instead. </span></div></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">Coming back to our story from earlier, the payors did not need a Form W-8 BEN because the income was not sourced to the United States. We needed to dig into the story a little bit to make sure that the income was not </span><span style="font-size: large;">FDAP {fixed or determinable annual or periodic} gains, profits or it was not effectively connected income for US taxation. </span></div><div><span style="font-size: large;"><br /></span></div><div><span style="font-size: large;">Guess that is a post for another day! </span></div><div><span style="font-size: large;"><br /></span></div><div><span style="font-size: large;">As always, please consult with tax professionals who are knowledgeable with foreign income/ tax compliance if you have questions or any of the above applies to you. </span></div><div><br /></div><p></p><div><span style="font-size: medium;"><b><i>Bibliography: </i></b></span><span style="background-color: white; color: #1b1b1b;"><span style="font-family: trebuchet; font-size: x-small;"><i><b><a href="https://www.law.cornell.edu/cfr/text/26/1.1471-3" target="_blank">Chapter4- Period of Validity-Regulations section 1.1471-3(c)(6)(ii)</a></b></i></span></span><b><i><span style="font-family: trebuchet; font-size: x-small;"><a href="https://www.law.cornell.edu/cfr/text/26/1.1471-3" target="_blank"> </a></span><span style="font-size: medium;">; </span></i></b><span style="background-color: white; color: #1b1b1b;"><i><b><span style="font-family: trebuchet; font-size: x-small;"><a href="https://www.law.cornell.edu/cfr/text/26/1.1441-1" target="_blank">Chapter 3- Period of Validity-Regulations section 1.1441-1(e)(4)(ii)</a>; </span></b></i></span></div><p></p><p><span style="font-size: medium;"><b><i><a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">Our obligatory disclaimer is here. </a></i></b></span></p>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0Plymouth, MI 48170, USA42.3714253 -83.470213214.061191463821153 -118.6264632 70.681659136178837 -48.3139632tag:blogger.com,1999:blog-1711537157381628047.post-38860110354748534202024-02-01T05:00:00.034-05:002024-02-01T05:00:00.243-05:00Social Security Benefits For a Non-US Citizen Outside The United States<p></p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjvVjxidudzVliVv4_NH_bX72ohthyNmifxy6QkaTnvg-AOhzUMboymYVNd8CRdIfjPRZRh9b45UYMFE87nw1FmhdPzow_PllpAORVWO3xusUNHvSkjZhtbsOBo8iSh9wUoHvnnxRol3cDhbCov1IDnGe_2lziKxz1pKLZXdSuZey3m0T539LbpiVXrfruB/s5184/pexels-enrico-perini-705423.jpg" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="5184" data-original-width="3456" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjvVjxidudzVliVv4_NH_bX72ohthyNmifxy6QkaTnvg-AOhzUMboymYVNd8CRdIfjPRZRh9b45UYMFE87nw1FmhdPzow_PllpAORVWO3xusUNHvSkjZhtbsOBo8iSh9wUoHvnnxRol3cDhbCov1IDnGe_2lziKxz1pKLZXdSuZey3m0T539LbpiVXrfruB/s320/pexels-enrico-perini-705423.jpg" width="213" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><span face="PlusJakartaSans, -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Oxygen, Cantarell, "Helvetica Neue", Ubuntu, sans-serif" style="font-size: 14px; text-align: start; white-space: pre;">Photo by Enrico Perini: https://www.pexels.com/photo/road-between-buildings-705423/</span></td></tr></tbody></table><br /><div><br /></div><div><span style="font-family: verdana; font-size: medium;">Almost all employees in the United States, with very few exceptions, pay FICA and Medicare taxes. These are payroll taxes in addition to their federal and state income tax withholdings, health insurance contributions, and other deductions. No wonder then the most Frequently Asked Question is: "Can I and <i>how</i> can I recoup the FICA and Medicare contributions?". </span></div><div><span style="font-family: verdana; font-size: medium;"><br /></span></div><div><span style="font-family: verdana; font-size: medium;">Let us step back and look at some scenarios: If one is in the United States on a non-immigrant visa and does not plan to settle here, the payroll tax contribution feels like a significant chunk of money. Some non-immigrant visas contain a clause where the employers may not deduct FICA and Medicare taxes, for example, someone on a Student Visa or the F-1, but for other non-immigrant work visas such as H-1Bs or L-1s, etc., payroll tax withholdings are mandatory. </span></div><div><span style="font-family: verdana; font-size: medium;"><br /></span></div><div><span style="font-family: verdana; font-size: medium;">Naturally, those on non-immigrant work visas who may not wish to settle in the US permanently wonder what they are paying into and if they can benefit from these contributions when they retire. </span></div><div><span style="font-family: verdana; font-size: medium;"><br /></span></div><div><span style="font-family: verdana; font-size: medium;">In other cases, we may have a United States citizen or a Green Card holder who has moved abroad to retire and they may like to receive their Social Security </span><span style="font-family: verdana; font-size: large;">{</span><span style="font-family: verdana; font-size: large;">SS</span><span style="font-family: verdana; font-size: large;">} benefits in the country they currently reside in. In most cases receiving benefits as a US citizen/ Green Card holder while living abroad is not an issue unless one lives in a sanctioned country. </span></div><div><span style="font-family: verdana; font-size: medium;"><br /></span></div><div><span style="font-family: verdana; font-size: medium;">There are also other scenarios where surviving/ divorced spouses/ dependents minors or those with special circumstances living outside the US may need to apply for SS benefits. </span></div><div><span style="font-family: verdana; font-size: medium;"><br /></span></div><div><span style="font-family: verdana; font-size: medium;">There are many aspects and nuances to these scenarios. The Social Security Administration {SSA} website is a rich source of information but navigating it can take time & effort. </span></div><div><span style="font-family: verdana; font-size: medium;"><br /></span></div><div><span style="font-family: verdana; font-size: large;">Hence, let us focus on one of the scenarios in this blog post, where a non-US citizen or a non-US citizen spouse/ dependent might want to apply for benefits while living abroad. </span></div><div><span style="font-family: verdana; font-size: medium;"><br /></span></div><div><span style="font-family: verdana; font-size: medium;"><b><u>SS Benefits Rules for a Non-US Citizen Abroad:</u></b></span></div><div><span style="font-family: verdana; font-size: medium;"> </span></div><div><ul style="text-align: left;"><li><span style="font-family: verdana; font-size: medium;">Generally, a non-US citizen <i>cannot receive benefits after their 6th calendar month outside the US</i>. Depending on how long one has been outside the US, one can make visits to the US for specific periods to continue to claim benefits. In most cases, one could visit the US for 30 days every 6 months to continue receiving benefits. For some reason, if the SSA stopped your benefits, you would have to return and remain lawfully present for an <i>entire calendar month </i>to start receiving benefits again. </span></li><li><span style="font-family: verdana; font-size: medium;">You <i>may qualify for an exception</i> to the rule above depending on the country you are a citizen of and the country where you expect to reside while receiving SS benefits. There is a handy tool on the SSA website that one can use to find out if you qualify for this exception. A link to the calculator is in the bibliography below. </span></li><li><span style="font-family: verdana; font-size: medium;">You may <i>need to pay taxes on this income in your resident country</i>. The US has Totalization Agreements with about 30 countries around the world. Totalization Agreements eliminate dual taxation of the benefits and look to fill the gaps in benefits coverage for those workers who have traveled back & forth between the US and their country of residence. There is a chance that you may end up paying taxes on the benefits if you reside in a country with no Totalization Agreement. </span></li><li><span style="font-family: verdana; font-size: medium;">Some countries may have partial <i>Tax Treaty coverage</i> to mitigate double taxation of SS benefits. </span><span style="font-family: verdana; font-size: medium;">SSA will withhold 30% federal income tax from 85% of your benefits if there is no treaty reduction of the rate. </span></li><li><span style="font-family: verdana; font-size: medium;">If you need to claim SS benefits <i>as a dependent or a survivor,</i> there are additional requirements to be fulfilled depending on whether the benefits were based on the earnings of a citizen or a non-citizen and it also depends on which country you are a citizen of and where you live currently. </span></li><li><span style="font-family: verdana; font-size: medium;">The SSA will <i>send you a questionnaire</i> to complete every year or every 2 years. Your benefits will stop if you do not complete this questionnaire and return it to the SSA. </span></li><li><span style="font-family: verdana; font-size: medium;">Many other <i>conditions</i> might also <i>stop your benefits</i>, such as working, improvement of disability, marriage, a child turning 18, death, etc. A "Windfall Elimination Provision {WEP} might also reduce/ eliminate your benefits. </span></li></ul><div><span style="font-family: verdana; font-size: medium;">If you have further questions about the above, I recommend getting in touch with the SSA directly. A list of locations and contact information for the Federal Benefits Unit in various countries is provided in the bibliography link below. </span></div></div><div><span style="font-family: verdana; font-size: medium;"><br /></span></div><div><i><br /></i></div><div><i>Bibliography: <a href="https://www.ssa.gov/international/payments_outsideUS.html" target="_blank">SSA Payments Abroad Screening Tool</a>; <a href="https://www.ssa.gov/pubs/EN-05-10137.pdf" target="_blank">SSA Publication for Receiving Payments While Living Outside the US</a>; <a href="https://www.ssa.gov/foreign/foreign.htm" target="_blank">Foreign Countries Served by Social Security</a>.</i></div><div><i><br /></i></div><div><i><a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank"><span style="font-family: verdana; font-size: medium;">Our obligatory disclaimer is here. </span></a></i></div>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0Plymouth, MI 48170, USA42.3714253 -83.470213214.061191463821153 -118.6264632 70.681659136178837 -48.3139632tag:blogger.com,1999:blog-1711537157381628047.post-56236711977145876932024-01-01T05:00:00.001-05:002024-01-01T05:00:00.239-05:00State Apron Strings Still Attached Even While Living Abroad? Some Options Here! <br /><br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnqCZA9P7zVq6diVEl2WAGKdWG_cS4J1iiIyWo5AvGcki81EUASJl0ZOwN5qJ0YVEiBc_AccIxwiNwWdOvv7v4U6S1-C4IINoyWj7VkHnSNVWIOdG-pclu25WYNMtp58PSwbRyjjXZRlbPUh5o95t5R4yBDxvtwbP23__bS-fN05EfxwvsQSxtVBBXJvL6/s8049/pexels-julia-volk-5193270.jpg" style="display: block; margin-left: auto; margin-right: auto; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="8049" data-original-width="5366" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnqCZA9P7zVq6diVEl2WAGKdWG_cS4J1iiIyWo5AvGcki81EUASJl0ZOwN5qJ0YVEiBc_AccIxwiNwWdOvv7v4U6S1-C4IINoyWj7VkHnSNVWIOdG-pclu25WYNMtp58PSwbRyjjXZRlbPUh5o95t5R4yBDxvtwbP23__bS-fN05EfxwvsQSxtVBBXJvL6/s320/pexels-julia-volk-5193270.jpg" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><span face="PlusJakartaSans, -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Oxygen, Cantarell, "Helvetica Neue", Ubuntu, sans-serif" style="font-size: 14px; text-align: start; white-space: pre;">Photo by Julia Volk: https://www.pexels.com/photo/view-of-the-church-of-sao-vicente-de-fora-in-lisbon-portugal-5193270
</span></td></tr></tbody></table><p style="text-align: left;"><span style="font-family: verdana;">The world has always been in motion, right? The urge to travel and explore did not stop with Marco Polo and Christopher Columbus. Current post pandemic times have given workers a lot of flexibility especially about going into work. We see unprecedented levels of global movement among people between states and even countries. </span></p><p style="text-align: left;"><span style="font-family: verdana;">As more US citizens and green card holders travel globally for work, it is not surprising they wonder if there is a need to file a state tax return. </span><span style="font-family: verdana;">Let's drill into that today. </span></p><p style="text-align: left;"><span style="font-family: verdana;"><b><i><u>Plan Before The Move.</u></i></b> </span></p><p style="text-align: left;"><span style="font-family: verdana;">The relationship you have with the state before you move is an important factor in determining whether you will continue to pay taxes to that state even after you have relocated overseas. </span></p><p style="text-align: left;"><span style="font-family: verdana;"><i><b>The factors are:</b></i> </span></p><p style="text-align: left;"></p><ul style="text-align: left;"><li><span style="font-family: verdana;">Do you have a State ID or a Driver's License? </span></li><li><span style="font-family: verdana;">Are you registered to vote?</span></li><li><span style="font-family: verdana;">Do you own property?</span></li><li><span style="font-family: verdana;">Do you maintain a mailing address?</span></li><li><span style="font-family: verdana;">Do you have income sourced from the state?</span></li><li><span style="font-family: verdana;">Do you consider the state your "permanent home"? </span></li></ul><p></p><p style="text-align: left;"><span style="font-family: verdana;">Not only that, it is also important to educate oneself if the state considers you a resident based on these factors. </span></p><p style="text-align: left;"><span style="font-family: verdana;">Some states go by the 180 days rule to determine taxable residency and tax you only on the income sourced to the state. If this is the case, you do not have to file a state tax return even though you are required to continue to file a federal return. {<a href="https://www.thebuzzabouttaxes.com/2017/06/us-expat-mistakes-part-i.html" target="_blank">More about the federal tax filing requirement on an older post here.</a>}</span></p><p style="text-align: left;"><span style="font-family: verdana;">There are some states that make it difficult to sever ties, especially <b><i>California, New Mexico, sometimes New York, South Carolina and Virginia</i></b>. </span></p><p style="text-align: left;"><span style="font-family: verdana;">If you have voter registration or hold a state ID or Driver's License or even just have a bank account connected to one of these states, you may be considered a "resident" for tax purposes and will have to report all your income to the state & pay taxes. </span></p><p style="text-align: left;"><span style="font-family: verdana;">Remember, most states do not offer a Foreign Tax Credit {FTC} on overseas income unlike that available on the federal tax return. </span></p><p style="text-align: left;"><span style="font-family: verdana;">If you have a connection with one of these states, you may have to make sure you are able to <i><b>sever all</b></i> connections <b><i>before </i></b>moving overseas. </span></p><p style="text-align: left;"><span style="font-family: verdana;"><b><i><u>What Is The Plan?</u></i></b></span></p><p style="text-align: left;"><span style="font-family: verdana;">The most feasible way to mitigate state taxes if living abroad is to consider setting up "residency" in a state with no income tax. </span></p><p style="text-align: left;"><span style="font-family: verdana;">States with no income tax are, Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Tennessee and New Hampshire are also good options since they only tax interest & dividends sourced to the state. </span></p><p style="text-align: left;"><span style="font-family: verdana;">If your move overseas is permanent, remember you will still need to maintain an address, bank account and possibly your voter ID state-side for various reasons.</span></p><p style="text-align: left;"><span style="font-family: verdana;">You may need to continue to file a non-resident state tax return to prove that you did not have any income sourced to the state. </span></p><p style="text-align: left;"><span style="font-family: verdana;"><b><i><u>Have You Heard Of the California Safe Harbor Exception?</u></i></b></span></p><p style="text-align: left;"><span style="font-family: verdana;">There is a narrow chance if you are or were a resident of California and plan to or have moved overseas. Under the safe harbor exception, former California residents can be considered to be non-resident if they remain outside the state for more than 546 days <i><b>and</b></i> the stay is related to their employment. </span></p><p style="text-align: left;"><span style="font-family: verdana;"><u>The conditions to the safe harbor exception are:</u></span></p><p style="text-align: left;"></p><ol style="text-align: left;"><li><span style="font-family: verdana;">You cannot have received more than $200,000 in intangible income per tax year at any time through out the employment contract. </span></li><li><span style="font-family: verdana;">The principal reason to move out of California is not to avoid income taxes. </span></li></ol><p style="text-align: left;"><span style="font-family: verdana;"><b><i><u>Oops- I Forgot To File My State Tax Returns! </u></i></b></span></p><p style="text-align: left;"><span style="font-family: verdana;">Well, you can play catch up and file your state tax returns, know that there might be interest & penalties tacked on for those states/ years you owed state income tax. </span></p><p style="text-align: left;"><span style="font-family: verdana;">Do you still have questions? I always recommend working with a tax professional if your filings are complex. Make sure you are working with someone who is aware of the nuances of a US Citizen living abroad. </span></p><p style="text-align: left;"><span style="font-family: verdana;"><br /></span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: x-small;"><b><i>Bibliography: <a href="https://www.irs.gov/businesses/small-businesses-self-employed/state-government-websites" target="_blank">IRS- State Government Websites</a>; <a href="https://www.ftb.ca.gov/file/personal/residency-status/part-year-and-nonresident.html" target="_blank">California FTB</a>; <a href="https://www.ftb.ca.gov/file/personal/residency-status/part-year-and-nonresident.html#Leaving-California-" target="_blank">Moving Out of California</a>; <a href="https://www.ftb.ca.gov/forms/misc/1100.html" target="_blank">CA FTB Pub.1100- Taxation of Non Residents & Individuals Who Change Residency</a>; <a href="https://www.ftb.ca.gov/forms/2022/2022-1031-publication.pdf" target="_blank">CA FTB Pub. 1031 Guideline for Determining Residency Status (2022)</a>. </i></b></span></p><p style="text-align: left;"><span style="font-family: verdana;"><b><i><a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">Our obligatory disclaimer is here.</a></i></b> </span></p>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-88562639351779551062023-12-01T07:00:00.002-05:002023-12-01T07:00:00.149-05:00SECURE 2.0- New Retirement Rules-What You Should Know for 2024!<p></p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgCZFg-2rR_IpryAhQlii2hKzOnnW5m1irIu4wV9Qv0FHBVNmwrAO66E0GYrFRyFlD-z9mo0BB_HjWJZl54wAZ6LD3yzSG_pz0nbUrLtteTlnyDYfE91xykh5V6qjw_0QBL-sJxfNaGpssdr4oQ6UNW1KvdSXkvOpdQaY8ae5ZooRsjEqSl1PNan8BG_5L7/s5184/pexels-setu-chhaya-6876383.jpg" style="margin-left: auto; margin-right: auto;"><span style="font-family: verdana;"><img border="0" data-original-height="3456" data-original-width="5184" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgCZFg-2rR_IpryAhQlii2hKzOnnW5m1irIu4wV9Qv0FHBVNmwrAO66E0GYrFRyFlD-z9mo0BB_HjWJZl54wAZ6LD3yzSG_pz0nbUrLtteTlnyDYfE91xykh5V6qjw_0QBL-sJxfNaGpssdr4oQ6UNW1KvdSXkvOpdQaY8ae5ZooRsjEqSl1PNan8BG_5L7/s320/pexels-setu-chhaya-6876383.jpg" width="320" /></span></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><span style="font-family: verdana; font-size: 14px; text-align: start; white-space: pre;">Photo by Setu Chhaya: https://www.pexels.com/photo/person-in-black-jacket-walking-on-wooden-bridge-6876383/
</span></td></tr></tbody></table><span style="font-family: verdana;"><br />I have always been intrigued by the acronyms that get selected for legislations passed. For a word geek such as myself, I feel like that would be a cool job to have! Don't you think? </span><div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">The SECURE {Setting Every Community Up for Retirement Enhancement} Act was passed end of 2019. The 2019 Act was "designed to encourage more employers to offer retirement plans and incentivize more employees to participate in them". We went over some major provisions of <a href="https://www.thebuzzabouttaxes.com/2019/12/secure-act-big-retirement-plan-changes.html" target="_blank">SECURE 1.0 on my post here</a>. </span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">SECURE Act 2.0 added more provisions. A few of these will go into effect in 2024 and others further down the road. Let's take a look at some of the most important provisions:</span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;"><i><b><u>Required Minimum Distributions: </u></b></i></span></div><div><span style="font-family: verdana;"><i><b><u><br /></u></b></i></span></div><div><ul style="text-align: left;"><li><span style="font-family: verdana;">You had to generally take your required minimum distributions {RMDs} beginning at age 72 before SECURE 2.0. <u>Now the "RMD age" is 73 with effect from January 1st, 2023. </u></span></li><li><span style="font-family: verdana;">If you turned 72 in 2022, you had to take your 1st RMD by April 1st, 2023. </span></li><li><span style="font-family: verdana;">In 10 years, the RMD age will be 75. </span></li><li><span style="font-family: verdana;">The RMD rules for Inherited IRAs have been delayed until 2024. </span></li><li><span style="font-family: verdana;">The penalty for failing to take an RMD is down to 25%. (It was a whopping 50% before.)</span></li><li><span style="font-family: verdana;">BIG one: Roth 401(k) accounts are NOT subject to RMD rules under the new Act. Earlier this applied only to Roth IRAs and account holders typically rolled over their Roth 401(k)s to an IRA. Rule kicks in 2024. </span></li><li><span style="font-family: verdana;">The Roth rule above ONLY applies to the account holder before they die. </span></li><li><span style="font-family: verdana;">RMDs from annuities in retirement savings accounts can now be combined. </span></li></ul></div><div><br /></div><div><span style="font-family: verdana;"><i><b><u>Catch Up Contribution Limits</u></b></i></span></div><div><span style="font-family: verdana;"><i><b><u><br /></u></b></i></span></div><div><ul style="text-align: left;"><li><span style="font-family: verdana;">For <b>2024</b>, your maximum 401(k) elective deferral is $23,000. Catch up contributions for those 50 years and older is $7,500. So you can contribute a maximum of $30,500.</span> </li><li><span style="font-family: verdana;">Beginning<b> 2025</b>, an additional catch up contribution is available if you are 60, 61, 62 or 63 years old to the greater of $10,000 or 50% more than the regular catch-up amount. </span></li><li><span style="font-family: verdana;">Beginning in <b>2026</b>, if you are making more than $145,000 or more, your catch up contributions will NOT have a tax deduction and will be considered as made on a Roth basis. </span></li></ul></div><div><span style="font-family: verdana;"><i><b><u><br /></u></b></i></span></div><div><span style="font-family: verdana;"><i><b><u>Student Loan 401k Match</u></b></i></span></div><div><span style="font-family: verdana;"><i><b><u><br /></u></b></i></span></div><div><span style="font-family: verdana;">Since student loan payments have resumed and the Supreme Court has struck down student loan debt forgiveness, this next rule could come in very handy if your employer participates. </span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">Under the new Act, your employer can make a matching contribution to your retirement account based on your student loan payment. This feature is designed to mitigate the effect of a short-fall in retirement contributions for those making loan payments. </span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">The rule is effective 2024. </span></div><div><span style="font-family: verdana;"><i><b><u><br /></u></b></i></span></div><div><span style="font-family: verdana;"><i><b><u>529 Rollover to Roth</u></b></i></span></div><div><span style="font-family: verdana;"><i><b><u><br /></u></b></i></span></div><div><span style="font-family: verdana;">There is an option under the new Act to rollover a 529 plan into a Roth IRA effective 2024. </span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">A few important points of the many requirements that must be met are:</span></div><div><span style="font-family: verdana;"><br /></span></div><div><ul style="text-align: left;"><li><span style="font-family: verdana;">The Roth IRA must in the 529 plan beneficiary. </span></li><li><span style="font-family: verdana;"> They should have maintained the 529 for 15 years.</span></li><li><span style="font-family: verdana;">Annual limits for the rollovers would have to be within the annual contribution limits. </span></li><li><span style="font-family: verdana;">There would be a $35,000 lifetime limit to what can be rolled over. </span></li></ul></div><div><span style="font-family: verdana;"><i><b><u><br /></u></b></i></span></div><div><span style="font-family: verdana;"><i><b><u>Lost 401k Database</u></b></i></span></div><div><span style="font-family: verdana;"><i><b><u><br /></u></b></i></span></div><div><span style="font-family: verdana;">The SECURE 2.0 Act is going to enable creation of a searchable database to help people find the accounts that they may have lost track of. </span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">The plan is create this within the next 2 years and be housed at the Department of Labor. </span></div><div><span style="font-family: verdana;"><i><b><u><br /></u></b></i></span></div><div><span style="font-family: verdana;"><b><i><u>Expanded access to 401(k) & Financial Incentives</u></i></b></span></div><div><span style="font-family: verdana;"><b><i><u><br /></u></i></b></span></div><div><span style="font-family: verdana;">401(k) contribution access will be expanded to those working part-time. </span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">Beginning in 2027, the Saver's Credit will be replaced with the Saver's Match- which is going to be 50% of your IRA or retirement plan contributions up to $2,000 per person within certain income limits. </span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">Make sure you are talking to your tax advisor and your financial planner about SECURE 2.0 Act. Check to see if any of these changes will be in your favor and what you need to do to put things in place. </span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;"><i>PS: Nepal is still on my mind. The country suffered another devastating earthquake on November 3rd, 2023. If you wish to, please donate towards relief efforts to <a href="https://www.sewausa.org/NepalEarthquakeReliefFund" target="_blank">SEWA International</a>. </i></span></div><div><span style="font-family: verdana;"><i><br /></i></span></div><div><span style="font-family: verdana;"><b><i>Bibliography: <a href="https://www.investopedia.com/secure-act-4688468" target="_blank">Investopedia</a>; <a href="https://www.help.senate.gov/imo/media/doc/secure_20sectionbysection.pdf" target="_blank">SECURE 2.0 Act of 2022</a>; </i></b></span><span style="font-family: verdana;"><i><b><a href="https://www.irs.gov/pub/irs-drop/n-23-62.pdf" target="_blank">Guidance on Section 603 of the SECURE 2.0 Act with Respect to Catch-Up Contributions;</a> <a href="https://www.govinfo.gov/content/pkg/PLAW-116publ94/pdf/PLAW-116publ94.pdf" target="_blank">SECURE Act of 2020</a>.</b></i></span></div><div><span style="background-color: #3a3a3a; color: white; font-family: verdana; font-size: 16px;">---</span></div><div><span style="font-family: verdana;"><p style="background-color: #3a3a3a; color: white; font-family: Lora, serif; font-size: 16px;"><span style="font-family: verdana; font-size: large;"></span></p><p style="background-color: #3a3a3a; color: white; font-family: Lora, serif; font-size: 16px;"><span style="font-family: verdana;">Consult with an Enrolled Agent for your unique tax needs and make sure your questions are answered. Always remember to read <a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" rel="nofollow" style="background: transparent; color: #bca772; text-decoration-line: none;" target="_blank">my disclaimer here</a>. If you have any more questions regarding this or other tax matters, contact me via my website <a href="http://www.mntaxbiz.com/" style="background: transparent; color: #bca772; text-decoration-line: none;">www.mntaxbiz.com</a>.</span></p></span></div><div><br /></div><div><p></p></div></div>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0Plymouth, MI 48170, USA42.3714253 -83.470213214.061191463821153 -118.6264632 70.681659136178837 -48.3139632tag:blogger.com,1999:blog-1711537157381628047.post-73635463984018370832023-11-01T04:30:00.001-04:002023-11-01T04:30:00.144-04:00Top Five FAQs About Cross Border Tax Matters. <p> </p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-a7CAHPfgjH-Rt0iuAveQqyPjj9tGaMC0z6bqqL0VvTiigPvEHMj8c33czMTnsuRUw3CoApo7x_PHA0BzL6RhPYkLjdh2GRf0Rzc0Emfh0KHmElHyEgE9nPvUY9ysRiE0Nx78xa0Wly1du13yUjMXrMCqtpXqMHCa6AUF5Fadt6qD7hg98xw2JXHGbp1m/s6000/pexels-bimal-ranabhat-2104882.jpg" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="4000" data-original-width="6000" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-a7CAHPfgjH-Rt0iuAveQqyPjj9tGaMC0z6bqqL0VvTiigPvEHMj8c33czMTnsuRUw3CoApo7x_PHA0BzL6RhPYkLjdh2GRf0Rzc0Emfh0KHmElHyEgE9nPvUY9ysRiE0Nx78xa0Wly1du13yUjMXrMCqtpXqMHCa6AUF5Fadt6qD7hg98xw2JXHGbp1m/s320/pexels-bimal-ranabhat-2104882.jpg" width="320" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><span face="PlusJakartaSans, -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Oxygen, Cantarell, "Helvetica Neue", Ubuntu, sans-serif" style="font-size: 14px; text-align: start; white-space: pre;">Photo by Bimal Ranabhat: https://www.pexels.com/photo/red-and-brown-temple-roofs-2104882/
</span></td></tr></tbody></table><span style="font-family: verdana;">For some reason or the other, Nepal has been calling all year. </span><span style="font-family: verdana;">Nepal is a small country that nestles in the foothills of the Himalayas and is almost entirely surrounded by India on three sides of its borders. This enigmatic country </span><span style="font-family: verdana;">is on my bucket list</span><span style="font-family: verdana;"> for its </span><span style="font-family: verdana;">rich history and obvious majestic views of the mountains. </span><p></p><p><span style="font-family: verdana;">It all started with a meeting early this year with an U.S. Citizen expat client who has familial ties and has moved to Nepal for a few years and they want to invest \ with a Nepali citizen in a business. They had been looking for a tax professional to work with who was familiar with cross border operations and had been searching high and low. </span></p><p><span style="font-family: verdana;">When they came to see me, I realized I mostly get the same set of questions from prospective clients looking for assistance filing their cross border taxes. </span></p><p><span style="font-family: verdana;">I would like to share the <b><u>Top Five Questions your tax professional should be able to answer about your cross border tax matters</u></b>. </span></p><p><span style="font-family: verdana;">If the tax pros are not able to address these matters or are out of their comfort zone, you should work with someone who can!</span></p><p><span style="font-family: verdana;"><b>One: Do You Have To File and/ Pay Taxes If You Live Abroad? </b></span></p><p><span style="font-family: verdana;">YES! You do have to file your federal (and possibly state) tax return every year by the due date. The United States is only one of two countries where taxes are based on citizenship and not residency. All your US source income AND foreign income, including but not limited to wages; interest; dividends; rental income; business income etc. need to be reported on your US Form 1040. </span></p><p><span style="font-family: verdana;">If you are paying taxes in your country of residence, you may be able to claim a credit for the taxes paid and/ you also can take advantage of the Foreign Earned Income Exclusion also known as the FEIE. <a href="https://www.thebuzzabouttaxes.com/2016/08/us-citizen-living-abroad-foreign.html" target="_blank">More about the FEIE in my post here</a>. </span></p><p><span style="font-family: verdana;">Your taxes due need to be paid by the regular due date and you get an automatic extension until June 15th to file your return. You can file an extension to get four more months up to October 15th. </span></p><p><span style="font-family: verdana;">You can be penalized for not filing your returns every year. </span></p><p><span style="font-family: verdana;"><b>Two: How About Your Foreign Bank and Financial Accounts?</b></span></p><p><span style="font-family: verdana;">The FBAR and FATCA dictate thresholds for which you have to file informational forms. </span></p><p><span style="font-family: verdana;">The FBAR threshold is $10,000 in aggregate balances whereas the FATCA thresholds depends on your filing status. Details about FATCA thresholds are in <a href="https://www.thebuzzabouttaxes.com/2013/02/foreign-bank-accounts-regulations-part.html" target="_blank">my post here</a>. </span></p><p><span style="font-family: verdana;">More in depth info on the FBAR in <a href="https://www.thebuzzabouttaxes.com/2014/11/you-have-foreign-bank-accounts.html" target="_blank">an older post here</a>. </span></p><p><span style="font-family: verdana;">Penalties for non-compliance are very high and it is best advised to work with tax professionals and use one of the amnesty programs to come into compliance if you have never filed these forms. </span></p><p><span style="font-family: verdana;"><b>Three: Your spouse is not a U.S Citizen, can you/ should you include them on your U.S. tax return?</b></span></p><p><span style="font-family: verdana;">You may include your NRA spouse on your U.S tax return to avail lower tax brackets when filing as "Married Filing Joint". Please note that your spouse will then have to also declare all their foreign income and financial assets on the tax return to the U.S. Internal Revenue Service. </span></p><p><span style="font-family: verdana;">If they choose not to be dictated by U.S tax compliance, they may not file jointly. The filing status then available to you will be "Married filing Separate" or "Head of Household" if you have American Citizen dependents. </span></p><p><span style="font-family: verdana;">Note: Your spouse <i><b>cannot</b></i> be your dependent. And they will need an ITIN for purposes of filing jointly. </span></p><p><span style="font-family: verdana;"><b>Four: Can I set up a business entity in a foreign country with a foreign national? </b></span></p><p><span style="font-family: verdana;">Yes, you can set up an entity in a foreign country with a foreign national. This entity can be a disregarded entity; partnership; or a corporation. Depending on the share of the holding in the entity, you will have to file a Form 8858; 8865; or <a href="https://www.thebuzzabouttaxes.com/2014/05/us-persons-and-their-investments-in.html" target="_blank">5471</a>. </span></p><p><span style="font-family: verdana;">If this entity has a bank account which cross the FBAR thresholds and you have a signatory authority in these accounts, you will have to include these accounts on your FBAR. </span></p><p><span style="font-family: verdana;"><b>Five: I have rental properties in the United States as well as in the foreign country where I live now. How do I report these? </b></span></p><p><span style="font-family: verdana;">All your rental properties, income & expenses whether located in the U.S or abroad need to reported on your US tax return via Schedule E attached to your Form 1040. </span></p><p><span style="font-family: verdana;">The depreciation treatment on the U.S. properties and the foreign ones differ. Any rental properties that are classified as a QBU or Qualified trade or business will also need to file Form 8858 for tax years 2018 and later. </span></p><p><span style="font-family: verdana;">A primer on foreign rental properties was <a href="https://www.thebuzzabouttaxes.com/2015/05/rental-property-in-foreign-countries.html" target="_blank">posted here</a> earlier. </span></p><p><span style="font-family: verdana;">Navigating financial and tax matters while straddling two countries, their different tax laws, rules and regulations is not for the faint of heart. Please work with a tax professional who can understand the nuances of these scenarios and guide you accordingly. </span></p><p><span style="font-family: verdana;"><i>(Psst: More about Nepal on my Social Media feed!) </i></span></p><p><i><b style="font-family: verdana;">Bibliography: </b><a href="https://en.wikipedia.org/wiki/Nepal" style="font-family: verdana; font-weight: bold;" target="_blank">Nepal- Wikipedia</a><b style="font-family: verdana;">; </b><a href="https://www.blogger.com/u/2/blog/post/edit/1711537157381628047/7363546398401837083#" style="font-family: verdana; font-weight: bold;" target="_blank">FATCA Thresholds</a><b style="font-family: verdana;">; </b><a href="https://www.blogger.com/u/2/blog/post/edit/1711537157381628047/7363546398401837083#" style="font-family: verdana; font-weight: bold;" target="_blank">FBAR Thresholds</a><b style="font-family: verdana;">; </b><a href="https://www.thebuzzabouttaxes.com/2014/05/us-persons-and-their-investments-in.html" style="font-family: verdana; font-weight: bold;" target="_blank">U.S. Persons and their Investments in Foreign Corporations</a><b style="font-family: verdana;">; <a href="https://www.thebuzzabouttaxes.com/2015/05/rental-property-in-foreign-countries.html" target="_blank">Foreign Rental </a></b><span style="font-family: verdana;"><b><a href="https://www.thebuzzabouttaxes.com/2015/05/rental-property-in-foreign-countries.html" target="_blank">Properties</a></b></span><b style="font-family: verdana;"><a href="https://www.thebuzzabouttaxes.com/2015/05/rental-property-in-foreign-countries.html" target="_blank">, A Primer</a>. </b></i><span style="font-family: verdana;"> </span></p><p><span style="font-family: verdana;">---</span></p><p><span style="font-family: verdana; font-size: large;"></span></p><p><span style="font-family: verdana;">Consult with an Enrolled Agent for your unique tax needs and make sure your questions are answered. Always remember to read <a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" rel="nofollow" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; color: #bca772; text-decoration-line: none;" target="_blank">my disclaimer here</a>. If you have any more questions regarding this or other tax matters, contact me via my website <a href="http://www.mntaxbiz.com/" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; color: #bca772; text-decoration-line: none;">www.mntaxbiz.com</a>. </span></p>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0Plymouth, MI 48170, USA42.3714253 -83.470213214.061191463821153 -118.6264632 70.681659136178837 -48.3139632tag:blogger.com,1999:blog-1711537157381628047.post-66589982798785126812023-10-01T05:00:00.000-04:002023-10-01T05:00:00.142-04:00Possible New FBAR Rules for Green Card Holders? <p></p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzvi9Z6n3He4s70kBhE4pKltE48xS6mi1DjLlRu2QuvjQFWM-2lMFjpqFkOpCLru9OEJzVPktQcFl5R-IbUoaTlyLUYTlsNGd3bYOMZpgfbLv5qrPWvHuxEa497n_sxmlXAmfVXR-ET12mS5h0tLqS2UR6o8Ue1chK-G1eQTbFXUz40swHhFSthYbKSlLg/s3850/pexels-aliia-troitskaya-10894301.jpg" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="3850" data-original-width="2887" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzvi9Z6n3He4s70kBhE4pKltE48xS6mi1DjLlRu2QuvjQFWM-2lMFjpqFkOpCLru9OEJzVPktQcFl5R-IbUoaTlyLUYTlsNGd3bYOMZpgfbLv5qrPWvHuxEa497n_sxmlXAmfVXR-ET12mS5h0tLqS2UR6o8Ue1chK-G1eQTbFXUz40swHhFSthYbKSlLg/w240-h320/pexels-aliia-troitskaya-10894301.jpg" title="Photo by Aliia Troitskaya: https://www.pexels.com/photo/gothic-towers-of-uppsala-cathedral-10894301/" width="240" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Pic Courtesy: https://www.pexels.com/photo/gothic-towers-of-uppsala-cathedral-10894301/<br /><br /><br /></td></tr></tbody></table><br /><span style="font-family: verdana;">Earlier in February 2023, as most tax professionals were buried under the avalanche that is tax season, a Court Case was quietly albeit significantly making its way through the US District Court for the Southern District of California intending to provide a reprieve for green card holders from having to file FBARs if they can be treated as a resident of a foreign country under treaty tie-breaker rules. </span><p></p><p><span style="font-family: verdana;">This is a HUGE deal for United States Permanent Residents living abroad if they claim treaty benefits! </span></p><p><span style="font-family: verdana;"><b><i><u>What We Already Know?</u></i></b></span></p><p><span style="font-family: verdana;">Let us go back to my </span><a href="https://www.thebuzzabouttaxes.com/2015/02/green-card-holdersresidency-in-foreign.html" style="font-family: verdana;" target="_blank">blog post here</a><span style="font-family: verdana;"> to quickly review how a green card holder living outside the United States in a country with a favorable tax treaty can apply the benefits</span><span style="font-family: verdana;"> of tie-breaker rules to qualify as a resident of <i>that</i> country and therefore file their US taxes as if they are a <i>non-resident of the United States </i>under </span><span style="font-family: verdana;">26 CFR § 301.7701(b)-7 {</span><span style="font-family: verdana;"><i>link in bibliography}</i></span><span style="font-family: verdana;">. </span></p><p><span style="font-family: verdana;">As we know, a Green Card holder is a common use term for a non-citizen of the US whose status is that of a "lawful permanent resident". We also know that a US Citizen, a lawful permanent resident and any non-immigrant visa holder who has fulfilled the Substantial Presence Test is considered a tax resident of the United States and is required to report their world-wide income and assets. They are therefore required to file the Form 114, Report of Foreign Bank and Financial Accounts. </span></p><p><span style="font-family: verdana;">This Form 114, is mandated under Title 31 of the United States Code and it comes under the purview of the Bank Secrecy Act under 31 CFR §1010.350 stating that every "US Person" as defined under 26 U.S Code § 7701(b) {</span><span style="font-family: verdana;"><i>links to §'s in bibliography}</i></span><span style="font-family: verdana;">. </span><span style="font-family: verdana;">The IRS has the authority to oversee compliance of the form.</span></p><p><span style="font-family: verdana;"><b><i><u>How D</u></i></b></span><span style="font-family: verdana;"><b><i><u>oes Aroeste v. United States Change This Rule?</u></i></b></span></p><p><span style="font-family: verdana;">Alberto and Estella Aroeste are United States permanent residents or green card holders living in Mexico. They had been claiming tax treaty benefits for these years. The IRS had audited their tax filings for years 2011 through 2015 and assessed about $ 3 million in taxes & penalties arising from failure to file information returns including FBARs. the scope of the FBAR penalties was later narrowed to years 2012 & 2013. </span></p><p><span style="font-family: verdana;">They admitted to the non-compliance but disputed the penalties stating that their ability to be treated as a Mexican Resident under the US- Mexico tax treaty did not require that they file FBARs. That this exemption would also disqualify them from being treated as "US Persons". </span></p><p><span style="font-family: verdana;">The Court Case then went on to describe a "5-Step Process" below that could provide an "Escape Hatch" for certain "United States persons" from filing FBARs: </span></p><p></p><ol style="text-align: left;"><li><span style="font-family: verdana;">Under 26 U.S.C. § 7701(b)(6), anyone allowed to permanently reside within the United States by virtue of U.S. immigration laws is a “lawful permanent resident” for tax purposes unless an applicable tax treaty allows that person to be treated as a resident of a foreign country for tax purposes only;</span></li><li><span style="font-family: verdana;">Under 26 U.S.C. § 7701(b)(1)(A)(i), any “lawful permanent resident” is a “resident alien”;</span></li><li><span style="font-family: verdana;">Under 31 C.F.R. § 1010.350(b)(2), any “resident alien” is a “resident of the United States”;</span></li><li><span style="font-family: verdana;">Under 31 C.F.R. § 1010.350(b), Any “resident of the United States” is a “United States person” required to file an FBAR;</span></li><li><span style="font-family: verdana;">Therefore, any person allowed to permanently reside in the United States by virtue of U.S. immigration laws must file an FBAR unless that person is entitled to be treated as a resident of a foreign country under a tax treaty.</span><span style="font-family: verdana;"> </span></li></ol><div><span style="font-family: verdana;">The Court concluded that if under the tax treaty, the Aroestes were considered Mexican residents for 2012 & 2013, they would not be obligated to file FBARs. However, if they were considered US residents, they would be subject to the FBAR penalties.</span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">Most tax attorneys and experts believe that the Internal Revenue Service will appeal this case. In recent foreign information rulings, the Court has tended to side with the taxpayer. <a href="https://www.thebuzzabouttaxes.com/2023/09/bittner-farhy-and-moore-who-are-they.html#more" target="_blank">More in my post here</a>. </span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">If any of these complex situations apply to you, you should be working with a tax advisor who is an expert in foreign tax compliance. </span></div><p></p><p><span style="font-family: verdana;"><br /></span></p><p><span style="font-family: verdana;"><b><i>Bibliography: <a href="https://casetext.com/case/aroeste-v-united-states" target="_blank">Aroeste v. United States </a></i></b></span><span style="font-family: verdana;"><b><i><a href="https://casetext.com/case/aroeste-v-united-states" target="_blank">22-cv-682-AJB-KSC, (S.D. Cal. Feb. 13, 2023)</a></i></b></span><span style="font-family: verdana;"><b><i>; </i></b></span><span style="color: #333333; font-family: verdana;"><b><i><a href="https://www.law.cornell.edu/cfr/text/31/1010.350" target="_blank">31 CFR § 1010.350</a>; <a href="https://www.law.cornell.edu/uscode/text/26/7701" target="_blank">26 U.S. Code § 7701 </a>; <a href="https://www.law.cornell.edu/cfr/text/31/1010.350">31 C.F.R. § 1010.350(b)(2)</a>; </i></b><b><i><a href="https://www.law.cornell.edu/cfr/text/26/301.7701%28b%29-7" target="_blank">26 CFR § 301.7701(b)-7</a>; <a href="https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/government-to-produce-parts-of-irs-record-in-fbar-penalty/7fz02" target="_blank">taxnotes® article</a>. </i></b></span></p><p><span style="font-family: verdana;">---</span></p><p><span style="font-family: verdana;">Consult with an Enrolled Agent for your unique tax needs and make sure your questions are answered. Always remember to read <a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" rel="nofollow" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; color: #bca772; text-decoration-line: none;" target="_blank">my disclaimer here</a>. If you have any more questions regarding this or other tax matters, contact me via my website <a href="http://www.mntaxbiz.com/" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; color: #bca772; text-decoration-line: none;">www.mntaxbiz.com</a>. </span></p><p><br style="background-color: #3a3a3a; color: white; font-family: Lora, serif;" /></p><p><span style="color: #333333; font-family: verdana; font-size: x-small;"><b><i><br /></i></b></span></p>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-84155427334339380492023-09-09T15:39:00.001-04:002023-09-09T15:39:11.392-04:00Bittner, Farhy and Moore: Who Are They and Why Are They Important?<p></p><br /><br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhiU-EGRZ9xIvvdx7LsgirhCrwSo2ZqTwl90afvIMsr_me7o1s33rHLLM5Y1mzw2yqzphWbHkEAA5pXQACW5Bwl1zSNkkV5EXgBI0eNkz-imuIZwZurRQgVe5cKOViEvJS7T-chVNR22Dg4INT3p0_UQmTmfoMwpfz-LmpaK4d1FH7hzPPofUyHS0SdnYqy/s1280/train-4734126_1280.jpg" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="854" data-original-width="1280" height="214" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhiU-EGRZ9xIvvdx7LsgirhCrwSo2ZqTwl90afvIMsr_me7o1s33rHLLM5Y1mzw2yqzphWbHkEAA5pXQACW5Bwl1zSNkkV5EXgBI0eNkz-imuIZwZurRQgVe5cKOViEvJS7T-chVNR22Dg4INT3p0_UQmTmfoMwpfz-LmpaK4d1FH7hzPPofUyHS0SdnYqy/s320/train-4734126_1280.jpg" width="320" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Stockholm Underground Train Station. Picture Courtesy pixabay<br /><br /></td></tr></tbody></table><br /><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">We were in Stockholm, Sweden for a family trip over summer this year and were mesmerized by the art in the Underground train stations. </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">As stunning as these train stations are, the three important Court cases this year we are going to talk about are even more sensational in how far-reaching the consequences of the rulings might be to affected taxpayers. </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;"><u><i>I. Bittner v. United States</i></u>: </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">As you know the Bank Secrecy Act {BSA}, requires that U.S. persons that own interest in or have signatory authority in foreign bank or financial accounts with an aggregate balance of $10,000 or more at any time during the year must disclose the existence and balances of these accounts to the U.S. government on Form 114 commonly referred to as the FBAR. <a href="https://www.thebuzzabouttaxes.com/2013/02/foreign-bank-account-regulations-part-ii.html" rel="nofollow" target="_blank">Previous post with more details here</a>. </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">Even though the BSA is not a part of the Internal Revenue Code, the IRS is given the task of monitoring compliance. The FBAR is designed to be self-reporting, hence non-compliance for timely or proper reporting results in significant fines and penalties. Failure to comply is categorized as "willful" or "non-willful". Civil penalties exist for both and criminal penalties may be imposed for significant willful non-compliance. </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">For non-willful violations, Bittner v. United States held that the BSA penalty of $10,000 for non-willful violations of FBAR reporting via Form 114 applies on a <i>per report</i> basis and NOT on a <i>per account</i> basis. </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">This will definitely change how taxpayers with undisclosed foreign accounts can come into compliance, what process they can use, and how much will they owe in penalties. </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">The Internal Revenue Service has changed it's guidance to reflect the Bittner case, the penalties will now be assessed per year in case of non-willful violations. However, earlier provisions available to Revenue Officers in the Internal Revenue Manual for penalty mitigation have been removed effective July 6th, 2023. </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;"><br /></span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;"><i><u>II. Farhy v. Commissioner of Internal Revenue: </u></i></span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">Form 5471 is required to be filed by U.S persons with respect to certain foreign corporations under IRC Code §6038(b)(1). <a href="https://www.thebuzzabouttaxes.com/2014/05/us-persons-and-their-investments-in.html" rel="nofollow" target="_blank">My blog post goes into detail here. </a></span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">Farhy had not filed Forms 5471 for tax years 2003 through 2010 when he owned a 100% of two Belize corporations. The IRS assessed penalties of $10,000/ year for non-compliance in November 2018 and almost immediately assessed an additional $50,000/ year for continued non-compliance. When Farhy filed a suit against the IRS, he argued that they did not have the statutory authority to assess penalties under §6038(b). He won this case. </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">On July 12th, 2023, the IRS has filed a notice of its intention to appeal the Tax Court ruling. In the mean time, there are steps taxpayers who have already paid and who may have been assessed the penalty may be able to take. </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">Please note the above case will not apply to Form 5471, category 2 & 3 filers; Forms 3520-Parts I, II & III and 3520-A; and Form 8865 in some cases. <i>Also, most important- the requirement to file Form 5471 has not changed since it comes from §6038(a)(1) and this will also not change the requirement to file other international information forms</i>. </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;"><br /></span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;"><i><u>III. Moore v. United States:</u></i></span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">T</span><span style="font-family: verdana; font-size: large;">he Supreme Court agreed to hear this case </span><span style="font-family: verdana; font-size: large;">on June 26th, 2023. It challenges the constitutionality of the mandatory repatriation tax imposed under §965. This is unfolding at the moment and is up for hearing in October, 2023. </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">Background about §965: The mandatory repatriation tax was created by the Tax Cuts and Jobs Act, 2017. Deferred foreign income of certain foreign corporations, was deemed to be taxable in 2017 & 2018. This tax applied to all deferred foreign income post-1986, with the tax payable in the current year. Taxpayers had an option to pay the tax over an eight year period beginning in 2017. </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">In Moore v. United States, taxpayers were part owners of a controlled foreign corporation {CFC} located in India. In 2017, the CFC had earnings of $508,000, resulting in an increased tax liability of $15,000. The taxpayers have challenged the constitutionality of the tax. </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">Experts predict there could be 3 possible outcomes: </span></p><p style="text-align: left;"></p><ol style="text-align: left;"><li><span style="font-family: verdana; font-size: medium;">Court rules in favor of the government and holds the tax constitutional. </span></li><li><span style="font-family: verdana; font-size: medium;">Court rules in a narrow manner to restrict application of the tax either in favor for the government or the Moores. </span></li><li><span style="font-family: verdana; font-size: medium;">Court rules in favor of the tax being unconstitutional. </span></li></ol><p></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">If this tax was paid in 2017/ 2018, the statute of limitations has passed on being able to claim a refund for many taxpayers before this case. For those who opted to pay over eight years, they may still be able to claim a refund in some situations. </span></p><p style="text-align: left;"><span style="font-family: verdana; font-size: medium;">If any of these situations affect you, you should reach out to a trusted tax advisor. </span></p><p style="text-align: left;"><i style="font-family: verdana; font-size: large;">Bibliography: <a href="https://www.supremecourt.gov/opinions/22pdf/21-1195_h3ci.pdf" rel="nofollow" target="_blank">Bittner v. United States</a>; <a href="https://www.irs.gov/pub/foia/ig/sbse/sbse-04-0723-0034-redacted.pdf" target="_blank">IRS Guidance Reg Bittner</a>; <a href="https://www.caplindrysdale.com/assets/htmldocuments/Farhy%20v.%20Commr.pdf" rel="nofollow" target="_blank">Farhy v. Commissioner of Internal Revenue</a>; <a href="https://www.taxnotes.com/research/federal/other-documents/other-court-documents/irs-appeals-penalty-assessment-authority-decision/7gz50" rel="nofollow" target="_blank">Farhy v. Commissioner Appeal by IRS</a>; <a href="https://taxfoundation.org/research/all/federal/moore-v-united-states-tax-unrealized-income/" target="_blank">Moore v. United States</a>; </i><span style="font-family: verdana; font-size: medium;"><i><a href="https://www.irs.gov/businesses/section-965-transition-tax#:~:text=What%20is%20section%20965%3F,repatriated%20to%20the%20United%20States." rel="nofollow" target="_blank">Section 965 Transition Tax</a>. </i></span></p><p><span style="font-family: verdana; font-size: medium;">---</span></p><p><span style="font-family: verdana; font-size: large;">Consult with an Enrolled Agent for your unique tax needs and make sure your questions are answered. Always remember to read <a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" rel="nofollow" target="_blank">my disclaimer here</a>. If you have any more questions regarding this or other tax matters, contact me via my website <a href="http://www.mntaxbiz.com">www.mntaxbiz.com</a>. </span></p><p style="text-align: left;"><br /></p>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-26438725130661190722023-08-02T22:11:00.003-04:002024-01-01T18:26:04.891-05:00Dusting Off the Blog for News on The Corporate Transparency Act! <p> </p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHslakYXkf4_76E6_rNZR4eqcc1tudadqLjeASbH4e-5XgrtABph4nvC3XixnBf7ebqckYkYmuchaLl7q0BLZ0ny2hwLPfcNF5UEkqYqIwIvmpkl4I0MmqlA-zgii8_ORb5o9Z3P8UZ0nXNm-7qkceGFDCn07bvokHE5OcSDSDzWkPUzGPLw8fS4BTq-G0/s2945/pexels-pixabay-206650.jpg" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1969" data-original-width="2945" height="268" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHslakYXkf4_76E6_rNZR4eqcc1tudadqLjeASbH4e-5XgrtABph4nvC3XixnBf7ebqckYkYmuchaLl7q0BLZ0ny2hwLPfcNF5UEkqYqIwIvmpkl4I0MmqlA-zgii8_ORb5o9Z3P8UZ0nXNm-7qkceGFDCn07bvokHE5OcSDSDzWkPUzGPLw8fS4BTq-G0/w400-h268/pexels-pixabay-206650.jpg" width="400" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Free Images: pixabay.com</td></tr></tbody></table><br /><span style="font-family: verdana;">Did you know "The Buzz About Taxes" turned ten years old in February this year? This milestone would have almost passed me by if not for the fact that we started working on rebranding the firm and took stock of how far we have come since we started. Here we are, ten years in business and more than 200K views on the blog later, looking to give our brand a fresh look and launching on new adventures. </span><span style="font-family: verdana;">I realize</span><span style="font-family: verdana;"> as</span><span style="font-family: verdana;"> I look back, that my blog posts grew less frequent as I got busier with the practice. They just stopped two years ago as I took over completely from my business partner. </span><p></p><p><span style="font-family: verdana;">L</span><span style="font-family: verdana;">ife happens! Sadly, I have not been regular at writing in the hustle of building up the firm and my practice. I have missed the blog and I have missed writing more! So, here I am, sleeves rolled up, my hair in a bun, dusting off the cobwebs, metaphorical pencil behind my ear, as I read through the latest on foreign tax reporting, I realize the latest buzz about taxes is the Corporate Transparency Act! This perfectly cements the "dusting off cobwebs" metaphor-how about we brush up on the FATF and OECD's quest for the "Dirty Money Trail"? </span></p><p><span style="font-family: verdana;">Before we go any further, let us talk about FATF and OECD. {Note: These are not your modern day acronyms that encode your text messages such that ol' <a href="https://www.britannica.com/topic/Morse-Code" target="_blank">Sam Morse</a> would be shaking his head in wonder!} The Foreign Action Task Force (FATF) set up by the Organization of Economic Cooperation and Development (<a href="https://en.wikipedia.org/wiki/OECD" target="_blank">OECD</a>) among the many important responsibilities it has, also grades countries on the steps to be instituted to procure beneficial ownership information for entities set up under their laws and within their jurisdictions. </span></p><p><span style="font-family: verdana;">Over the past decade, we have seen an increase in initiatives by the OECD to deal with "dirty money" which mean initiatives to guard against money laundering, terrorism financing and other illegal ways to clean this dirty money. Most times, the laundering happens via elaborate tax structuring, such as use of trusts, shell companies, inactive companies etc., tax evasion and financial corruption across jurisdictions to hide the identity of the owners, their origin, and true ownership and purpose of assets (including financial accounts). There are many interesting anecdotes and I have links to some of them in the Bibliography at the bottom of this post. </span></p><p><span style="font-family: verdana;">The passage of the Corporate Transparency Act (CTA) is designed to remove the veil on these complex structures to reveal natural persons behind them. The CTA also aims to preserve the integrity of the US taxation system and protect its law-abiding citizens from money laundering schemes as well as send a message to its OECD and other global partners that the United States is on board to share information to deal with "dirty money".</span></p><p><span style="font-family: verdana;"><u style="font-style: italic;">Compliance With the CTA Broken Down:</u> </span></p><p></p><ol style="text-align: left;"><li><span style="font-family: verdana;">A company files a Beneficial Ownership Information (BOI) report with FinCEN about the company and each of its beneficial owners and applicants. </span></li><li><span style="font-family: verdana;">Every Corporation, LLC or other entity created in a US state or Indian tribe must file a BOI report. </span></li><li><span style="font-family: verdana;">Entities created in a foreign country and registered to do business in the US is required to file a BOI report. </span></li><li><span style="font-family: verdana;">If the domestic reporting company was created before January 1st, 2024, it must file the BOI report by January 1st, 2025. </span></li><li><span style="font-family: verdana;">If the domestic reporting company will be created on or after January 1st, 2024- <strike>the BOI report must be filed within 30 days of receiving notice that the formation is effective</strike>. <b>{UPDATE 12/31/2023: The FinCEN Guide has now been updated to reflect that the BOI report </b></span><span style="font-family: verdana;"><b>must be filed within 90 days of receiving notice that the formation is effective.}</b></span></li><li><span style="font-family: verdana;">Any change/ correction in information in #s 4 or 5 should be filed within 30 calendar days when the change occurs. </span></li><li><span style="font-family: verdana;">The form will need to be filed electronically via FinCEN's website. </span></li><li><span style="font-family: verdana;">Exemptions: There are 23 categories of entities which are exempt from this reporting. More information on the exempt categories from Wolters Kluwer <a href="https://www.wolterskluwer.com/en/expert-insights/the-23-exemptions-from-the-corporate-transparency-act" target="_blank">here</a>. </span></li></ol><div><span style="font-family: verdana;"><u style="font-style: italic;">How Do I Prepare for CTA Compliance:</u> </span></div><div><span style="font-family: verdana;"><br /></span></div><div><ul style="text-align: left;"><li><span style="font-family: verdana;">Determine if my business is a reporting company and if CTA will apply to me and my company. </span></li><li><span style="font-family: verdana;">Determine when I need to file my initial report. </span></li><li><span style="font-family: verdana;">Start gathering the required information and make sure it is current at the time of filing. </span></li><li><span style="font-family: verdana;">Implement protocol to keep track of the information to make sure the BOI report is updated in case there is a change. </span></li></ul><div><span style="font-family: verdana;">If you have stuck with me this far, I can imagine you are at the edge of your seat either from sheer excitement to get started (highly unlikely!) or gripping anxiety to make sure you will get everything right! </span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">Like I always say, never attempt anything this complex on your own. Hire a professional to make sure all your t's are crossed and i's are dotted. </span></div></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">More information about me is on my website. You can send me a message by dropping a comment below or via the contact form on my website. </span></div><div><span style="font-family: verdana;"><br /></span></div><h3 style="text-align: left;"><span style="font-family: verdana; font-size: small;"><b><i>Bibliography: <a href="https://www.fincen.gov/boi" target="_blank">FinCEN Website</a>; <a href="https://www.federalregister.gov/documents/2022/09/30/2022-21020/beneficial-ownership-information-reporting-requirements" target="_blank">National Archives on the Federal Register</a>; <a href="https://www.mntaxbiz.com/" target="_blank">MN Tax & Business Services Website</a>; <a href="https://www.wolterskluwer.com/en/expert-insights/the-23-exemptions-from-the-corporate-transparency-act" target="_blank">Wolter Kluwer 23 Exemptions to filing BOI Report</a>; <a href="https://www.justice.gov/usao-dc/pr/arrest-and-criminal-charges-against-british-and-russian-businessmen-facilitating" target="_blank">An Oligarch and his $90 Million Yacht</a>; <a href="https://www.justice.gov/opa/pr/nine-charged-24-million-covid-relief-fraud-scheme" target="_blank">Covid Relief Fraud of $24 Million</a>. </i></b></span></h3><div><span style="font-family: verdana;"><b><i><a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">Our obligatory disclaimer is here. </a></i></b></span></div><p></p><p><span style="font-family: verdana;"><br /></span></p><p><span style="font-family: verdana;"><br /></span><br /></p>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0Michigan, USA44.3148443 -85.602364299999991-7.6352910654460828 -155.91486429999998 90 -15.289864299999991tag:blogger.com,1999:blog-1711537157381628047.post-90220323555659455052021-10-31T21:36:00.002-04:002021-11-01T16:07:45.077-04:00A Visa Holder's Guide To Saving For Retirement In The United States<p> </p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhGh1cv9f6mzGepDSFUxhhMLKWAnJY3Q3X7-h_VsOARQWjN95BV3Djwi7RRjuwHaKumMwAqnMh7PoxUiGwXAgfgvzT2tVrYCu7u3H41t0PzGzbL-fakzXVr4RVJUk3vbzvJzXmFnnEhF4aO/s1920/diwali-g76cac3f0d_1920.jpg" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1280" data-original-width="1920" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhGh1cv9f6mzGepDSFUxhhMLKWAnJY3Q3X7-h_VsOARQWjN95BV3Djwi7RRjuwHaKumMwAqnMh7PoxUiGwXAgfgvzT2tVrYCu7u3H41t0PzGzbL-fakzXVr4RVJUk3vbzvJzXmFnnEhF4aO/s320/diwali-g76cac3f0d_1920.jpg" width="320" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Picture Courtesy: Pixabay Diwali</td></tr></tbody></table><br /><br /><span style="font-family: verdana;">Quick back story: My husband and I came to the United States from India about 25 years ago on a J visa. I actually became interested in US Tax Law after I had to read up all the various rules and regulations for taxation of J Visa holders in the US. </span><p></p><p><span style="font-family: verdana;">Naturally, visa holders coming to the United States to work make up a sizeable portion of our client list. The type of visas range from A to Z in the alphabet and each of them have special rules as to counting days in the United States; and taxation of their United States and/ or their world-wide income. </span></p><p><span style="font-family: verdana;"><i>Caveat:</i> These rules should be navigated under professional guidance to save financial and legal trouble in the future. </span></p><p><span style="font-family: verdana;">Two of the most frequently asked questions by visa holders are usually about Social Security taxes and saving for retirement. </span></p><p><span style="font-family: verdana;">We will focus on retirement savings in this blog post. </span></p><p><span style="font-family: verdana;"><i><u>Retirement savings come under two categories:</u></i></span></p><p></p><ul style="text-align: left;"><li><span style="font-family: verdana;"><i>Pre-tax: </i>A pre-tax retirement contribution yields a tax saving in the year in which it is made. The contribution grows tax-free until it is distributed, at that time it is taxed as ordinary income at your then tax rates. This is usually a "Traditional" contribution. </span></li></ul><ul style="text-align: left;"><li><span style="font-family: verdana;"><i>Post-tax:</i> A post-tax retirement contribution is when taxes are paid upfront. The contribution grows tax free and is also usually not subject to taxation when a distribution is taken. This is usually a "Roth" contribution. </span></li></ul><span style="font-family: verdana;">Well, finding legal means to pay less in taxes is everyone's goal- but if you are a visa holder without long term plans to reside in the United States, there are many other factors that come into play to decide if this is the right step for you. </span><p></p><p><span style="font-family: verdana;"><i><u>Some of these factors are elaborated below:</u></i></span></p><p></p><ul style="text-align: left;"><li><span style="font-family: verdana;"><i>Employer match for your contributions and vesting schedule:</i> </span></li></ul><p></p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;"><span style="font-family: verdana;">Does your employer match some of your contributions? And how long do you have to work with them to take the employer match before you leave the company? If your employer matches your contribution, you should definitely contribute up to the match if you think you are going to stay with the company for as long or longer than the vesting period. This is free money! </span> </p></blockquote><p></p><ul style="text-align: left;"><li><span style="font-family: verdana;"><i>Length of residency in the US or future plans:</i> </span></li></ul><p></p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;"><span style="font-family: verdana;">If your plans are to eventually get a Green Card and settle in the United States, this is a no-brainer- you should invest in retirement funds. However, if you do not or cannot plan to live in the US for the long term, you need to read further. </span></p></blockquote><p></p><ul style="text-align: left;"><li><span style="font-family: verdana;"><i>Short term and long term goals for your funds: </i></span></li></ul><p></p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;"><span style="font-family: verdana;">Depending on the length of your stay in the US and your long term goals, investing in brokerage funds for ease of repatriation and convenience of liquidity may be a better goal for you. </span></p></blockquote><p></p><ul style="text-align: left;"><li><span style="font-family: verdana;"><i>Country where you plan to return to and whether this country has a tax treaty with the United States and Taking a distribution from your retirement savings as an NRA: </i></span></li></ul><p></p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;"><span style="font-family: verdana;">The United States will tax you on distributions from your pre-tax retirement accounts unless the tax treaty it has with the country of your residence specifically states otherwise. </span><span style="font-family: verdana;">If the tax treaty says that the United States has the right to taxation of your retirement funds, the tax rates are the same as if you were a US resident. If there is no tax treaty or if the resident country can also tax your earnings, you need to take into account if you will get a credit for one country's taxes paid on the other country's tax return. In this case, the US will tax your distribution at 30% flat rate before distribution of funds. </span></p></blockquote><p></p><ul style="text-align: left;"><li><span style="font-family: verdana;"><i>Managing funds in your retirement accounts when not present in the United States or as an NRA: </i></span></li></ul><p></p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;"><span style="font-family: verdana;">Many retirement plan brokerage fund custodians do not want to deal with the additional reporting and compliance requirements if the plan participants are foreign citizens or non-resident aliens (NRA). Or they may not want to deal with your account if your balance is too small or the plan or your company might close your accounts. If this happens, you will be forced to either take a distribution or you may have to find a custodian who will service your accounts. The brokerage funds may also require medallion signatures. </span></p></blockquote><p></p><ul style="text-align: left;"><li><span style="font-family: verdana;"><i>Post tax retirement savings and distributions:</i> </span></li></ul><p></p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;"><span style="font-family: verdana;">I am of the opinion that if your long term plans do not include settling in the US, a Roth contribution may not be of much use to you unless the country you are planning to settle in also recognizes the Roth "wrapper" for your investments. Remember, you do not pay capital gains taxes as an NRA on the sale of your US investments hence, unless the tax free growth is accounted for in the country where you will reside after you move out, there is no advantage to making a Roth contribution. </span></p></blockquote><p></p><ul style="text-align: left;"><li><span style="font-family: verdana;"><i>Future Tax Laws: </i></span></li></ul><p></p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;"><span style="font-family: verdana;">No doubt we can all agree that future tax laws are highly unpredictable. If you want to cut all ties to the United States once you leave the country, it is best to take all your retirement funds out as soon as you leave. Or plan your savings in such a way that there is minimal tax impact. </span></p></blockquote><p><span style="font-family: verdana;">We help clients in their <i>pre-immigration</i> and <i>pre-emigration</i> planning. This includes coming up with various scenarios for you to decide what your exit strategy should be and what you should do with your funds in the United States after moving out of the country. Please contact our office if you have questions regarding any of the above or more. </span></p><p><span style="font-family: verdana;"> </span> <span style="font-family: verdana;">---</span></p><p><span style="font-family: verdana;">Consult with an Enrolled Agent for your unique tax needs and make sure your questions are answered. Always remember to read <a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">my disclaimer here</a>. If you have any more questions regarding this or other tax matters, contact me via my website <a href="http://www.mntaxbiz.com">www.mntaxbiz.com</a>. </span></p>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-2980072019874988572021-10-25T12:41:00.001-04:002021-10-31T22:41:28.561-04:00What Should I Know About Doing Business With United States Customers? <p> </p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMvm7NhAWfuVjUYLZYDuSabVl93qQZync2tHBve8RbNYXL3v1JocOnQ0V69cy0xQTSeSmEEpeL33cjN51wBW2mjFv-E464l_-Y18FexjfX-0L0v6U1uK672eoPOzFGx-528mBfuGX9ixX0/s1920/aurora-g7e273c96a_1920.jpg" style="margin-left: auto; margin-right: auto;"><span style="color: black;"><img border="0" data-original-height="1280" data-original-width="1920" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMvm7NhAWfuVjUYLZYDuSabVl93qQZync2tHBve8RbNYXL3v1JocOnQ0V69cy0xQTSeSmEEpeL33cjN51wBW2mjFv-E464l_-Y18FexjfX-0L0v6U1uK672eoPOzFGx-528mBfuGX9ixX0/s320/aurora-g7e273c96a_1920.jpg" width="320" /></span></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Picture Courtesy: Pixabay Alaska Aurora Borealis</td></tr></tbody></table><br /><p></p><p style="text-align: left;"><span style="font-family: verdana;">You may have now heard this ad nauseum- 2020 was the "Year of The Pivot". Everything went online and we were all for the most part working with our clients virtually. </span></p><p style="text-align: left;"><span style="font-family: verdana;">When 2021 came by, it did not look like much was going to change with how we were doing business and networking with our colleagues. I, like many others, realized that this was a great thing to happen! People who were earlier reluctant participants in the virtual world were now embracing it with enthusiasm; we were able to reach far more people in our effort to offer niche foreign tax reporting and compliance services for inbound and outbound cross border operations. </span></p><p style="text-align: left;"><span style="font-family: verdana;">In an ongoing effort to also network virtually, I have met many enterprising business women, solopreneurs, accountants and fellow tax professionals in the foreign tax compliance and reporting space; my most longstanding membership of all has been the one that I have with HEN India. </span></p><p style="text-align: left;"><span style="font-family: verdana;">HEN stands for Her Entrepreneurial Network and was founded by a very smart visionary, Ruche Mittal. I have met so many women here who are either starting off with very interesting business ideas or are already doing very well and looking to scale. Naturally, their eyes turn towards one of the biggest markets in the world- the United States. </span></p><p style="text-align: left;"><span style="font-family: verdana;">Here are answers to some questions I get frequently from members of HEN India and others who want to do business in the United States: </span></p><p style="text-align: left;"><span style="font-family: verdana;"><u style="font-style: italic;">Do I Have To Set Up An Entity In The US To Do Business? </u> </span></p><p style="text-align: left;"><span style="font-family: verdana;">There is no necessity to set up an entity in the United States. However, your current foreign entity can be elected to be classified for U.S purposes as:</span></p><p style="text-align: left;"></p><ol style="text-align: left;"><li><span style="font-family: verdana;">A Disregarded Business (If owned by a single person)</span></li><li><span style="font-family: verdana;">A Partnership (If owned by multiple people) </span></li><li><span style="font-family: verdana;">Or an Association Taxed as a Corporation. (Could be owned either by a single person or many)</span></li></ol><div><span style="font-family: verdana;">Note: An election CANNOT be made for Per-se corporation listed under the Regulations. </span></div><p></p><p style="text-align: left;"><span style="font-family: verdana;"><u style="font-style: italic;">Will I Owe Taxes In The US?</u> </span></p><p style="text-align: left;"><span style="font-family: verdana;">When operating as a foreign entity in the United States, t</span><span style="font-family: verdana;">here are two types of income on which you would pay taxes to the United States-Income that is sourced to your entity and income that is sourced to </span><span style="font-family: verdana;">the United States</span><span style="font-family: verdana;">:</span></p><p style="text-align: left;"></p><i style="font-family: verdana;"><ul style="text-align: left;"><li><i style="font-family: verdana;">Effectively Connected Income {ECI} </i></li></ul></i><span style="font-family: verdana;">If you are carrying on a for-profit business in the U.S., and your entity satisfies an asset use test or business activities test, you will be subject to income tax. The taxes are calculated at graduated rates. </span><p></p><p style="text-align: left;"><span style="font-family: verdana;">A tax return must be filed within the due date (or extended due date) and deductions and credits are available if return is filed timely. <br /></span></p><i style="font-family: verdana;"><ul style="text-align: left;"><li><i style="font-family: verdana;">Fixed or Determinable Annual or Periodic Income {FDAP} </i></li></ul></i><span style="font-family: verdana;">This is income sourced to the United States and includes dividends, rent, salaries, wages, premiums, interest (exceptions apply), remuneration, director's fees etc. FDAP income is generally subject to a flat 30% withholding rate by the payor and deductions and credits are NOT permitted against this income. If the payor has properly withheld these taxes, there is no requirement to file a tax return. For those who have to file a return, rate of tax can be mitigated under DTAA or Double Tax Avoidance Agreement rules. </span><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;"><u style="font-style: italic;">Sale of Goods In The United States: </u> </span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">If the goods are an inventory property- generally the sales are subject to income tax by the country where they are being manufactured or production activities are mainly conducted. </span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">If the goods are personal property- generally the sales are subject to income taxes where the seller resides. <br /></span><p></p><p style="text-align: left;"><span style="font-family: verdana;"><u style="font-style: italic;">Can I have a Branch In The US?</u> </span></p><p style="text-align: left;"><span style="font-family: verdana;">Yes, one can have a branch in the United States. However, a branch profits tax of 30% is imposed on the branch's US <i>net</i> ECI (which is US income minus the amounts reinvested in the United States). </span></p><p style="text-align: left;"><span style="font-family: verdana;">Branch profit tax can be mitigated by provisions of a tax treaty (if one exists with United States and the country where seller resides). </span></p><p style="text-align: left;"><span style="font-family: verdana;"><u style="font-style: italic;">Will I Have To Pay Sales Tax on Goods And Services? </u> </span></p><p style="text-align: left;"><span style="font-family: verdana;">Sales Tax rules are based on which state in the U.S. the entity is believed to have a PE in. A foreign entity is deemed to have a Permanent Establishment (PE) either by way of a branch/ fixed place or there can be PE attributable to an agent acting on behalf of the foreign entity. </span></p><p style="text-align: left;"><span style="font-family: verdana;">Currently, Sales Tax calculations for foreign entities conducting online sales in the U.S. is ambiguous. </span></p><p style="text-align: left;"><span style="font-family: verdana;">Moreover, this area of taxation on international movement of goods and services is still evolving and there is much talk among various nations on how the governments can tax this revenue. Rules, regulations and various standards are still a work-in-progress. For those start-ups and businesses looking to cater to the US market, advance planning can mitigate United States taxation by avoidance of permanent establishment and other issues. </span></p><p><span style="font-family: verdana;">---</span></p><p></p><p><span style="font-family: verdana;">Do not forget to read <a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">my disclaimer here</a>. Please consult an Enrolled Agent for your unique tax needs. More of my contact information is on my website, <a href="http://www.mntaxbiz.com">www.mntaxbiz.com</a>. </span></p><p></p></div>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com1tag:blogger.com,1999:blog-1711537157381628047.post-85808791437423848112020-10-29T18:16:00.001-04:002020-10-29T18:16:43.990-04:00Pre-Immigration Tax Planning and Why We Need It? <br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGOVZKbD1LPgZY2DUlOJR6IA34t6xjMxvxw1rQhQR0intrAXbnAla19T3unh7buHggxWxE5tbpVbcoprVt-dizGvGNNNq1YWQzwRBBBpHeURwpVhyphenhyphenRnR_c8LAzqmxIXWCrVCWi9ax_PAON/s1032/ffc5ce51-168f-4a65-9a3e-5176d78fa3b5.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><span style="font-family: trebuchet;"><img border="0" data-original-height="774" data-original-width="1032" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGOVZKbD1LPgZY2DUlOJR6IA34t6xjMxvxw1rQhQR0intrAXbnAla19T3unh7buHggxWxE5tbpVbcoprVt-dizGvGNNNq1YWQzwRBBBpHeURwpVhyphenhyphenRnR_c8LAzqmxIXWCrVCWi9ax_PAON/w400-h300/ffc5ce51-168f-4a65-9a3e-5176d78fa3b5.jpg" width="400" /></span></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><span style="font-family: trebuchet;">The Sogal's: On the banks of the Tunga river, South India. <br /></span></td></tr></tbody></table><span style="font-family: trebuchet;"><br /></span><div class="separator" style="clear: both; text-align: center;"><span style="font-family: trebuchet;"><br /></span></div><span style="font-family: trebuchet;">As part of our practice we work with those who are planning to immigrate to the United States or those who are already in the United States on a work-visa and are planning on applying for permanent residency. </span><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;">This could not have hit closer home when my parents finally decided that it was time to listen to their children, my brother and I, and make the decision to come live with us in the United States. My father is a gentle, humble soul who with my mother lived a quiet retired life in a small but bustling town in South India. He is a retired Civil Engineer and has played big roles in some of the biggest oil and gas projects in India-you wouldn't know if you met him. He likes to go by "Children's Author" these days and has published 3 books already, translating folk tales from all over the world to our mother tongue, Kannada. My mother rules the family with her love for routine, her classical Carnatic music and delicious cooking. My father is an avid reader of my blog and has been asking me why I have not been at it since my last post in April! So this one is dedicated to my parents, who landed just before the lock-down (thank god!) and have been doing great, adjusting to a different routine in the United States! </span><div><div><div><span style="font-family: trebuchet;"><br /></span></div><div><div><span style="font-family: trebuchet;">Pre-immigration tax planning is imperative to minimize impact of US taxes on your world-wide income, your foreign assets, financial accounts and investments. Planning for such a tax impact should start as soon as a foreign national begins to consider moving to the United States or plans on otherwise becoming a US person. </span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;">If you are a regular reader of my blog, you already know that the US taxation <a href="https://www.thebuzzabouttaxes.com/2017/06/us-expat-mistakes-part-i.html" target="_blank">is a CBT system</a>. If you are a US person for tax purposes, your "worldwide" income is considered subject to US taxation rules and regulations largely grouped under FATCA. Compliance with these rules and regulations require reporting your <a href="https://www.thebuzzabouttaxes.com/2013/02/foreign-bank-account-regulations-part-ii.html">foreign accounts, assets, investments and foreign income</a> on certain forms known as "International Information Forms". The penalties and fines for non-compliance in filing these forms is substantive, it could even wipe out your entire bank balance! </span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;">This is why anyone with plans on becoming a US person or permanent resident AKA Green Card holder, should be aware of these consequences before their plans are finalized and their tax picture changes permanently. </span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><i><u><span style="font-family: trebuchet;">US Persons And The Substantial Presence Test {SPT}: </span></u></i></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;">In a previous blog post, we examined how to determine if you were a US person or not for <a href="https://www.thebuzzabouttaxes.com/2015/04/aliens-non-resident-or-resident-what-is.html" target="_blank">US tax purposes here</a>. Your visa has to specifically state that the days in the US will not be counted for the SPT. If it does not, your stay will eventually mean that your world-wide income is reportable in the United States on a regular Form 1040 (instead of the Form 1040-NR). Hence a visitor on a B1/B2 visa or someone on an EB-5 Investment Visa could find that their world-wide income is subject to <a href="https://www.thebuzzabouttaxes.com/2014/10/oh-my-you-have-substantial-presence-in.html" target="_blank">US tax reporting. </a></span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;"><i>Quick snap-shot</i>-- you maybe considered a US person if you pass the SPT as follows: </span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><div><span style="font-family: trebuchet;">You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. {More about substantial presence on my post here}</span></div><div><span style="font-family: trebuchet;">To meet this test, you must be physically present in the U.S. on at least: </span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;">1. 31 days during the calendar year and</span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;">2. 183 days during the 3 year period that includes the current year and the previous 2 years, counting-</span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;"> a. All the days in the current year and</span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;"> b. 1/3 of the days you were present in 2019, and</span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;"> c. 1/6 of the days you were present in 2018.</span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><i><u><span style="font-family: trebuchet;">Consequences of Getting a Green Card/ Legal Permanent Residency:</span></u></i></div></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;">As a Green Card holder, you will be taxed on your world-wide income <i>as if you</i> were a US Citizen. This is true even if <i>you do not live </i>in the United States, maintain all your assets <i>outside</i> and your income <i>is sourced outside</i> of the United States. If you held a Green Card for at least eight of the last fifteen years, you will be considered a "<a href="https://www.thebuzzabouttaxes.com/2017/08/us-expat-mistakes-part-iii.html" target="_blank">Covered Expatriate</a>". </span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;">What happens if you are considered a Covered Expatriate?</span></div><div><div><ul style="text-align: left;"><li><div><span style="font-family: trebuchet;">Covered Expatriates pay tax when they renounce their Green Card or Citizenship. </span></div></li><li><div><span style="font-family: trebuchet;">Covered Expatriates cannot make tax-free gifts or bequests to U.S. persons. </span></div></li><li><div><span style="font-family: trebuchet;">They may not be allowed to re-enter the United States, thanks to the Reed Amendment. </span></div></li><li><div><span style="font-family: trebuchet;">A Covered Expatriate need not have resided in the US for any of the eight years to be considered one. </span></div></li></ul><div><span style="font-family: trebuchet;">Remember, your Green Card is not relinquished just because it has expired. If I had a dollar for every time I see this mistake on a client's return, I would be a very rich woman! </span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;">Plan for all this before applying for a Green Card or becoming a US person and make your non-taxable gifts and transfer assets if need be, before taking this step. <i>Have a strategy in place!</i></span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><i><u><span style="font-family: trebuchet;">What Are International Information Forms?</span></u></i></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;">Among the forms required for US persons with foreign financial assets, the two most commonly known are <a href="https://www.thebuzzabouttaxes.com/2014/12/this-just-in-final-regulations-on.html" target="_blank">Form 8938 (under FATCA)</a> and the <a href="https://www.thebuzzabouttaxes.com/2014/02/foreign-bank-account-regulations-iv-td.html" target="_blank">FinCEN Form 114 </a>AKA the FBAR. These forms require that you disclose the highest balances in your foreign financial accounts for the calendar year. </span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;">You need to also disclose if you have or are a part of a foreign trust/ receive gifts or inheritances from non-US citizens (Form 3520 and Form 3520-A), foreign partnership (Form 8865),foreign corporation (Form 5471) and own foreign mutual funds or other passive investments (Form 8621). </span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;">If you have not planned for these disclosures, catching up with the filing is a nightmare in itself! </span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;">If you are planning on immigrating to the United States, make sure you are consulting with tax professionals in the country where you live right now and coordinating it with US tax professionals who are experts in the field. Contact us if you need more advice (like my parents did!).</span></div><div><span style="font-family: trebuchet;"><br /></span></div><div><span style="font-family: trebuchet;">---</span></div><div><span style="font-family: trebuchet;">Do not forget to read my <a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">disclaimer here</a>. Please consult an Enrolled Agent for your unique tax needs. More of my contact information is on my website, <a href="http://www.mntaxbiz.com">www.mntaxbiz.com</a>. </span></div></div></div></div></div></div></div>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0Plymouth, MI 48170, USA42.3714253 -83.470213214.061191463821153 -118.6264632 70.681659136178837 -48.3139632tag:blogger.com,1999:blog-1711537157381628047.post-81923117914397447022020-04-19T23:43:00.002-04:002020-04-20T11:51:02.603-04:00Covid-19 Tax Deadlines, Updates, Stimulus Checks: All You Need To Know. <table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgY2sYq8CB8i4wN3oDnGTnkYU7BLgaKnquTv88v9f33FBodWvxoscK_EH3e-7__cdUa11IYdmT5nl-vUSEGkTTvjB4Tf16aj4LXl9TFvksEWs93UKlvlmuzkWHQyrqvta9l4V4JZC4i_Hnm/s1600/jefferson-memorial-1517212_1920.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1271" data-original-width="1600" height="254" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgY2sYq8CB8i4wN3oDnGTnkYU7BLgaKnquTv88v9f33FBodWvxoscK_EH3e-7__cdUa11IYdmT5nl-vUSEGkTTvjB4Tf16aj4LXl9TFvksEWs93UKlvlmuzkWHQyrqvta9l4V4JZC4i_Hnm/s320/jefferson-memorial-1517212_1920.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Washington DC Cherry Blossom</td></tr>
</tbody></table>
<span style="font-family: "trebuchet ms" , sans-serif;">The past one month has seemed like an eternity. The deluge of information from the Internal Revenue Service and the Government has been relentless and I hope that this blog post helps you, my dear reader, to navigate the flood. So brace yourselves, this is going to be a long read and there is no TL; DR version unfortunately! </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;">The Internal Revenue Service on March 20th announced a "Coronavirus Tax Relief" and extended your tax deadline from April 15th to July 15th 2020. This news was updated to include all deadlines that fell between April 15th, 2020 and July 15th, 2020 to be now July 15th, 2020. This relief was extended to Estates, Gift Tax and Non-Profits as well. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"> Let's take a quick look at all the deadlines: </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Estimates:</u></i> Both your 1st and 2nd Quarter estimates are now due on July 15th. These can be combined and paid on the same day without fear of interest and penalties. Some states however do not follow the same timeline for estimates--make sure you know what that is in your state of residence. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Taxpayer Living Abroad:</u></i> If you were a taxpayer living abroad for 2019, your original US tax deadline would have been June 15th. Your return is also now due July 15th, 2020. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><u><i>Foreign Information Returns/ Forms: </i></u>The Internal Revenue Service provided clarification that all foreign income information forms such as Forms 3520, 3520-A, 5471, 5472, 8938, 8858, 8825 etc are all now due with your tax return on July 15th, 2020. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Foreign Bank Account Regulation Forms {aka FBAR}:</u></i> The deadlines were NOT changed from April 15th, 2020. However there is an automatic extension to file these until October 15th. My firm's practice is to file an extension anyway for those who file FBAR's and are unable to file their return by April 15th. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Extension Due Date:</u></i> Extensions can be filed for those who cannot file their returns by July 15th, 2020. This extended due date still remains October 15th, 2020. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>S Corporations and Partnerships </u></i>which were due on March 16th, 2020 did not get any reprieve from filing. Those who could not file by March 16th, 2020 should have filed an extension to extend their filing to September 15th, 2020 which is the same as every year. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;">The Congress' Stimulus Check was put into in to action quite quickly by the Internal Revenue Service I must say and bank deposits started to go out April 15th. </span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;">Here is what we know so far regarding the stimulus check payments {Or if we do not know we in the tax community have deduced from trends so far}: </span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Non-Filers: </u></i>If you did not need to file a tax return in 2018 or 2019 because your income was below the filing threshold, you can go to this link {<a href="https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here" target="_blank">Non-Filer Link</a>} and fill out your bank information, so the IRS can deposit your Stimulus Check. Be sure to read the FAQ's on this website and see if you qualify to enter your information here. </span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Those Who Have Filed their 2018/ 2019 Tax Return:</u></i> This is where the major chunk of the taxpayers fall and where I have had the most questions. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"> It is not known
what "cut-off" date the IRS picked to select your 2018 tax return over
your 2019 tax return (or vice-versa) if you have filed both years, in order
to calculate your stimulus payment. </span></span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">If you have not received your stimulus payment as yet, you can check on the status of your payment, at this link. {<a href="https://www.irs.gov/coronavirus/get-my-payment" target="_blank">Get My Payment</a>}.</span></span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">This link can also be used to update your bank information with the IRS in the instances as detailed next when the IRS may not have your bank information. </span></span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">Here is a nifty chart
a dear friend and CPA colleague prepared and I am posting it here for you to determine what
your payment will be approximately. </span> </span></span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">AGI (Adjusted Gross Income)--> Refer To Line 8b, Page 1 on your 2019 Form 1040 / Line 7, Page 2 on your 2018 Form 1040. </span> </span><br />
<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgj88w7FRHdwvo9aZLYtQGsC_1rYqUwA1HfERrBSzj3TeYtmjMYHSafS5MONkKZZI6af9QhBK5mV_8JNNcdXQgvTbh91fWxezLnafErEofoIb-nRYSAaqLRTLznZGwfVUmEVJ-UcSd0bqvP/s1600/IMG_0023.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="311" data-original-width="624" height="315" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgj88w7FRHdwvo9aZLYtQGsC_1rYqUwA1HfERrBSzj3TeYtmjMYHSafS5MONkKZZI6af9QhBK5mV_8JNNcdXQgvTbh91fWxezLnafErEofoIb-nRYSAaqLRTLznZGwfVUmEVJ-UcSd0bqvP/s640/IMG_0023.JPG" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Chart created by my friend Amie K, CPA at Eide Bailley</td></tr>
</tbody></table>
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;">If <u>you got a refund in 2018 and 2019 and you had the refund directly deposited into your bank</u> account, the <u><i>IRS has your</i></u> bank information and if you are eligible, you should see a deposit in your account anytime soon. </span></li>
</ul>
<ul>
<li><u><span style="font-family: "trebuchet ms" , sans-serif;"> </span></u><span style="font-family: "trebuchet ms" , sans-serif;"><u>If you owed money</u> in 2018/ 2019 and you had the IRS directly debit the tax due via your over-the-counter software/ your tax professional's software OR you sent the IRS a check OR you paid the IRS online via a credit card or a debit to your bank account, the <i><u>IRS does not have your bank account</u></i> information. Your stimulus check, if you are eligible to receive one, will be mailed to you at the address on file. </span></li>
</ul>
<span style="font-family: "trebuchet ms" , sans-serif;"></span><br />
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;">If <u>you neither owed tax nor had a refund</u> on your 2018/ 2019 tax return, the<u><i> IRS does not have your bank </i></u>information and you will be mailed a check to the address provided via your tax return. </span></li>
</ul>
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;">If <u>you used an over-the-counter software or went to a big box chain tax preparation</u> store and if you either applied for a refund loan or had the chain take your tax preparation fees out of your refund, the<i><u> IRS does not have your bank </u></i>information. </span><span style="font-family: "trebuchet ms" , sans-serif;">Your stimulus check, if you are eligible to receive one, will be mailed to you at the address on file. </span></li>
</ul>
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;">If you had your <u>2018 refund applied to your 2019</u> tax return, the <i><u>IRS will not have your bank </u></i>account information. Your stimulus check in this case will be mailed to your address on file. </span></li>
</ul>
<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Taxpayers Living Abroad: </u></i></span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;">If you are taxpayer living abroad, and if your AGI is within the threshold as in the chart above, you are eligible to receive the stimulus payment. Most taxpayers who live abroad may not have filed their 2019 taxes yet. </span><br />
<ol>
<li><span style="font-family: "trebuchet ms" , sans-serif;">If living abroad and you <u>filed a return for tax year 2018 </u>and had a refund for 2018 and had it deposited in your US bank account, the<i><u> IRS has your bank information</u></i> and will deposit your check. If not chances are this check will be mailed to your foreign address or the US care of address they have on file. </span></li>
<li><span style="font-family: "trebuchet ms" , sans-serif;">If living abroad and<u> you have not filed returns for 2018</u>, you will not receive a stimulus check. The IRS will only make a deposit into your US bank account if they have a return on file for tax year 2018/ 2019. </span></li>
</ol>
<span style="font-family: "trebuchet ms" , sans-serif;">**For those claiming the Foreign Earned Income Exclusion**: As per IRS guidance to date, you are eligible for the stimulus check if your AGI is within the thresholds as stated in the chart above. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;">If you have not filed your US tax returns, this would be a good time to catch up on your previous years' filings. There are several programs you can be eligible for to bring your delinquent returns into compliance. Do explore your options with a tax professional experienced with this. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><u><i>Taxpayers on Immigrant Visas, SSN's and ITIN's: </i></u> </span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;">The stimulus payment in theory is based on your residency status and your social security number. If you are on an immigrant visa like H1-B/ L1 etc., have a SSN and have fulfilled substantial presence requirements in the US for 2018/ 2019 and are therefore considered a "resident alien", you should be eligible for the stimulus check. If you have a spouse in the US with whom you file jointly and who has a social security number, you are both eligible for the stimulus check. Same goes for dependents who have SSN's and you claim on your return. </span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;">Any dependents or your spouse with an ITIN { Individual Taxpayer Identification Number} are not eligible to be counted for the stimulus check. However, there has been anecdotal evidence that payments have gone out to those with ITIN's as well. At this time, we do not know if the amount is to be re-paid to the IRS. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Dependents/ Children Over 17 Years Old or Parents Claimed As Dependents:</u></i> </span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;">If they did not have any income in 2018/ 2019 and you provided more than half their support, they are ineligible for the stimulus check at the time this post is being published. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Advance Credit:</u></i> </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;">If
for some reason, you do not receive the stimulus check, know that this
is an advance credit for your 2020 taxes and will be eligible to be
claimed while filing your 2020 tax return. I understand that your need
for cash may be right now unfortunately. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><u><i>Get My Payment Messages Regarding Ineligibility:</i></u> </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Tax professionals who have been observing trends over the past few days conclude that most instances of the IRS website ineligibility messages is due to the fact that you have not yet filed your 2019 tax return. They encourage you to file your 2019 tax return ASAP. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;">The Internal Revenue Service will start mailing out checks to those who qualify but whose bank account information is not known. We have been informed that this date is April 24th, 2020. If your check is already in the pipeline to be mailed, you may not be able to update your bank information on the IRS' website. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;">The IRS has an updated FAQ page for these messages. </span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;">If you have any questions regarding the above, please reach out to a tax professional or please contact our office. </span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"> --<br />I am an Enrolled Agent and owner of MN Tax and Business Services PLLC (www.mntaxbiz.com), based in the Metro Detroit area in Michigan, USA. The firm provides Tax Preparation, Planning services to Individuals, Small Businesses, Trusts and Non-Profit Organizations. Get my latest posts by subscribing to my blog.<br /><br />You can also find me tweeting @ManasaSogNadig where I have been @Forbes Top 100 Tax Tweeters for 2018, 2019 and 2020.</span><br />
The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com1tag:blogger.com,1999:blog-1711537157381628047.post-46629914874596856982020-02-29T18:50:00.002-05:002020-02-29T18:50:35.794-05:00Interesting Court Cases: Failure to File an FBAR and Interpretation of "Reasonable Cause". <h4 align="center">
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdz7oGzFbkS6rk6krOZ4DhO3LhAA99miQbAKfz4WJQLMA25FEtYFm1uXodi1vd8tBs7xr8oweBwk2dRo0D3cTSa4CbhcRz1JDBd8VYD_g4i3iG2wAfMrvp0erWxD0LB3Keinj_cY5di4To/s1600/cuckmere-2585193_1920.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1106" data-original-width="1600" height="221" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdz7oGzFbkS6rk6krOZ4DhO3LhAA99miQbAKfz4WJQLMA25FEtYFm1uXodi1vd8tBs7xr8oweBwk2dRo0D3cTSa4CbhcRz1JDBd8VYD_g4i3iG2wAfMrvp0erWxD0LB3Keinj_cY5di4To/s320/cuckmere-2585193_1920.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Sussex, UK </td></tr>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>It is a beautiful sunny, cold February 29th in Michigan. Us tax professionals are hurtling through tax season at break-neck speed. The days are getting longer and Spring is teasing us with a game of peek-a-boo. I am hooked on a certain streaming show about gardens in the UK and the presenter's encouraging words that could make any gardener's </b></span><span style="font-family: "Trebuchet MS", sans-serif;"><b><span style="font-family: "Trebuchet MS", sans-serif;"><b>wildest </b></span>dreams come true. I am already thinking of all the flowers and herbs I am going to plant post-tax season when the weather is warmer. </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>However, wild dreams should not come into the picture when we are talking about foreign bank account reporting, penalties and reasonable causes. Let us go over what happened to Mr. Agrawal, a naturalized U.S. Citizen and immigrant from India in (DC WI 12/9/2019) 124 AFTR 2d ¶2019-5522. </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b><i><u>Facts About the Case:</u></i> Mr. Agrawal self-prepared his 2006 and 2007 tax returns. He hired an accountant to prepare his 2008 and 2009 tax returns. In all years, he indicated, in the Foreign Accounts and Trusts part of Schedule B to Form 1040, that he did not have a foreign bank account. In all years he failed to file FBARs. But Mr. Agrawal did have a foreign bank account during those years with more than $10,000 in it.</b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>The defendant testified that he told his accountant that he did not have a foreign bank account. He said he did this because a tax professional at the foreign bank told him that the income in the account was not subject to US income tax.</b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b><br />Mr. Agrawal was in immigrant from India, completed graduate school education in the US, and taught geophysics and math at a US technical college.</b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b><br />The IRS sought to impose a penalty for non-willful failure to file FBARs. While he conceded that he should have filed FBARs, Agrawal argued the reasonable cause exception should apply and that his conduct was excused because he relied on the advice of tax professionals, and because he was elderly, unsophisticated about tax law, and spoke English as a second language. </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b><i><u>Quick background about reporting your foreign bank accounts: </u></i>Under 31 USC § 5314(a), every person who has a financial interest in, or signature or other authority over, a financial account, or accounts, in a foreign country must report the accounts to IRS annually on a FinCEN Report 114, Report of Foreign Bank and Financial Accounts (also known as the FBAR) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>31 USC § 5321(a)(5) provides the methodology how the Secretary of the Treasury may impose penalties on failure to file and also states how much the penalties depending on whether the violation of these rules were non willful {maximum $10,000} or willful {greater of $100,000 or 50% of the balance in the account at time of violation}. Under USC § 5321(a)(5)(B)(ii), the IRS may not impose a penalty if the violation was due to reasonable cause. </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b><i><u>Reasonable Cause & What It Is?: </u></i>Interestingly, 31 USC § 5321 nor it's corresponding regs define the term "reasonable cause" and there has been very little development in case law either. Code Sec 6651(a) and code Sec 6664(c)(1) give some context in terms of tax compliance. The courts have found these useful in constructing a standard applicable to reasonable cause in the FBAR context. { Jarnagin, (Ct Fed Cl 2017) 120 AFTR 2d 2017-6683 } </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b> </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>Regs under Code Sec 6651 equate the reasonable cause standard to "ordinary business care and prudence". The regs under Code Sec 6664 state the determination for reasonable cause needs to be made on a case by case basis, taking into account all pertinent facts and circumstances. It also alludes to the fact that the taxpayer is responsible to assess the taxpayer's proper liability. </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b><i><u>Decision By The Court:</u></i> The district court found that the reasonable cause exception did NOT apply to Agrawal and that he was liable for the penalty.</b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b><br />The court held that no reasonable juror could find that Agrawal acted with ordinary business care and prudence, or that he made a reasonable effort to understand his FBAR reporting responsibilities, when he failed to file his FBARs for the years 2006-2009. By his own admission, the defendant self-prepared his 2006 and 2007 tax returns; he did not disclose the existence of a foreign financial account on Schedule B despite a direct question on the issue. </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b> </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>According to his deposition testimony, in 2008 and 2009, Agrawal did not tell the CPA preparing his tax return of the existence of the foreign account or question the CPA's decision to leave blank the Schedule B question about foreign bank accounts.</b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b><br />The court said that a taxpayer acting with ordinary business care, or one making a reasonable effort to understand his responsibilities, would have sought informed advice about the reporting requirements alluded to in Schedule B; seeking such advice would necessarily involve the taxpayer notifying the advisor of the existence of the foreign account.</b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b><br />The court said that Agrawal's arguments that he was elderly, spoke English as a second language, and had an inexpert understanding of tax reporting requirements did not alter its reasonable cause analysis. By his own admission, Agrawal had sufficient mental acuity and technical facility with the English language to work as a math teacher and as a geophysicist, and, for that matter, to represent himself in this litigation.</b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b> </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b><i><u>Conclusion:</u></i> Suffice it to say that it is getting to be really difficult for a taxpayer to claim that they were not aware of their responsibility to declare their foreign bank accounts since the IRS has been so vocal about this requirement since their push with FATCA in 2010. As in Mr. Agrawal's case, if you have been filing your own taxes, any over-the-counter tax software worth it's salt would ask you a question regarding the presence of foreign bank accounts and if you feign ignorance, it is not going to be a plausible excuse. </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b><br /></b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>In our practice, we have helped countless non-reporters. If you or someone you know has been delinquent with their foreign bank reporting and needs help being compliant, we can go over various options available and determine the best possible solution for you. </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b> </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b><i>Bibliography: (DC WI 12/9/2019) 124 AFTR 2d ¶2019-5522; FTC 2d/FIN ¶V-1813.4; United States Tax Reporter ¶60,114.06; Reg. § 310.6651-1(c)(1); Jarnagin, (Ct Fed Cl 2017) 120 AFTR 2d 2017-6683; 31 USC § 5314(a) and 5321(a)(5)</i> </b></span></div>
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<span style="font-family: "Trebuchet MS", sans-serif;"><b>-- <br />I am an Enrolled Agent and owner of MN Tax and Business Services PLLC (www.mntaxbiz.com), based in the Metro Detroit area in Michigan, USA. The firm provides Tax Preparation, Planning services to Individuals, Small Businesses, Trusts and Non-Profit Organizations. Get my latest posts by subscribing to my blog. <br /><br />You can also find me tweeting @ManasaSogNadig where I have been @Forbes Top 100 Tax Tweeters for 2018, 2019 and 2020. </b></span></div>
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The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-67090820537287821142020-01-30T00:00:00.000-05:002020-02-01T11:57:45.315-05:00Expat: Individual Retirement Accounts {IRA} and Foreign Income<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJegFTWlURqzrdFjGK2afE1JBtxxpZfSIva0M_Z5eMB_yXwdsN4H0Z0ghyHgihtic1D0REknQoC5D_FPa8lnjbn_LK39uoiutlG8OekypypRgLHpDGSgA2vY1f2DhzQ8-yORVEZsg5BLt0/s1600/himalayas-409_1920.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1200" data-original-width="1600" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJegFTWlURqzrdFjGK2afE1JBtxxpZfSIva0M_Z5eMB_yXwdsN4H0Z0ghyHgihtic1D0REknQoC5D_FPa8lnjbn_LK39uoiutlG8OekypypRgLHpDGSgA2vY1f2DhzQ8-yORVEZsg5BLt0/s320/himalayas-409_1920.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Picture Courtesy pixabay.com Nepal Himalayas</td></tr>
</tbody></table>
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<span style="font-family: "trebuchet ms" , sans-serif;">Happy New Year dear reader and welcome to a new decade! Looking forward to a lot of reading and sharing this year. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">If you are a U.S citizen living abroad, you could continue to contribute to a retirement account. An expatriate's tax life is complicated as we know-different tax issues, elections and levels of income have to be considered before one can determine if an expat can make an IRA contribution based on their foreign income. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;">There are complex technical rules that we have to sift through in order to seek eligibility for a taxpayer with foreign income to be able to contribute into an IRA. I found a lot of information out there on the World Wide Web about this matter, this article is my attempt to bring it all together. </span><br />
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<u><i><span style="font-family: "trebuchet ms" , sans-serif;">Income Limits for IRA Contributions:</span></i></u><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">In order to contribute to a traditional or a Roth IRA:</span><br />
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;">You must have <i><b>taxable</b></i> compensation for the year. </span></li>
<li><span style="font-family: "trebuchet ms" , sans-serif;">You must have foreign income<i><b> in excess</b></i> of your foreign housing and foreign earned income exclusion ($105,900/ taxpayer for 2019 indexed for inflation). </span></li>
<li><span style="font-family: "trebuchet ms" , sans-serif;">Your Modified Adjusted Gross Income (In the charts attached below) will <i><b>add back</b></i> the foreign earned income exclusion. </span></li>
</ul>
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<span style="font-family: "trebuchet ms" , sans-serif;">2019 Roth IRA Income Limits for a $6,000 ($7,000 for those 50 years or older) Contribution are as follows: </span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0xW6JV8uGUsEqJhTqhIuAPsR7xOtlBe-zD0bHOyVFjytMnXFK9JL_Lu5BcqHrbJHHzPTu7BK5dUHsaERYhmtCwdwh0jdrGjJ3P8PA03TfOGVkq2bVJWit0y0Cy0P9_g-VysOuYFM6FR4f/s1600/roTh+IRA+income+limits.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="925" data-original-width="579" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0xW6JV8uGUsEqJhTqhIuAPsR7xOtlBe-zD0bHOyVFjytMnXFK9JL_Lu5BcqHrbJHHzPTu7BK5dUHsaERYhmtCwdwh0jdrGjJ3P8PA03TfOGVkq2bVJWit0y0Cy0P9_g-VysOuYFM6FR4f/s400/roTh+IRA+income+limits.PNG" width="250" /></a></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">2019 traditional IRA </span><span style="font-family: "trebuchet ms" , sans-serif;">Income Limits for a $6,000 ($7,000 for those 50 years or older) Contribution for those covered by a retirement plan at work are as follows:</span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQBercVTm_0zhPGMK2va6vbBntTe_MzC5otlwFaZGSG7o5RHjmXKQyP1a6IFxJMw7VnVHRDT9oOY8DdjrHaPBLw8wAdfpJbvewSUV5eGoxjqd6FGT7fuKxOM2NlXtw5SsvI9iocxwi_bf8/s1600/trad-ira-if-covered.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="899" data-original-width="565" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQBercVTm_0zhPGMK2va6vbBntTe_MzC5otlwFaZGSG7o5RHjmXKQyP1a6IFxJMw7VnVHRDT9oOY8DdjrHaPBLw8wAdfpJbvewSUV5eGoxjqd6FGT7fuKxOM2NlXtw5SsvI9iocxwi_bf8/s320/trad-ira-if-covered.PNG" width="201" /></a></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">2019 traditional IRA </span><span style="font-family: "trebuchet ms" , sans-serif;">Income
Limits for a $6,000 ($7,000 for those 50 years or older) Contribution
for those <i><b>not </b></i>covered by a retirement plan at work are as follows:</span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLjTQX4NDJyt3yJTRRKJfxTMV2VJzLe6En7gWueEzCwmKCKu5cvDJ_bwDgc1mUuLPu6piAWbYSdwr4_wVHGFu248OoDpNokv5TyEKHOGhW4wazeu2pqeXMMgh85PTW_hDR1iijlvr1M69D/s1600/trad-ira-if-not-covered.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="693" data-original-width="850" height="260" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLjTQX4NDJyt3yJTRRKJfxTMV2VJzLe6En7gWueEzCwmKCKu5cvDJ_bwDgc1mUuLPu6piAWbYSdwr4_wVHGFu248OoDpNokv5TyEKHOGhW4wazeu2pqeXMMgh85PTW_hDR1iijlvr1M69D/s320/trad-ira-if-not-covered.PNG" width="320" /></a></div>
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><u><i>Taking the above aspects into consideration, how can one contribute into an Individual Retirement Account if one has foreign income? </i></u></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;">Since the Roth IRA has overall income limits in order to make a contribution, and the Traditional IRA further limits amounts based on whether one is already contributing to an employer provided retirement account, the range of income that is available for a contribution is narrow at best. This could only be wages or net self-employed income that is in excess of the foreign earned income exclusion. </span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<u><i><span style="font-family: "trebuchet ms" , sans-serif;">Can taking the Foreign Tax Credit be more advantageous so one can make an IRA Contribution?</span></i></u><br />
<span style="font-family: "trebuchet ms" , sans-serif;">In some situations, claiming a foreign tax credit on taxable wages or net self-employed income can yield a more opportune scenario to fund an IRA in the United States. This would not only provide a reduction in US taxes but will also provide the tax-payer a higher "taxable" income to work with. </span><br />
<br />
<u><i><span style="font-family: "trebuchet ms" , sans-serif;">How do IRA Roll-overs work for those who have moved out of the U.S?</span></i></u><br />
<span style="font-family: "trebuchet ms" , sans-serif;">There is a possibility that you have worked in the US before moving abroad and have accumulated retirement savings, possibly accounts in 401K's, 403B's or other employer retirement plans or traditional IRA's.You may have long term plans of staying abroad or do not have plans of drawing your retirement accounts at the age of 72. </span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;">You could take advantage of the lower tax brackets in case you are making use of the Foreign Earned Income Exclusion and roll over these retirement accounts into a Roth IRA. If the numbers line up favorably, this Roth IRA conversion may even be tax-free. You could then leave the Roth IRA to grow tax-free and not have to take Required Minimum Distributions from it. </span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><u><i>Consultation WIth An Enrolled Agent or Experienced Tax Professional:</i></u> </span><br />
<span style="font-family: "trebuchet ms" , sans-serif;">It is very important, you seek the help of an experienced tax professional in order to execute any of the above. If the IRA's are rolled over incorrectly, there will be penalties on early withdrawals or excise taxes to be paid on incorrect set-up. Please contact our office for consultations, we have experience in guiding you with the correct set up and rollover. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><i>Bibliography: <a href="https://www.law.cornell.edu/uscode/text/26/911" target="_blank">Section 911</a>; <a href="https://www.law.cornell.edu/uscode/text/26/408" target="_blank">Individual Retirement Accounts § 408</a></i></span><a href="https://www.law.cornell.edu/uscode/text/26/408" target="_blank"><br /></a><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i>-- </i></span></span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i>I
am an Enrolled Agent and owner of MN Tax and Business Services PLLC
(www.mntaxbiz.com), based in the Metro Detroit area in Michigan. The
firm provides Tax Preparation, Planning services to Individuals, Small
Businesses, Trusts and Non-Profit Organizations. Get my latest posts by
subscribing to my blog. </i></span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i>You can also find me tweeting <a href="https://twitter.com/ManasaSogNadig" target="_blank">@ManasaSogNadig</a> where I have been @Forbes Top 100 Tax Tweeters for 2018, 2019 and 2020. </i></span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i><a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">Read my disclaimer here</a></i></span></span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"> </span>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-13379294535370050652019-12-25T22:08:00.001-05:002019-12-25T22:08:17.199-05:00SECURE Act BIG Retirement Plan Changes: Major Take-Aways Read More Here!<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjv4H7JDUwiTq6_LkTx64Roqgo2l_0_JkDoQji5jZ1ORTSMFOmuMlZVcYYO9bh5d1K53lHUB532NQHkrbfeJOaJY4d_C6FnAReNhw9wzZEGGXuOf6ygQgtJb1XfVFswDe6hAEIMsYP5UYv4/s1600/pangong-tso-1650946_1920.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1067" data-original-width="1600" height="266" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjv4H7JDUwiTq6_LkTx64Roqgo2l_0_JkDoQji5jZ1ORTSMFOmuMlZVcYYO9bh5d1K53lHUB532NQHkrbfeJOaJY4d_C6FnAReNhw9wzZEGGXuOf6ygQgtJb1XfVFswDe6hAEIMsYP5UYv4/s400/pangong-tso-1650946_1920.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Pangong Lake, Ladakh, India. Picture Courtesy: pixabay.com</td></tr>
</tbody></table>
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<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">I started blogging
about taxes in 2013 because I wanted to share what I knew about taxes.
In the process of getting word out about my writing, I have learnt a
thing or two about social media and marketing my blog. The engagement
with fellow Enrolled Agents and other professionals in the Tax field has
been an amazing experience and in the process of educating others about
taxes, I have learnt a lot myself both about Social Media marketing, about blogging and my online tax colleagues as well. </span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">As
twenty-nineteen comes to a close, every tax professional agrees that
the time since the Tax Cuts and Jobs Act {TCJA} was passed in December
2017 has been a very stressful. There has been a lot of new rules
and regulations, both proposed and final to process and understand
applications. Just as we thought we had it all ready for the 2020 Tax
Season, the Government pushed through a bunch of last minute laws. The
most important of those and the one to have many far-reaching
consequences was the SECURE Act, an acronym for Setting Every Community
Up for Retirement Enhancement Act of 2019. </span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">The SECURE Act is a major act of </span><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">retirement </span>legislation
to be passed in a decade. There is a LOT in this legislation that will
not only effect some taxpayers getting close to the earlier retirement
age of 70.5 years immediately but there are also other important
provisions in the new Act that will effect taxpayers who plan on leaving
their retirement plans to their heirs or those taxpayers who will
inherit retirement plans. </span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">Here is a synopsis of some of the most important provisions from the Act:</span></span><br />
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><u><i>Required Minimum Distribution {RMD} Now At 72: </i></u>If
you have not reached an "RMD Age" of 70.5 by December 31st, 2019 your
new required minimum distributions are now due on April 1st of the year
after you turn 72. The RMD for any year is the balance in your
retirement plan as of December 31st of the previous year divided by the
distribution period in the IRS' Uniform Lifetime Table. </span></span></li>
</ul>
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i><u>No Age Limit On Traditional IRA Contributions:</u></i>
Since a lot of Americans continue to live longer and work into their
seventies, this Act repeals an earlier provision prohibiting an
individual from making contributions into a Traditional IRA after the
age of 70.5 years. </span></span></li>
</ul>
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i><u>529 Education Savings Plan Can Be Used To Pay Off Student Loans:</u></i>
One can use up to $10,000 of their 529 Plan to pay off their student
loans. This legislation also expanded the 529 Plans to cover costs
associated with registered apprenticeship programs, homeschooling and
private elementary, secondary or religious schools. </span></span></li>
</ul>
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Taxable Non-Tuition Fellowship and Stipend Eligible as Compensation for IRA Contributions:</u></i>
Before the legislation, those who had stipends and non-tuition
fellowship payments were not allowed to use those earnings as a basis
for contributing to Individual Retirement Accounts. After this
legislation, graduate and post-doctoral students can begin using these
earnings to put money away in retirement plans.</span></span></li>
</ul>
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Long-time Part-time workers eligible for 401K Plans: </u></i>Except
in the case of collectively bargained plans, the bill will require
employers maintaining a 401(k) plan to have a dual eligibility
requirement under which an employee must complete either a one year of
service requirement (with the 1,000-hour rule) or three consecutive
years of service where the employee completes at least 500 hours of
service. </span></span></li>
</ul>
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Penalty-Free Distribution Allowed for Birth/ Adoption:</u></i> Any "qualified birth/ adoption" expenses can be paid for with retirement plan distributions penalty free. </span></span></li>
</ul>
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i><u>401K Safe Harbor Rules Simplified:</u></i>
The legislation simplifies the employer non elective contribution safe
harbor rules so that there is more "flexibility, improve employee
protection and facilitate plan adoption." </span></span></li>
</ul>
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Increase in Penalty For Failure to File:</u></i> Penalty for failure to file a return has been increased to the lesser of $400 or 100% of the tax due. </span></span></li>
</ul>
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Stretch IRA Is No LOnger Applicable for Most Taxpayers:</u></i>
The goal of a "Stretch IRA" is really a strategy used by those who have
inherited IRA's and do not need the money and want to be able to take
as little as possible by way of annual distributions. These "Stretch
IRA's" can be used by a beneficiary to fund his/ her own retirement
eventually. The premise of this type of strategy is that the Return on
Investment on the remaining balance in the plan are greater than the
annual distributions. </span></span></li>
</ul>
<div style="text-align: left;">
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">
Under the SECURE Act, for beneficiaries who inherit after 2019, an
inherited IRA has to be completely drawn out by the 10th year after
year of death of the original account holder. {This is called a 10-year
Distribution Cap} There are no required minimum distributions for
beneficiaries in the 1st 9 years of inheritance. This rule is not
applicable to the spouse of the deceased account holder, to a
beneficiary who is disabled, is chronically ill, not more than 10 years
younger than the account holder or is a minor child. </span></span><br />
<br />
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">The
change in the "Stretch IRA" rules will definitely require a rehaul of
Estate Plans that are using this strategy. And there is not much time
left in order to put this in place! </span></span></div>
<ul>
<li><span style="font-family: "trebuchet ms" , sans-serif;"><i><u><span style="font-family: "trebuchet ms" , sans-serif;"> </span></u></i><span style="font-family: "trebuchet ms" , sans-serif;"><i><u>Increase in Penalty in Failure to File Retirement Plan Returns {Forms 5500}:</u></i> Per Section 403 of the SECURE Act, </span></span></li>
</ul>
<ol>
<li><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">Form 5500 penalty would be modified to $105 per day, not to exceed $50,000. </span></span></li>
<li><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">Failure to file a registration statement would incur a penalty of $2 per participant per day, not to exceed $10,000. </span></span></li>
<li><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">Failure to file a required notification of change would result in a penalty of $2 per day, not to exceed $5,000 for any failure.</span></span></li>
<li><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">Failure
to provide a required withholding notice results in a penalty of $100
for each failure, not to exceed $50,000 for all failures during any
calendar year. </span></span></li>
</ol>
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">If
any of the above applies to you and you find all this very last minute
and overwhelming, I would not blame you at all. This would be a great
time for you to contact both your Enrolled Agent and your Financial
Planner and if you do not work with one or the other, it would be the
perfect time to get one or both these professionals into your lives. </span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><br /></span></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">If you need an Enrolled Agent with </span><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"> extensive </span>experience in retirement matters, please contact us at www.mntaxbiz.com. </span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i>Bibligraphy:<a href="https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SECURE%20Act%20section%20by%20section.pdf" target="_blank"> The SECURE Act</a>; <a href="https://www.kitces.com/blog/secure-act-2019-stretch-ira-rmd-effective-date-mep-auto-enrollment/" target="_blank">Jeff Levine @CPAPlanner In-Depth Article</a> </i></span></span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i>-- </i></span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i>I
am an Enrolled Agent and owner of MN Tax and Business Services PLLC
(www.mntaxbiz.com), based in the Metro Detroit area in Michigan. The
firm provides Tax Preparation, Planning services to Individuals, Small
Businesses, Trusts and Non-Profit Organizations. Get my latest posts by
subscribing to my blog. </i></span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i>You can also find me tweeting <a href="https://twitter.com/ManasaSogNadig" target="_blank">@ManasaSogNadig</a> where I have been @Forbes Top 100 Tax Tweeters for 2018 and 2019. </i></span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i><a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">Read my disclaimer here</a></i></span></span>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-692158909623762992019-12-02T14:05:00.000-05:002019-12-02T14:05:17.316-05:00Are You Ready For 2020? Tax Filing Season Is Coming! <table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEikUfUsmO8mGbfsexA6dX0dV1T7lPZxL59YuFRBrthaIpZNf9dchmrkg-wcK4_DCvNk4fyXHLe7nIPoBEG47eD8n7tIg96juNsUL36I8rsFxXLKnHpk6-T82KFsfbanNzvDMubsGJvktMxp/s1600/angkor-3771747_1920.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1066" data-original-width="1600" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEikUfUsmO8mGbfsexA6dX0dV1T7lPZxL59YuFRBrthaIpZNf9dchmrkg-wcK4_DCvNk4fyXHLe7nIPoBEG47eD8n7tIg96juNsUL36I8rsFxXLKnHpk6-T82KFsfbanNzvDMubsGJvktMxp/s320/angkor-3771747_1920.jpg" width="320" /> </a></td><td style="text-align: center;"></td><td style="text-align: center;"></td><td style="text-align: center;"></td><td style="text-align: center;"></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Picture Courtesy: pixabay.com Angkor Wat</td></tr>
</tbody></table>
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<span style="font-family: "trebuchet ms" , sans-serif;">How was 2019? Did it go well for you? I have been talking to my colleagues in the tax sphere, opinions are all over the place. The Tax Reform roll-out kept most of us either waiting on the proposed regulations or trying to wrap our heads around the final regulations that kept coming through in bits and starts from the Internal Revenue Service. Kudos to the people who work there I must say, in spite of all the staffing issues, they were doing their best to keep the regs rolling out. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Well, the proverbial Father Time does not wait for anyone,and here we are, final regs and proposed regs tucked under our elbows, getting ready for 2020! So, here are some steps my dear readers I thought would help you get your stuff together and be as ready as possible for Tax Season 2020. </span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>A. Adjust Your Withholding:</u></i> If you are a wage earner and have been working with the same employer for the past few years, I would highly recommend doing a "payroll check-up" so you can make sure you are having enough taken out in taxes. A lot of taxpayers were in for a sticker shock after payroll withholdings changed for 2018 considering a lot of deductions were either removed or changed and exemptions were completely phased-out. Ask your tax preparer to help you with this or you could do this on your own on the <a href="https://www.irs.gov/individuals/tax-withholding-estimator" target="_blank">IRS Website Tax Withholding Estimator</a>. </span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>B. </u><u>Adjust Your Employer Retirement Plan Contribution:</u></i> If you have an Employer Provided Retirement Plan like a 401K or a 403b, you can stash away up to $19,000 (for 2019) and $ 6,000 in catch-up contributions for those over 50 years of age. If you have cash to spare, make sure you are maximizing these contributions before the end of the year. </span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>C. Check Your Eligibility For Individual Retirement Account {IRA} Contributions:</u></i> In addition to your employer provided retirement accounts, you may be eligible to contribute in to an IRA. These contributions can be made up to the tax filing deadline or April 15th. You can make a maximum contribution of $ 6,000 (for 2019) and $ 1,000 in </span><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">catch-up contributions for those over 50 years of age. Talk to your tax preparer to check your eligibility. </span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><br /></span></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i><u>D. Estimating Annual Income For Small and Medium Business Owners:</u></i> If you are a business owner, it is important to calculate and pay your taxes every quarter: April 15th, June 15th, September 15th and December 31st. The most ideal and safe way to set this up is to open an Electronic Federal Tax Payment System Account on <a href="http://eftps.gov/">eftps.gov</a>. Payments can also be made through direct bank debit or with a credit card via <a href="http://irs.gov/payments">irs.gov/payments</a>. Depending on your entity structure, size and nature of your business, you may be able to schedule these payments ahead of time. </span></span><span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">Many States also have a similar system. Do not forget your state taxes.</span></span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i><u>E. Making Retirement Plan Contributions For Business Owners: </u></i>You can contribute into a Solo 401K/ SEP/ SIMPLE IRA. You can make both "Employer" and "Employee" contributions. Funding options on each of these retirement plans are different, and so are set up requirements. I would highly recommend you work with an Enrolled Agent to determine eligibility and contribution limits. </span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><br /></span></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i><u>F. Review Changes To Rental Income and Safe Harbor Requirements: </u></i>The Internal Revenue Service issued clarifications in September 2019 regarding treating your rentals as a "trade or business" and a safe harbor to claim a deduction under §199A. Owners of rental properties need to comply with certain requirements to be able to claim their rentals as a "trade or business" and avail of a deduction under §199A. <a href="https://www.irs.gov/newsroom/irs-finalizes-safe-harbor-to-allow-rental-real-estate-to-qualify-as-a-business-for-qualified-business-income-deduction" target="_blank">These requirements can be found here. </a></span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><br /></span></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><i><u>G. Renew Your Individual Tax Identification Number {ITIN}: </u></i>If you or someone in your family has been issued an ITIN, be aware that the ITINs now expire. If your ITIN or someone in your family has an ITIN that is going to expire in 2019, you need to renew it unless you are now eligible to obtain a Social Security Number.<a href="https://www.irs.gov/individuals/itin-expiration-faqs" target="_blank">Here are some FAQ's issued by the IRS. </a></span></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;"><br /></span></span>
<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">The key to a successful tax season, complete and proper filing of your taxes is to have all your records ready. We undertake end-of-year tax planning for our clients so we can avoid surprises at tax time! Please contact us or your trusted tax professional and get ready for 2020. </span></span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">---<br />Do not forget to read my <a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">disclaimer here</a>. Please consult an Enrolled Agent for your unique tax needs. More of my contact information is on my website, <a href="http://www.mntaxbiz.com/">www.mntaxbiz.com</a>.</span></span>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-45723556186846781782019-09-09T22:54:00.000-04:002019-09-09T22:54:32.694-04:00"Accidental Americans" Get Relief! New Announcement from the IRS!!<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEicE0zqHgLgimbhnWZWwT3Hf4vScSmjt1xJ5uMj1ohfqNqEV0OubX3M77bBc8l_xBuwUCTvQuvFxSaGI9lHwLUfXphxvbyawSVQzmhqS6tb5HkSTccOTTUDvOhRma-X92qoAUVNSGX24MDV/s1600/architecture-3091990_1920.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1067" data-original-width="1600" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEicE0zqHgLgimbhnWZWwT3Hf4vScSmjt1xJ5uMj1ohfqNqEV0OubX3M77bBc8l_xBuwUCTvQuvFxSaGI9lHwLUfXphxvbyawSVQzmhqS6tb5HkSTccOTTUDvOhRma-X92qoAUVNSGX24MDV/s320/architecture-3091990_1920.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Image from Pixabay</td></tr>
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<span style="font-family: "Trebuchet MS", sans-serif;">Stop the presses, hold the phones, drop everything you are doing! The Internal Revenue Service announced "Relief Procedures for Certain Former Citizens" on September 6th, 2019. If you are an "Accidental American" and planning on renouncing your U.S. Citizenship, you should be reading this. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">Let's dig back a bit and refresh our memories: The United States Constitution provides through the 14th Amendment that "all persons born or naturalized in the United States" are citizens of the USA. A person born abroad to a U.S. citizen parent or parents acquires U.S. citizenship at birth if the parent or parents meet conditions as specified in § 301 and following sections of the U.S. Immigration and Nationality Act. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">Those who have acquired U.S. citizenship in such a manner may not be aware of the obligations and consequences of this status. As you my dear readers already know from my blog, that by law, U.S. citizens regardless of where they live have to report and possibly pay tax on their world-wide income to the Internal Revenue Service. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">With the passage of the FATCA {Foreign Account Tax Compliance Act} in 2010, now foreign financial institutions are required to know if any of their customers are U.S citizens and if that is true, the customer's information is to be reported to the United States. The customer also needs to provide their Social Security Number to the foreign bank where they have their accounts. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">A U.S. Citizen may relinquish his or her citizenship by paying a fee and taking an oath of renunciation before a US diplomatic or consular officer. They also need to certify that they have fulfilled their federal tax obligations for the year of expatriation and five tax years prior to this event. The relinquishment is detailed under IRC 877A. Those who are deemed to be "Covered Expatriates" may continue to have US tax obligations even after they renounce their citizenship. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;"><i><u>What Are the Relief Procedures:</u></i> The Internal Revenue Service is providing relief to citizens who meet certain criteria by providing an alternative means to satisfy tax compliance certification process. If the citizens qualify, then they will not be "Covered Expatriates" under IRC 877A and they will not be liable to unpaid taxes and penalties for these years and any previous years. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;"><i><u>Who Are These Procedures Available To?</u></i>: These relief procedures come with the following caveats, which the IRS plans on implementing strictly-</span><br />
<ol>
<li><span style="font-family: "Trebuchet MS", sans-serif;">Citizens who expatriate after March 18th, 2010 can use these relief procedures. </span></li>
<li><span style="font-family: "Trebuchet MS", sans-serif;">One should have no filing history as a US Citizen or resident. </span></li>
<li><span style="font-family: "Trebuchet MS", sans-serif;">The citizens should have a net worth of less than $2 million at the time of expatriation and submitting. </span></li>
<li><span style="font-family: "Trebuchet MS", sans-serif;">Their aggregate tax liability for the year of expatriation and five prior years should be $25,000 or less. </span></li>
<li><span style="font-family: "Trebuchet MS", sans-serif;">You have to agree to complete and submit with your submission for renunciation all required federal tax returns for 6 years at issue including all schedules and information returns. The IRS recommends filing your FBAR's as well. </span></li>
<li><span style="font-family: "Trebuchet MS", sans-serif;">Their failure to file required tax returns/ gift tax returns/ and other information returns (including Form 8938) and FBAR's or FinCEN Form 114 and pay taxes and penalties for the years under question was due to non-wilful conduct. </span></li>
<li><span style="font-family: "Trebuchet MS", sans-serif;">This action of renouncing a US citizenship is irrevocable. </span></li>
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<span style="font-family: "Trebuchet MS", sans-serif;">The IRS does not have a specific termination date at this time for these relief procedures. The IRS also plans on letting the applicant know that the submission was received and was complete. The IRS may take upto 2 months to turn this around. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">Renouncing your U.S. citizenship is a BIG step. If you are planning on renouncing your U.S. citizenship, we highly recommend that you meet with a knowledgeable Enrolled Agent or an attorney who specializes in this area. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;"><i>Bibliography:<a href="https://www.irs.gov/individuals/international-taxpayers/expatriation-tax" target="_blank"> Expatriation Tax</a>; <a href="https://www.irs.gov/individuals/international-taxpayers/relief-procedures-for-certain-former-citizens" target="_blank">IRS Announcement. </a></i> </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">Do not forget to read my <a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">disclaimer here</a>. Please consult an Enrolled Agent for your unique tax needs. More of my contact information is on my website, <a href="http://www.mntaxbiz.com/">www.mntaxbiz.com</a>.<br /> </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;"> </span>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-18427406975336884292019-09-04T20:05:00.000-04:002019-09-04T20:27:55.434-04:00 A Reprieve From Revocation of Passport When You Owe Taxes!<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZUWYFCZKqM6rU09MPXXlT8fSs4d6_6QWkL2YZdS0K6nA_BUL_iUKlNMz_m9VDApvIz2sOpgZ6XajRhk-9eRkOPf8VZooao-iqU7VFu8zBLlJWrLVwHgh6QeuU409Lv4ouI1RUQx4b9dr5/s1600/munich-2863539_1280.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="853" data-original-width="1280" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZUWYFCZKqM6rU09MPXXlT8fSs4d6_6QWkL2YZdS0K6nA_BUL_iUKlNMz_m9VDApvIz2sOpgZ6XajRhk-9eRkOPf8VZooao-iqU7VFu8zBLlJWrLVwHgh6QeuU409Lv4ouI1RUQx4b9dr5/s320/munich-2863539_1280.jpg" width="320" /> </a></td><td style="text-align: center;"></td><td style="text-align: center;"></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Image from Pixabay: Munich, Germany</td></tr>
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<span style="font-family: "trebuchet ms" , sans-serif;">I have been fortunate the past couple of years to have been able to travel. I find that as I check off places on my bucket list, I keep adding on to it! I have been bitten by the travel bug! We recently went to Munich, Germany and climbed 14 stories to the top of The Kirche of St. Peter. The climb through the narrow stairway was somewhat crowded and tight at times but it was absolutely worth it! The views at the top were breath-taking. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Of course when you travel, you need your passport. What happens when you owe taxes to the Government, can they revoke your passport? If you remember, back in 2015, there was a Law passed called the FAST Act. The Act was mostly about transportation but they got in a clause that if you owed more than $50,000 in taxes, the Government could revoke your existing passport or deny you a new passport. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Under Section 32101 of the FAST Act, if the IRS certifies a taxpayer as having a 'seriously delinquent tax debt", which is: (1) Owing $52,000 or more in taxes and (2) Meeting certain other requirements under IRC §7345(b), the State Department must deny the taxpayer's original or renewal passport application and may revoke or limit an existing passport.</span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"> Taxpayer Advocate Services {TAS} had been advocating on behalf of those who had been working with them before being thus certified by the IRS. TAS wanted the IRS to exclude from their lists those taxpayers who were working to determine their tax liability; or were seeking penalty abatements based on reasonable cause; or were seeking audit reconsideration. TAS felt that the taxpayers would be pressured into agreements with the IRS to avoid certification. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">The IRS recently agreed to temporarily exclude taxpayers with open TAS cases from certification and to reverse certifications for TAS who were certified before coming to the TAS. The acting National Taxpayer Advocate, Bridget T. Roberts recently said in her blog that she thinks "this is a change in the right direction that protects taxpayers who are working with TAS to resolve their liabilities from the severe consequences of passport denials and consequences". </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Obviously, the TAS wants taxpayers to work with them in good faith or they cannot recommend this exclusion. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">The Internal Revenue Service is going to be hard pressed to put the certification process into action. According to Ms. Roberts' blog post on the IRS' website, the IRS recently implemented a program to recommend revocation of passports in certain cases, however the standards in the Internal Revenue Manual for making these determinations are vague and the IRS may come across as making arbitrary decisions. Also, the technology at the disposal of the IRS is apparently preventing them from sending out certification and decertification notices. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">What does this mean for you if you have tax debts that are $52,000 or more? If you would like to arrange for a payment plan with the Internal Revenue Service or request penalty abatement for reasonable cause, work with the Taxpayer Advocate Service. How does one get in touch with the Taxpayer Advocate Service? Well, get in touch with a Tax Professional/ Enrolled Agent who knows how, find out if you qualify and take advantage of the reprieve offered by the IRS thanks to the Taxpayer Advocate Service!</span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><i>Bibliography: <a href="https://www.law.cornell.edu/uscode/text/26/7345" target="_blank">Internal Revenue Code IRS §7345 (b)</a>; <a href="https://www.congress.gov/114/bills/hr22/BILLS-114hr22enr.pdf" target="_blank">FAST Act</a>; <a href="https://www.irs.gov/businesses/small-businesses-self-employed/revocation-or-denial-of-passport-in-case-of-certain-unpaid-taxes" target="_blank">IRS News</a>.</i></span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><i>---</i></span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><i>Do not forget to read my<a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank"> disclaimer here</a>. Please consult an Enrolled Agent for your unique tax needs. More of my contact information is on my website, <a href="http://www.mntaxbiz.com/">www.mntaxbiz.com</a>. <br /> </i></span><br />
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The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-68264911273448964302019-07-20T16:04:00.001-04:002019-07-20T16:04:48.774-04:00Expiring ITINs? Here Is What You Should Know!<div class="separator" style="clear: both; text-align: center;">
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7jZYKqLGu0E5ohAE_dCjHy3Ns5P2arUNKG4wlUjzs90ztKFrjfjKokL-eoif_cCiOlT3IsNIwqIY5ayXg38LBcWUrEJ75X1l-z59boO3VhGYjCuUan_sdDFT3vIOVF21afyRcuXnJZZzQ/s1600/meteora-4191906_1920.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="888" data-original-width="1600" height="177" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7jZYKqLGu0E5ohAE_dCjHy3Ns5P2arUNKG4wlUjzs90ztKFrjfjKokL-eoif_cCiOlT3IsNIwqIY5ayXg38LBcWUrEJ75X1l-z59boO3VhGYjCuUan_sdDFT3vIOVF21afyRcuXnJZZzQ/s320/meteora-4191906_1920.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Metheora, Greece (Image via Pixabay) </td></tr>
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<span style="font-family: "Trebuchet MS", sans-serif;">Hope summer is going well for you in the Northern Hemisphere. Out here in the United States Mid-West region, we are experiencing a heat-wave this week and have been asked to take proper precautions and stay indoors. Perfect time to work on a blog-post I think, would you agree? </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">Many come to the United States on various work Visas and eventually bring their spouse and children to join them. Now these family members may not qualify for Social Security Numbers {SSN} and they have to apply for an Individual Taxpayer Identification Number {ITIN} so the member of the family here on the work visa and consequentially an SSN can claim dependency credits and also be able to file jointly on their U.S. tax return with their spouse if conditions have been met and they qualify.</span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">The 2017 Tax Cuts and Jobs Act now requires all applicants for Employer Identification Numbers to have either a Social Security Number or an ITIN. Non-resident individuals doing business in the US as a partner in a US partnership also require an ITIN to file their US tax returns and to be able to claim back taxes paid on their behalf by the US partnership.</span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">An ITIN is a very important nine-digit number starting with a 9, therefore an individual who has an ITIN needs to be aware of the rules and regulations governing it. The last big change that was made to the ITIN Rules was back in August of 2016 with the PATH Act. The PATH Act ITIN provisions were detailed in <a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=2ahUKEwiE6er1msTjAhVBXM0KHTpsBaoQFjAAegQIARAC&url=https%3A%2F%2Fwww.irs.gov%2Fpub%2Firs-drop%2Fn-16-48.pdf&usg=AOvVaw2VuLlvlJRbzt2ROnGStSXV" target="_blank">Notice 2016-48 here</a>. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;"><i><u>So what's new on the ITIN front for 2019?</u></i> </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">All ITIN's not used on a federal income tax return at least once for tax years 2016, 2017 or 2018, will expire on December 2019. Additionally, all ITIN's with middle digits 83, 84, 85, 86 or 87 will expire at the end of 2019. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">The Internal Revenue Service will send out a CP48 notice that you need to renew your ITIN if you have previously filed a tax return with an ITIN with the above middle digits but not renewed it. </span><br />
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<u><i><span style="font-family: "Trebuchet MS", sans-serif;">What to do if you or a family member has an ITIN with middle digits </span></i></u><span style="font-family: "Trebuchet MS", sans-serif;"><span style="font-family: "Trebuchet MS", sans-serif;"><u><i>83, 84, 85, 86 or 87?</i></u> You can immediately take action to renew your ITIN if you or your family member has to file a tax return for 2019 in 2020. You do not have to wait to receive the CP48 from the IRS. If you happen to receive the notice after you have initiated the renewal, the IRS asks that you ignore the notice. </span></span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;"><i><u>Currently Expired ITINs:</u></i> </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;"> <u>Tax Year</u> <u>Middle Digits</u> </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;"> 2016 78 and 79</span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"> 2017 70, 71, 72 and 80</span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"> 2018 73, 74, 75, 76, 77, 81 and 82</span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">If you have an ITIN with the above middle digits, and expect to have a filing requirement in 2020, you can renew your ITIN at anytime. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;"><i><u>ITIN used only for informational purposes:</u></i> ITINs used by third-parties to report information to the IRS but which are not used to file a tax return need not be renewed. But if the person with this ITIN needs to file a tax return, the ITIN needs to be renewed. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;"><i><u>Spouses and Dependents With Expired ITINs:</u></i> Spouses or dependents who reside outside the US <u><i>must</i></u> renew their ITIN <i><u>only</u></i> when filing an individual tax return or when they are claimed on someone else's tax return as an allowable tax-benefit. Hence, the Form W-7 will have to be attached to the federal tax return at the time of filing. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;"><i><u>Process To Renew ITIN:</u></i> Use one of the following methods. </span><br />
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<ul>
<li><span style="font-family: "Trebuchet MS", sans-serif;">Mail Form W-7 long with original identification documents or copies certified by the agency issuing them to the IRS address in the form instructions. The IRS will review and send all identification documents within 60 days. OR</span></li>
<li><span style="font-family: "Trebuchet MS", sans-serif;">Use one of the many Certified Acceptance Agents (CAAs) who are authorized by the IRS to apply for an ITIN. CAAs can certify original documents including birth certificates for primary taxpayers, secondary taxpayers and dependents. This can save the applicant from the rather risky need to send original documents to the IRS. There are many CAAs located around the world. Information can be found on the IRS' website. OR</span></li>
<li><span style="font-family: "Trebuchet MS", sans-serif;"> Call and make an appointment at a designated IRS Taxpayer Assistance Center located nearest you.</span></li>
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<span style="font-family: "Trebuchet MS", sans-serif;">Note: The IRS will not accept passports without a date of entry into the US as a stand-alone identification document for a dependent from a country other than Canada or Mexico or dependents of military members overseas. Additional documents can be provided along with the passport to prove US residency such as US medical records or US school records. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">If you have more questions regarding applying for or renewing your ITIN, please contact our office. We do not recommend doing this on your own without a tax professioal's guidance. </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;"> </span><span style="font-family: "Trebuchet MS", sans-serif;"><span style="font-family: "trebuchet ms" , sans-serif;">--</span><br />
<span style="font-family: "trebuchet ms" , sans-serif;"> Do not forget to read <a href="http://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">my disclaimer here</a>. Please consult an Enrolled Agent for your unique tax needs. More of my contact information is on my website, <a href="http://www.mntaxbiz.com/">www.mntaxbiz.com</a>. </span> </span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;"> </span>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-20199786576897072162019-05-30T14:00:00.000-04:002019-05-30T14:00:09.629-04:00A Death Knell On the Offshore Voluntary Disclosure Program: Part II<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJA9H8sXocyxLighm27GX97g2UwulgKJHQa8opgHbHr_xJzO847Y5IDfY7UkyNMAnFqt47k3hyCGuRAjf7caDNXfWh46InU74CX7G1xwKuFF00OiU0HgdbZLeRDR38FBJixubPyWcGrtVl/s1600/machu-pichu-749569_1920.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1200" data-original-width="1600" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJA9H8sXocyxLighm27GX97g2UwulgKJHQa8opgHbHr_xJzO847Y5IDfY7UkyNMAnFqt47k3hyCGuRAjf7caDNXfWh46InU74CX7G1xwKuFF00OiU0HgdbZLeRDR38FBJixubPyWcGrtVl/s320/machu-pichu-749569_1920.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-size: 12.8px;">Image by Paulina White at pixabay.com</span></td></tr>
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<span style="font-family: "trebuchet ms" , sans-serif;">Twenty nineteen in the Nadig household was to be the year of the great expedition to Machu Pichu. Our plans had to be shelved unfortunately. Who knew coordinating schedules for two kids in college would be more complicated than lugging diaper bags and strollers around airports! So here we are, enjoying a quieter than expected spring with some mental calisthenics thrown in figuring out the new OVDP rules to keep myself busy! </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">It has been exactly a year to the day </span><a href="https://www.thebuzzabouttaxes.com/2018/05/a-death-knell-on-offshore-voluntary.html" style="font-family: "Trebuchet MS", sans-serif;" target="_blank">Part I </a><span style="font-family: "trebuchet ms" , sans-serif;">of this post went up. The Internal Revenue Service decided to put an end to the Offshore Voluntary Disclosure Program {aka OVDP} on September 28th, 2018. That was just a precursor of the tumultuous changes to come at the Internal Revenue Service. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">In November of 2018, the IRS released a Memorandum with updated procedures regarding voluntary disclosure both domestic and foreign submitted to them after September 28th, 2019. Notwithstanding the closure date, the IRS has the discretion to apply the new procedures to domestic voluntary disclosures received on or before September 28th, 2018. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><u><i>Procedures Under the New OVDP:</i></u> </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">1. All taxpayers, whether offshore or domestic need <i><u>to submit a preclearance request</u></i> on Form 14457 </span><span style="font-family: "trebuchet ms", sans-serif;">for screening </span><span style="font-family: "trebuchet ms", sans-serif;">to Criminal Investigation {CI} to determine eligibility. This can be requested via Fax or Mail to the IRS Criminal Investigation unit in Philadelphia. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">2. As soon as the CI grants preclearance, the <i><u>taxpayer must promptly </u></i></span><span style="font-family: "trebuchet ms" , sans-serif;"><i><u>submit all non-disclosed information for voluntary disclosure to CI</u></i> along with a narrative regarding facts and circumstances for past non-compliance on Form 14457. Once CI has accepted a preliminary preclearance, the taxpayer will be notified via a letter and the CI will then forward the information to LB&I Austin. CI will not process tax returns or payments. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">3. LB&I Austin will <i><u>establish the most recent tax year </u></i>covered by the voluntary disclosure and route the case to the appropriate Business Division and Exam function for civil examination. The taxpayer can remit payment to the LB&I before the case is assigned. The IRS will not require taxpayers to provide additional documents to LB&I Austin. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">4. Examiners at this stage will <i><u>determine proper tax liabilities and applicable penalties</u></i>. Taxpayers are expected to be prompt and cooperative. The IRS expects that all taxes, interest and penalties will be paid by the taxpayer for the disclosure period. Examiners may request CI to revoke preclearance for non-cooperation. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">5. The <u><i>Disclosure Period is now six years</i></u>. The examiners has the discretion to expand the period to include all non-compliant years. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">6. <u><i>Penalty for underpayment of tax is now 75 percent (75%)</i></u>. This civil penalty for fraud under §'s 6663 and 6651(f) will be assessed to the tax year in the disclosure period with the highest tax liability. The Memorandum states "limited circumstances" under which these penalties can be expanded to other years in the disclosure period. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">7. There will be <u><i>willful FBAR penalties imposed on taxpayers</i></u>. This penalty in most cases will be 50 percent (50%) of the highest aggregate balance of all unreported balances during the disclosure period. This penalty is discretionary and an examiner may recommend a higher or lower penalty not exceeding 100 percent (100%) of the highest aggregate balance. The <i><u>taxpayer may request that non-willful penalties be imposed if they can provide convincing evidence</u></i>. We do not know at this time what the success rate has been on taxpayers' requests for non-willful penalties. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">8. <u><i>Penalties to file other information returns will not be imposed automatically.</i></u> This may be resolved by agreement with the taxpayer. The examiners have the discretion to impose these penalties if they deem necessary. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">9. <i><u>The taxpayer has the right to go to Appeals </u></i>if they are unable to reach an agreement with the IRS. At this time there is no guidance what the taxpayer's recourse is if they are unable to reach an agreement with the examiner. Experts weighing in on this expect that the taxpayers will retain protection from criminal liability as under the old OVDP. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">10. Once an examination is concluded, we </span><span style="font-family: "trebuchet ms", sans-serif;">assume <u><i>there will be a closing agreement</i></u> via a Form 906, and </span><span style="font-family: "trebuchet ms", sans-serif;">there is finality for the disclosing taxpayer on future prosecution on this income. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">When the old OVDP was terminated, many tax professionals such as myself were wondering what the new rules would entail. These procedures have somewhat eased my fears. Taxpayers who do not fit into the requirements for Streamlined Filing Compliance Procedures or Delinquent FBAR Submission Procedures or Delinquent International Information Returns still have another option to bring their undisclosed foreign bank balances and income into US Tax Compliance. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">My biggest concern with the new procedures is that unlike under the old OVDP, we have no way of predicting what the final cost of voluntarily disclosing non-compliant accounts. Under the old OVDP, the size and number of penalties were known. This helped the taxpayer to set aside the cost of going into the program. Under the new procedures, the IRS has large discretionary powers for assessing penalties. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">As always I advise you to consult experienced Tax professionals to calculate their exposure and determine if this is a viable or appropriate option for you. Although more onerous than the previous one, the new OVDP is still the best option for you to minimize criminal exposure. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;"><i>Bibliography: <a href="https://www.irs.gov/pub/foia/ig/spder/lbi-09-1118-014.pdf" target="_blank">Memorandum </a></i></span><a href="https://www.irs.gov/pub/foia/ig/spder/lbi-09-1118-014.pdf" target="_blank"> </a><span style="font-family: "trebuchet ms" , sans-serif;"><i><a href="https://www.irs.gov/pub/foia/ig/spder/lbi-09-1118-014.pdf" target="_blank">LB&I-09-1118-014</a>; LB&I AUSTIN stands for Large Business & International Unit in Austin; <a href="https://www.irs.gov/irm/part9/irm_09-005-011#idm139781983973504" target="_blank">IRM 9.5.11.9</a>; <a href="https://www.irs.gov/individuals/international-taxpayers/options-available-for-u-s-taxpayers-with-undisclosed-foreign-financial-assets" target="_blank">IRS FAQ's On Closing 2014 OVDP </a>. </i></span></div>
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The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-55709173400983808112019-04-25T23:24:00.000-04:002019-04-25T23:24:40.454-04:00Plans To Retire Abroad? Here's What You Need To Know!<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgCV2HBOzxaK8NYR79FiSltWHq8NIMVDa6YcLl414CRZQ_q7AoOGgkRkPwNZ0giQ5ZVPOWlgYrDpkTqH3ZLQGLN3mh1-kPaNR0qMFEBgisZCuPHw4c88OK7va4bT-2ntBddgu-Xa6k2yGyW/s1600/urban-1091533__340.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="340" data-original-width="470" height="230" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgCV2HBOzxaK8NYR79FiSltWHq8NIMVDa6YcLl414CRZQ_q7AoOGgkRkPwNZ0giQ5ZVPOWlgYrDpkTqH3ZLQGLN3mh1-kPaNR0qMFEBgisZCuPHw4c88OK7va4bT-2ntBddgu-Xa6k2yGyW/s320/urban-1091533__340.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Picture Courtesy: www.pixabay.com Bilbao, Spain Train Station</td></tr>
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<span style="font-family: "trebuchet ms" , sans-serif;">Twenty Eighteen was a tumultuous year my friends and unfortunately my blog posting went on hiatus. I have a perfectly good excuse I must say, it was my big FIVE-OH birthday last year!! Yes, yes, I did hit that number in spite of my various attempts to stop Father Time! Besides starting a copious collection of AARP invitations promising me travel bags and blue-tooth speakers if I joined their ranks, I traveled a lot in 2018. One trip over early Fall was to Bilbao, Spain. We took the train from Madrid to Bilbao, the first thing to greet us at the Train Station was the stained glass facade (in the picture above), I was in Basque heaven after that, I was loathe to leave but work beckoned back home after a lovely week of the famous Bilbao hospitality. That got me thinking...how wonderful it would be to retire abroad! Wouldn't it? </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">We have pre- and post-immigration planning services available for clients planning to move for work or retire outside the United States. Many move because they believe their retirement dollars stretch further, some move for the warmer climates and many move back to their birth countries to be closer to family. Immigration planning helps the taxpayer understand the tax implications of moving abroad and planning for it. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;"><i><u><b>1. Continue Filing Taxes in the US:</b></u></i><b> </b>First thing to remember about retiring overseas that the United States has a Citizenship-Based-Taxation regime or CBT, so your US tax filing obligations do not stop just because you moved abroad. The income to be declared on your US tax return should include your world-wide income. Your filing deadline maybe June 15th or April 15th depending on the category on income you have. All foreign bank accounts with highest balances over $10,000 should also be declared via Form 114. More about that in <a href="https://www.thebuzzabouttaxes.com/2014/11/you-have-foreign-bank-accounts.html" target="_blank">my blog post here</a>. </span><br />
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<b style="font-family: "trebuchet ms", sans-serif;"><i><u>2. Retirement Income From the U.S:</u></i></b><span style="font-family: "trebuchet ms" , sans-serif;"> You might have various sources of income from the United States including but not restricted to Rental Income, Interest, Dividends, Pensions, IRA Distributions etc. You will have to make arrangements so you will have access to your income even though you are not a resident of the United States. These funds will have to be repatriated to your country of residence. </span><span style="font-family: "trebuchet ms" , sans-serif;">If you have reached qualifying age, you can also apply for and receive Social Security Benefits. More information about receiving Social Security benefits while living abroad is on the <a href="https://www.ssa.gov/international/payments_outsideUS.html" target="_blank">SSA website, it is a tool</a> that helps you figure out what your eligibility is. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><b><i><u>3. Getting Back To Work While Abroad: </u></i></b>Let's say you are one of those lucky people who gets a second shot at working after you move abroad, and you are paid a salary. You may be eligible for the Foreign Earned Income Exclusion {FEIE}. There is a primer on this <a href="https://www.thebuzzabouttaxes.com/2013/09/foreign-earned-income-exclusion-made.html" target="_blank">topic here on my blog</a>. You may be able to exclude some or all of your foreign earned income from being taxed by the U.S. The 2019 FEIE amount is $105,900 which means you will be able to exclude the first $105,900 from being taxed in the U.S. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><b><i><u>4. Tax Treaty Provisions Or Double Tax Avoidance Agreements:</u></i></b> The United States has entered into Tax Treaties with many countries around the world. This means that if you live in a country which has a tax treaty with the U.S. you may be able to take advantage of it's provisions and avoid double taxation by both countries on the same income. Under these treaty provisions, you may be able to take credit for taxes paid in either country. Some countries have Totalization Agreements with the United States and that helps you to also avoid taxation of your Social Security benefits earned in either country. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><b><u><i>5. Filing State Taxes:</i></u></b> Sometimes, the U.S. State where you had residence before you moved abroad may still require you to file tax returns. This is especially true if you have rental properties in certain states in the U.S. Many U.S. states do not recognize Tax Treaties or offer foreign tax credit. You may have to establish residence in a non-taxing U.S. state tax before moving abroad. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><u><i><b>6. Some Challenges Moving Abroad:</b></i></u> From the many, many online forums for Expat Americans and many expat clients, we have learnt that the Foreign Accounts Tax Compliance Act {FATCA, <a href="https://www.thebuzzabouttaxes.com/2015/07/new-countries-on-fatca-india-uaewhat.html" target="_blank">more in my blog post here</a>} has caused them a lot of headaches in conducting their business with financial institutions in their countries of residence. </span><span style="font-family: "trebuchet ms" , sans-serif;">Many financial institutions, brokerage firms, and retirement fund administrators in the United States do not allow online access from outside the country. This double whammy for a lot of people who move abroad is definitely a huge challenge. Navigating these hurdles requires knowledgeable support in the United States while you live abroad. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><b><u><i>7. Relinquishing Your U.S. Citizenship or Surrendering Your Green Card:</i></u></b> The challenges in dealing with one's financial life in 2 countries causes many expats to take drastic steps to relinquish their citizenship or surrender their Green Cards.<a href="https://www.thebuzzabouttaxes.com/2014/09/expatriation-divorcing-government-has.html" target="_blank"> More details in my blog post here.</a> This is indeed a huge step and one must not to try to do this on their own. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Moving abroad is a huge endeavor and one must make sure they have worked out a plan with their tax adviser <i>before</i> they undertake this. Till then happy travelling folks, may you satisfy your wanderlust and find a dream retirement home if you are looking! </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Consult with a Circular 230 Tax Professional for your unique tax needs. Please read my <a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">disclaimer here</a>. If you have any questions regarding this issue or other tax matters, all of my contact information is on my website, <a href="http://www.mntaxbiz.com/">www.mntaxbiz.com</a>. </span></div>
The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-82921055863777576342019-02-28T23:54:00.003-05:002019-02-28T23:54:37.642-05:00Interesting Court Cases: When Your Friend Tells You Not To File an FBAR! <table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrKdeihCF1Rd2lGcJOTK8Svh2avPFrN8JJKMWdFtwF5RhdgX3ewriKDclQ6ny053m8k2mATpVYtNMJsSNhp0j8l35ax4wwX8K2HTerZLKNSLBp6POSvKEkUITuhhqqCdIjVJOWECLthhAC/s1600/buffet-315691__340.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="340" data-original-width="510" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrKdeihCF1Rd2lGcJOTK8Svh2avPFrN8JJKMWdFtwF5RhdgX3ewriKDclQ6ny053m8k2mATpVYtNMJsSNhp0j8l35ax4wwX8K2HTerZLKNSLBp6POSvKEkUITuhhqqCdIjVJOWECLthhAC/s320/buffet-315691__340.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Picture Courtesy: pixabay.com</td></tr>
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<br /><span style="font-family: Trebuchet MS, sans-serif;">Clients tell me many times about how they heard about disclosing their foreign bank accounts because their friends were doing it. It is funny when I am asked why should they disclose their foreign bank accounts when their friends are not doing that. I am reminded of those times when as kids we would ask our parents for permission to something mundane, and be subjected to an inquisition! The fun is because I get to say something most Indian kids grow up listening to their mom say it many times when , "Would you go jump in a well if your friend did it?" The angst is lost in translation but you get me, don't you? </span><div>
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<span style="font-family: Trebuchet MS, sans-serif;">Something along similar lines must have happened with the Horowitzes. Peter and Susan Horowitz were US Citizens living in Saudi Arabia between years 1984 to 2001 and they opened a bank account in Switzerland with UBS. </span><span style="font-family: "Trebuchet MS", sans-serif;">The Horowitz's never closed the account on their return to the US. </span><span style="font-family: Trebuchet MS, sans-serif;">By 2008, the account had grown to $2 million. Towards the end of 2008, Peter closed the account and tried to open a joint account with his wife at a bank named Finter. But the bank did not add her on because she was not present, hence the account remained in Peter's name only till 2009 when Susan traveled to Switzerland and her name was added to it. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">The Horowitzes' tax returns were filed using tax summaries sent to their US tax preparers. Peter never asked his tax preparers if he needed to disclose this bank account. Their tax returns were filed every year with the questions on Schedule B asking if they have foreign bank accounts being answered with a "No".</span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">A long story short, the IRS held that willfulness penalty applied with respect to both taxpayers for 2007 and with respect to Peter for 2008. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">The Horowitzes testified that they had conversations with other expatriates living in the United States and they believed that income earned in Saudi Arabia was only subject to taxes in Saudi Arabia. Peter said he did not believe he had FBAR filing requirements for 2007 and 2008, Susan said she did not know what an FBAR was. The tax accountants never asked them if they had accounts overseas nor did they explain the Schedule B questions regarding the foreign account questions. <i><b>The Horowitzes argued that their friends told them they did not need to pay taxes on interest in their foreign accounts. </b></i></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">The Court argued that it did not have any information from which the court could assess whether it was reasonable for them to accept what their friends said as legally correct. Their friends' views did not override the clear instructions on Schedule B. It was also deemed that the very fact that the Horowitzes were having conversations with their friends about the taxability of interest on their foreign accounts meant that they were aware about their compliance needs. They should have had the same conversation with their accountants! The Court inferred based on these facts willful blindness could be inferred. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Moral of the story: If you have foreign bank accounts, please have conversations with your tax professionals on HOW TO disclose the accounts not conversations with your friends on HOW NOT TO. If your tax professionals are not aware of your compliance needs, find an Enrolled Agent on the NAEA <a href="https://taxexperts.naea.org/" target="_blank">Find a Tax Expert Directory</a> who is an expert at expatriate taxation. And definitely do not try to do this yourself. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><i>Bibliography: </i></span><span style="background-color: white; font-family: Roboto, RobotoDraft, Helvetica, Arial, sans-serif; font-size: 14px;"><i>Horowitz, (DC MD 1/18/2019) 123 AFTR 2d ¶2019-362</i></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;">Consult with a Circular 230 Tax Professional for your unique tax needs. Please read my <a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">disclaimer</a> here. If you have any questions regarding this issue or other tax matters, all of my contact information is on my website, <a href="http://www.mntaxbiz.com/">www.mntaxbiz.com</a>. </span></div>
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The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-61019424743319590772019-01-22T20:36:00.000-05:002019-01-22T20:36:49.724-05:00What's New on the 2018 Form 1040NR: Small Changes, Big Impact! <div class="separator" style="clear: both; text-align: center;">
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiD-s8Q8EPq7V4x0U-YweFVUgVVTyio8cg85Jk88HIRtavW8uK5GiG1HSuQ5dSqlhxm9bcLgVE23MY1wBJ7aPMAHFxROQY05EbYikEj9lVkwvsYzDc1bydsFpOXsvFsNyZc_OdRQ1ZoSRMv/s1600/grand-central-station-690180_1920.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1067" data-original-width="1600" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiD-s8Q8EPq7V4x0U-YweFVUgVVTyio8cg85Jk88HIRtavW8uK5GiG1HSuQ5dSqlhxm9bcLgVE23MY1wBJ7aPMAHFxROQY05EbYikEj9lVkwvsYzDc1bydsFpOXsvFsNyZc_OdRQ1ZoSRMv/s320/grand-central-station-690180_1920.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Picture Courtesy: pixabay.com</td></tr>
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<span style="font-family: "trebuchet ms" , sans-serif;">Do train stations make you wistful? My husband and I lived on the East Coast when we first moved to the US and sometimes took the train from Baltimore to DC. Passing the town of Riverdale, MD got us all excited because like every other Indian teenager of our generation, we had grown up on a rather unhealthy dose of Archie comics! </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Well, it was around this time that I discovered Tax Law and found it quite fascinating. I started to prepare our own taxes which involved Form 1040NR's, India-US Treaty knowledge and the rest is rather choppy history which is reserved for another post because today we need to talk to about this 2018 Form 1040NR. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">For the longest time ever this foreign cousin of the good ol' Form 1040 had a rather mundane existence, nothing usually changed on it. Tax geeks got all excited when the Form 1040NR finally entered the digital age in 2017, we had hardly settled down from that when the BIG 2017 Tax Reform happened and <i>everything</i> pretty much is different now. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">Just so we are clear, the Form itself has not changed much but if you have to file the NR, your bottom-line will change due to the following: </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;"><u><i>1. No Personal Exemption</i></u>: First off, the personal exemption has been removed, so that nice $4,050 that reduced your taxable income? Not available to you anymore.If you file a Form 1040NR, your taxable income will be higher. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>2. Standard Deduction is Higher</u></i>: Now this is the twist in the Treaty tale I was talking about earlier, the higher standard deduction will only help students and researchers from India. Why? Because they are the only non-resident aliens who are allowed to claim the standard deduction on their Form 1040NR per the India-US Tax Treaty. Students/ student-trainees/ researchers from India on an F1/ J1 visa will be able to lower their taxable income. All others see #3. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>3. Itemized Deductions Have Changed</u></i>: The great Mahatma Gandhi marched to protest the Salt Tax imposed by the British Empire, this was a turning point in the Indian struggle for independence from the British. There was no such momentum with the SALT cap protest by the people in the US and many states. SALT here my dear readers stands for "State And Local Taxes". Those non-resident aliens who cannot take the standard deduction ( See #2), had the opportunity to write off state and local taxes they paid as part of the Itemized Deductions on Schedule A, that is now capped at $10,000. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">I have not seen many foreign students or researchers earn a lot of money (been there, done that), so the above may be non-consequential to most. However, adding salt to injury (too much?), Miscellaneous Deductions have been removed from Schedule A as well. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">Any personal casualty loss or loss from theft is also no longer allowed unless they occurred in federally declared disaster areas. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">Some solace: These disallowances are temporary through 2025. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;"><u><i>4. Moving Expense Cannot Be Deducted Any Longer</i></u>: So you are a non-resident alien who moved to the United States in connection with your employment or are self-employed? You can no longer deduct your moving expenses to the US. You can now deduct your moving expenses only if you are a member of the Armed Forces. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">The 2017 Tax Reform has many changes and many forms and instructions are still work-in-progress. The Instructions to the 2018 Form 1040NR at the time of posting still has a draft watermark. Do not attempt to do this by yourself, hire a tax professional to help you navigate the Law. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Consult with a Circular 230 Tax Professional for your unique needs and make sure your questions are answered. Please read <a href="https://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">my disclaimer here</a>. If you have any questions regarding this issue or other tax matters, all of my contact information is on my website, <a href="http://www.mntaxbiz.com/">www.mntaxbiz.com</a>. </span><br />
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The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-28164113727357191892018-08-17T23:33:00.000-04:002018-08-17T23:33:10.886-04:00Why Is Everyone Talking About the 20% Qualified Business Income Deduction? <table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgxLBjnxSayxz_ZtONwoDPPfHU0QpXcjdZZL4geT2f_FBVKMpqbw0Zxf3Xew2Fjt_REU1VTLYVntXhkdC-MKsxpJuLfPrfqp9OobaOQz83LcEHfqLqrxsB1PmYC9euSpzafm2JQrH8j4sau/s1600/barcelona-218581_1920.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1600" data-original-width="1200" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgxLBjnxSayxz_ZtONwoDPPfHU0QpXcjdZZL4geT2f_FBVKMpqbw0Zxf3Xew2Fjt_REU1VTLYVntXhkdC-MKsxpJuLfPrfqp9OobaOQz83LcEHfqLqrxsB1PmYC9euSpzafm2JQrH8j4sau/s400/barcelona-218581_1920.jpg" width="300" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Streets of Barcelona, Spain PC: pixabay.com</td></tr>
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<span style="font-family: "trebuchet ms" , sans-serif;">2018 has been all about Tax Reform, you would probably have to be living in a cave in the United States if you did not hear about this. Or you could be this guy "<a href="https://www.nytimes.com/2018/03/10/style/the-man-who-knew-too-little.html" target="_blank">who knew too little</a>". A lot has already been said about the reform, today we focus on the brand new section that came out it. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">We really need to talk about the </span><span style="font-family: "trebuchet ms" , sans-serif;">biggest change that came out with the Tax Cuts and Jobs Act of 2017: Section 199A. This section allows owners of flow through entities such as Sole Proprietorships,S Corporations or Partnerships a deduction of 20% of the income earned by the flow-through. Ever since December 2017, the entire tax community has been abuzz with this new section and has been eagerly awaiting the Internal Revenue Service's guidelines on interpretation. </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">The Internal Revenue Service dropped the proposed regs on Section 199A on August 8th, 2018, all of its 184 pages can be <a href="https://www.irs.gov/pub/irs-drop/reg-107892-18.pdf" target="_blank">accessed here</a>. Since December, a lot of different interpretations were being tossed around, everyone was hoping that the guidance would clear up the ambiguity. There is a lot still that needs to be addressed but unlike the story of the four blind men and the elephant, a solid shape is emerging out of the mist! </span><br />
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<span style="font-family: trebuchet ms, sans-serif;">Caveat: Today's post is a small introduction to this new section. There is a LOT more information to be culled from the 184 pages, my dear readers. I am hoping that you will take today's post to glean some knowledge about the new section and will talk to experts about the mechanics of qualifying for the deduction. </span><br />
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<span style="font-family: trebuchet ms, sans-serif;">Let us get some basics out of the way first: </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;"><u style="font-style: italic;">I. What is a pass through business?:</u> A pass through is a business where taxes are not levied at the entity level but rather at the owner level where the income and expenses have been passed through. The owners' tax rates apply to this pass through income. Pass through entities are typically sole proprietorships, partnerships, LLC's, trusts and S corporations. Only pass through entities are eligible for the Section 199A deduction. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><u style="font-style: italic;">II. Do all pass-through businesses qualify for the deduction?:</u> YES any trade or business qualifies UNLESS </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>One:</u></i> The pass-through is a "Specified service trade or business" or SSTB. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">An SSTB is one that involves performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading and dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees. In short, if the business would not run if it were not for your skill or expertise, the business is an SSTB. </span><br />
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<span style="font-family: trebuchet ms, sans-serif;"><u><i>Two:</i></u> The proposed regulations that came out on August 8th, 2018 made it clear that an employee or an employee who organized herself/ himself as a pass-through to be an independent contractor and did essentially the same work as before to take advantage of Section 199A would NOT qualify for the deduction. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">AND YES there are EXCEPTIONS TO THE EXCEPTION!! </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">1. A pass-through that provides engineering or architecture services is not an SSTB. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">2. If the taxpayer's taxable income DOES NOT exceed $315,000 if married filing jointly or $157,500 for everyone else, the SSTB exception DOES NOT apply and one can claim the 20% deduction. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><i style="text-decoration-line: underline;">III. What is qualified business income or QBI?:</i> QBI is the "net income of qualified items of income, gain, deduction and loss from any qualified trade or business". </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">1. Only items included in taxable income are counted. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">2. Items must be effectively connected with U.S. trade or business. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">3. Items such as capital gains and losses, dividends, interest income are excluded. </span><br />
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<span style="font-family: trebuchet ms, sans-serif;">Note #1: For the sake of simplicity, we are not going to tackle the income and deduction items in this blog. And oh boy does that get even more complicated? Fun, fun! </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><i style="text-decoration-line: underline;">IV. How do S Corps/ Partnerships handle the deduction? OR What if I have an S Corp or a partnership that is a share-holder or partner in another pass-through entity?:</i> Well, if you are organized in such a manner, you know the entities themselves do not report income/ losses hence cannot take the deduction. The S Corporation/ Partnerships then report the shareholder's/ partner's share of QBI, W-2 wages, UBIA of qualified property among other items on the shareholders'/partners' Schedule K-1. The shareholders/ partners then take the 20% deduction on their personal returns. </span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><i><u>V. What Is Section 199A Deduction?: </u></i></span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">A. If the taxpayer's taxable income is <i>below $315,000 for married filing jointly or $157,500 for all others</i>, we do not worry if the trade or business is an SSTB and the deduction is the LESSOR of: </span><br />
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<li> <span style="font-family: Trebuchet MS, sans-serif;">20% of the taxpayer's QBI PLUS 20% of the his/ her's qualified real estate investment trust and qualified publicly traded partnership income</span></li>
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<li><span style="font-family: Trebuchet MS, sans-serif;"> 20% of the taxpayer's income MINUS net capital gains</span></li>
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<span style="font-family: Trebuchet MS, sans-serif;">B. If the taxpayer's taxable income is <i>between </i></span><span style="font-family: "trebuchet ms", sans-serif;"><i>$315,000 and $415,000 for married filing jointly or between $157,500 and $207,500 for all others</i>, the deduction is LIMITED based on: </span></div>
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<li><span style="font-family: trebuchet ms, sans-serif;">Whether the business is an SSTB</span></li>
<li><span style="font-family: trebuchet ms, sans-serif;">Whether W-2 wages are paid by the business</span></li>
<li><span style="font-family: trebuchet ms, sans-serif;">Unadjusted Basis immediately after acquisition (UBIA) of certain property used by the business</span></li>
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<span style="font-family: trebuchet ms, sans-serif;">C. If the </span><span style="font-family: Trebuchet MS, sans-serif;">taxpayer's taxable income is <i>above</i></span><span style="font-family: "trebuchet ms", sans-serif;"><i> $415,000 for married filing jointly or above $207,500 for all others</i>, the deduction is NOT AVAILABLE if the trade or business is an SSTB. </span></div>
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<span style="font-family: "trebuchet ms", sans-serif;">D. </span><span style="font-family: trebuchet ms, sans-serif;">If the </span><span style="font-family: Trebuchet MS, sans-serif;">taxpayer's taxable income is <i>above</i></span><span style="font-family: "trebuchet ms", sans-serif;"><i> $415,000 for married filing jointly or above $207,500 for all others,</i> and if the trade or business IS NOT an SSTB, the deduction is limited by:</span></div>
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<li><span style="font-family: trebuchet ms, sans-serif;">The amount of W-2 wages paid by the trade or business</span></li>
<li><span style="font-family: Trebuchet MS, sans-serif;">Unadjusted Basis immediately after acquisition (UBIA) of certain property used by the business</span></li>
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<span style="font-family: Trebuchet MS, sans-serif;">Note #2: The numbers $157,500, $315,000, $207,500 and $415,000 are for 2018 alone. The subsequent years' numbers will be adjusted for inflation. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><u style="font-style: italic;">VI. What if taxpayer owns multiple pass-through entities?:</u> </span></div>
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<li><span style="font-family: Trebuchet MS, sans-serif;">The QBI is calculated on each pass-through entity. </span></li>
<li><span style="font-family: Trebuchet MS, sans-serif;">The taxpayer's taxable income is calculated. </span></li>
<li><span style="font-family: Trebuchet MS, sans-serif;">Non-SSTB QBI can still be deducted as per above explanation in Question #V, Part D without regard to taxpayer's income. </span></li>
<li><span style="font-family: Trebuchet MS, sans-serif;">Experts seem to interpret this as all non-SSTB QBI can be aggregated. </span></li>
<li><span style="font-family: Trebuchet MS, sans-serif;">I am not sure if taxpayer's income is below the limits, can SSTB QBI be aggregated as well. </span></li>
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<span style="font-family: Trebuchet MS, sans-serif;">Well, if your eyes have not glazed over yet- you are either a hard working tax geek like me or really interested to know if you can bag a 20% deduction on your pass-through income. This journey definitely is not for the faint-hearted! There are many, many planning opportunities that you, my dear reader may be eligible for. Grab that phone and call your favorite tax professional to get more information. </span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><i>Glossary: SSTB-Specified Service Trade or Business; QBI- Qualified Business Income; UBIA-Unadjusted Basis Immediately After Acquisition; REIT-Real Estate Investment Trust; PTP-Publicly Traded Partnership</i></span></div>
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<span style="font-family: Trebuchet MS, sans-serif;"><i>Bibliography: <a href="https://www.law.cornell.edu/uscode/text/26/199A" target="_blank">Section 199A</a>; <a href="https://www.irs.gov/pub/irs-drop/reg-107892-18.pdf" target="_blank">REG-107892-18</a>; <a href="https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-provision-11011-section-199a-deduction-for-qualified-business-income-faqs" target="_blank">irs.gov Section 199A FAQs</a></i></span></div>
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<span style="font-family: "trebuchet ms", sans-serif;">Consult with a Circular 230 tax professional for your unique needs and make sure your questions are answered. Please read my <a href="http://www.thebuzzabouttaxes.com/2013/02/the-buzz-about-taxes-disclaimer.html" target="_blank">disclaimer here</a>. If you have any questions regarding this issue or other tax matters, all of my contact information is on my website <a href="http://www.mntaxbiz.com/">www.mntaxbiz.com</a>. </span></div>
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The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0tag:blogger.com,1999:blog-1711537157381628047.post-10147516572599006362018-07-31T18:45:00.000-04:002018-07-31T18:45:02.205-04:00Interesting Cases: Courts Hold FBAR Penalties Cannot Exceed Reg Cap<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYisvUyedSQ1PHlBQGkPbYE9P6p5bhA1r-foD8XoHiiQSFstu-o5VDdO3yVSC3yYpHJM3r7n3R41hIg508VeyE7g38jtmDn240uu2wo83leJL4I2CyRoSbFp_wlW9L95gqvBi-TMLnaqoh/s1600/mars-11012_1920.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1600" data-original-width="1600" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYisvUyedSQ1PHlBQGkPbYE9P6p5bhA1r-foD8XoHiiQSFstu-o5VDdO3yVSC3yYpHJM3r7n3R41hIg508VeyE7g38jtmDn240uu2wo83leJL4I2CyRoSbFp_wlW9L95gqvBi-TMLnaqoh/s320/mars-11012_1920.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Mars, the Red Planet. Pic Courtesy; www.pixabay.com</td></tr>
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<br /><span style="font-family: Trebuchet MS, sans-serif;">I believe the planet Mars is at its closest to us since 2003, it will not be not be this close to us again until 2035. I have been trying to locate Mars every night this past weekend but the skies have been cloudy unfortunately. This event is called "opposition" when the Sun and Mars are on either side of our planet Earth. </span><br />
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<span style="font-family: Trebuchet MS, sans-serif;">Most US citizens with foreign bank accounts and the </span><span style="font-family: "Trebuchet MS", sans-serif;">US government are in s</span><span style="font-family: "Trebuchet MS", sans-serif;">imilar opposition (cheesy analogy, I know) most of the time. Maintaining and reporting of these accounts are time consuming and arduous. If you are regular readers of my blog, you know the requirements to file and declare your foreign bank accounts. If you need a brief refresher, please read <a href="http://www.thebuzzabouttaxes.com/2013/02/foreign-bank-account-regulations-part-ii.html" target="_blank">this post</a>. </span><br />
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<span style="font-family: Trebuchet MS, sans-serif;">The penalties for non-disclosure of your foreign bank accounts are significant. Civil penalties for non-willful violation are up to $10,000 per violation and willful violation can range up to greater of $100,000 or 50% of the account balance at the time of violation. </span><br />
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<span style="font-family: Trebuchet MS, sans-serif;">These penalties are after a law change that happened in 2004 which increased the maximum penalties for willful failures. Before the law change, the maximum penalty that could be assessed was $100,000. These regs have now been renumbered and amended to index for inflation. (<a href="https://www.law.cornell.edu/cfr/text/31/1010.820" target="_blank">31 C.F.R 1010.820(g)</a>)</span><br />
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<span style="font-family: Trebuchet MS, sans-serif;">There were 2 Court cases, one in May 2018 {U.S. v. Colliot, (DC TX 05/16/2018) 121 AFTR 2d 2018-775} and another recently in July 2018 {Waldhan, (DC CO 07/18/2018) 122 AFTR 2d 2018-5060} where the Court held that the INternal Revenue Service lacks the authority to impose a penalty in excess of $100,000 as prescribed by 31 C.F.R. 1010.820. </span><br />
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<span style="font-family: Trebuchet MS, sans-serif;">In each of the cases, the taxpayers had failed to file or filed inaccurate FBARs for tax years before 2010. The IRS had imposed total penalties in excess of $100,000 in each case. </span><br />
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<span style="font-family: Trebuchet MS, sans-serif;">The taxpayers argued that the assessments were improper because the IRS' authority was limited by 31 C.F.R. 1010.820(g). </span><br />
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<span style="font-family: Trebuchet MS, sans-serif;">The Courts after delving on the differences in the penalty caps in the statute and the regs, said that the Secretary limited the penalties that the IRS could impose to $100,000 in exercise of statutory discretion. They said that it cannot be assumed that the Secretary could have simply overlooked these differences (between the statute and the regs) for 14 years. Therefore the Secretary elected to continue to limit IRS' authority to impose penalties to $100,000 as specified in 31 C.F.R. 1010.820 even though penalties are avialable under <a href="https://www.law.cornell.edu/uscode/text/31/5321" target="_blank">31 U.S.C. 5321(a)(5)(C)</a>. </span><br />
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<span style="font-family: Trebuchet MS, sans-serif;">The Court concluded that "although IRS believes that it is empowered by 31 U.S.C. 5321 to act, it is not. It is empowered by the Secretary who has discretion to determine what penalties are imposed. 1010.820 remains in effect until amended or repealed."</span><br />
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<span style="font-family: Trebuchet MS, sans-serif;">Note: The Supreme Court, on the other hand, has recently declined to hear a Ninth Circuit decision upholding a more than $1 million FBAR penalty based on a $2.4 million unreported account.</span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;"><br /></span>The Buzz About Taxeshttp://www.blogger.com/profile/11646407872535500030noreply@blogger.com0