On March 13, the I.R.S. announced it will end the Offshore Voluntary Disclosure Program ("O.V.D.P."). Taxpayers with undisclosed foreign financial assets have until September 28, 2018, to enter the 2014 O.V.D.P. and make complete disclosures.
Read MoreOn October 4, 2017, the Treasury revealed its plan to dismantle eight Obama-era tax regulations that it identified as having “increased tax burdens and impeded economic growth.”
Read MoreThe Trump administration's Tax Plan was announced this morning, September 26, 2017. The plan, called the "Unified Framework for Fixing Our Broken Tax Code," amounts to nine pages of policy measures that would reduce tax rates, limit many deductions, move the U.S. to a territorial tax system with a way to repatriate permanently invested earnings free of tax, treat business income of pass-through entities at lower corporate rates, and eliminate the estate tax.
Read MoreOn March 14, 2014, the O.E.C.D. added another chapter in its fight against tax evasion by releasing a public discussion draft addressing the disallowance of treaty benefits in inappropriate circumstances. Through this draft, the O.E.C.D. follows up on its 2013 report “Addressing Base Erosion and Profit Shifting” (the “B.E.P.S. Report”) and a 2013 “Action Plan on Base Erosion and Profit Shifting” (the “2013 Action Plan”). The 2013 Action Plan contained 15 actions addressing B.E.P.S. and came with a timeline. The public discussion draft released on March 14 focuses on Action 6 (Prevent Treaty Abuse).
Read MoreOn November 4, 2013, the Large Business and International Division ("LB&I") issued a new directive (“Directive”) providing that an agent generally has no discretion in respect of deadlines for responses to information document requests ("I.D.R.'s"). Due to this Directive, taxpayers subject to this Directive are encouraged not to procrastinate in responding to an I.D.R. The new directive is effective beginning January 2, 2014.
Read MoreAnnouncement 2013-41 (the "Announcement”), recently released by the I.R.S., provides correcting amendments to the Foreign Tax Account Compliance Act (“F.A.T.C.A.”) final regulations that were issued on January 17, 2013. One important clarification that we would like to highlight for our clients relates to an example that explains the application of the rules with respect to foreign financial institutions (“F.F.I.'s”) classified as such under the final regulations as foreign “investment entities.” The clarification of the example is helpful in avoiding F.F.I. classification in respect of family owned trusts and other foreign entities that solicit advice or receive fees for providing such services in respect of the entities’ investments.
Announcement 2013-411 (the Announcement”), recently released by the I.R.S., provides correcting amendments to the Foreign Tax Account Compliance Act (“F.A.T.C.A.”) final regulations that were issued on January 17, 2013. One important clarification that we would like to highlight for our clients relates to an example that explains the application of the rules with respect to foreign financial institutions (“F.F.I.'s”) classified as such under the final regulations as foreign “investment entities.” The clarification of the example is helpful in avoiding F.F.I. classification in respect of family owned trusts and other foreign entities that solicit advice or receive fees for providing such services in respect of the entities’ investments.
On July 12, 2013, the Internal Revenue Service (“I.R.S.”) released Notice 2013-43 (the “Notice”), which revises the timelines included in the final F.A.T.C.A. regulations for withholding agents and foreign financial institutions (“F.F.I.'s”) to begin their due diligence, withholding, and information reporting requirements. Specifically, the Notice provides for the following:
On December 31, 2012, sources stated that an agreement was reached regarding the fiscal cliff and the expiration of the Bush era tax cuts. The Senate passed the “American Taxpayer Relief Act of 2012” (the “Act”), early in the a.m. on January 1, 2013. The same evening, the House of Representatives followed suit. This memorandum addresses the principal changes made by the new legislation, both headline items and items affecting U.S. taxation of certain cross border income flows.
On January 1, 2013, the Bush era tax cuts were set to sunset, meaning such tax cuts would, in general, have reverted to the rates then in effect under the Clinton presidency of the 1990s. These tax increases include (but are not limited to) the following:
Read the original Client Alert: Fiscal Cliff Averted – New Tax Changes →
On February 10, 2011, the I.R.S. announced a brief window for taxpayers to come forward and declare unreported foreign bank accounts. According to I.R.S. Commissioner Douglas Shulman, taxpayers with unreported foreign accounts or unreported income related to foreign assets have a “last, best chance” to come into compliance for a limited cost. For most filers, the 2011 Offshore Voluntary Disclosure Program (“OVDP”) will be less generous than the program in 2009. However, persons who resided abroad without knowing of their U.S. citizenship status may be entitled to a reduced penalty. The window to take advantage of the OVDP is extremely brief and those who do not move forward within the next 45 days may find that the window will close rather quickly. A full submission and tax payment must be made by August 31, 2011. Taxpayers who applied to the 2009 program can request application of the reduced penalty structure if applicable to their circumstances.
Most taxpayers who come forward under the OVDP will have to pay:
Read the original Client Alert: 2011 Voluntary Disclosure Program →
On May 8, 2010, I.R.S. representatives and members of the private bar whose practice is concentrated on white collar matters participated on a panel addressing the current status of the voluntary disclosure program for unreported foreign financial accounts. The panel was sponsored by the American Bar Association Section of Taxation. The free flow of comments and responses among the participants was enlightening. Here are some of the highlights.
More than 97% of the participants have been accepted into the program. Although only a small fraction of participants have moved into the examination stage, about 225 agents have been trained and assigned to work in the program. Consequently, more activity from the I.R.S. is now expected. This corroborates recent activity in our practice where we have received telephone calls initiating examinations on a daily basis for the last week or ten days.
A segment of our clients are having difficulties in gathering information from foreign financial institutions that is useful in computing capital gains from particular transactions. Rather, information on sales proceeds is provided in statements; costs are buried in earlier transaction statements. As the accounts were typically run on a discretionary basis and periodic statements were never mailed to customers of these institutions, tracking purchase price and sales proceeds is often extremely difficult. Apparently, the I.R.S. understands the difficulty that participants are having in matching the basis element against the sales proceeds in a capital gain information. A consensus existed among the panelists that, for the majority of taxpayers, a reasonable approach in measuring gains should be acceptable. The concept of flexibility at the agent level was stressed, although it was tempered by an I.R.S. concern that all participants in the program should be treated equally.
The I.R.S. is concerned about quiet disclosure. This is the I.R.S. term for taxpayers that file amended returns and amended or initial F.B.A.R. forms outside the program. Apparently there is a large segment of taxpayers who have decided to accept the risk of penalties rather than the certainty of, inter alia, the 20% penalty on the highest capital amount in the account. When dealing with quiet disclosure taxpayers, the I.R.S. suggested that its starting position would be that all failures to file F.B.A.R. forms are intentional, and the major penalty will be imposed. This view was met with significant skepticism by the private bar. The I.R.S. stated that those who go the quiet disclosure route will, if examined, be subject to intense scrutiny and full penalties.
Prior to issuing the special voluntary disclosure program for offshore accounts, the I.R.S. had a general voluntary disclosure program (“ongoing voluntary disclosure program”) which is still available for taxpayers that want to make a voluntary disclosure subsequent to the October 15, 2009, closing date. The problem encountered in the ongoing voluntary disclosure program is that it does not provide specific penalties or ceilings on penalties. Some members of the private bar commented that a penalty imposed on persons who are caught by the I.R.S. – viz., persons who do not come forward voluntarily – rarely exceeds 50% of the unreported amount in issue. If that is the typical ceiling for persons who are caught by the I.R.S., the penalty for those who come forward under the ongoing voluntary disclosure program should not exceed 25%. Without a significant discount in penalties, the incentive to come forward voluntarily is relatively weak.
The I.R.S. acknowledged the argument, but made no other public comment, except to say that the I.R.S. has no plans to issue another special deal.
On February 1, 2010, the Treasury published the "General Explanations of the Administration's FY 2011 Revenue Proposals” (the “2011 Green Book”), setting forth tax policy objectives of the Obama Administration (“the Administration”).
Several highlights from the 2011 Green Book are worth noting:
The proposed tax rate hikes and the reduced deductions for high-income individual taxpayers remain unchanged and continue to be on track to take effect after 2010.
The 2011 Green Book does not contain a proposal which would limit the availability of a check-the-box election with respect to certain wholly-owned foreign entities.
Only interest expense that is properly allocated and apportioned to a taxpayer’s foreign-source income that is not currently subject to U.S. tax are deferred under the 2011 Green Book. Previously in the 2010 Green Book, all expenses other than research and development expenses were subject to deferral.
Provisions tightening the earnings stripping limitations to interest expense would be directed only to expatriated entities that were formerly U.S. companies. Under the provision, the current law debt-to-equity safe harbor of 1.5 to 1 would be eliminated for expatriated entities and the 50% adjusted taxable income threshold for the limitation would be reduced to 25%. The carryforward for disallowed interest would be limited to ten years and the carryforward of excess limitation would be eliminated.
Read the original Client Alert: New Treasury Report on the Obama Administration’s Tax Proposals →
This memorandum is being circulated to provide a topside explanation of tax legislation now being considered in Congress affecting foreign trusts and foreign financial institutions. It is designed to facilitate the provision of bank information to the U.S. Government in order to track offshore investments of U.S. persons and to raise revenue from U.S. person’s who are beneficiaries of foreign trusts.
The bill is the “Foreign Account Tax Compliance Act of 2009.” Identical legislative language has been introduced in both Houses of Congress and it has the full support of the Administration. The bill has its roots in earlier legislative proposals submitted by the Senate Permanent Subcommittee on Investigation, but has pared away certain over-reaching provisions, including the creation of a tax haven country blacklist and certain negative presumptions in tax litigation arising from specified transactions. It is possible that the bill could be enacted in 2009 as a stand-alone legislation or with as a funding offset for estate tax reform or it could be combined with a larger general tax reform effort in 2010. It is also possible that aspects of the bill could be changed before it is enacted.
Read the original Client Alert: Foreign Account Tax Compliance Act of 2009 →
We are pleased to provide this overview of key U.S. tax change proposals set forth in the Treasury “General Explanations of the Administration’s FY 2010 Revenue Proposals" (the “Green Book”) which was released on May 11. The proposals in the Green Book are based on various sources including prior Treasury and Joint Committee on Taxation studies, legislative proposals, and proposals of prior Administrations. Certain aspects of the proposals seem clear:
They are meant to raise significant tax revenue to meet the nation’s fiscal crisis and government budget requirements.
They do not consider taxpayer cost of compliance.
They intend to fulfill President Obama’s campaign pledge of a widespread – but limited – tax cut for virtually all (95%) of U.S. taxpayers including small business, funded primarily with international tax reform and repeal of Bush Administration reductions in individual tax rates.
They intend to fund the cost of President Obama’s planned health care reform proposals with limitations on itemized deductions for high bracket taxpayers, improvement in tax compliance and penalty enforcement and selective tax accounting changes.
They impose significant record maintenance obligations for all persons participating in an investment in the U.S. and extend the period of limitations that will apply to violations of the record maintenance rules from three years to six years.
They continue the agoraphobia first evidenced after the September 11, 2001, terrorist attacks on the U.S., but redirect its focus to U.S. persons that are tax cheats recycling funds to the U.S. through offshore banks.
Read the original Client Alert: Treasury Report on Obama Administration Tax Proposals →
We are pleased to provide this overview of the international tax provisions of the American Jobs Creation Act of 2004 (the "Act") signed by the President and entered into force on October 22, 2004.
Many comments have been made regarding provisions of the Act, noting both technical provisions and open issues. We trust this overview provides insight into the thought process that can be employed by U.S.-based multinational corporations and foreign investors in the U.S. in prioritizing strategies to deal with the Act’s provisions.
Read the original Client Alert: Overview of the Principal Provisions of Jobs Act →
