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Blunders in International Estate Planning

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Blunders in International Estate Planning

Trust & estate lawyers who dabble infrequently in cross border matters, take notice! It is relatively easy to lose your way when advising a non-U.S. person with assets in the U.S. Shortcuts that work when clients and properties are located in the same jurisdiction may lead to horrific problems when clients are domiciled in one jurisdiction and property is located in another. Examples are (A) drafting two wills where each revokes the other, (B) allowing an individual having a foreign domicile to directly own financial assets in the U.S., such as shares of publicly traded stock or mutual funds, can result in unanticipated estate tax and long delays before heirs have access to the assets, (C) not knowing which I.R.S. information reporting forms must be filed when a new client is a recent arrival from abroad can yield significant penalties for the client, (D) allowing a resident, non-citizen individual to return to the home country is an invitation to unnecessary U.S. estate tax if the client retains investment assets and real property in the U.S., and (E) not noticing inconsistencies in residuary clauses in a principal will drafted in the home country and a U.S. property only will drafted in the U.S. begs for a will fight. Diane K. Roskies, a principal in the New York office of the Offit Kurman law firm, and Zachary Weitz, an attorney in the Los Angeles office of the same firm, explain the severe problems that may be encountered, but do so in a light hearted manner.

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Information Reporting on Foreign Trusts and Gifts – New Regulations

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Information Reporting on Foreign Trusts and Gifts – New Regulations

On May 8th, the Treasury Department and the I.R.S. proposed regulations regarding information reporting in the context of U.S. persons, foreign trusts, and gifts from non-U.S. persons. When adopted in final form, they will affect (i) U.S. persons who engage in transactions with, or are treated as the owners of, foreign trusts and (ii) U.S. persons who receive large gifts or bequests from foreign persons. The scope of the proposed regulations is broad, and many existing regulations are affected. Wooyoung Lee and Stanley C. Ruchelman take a deep dive addressing specific regulatory provisions that are affected. Many “open doors” that currently exist have been closed. The authors tell all, linking explanations in the preamble to the proposed regulations with specific regulations in the proposal.

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Late Filed Form 3520 – What Penalties to Expect and How to Respond

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Late Filed Form 3520 – What Penalties to Expect and How to Respond

When a U.S. person is faced with an asserted penalty for late filing of Form 3520 reporting the receipt of a foreign gift or bequest, the process to have the penalty abated is long and winding. Neha Rastogi and Stanley C. Ruchelman explain all the steps and suggest a strategy for supporting the taxpayer’s contention that reasonable cause exists for the compliance shortfall. In many areas of the tax law, less is more. The authors point out that as much favorable information as possible must be given to the Appeals Officer in order to demonstrate that the shortfall in compliance was not the result of negligence or disregard of the rules by the taxpayer.

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When It Comes To Penalty Abatement, Is the I.R.S. Offside?

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When It Comes To Penalty Abatement, Is the I.R.S. Offside?

When it comes to abatement of penalties regarding late filing of international information returns, the voluntary disclosure system adopted by the I.R.S. in its Delinquent International Information Return Submission Procedures suggests that penalties may be assessed but that there is a procedure to have them abated. In practice, penalties always seem to be assessed and the standard that must be met in order to have them abated is high. Reasonable cause from the viewpoint of a taxpayer need not be reasonable when reviewed by an I.R.S. Appeals Officer. Wooyoung Lee looks at the decided cases and the approaches taken by the I.R.S. to reduce penalties without fully abating them. He also comments on the facts of a case that has been filed in U.S. District Court challenging the apparent policy of mitigation rather than full abatement.

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Insights Volume 9 Number 5: Updates & Other Tidbits

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Insights Volume 9 Number 5: Updates & Other Tidbits

Two recent items of interest are addressed this month in Updates & Other Tidbits. The first is Franklin v. U.S., where the Fifth Circuit upheld the forfeiture of a U.S. passport in the context of a U.S. citizen who was seriously in tax debt to the I.R.S. Code §7345, allows the I.R.S. to effect the revocation of a U.S. citizen’s passport where a taxpayer owes more than $50,000 in tax, penalties, and interest. The taxpayer argued that international travel is a fundamental right of citizenship that was violated by the I.R.S. when it triggered forfeiture of his passport. The court disagreed, holding that a citizen has a fundamental right to travel within the U.S., but not internationally. The second item is an I.R.S. announcement that information on bank account interest will be exchanged automatically with Turkey when a Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)) has been provided by the account holder and indicates that he or she is a resident of that country. Wooyoung Lee addresses the case, explains the I.R.S. announcement, and lists all countries that receive information concerning interest received from U.S. bank accounts.

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The Price is Right: Former I.R.S. Attorney Discusses Information Return and F.B.A.R. Penalties

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The Price is Right: Former I.R.S. Attorney Discusses Information Return and F.B.A.R. Penalties

Ever wonder what happens to well-crafted reasonable cause statements attached to late-filed I.R.S. information returns, such as Forms 5471, 5472, and 3520? In a presentation before the San Francisco Tax Club, a retired long-term I.R.S. attorney named Daniel Price provided the answer: nothing happens to them. Over the years, the I.R.S. has increased the number of information returns that must be filed by taxpayers. To keep up the pace, I.R.S. delegates many tasks to lower-level employees who may not have been trained sufficiently to make discretionary judgments. Moreover, they are managed by relatively inexperienced supervisors. Stanley C. Ruchelman and Wooyoung Lee explain the problem and several suggestions offered by Mr. Price. Recent experience with F.B.A.R. penalty inconsistencies are also discussed.

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New Italian Transfer Pricing Regulations Affect Multinational Enterprises

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New Italian Transfer Pricing Regulations Affect Multinational Enterprises

Italian transfer pricing documentation rules were introduced in 2010. The system affords taxpayers the possibility of penalty protection for transfer pricing adjustments, provided that qualifying transfer pricing documentation is maintained by the taxpayer. Late in 2020, new regulations were introduced. The new regulations contain several important changes for multinational enterprises based in Italy or having an Italian member. Marco Valdonio, a partner of Maisto e Associati, Milan, and Mirko Severi, an associate of Maisto e Associati, Milan, explain the principal revisions to the Italian rules. They address the changes that broaden the scope of companies required to maintain a master file, reductions in the scope of the exception to annual filing for certain local members of a foreign-based multinational group, and changes to the content of both the master file and the local file.

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International Practice Unit: Monetary Penalties for Failure to File Form 5471

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The I.R.S. has initiated increased enforcement efforts to ensure compliance with information reporting obligations. Such efforts include increased assessment of penalties. Galia Antebi explains.

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Taxpayers Take Note: I.R.S. Publishes Audit Guides for International Examiners

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U.S.-based companies facing an I.R.S. examination of international operations may secretly wish to obtain an advance look at how I.R.S. examiners plan to carry out the examination. After all, what better way to prepare for a test than to get the questions in advance? Surprise – the Large Business & International (LB&I) Division of the I.R.S. has published its training guides for examiners.

LB&I is responsible for examining tax returns reporting international transactions, and it is in the process of revising the method by which returns are chosen for examination and the the process by which those examinations are conducted. Several aspects of the guidance will be addressed through out this edition of Insights. Stanley C. Ruchelman explains.

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