Entries Tagged 'Federal tax' ↓

The IRS published the latest in its missives assailing the infernal international tax gap, this one about reporting gifts received from foreign sources.

Translation: file that Form 3520 (PDF).

Minimums? Receiving $100,000 or more from an individual, or $13,528 or more via an entity (like a corporation or partnership).

Instructions to Form 3520 (PDF).

There are two messages here. The immediate message is to remind you of what has to be done for calendar year 2008.

The meta-message is to treat this as a sign. It foreshadows an inevitable enforcement campaign by the U.S. tax authorities. So take care of things now while you can.

Got off the phone with an unnamed Swiss gentleman who is in the banking and trust company business. Flat out refuses to touch any business involving a U.S. citizen. Reports he gets several calls a week about this.

Current political and tax trends in the United States can only be described as isolationist and protectionist in result. I am not speaking of anything overtly political. I’m just saying that capital flows are being and will continue to be hindered, to the detriment of the U.S. economy.

I wrote an article for the California Society of CPAs and it was published in the November, 2008 edition of  the California CPA.

The article is about estate tax planning for multi-national families, or as I like to say, “tax planning when a border runs through your balance sheet.”

You can find Planning for Cross-Border Families on the CalCPA website.

And gee whiz I wish the webmaster there hadn’t put my email address in spam spider-friendly format.   Cluestick whack upside the head, dude.  Google search it.

In the classic and time-honored game of “Big guy beats up little guy” the United States looks likely to start squeezing small tax haven countries next year.  President-elect Obama is promising blacklists and other devices against countries that we use to set up foreign trusts and corporations.

The Guardian reports that a new bill will be introduced within weeks of Mr. Obama taking office.

Key measures are likely to include: revealing the beneficial owners of secretive trusts; prohibiting accountants from charging fees on specific tax services; and identifying ‘offshore secrecy jurisdictions’ that ‘unreasonably restrict US tax authorities from obtaining needed information’. The measures could end years of financial secrecy that have protected the super-rich and international businesses as they move money from one jurisdiction to another.

If you do your tax planning with an eye on transparency, you’ll be fine.  Everything we set up is something you could plop down in front of a grumpy career governmento.  Secrecy simply doesn’t work.  Confidentiality is fine, but be prepared to reveal and report as appropriate.

The small countries are notably (and correctly) worried about the economic impact.  Isle of Man.  Cayman Islands.  Bermuda.  I’m sure there are more I could find.   But you get the drift.

I’m troubled by this trend.  I am seeing a consistent pattern of big countries abusing smaller countries (see Germany and Liechtenstein as a particularly egregious recent example).  This has happened since national borders were invented, and is just playground bully behavior on a grand scale.  It’s not going to change.  Ever.  Tax policies.  Tariffs.  Soldiers.  U.S. history is full of this behavior.  Let’s just stipulate to the sad fact that this will continue long after you and I die.

What’s troubling is the trend of persistent invasive governmental behavior.  I fear over the long run this will mean collateral damage to other individual liberties.

Memo to all personnel:  re-acquaint yourselves with the Law of Unintended Consequences.

Here’s the Intended Consequence stuff that’s easy to see:  for those of you with complex financial situations, expect more tax forms to file, more revelations to give to the U.S. government, more expense for lawyers and accountants, and more tax to support the U.S. government.  Expect more prosecutions, Government Careers Advanced, etc.

Yet another indication that people with undisclosed foreign bank accounts should expect a trip to the pain factory.

Last weekend’s annual meeting of the California tax bars (I have spoken at this conference several times) had a visit from Nathan Hochman, Assistant Attorney General, and head of the Tax Division at the Justice Department.  I don’t know him, but I know a number of the people at the Beverly Hills law firm he left in order to join the Justice Department.  Good people, all of them.  I’m sure he is, too.

Mr. Hochman’s comments were reported in today’s Tax Notes Today. He noted that exempt organizations with undisclosed foreign bank accounts should see prosecutions starting in 2009.

From Tax Notes Today:

In building a criminal case, the government looks for a pattern and “simple, provable lies,” Hochman told a meeting of the California Tax Bar and California Tax Policy Conference in San Francisco on November 7. For that reason, failure to acknowledge interest in or a signature or other authority over a financial account in a foreign country on Schedule B of Form 1040 or on Form 990 will be “a wealth of bases for criminal prosecutions,” he said.

E-mail is another rich source of material for prosecutors. Electronic communications are difficult to track, Hochman said, but “every time you push ‘delete’ is another act of concealment” subject to criminal prosecution.

In selecting cases to prosecute, the Justice Department is “going to be looking for cases to make a large deterrent statement,” Hochman said. The department will “look to leverage every case to ensure honest people understand there are consequences when you don’t do it properly and don’t feel like schnooks for doing it properly.”

FBAR case selections may seem unfair or arbitrary, but “‘Why me?’ has never been a constitutional argument,” Hochman said.

Juries do not struggle with convictions on tax violations, Hochman warned. He speculated that because they embrace the logic that the government uses their tax dollars to subsidize exempt activities, many jurors become angry with noncompliant organizations.

It’s not too hard to see where all of this is going.  The government hands out money like a drunk hands out candy on Halloween.  The government needs more money.  Money comes from people.

It’s easy to tax people who are not like you.  It’s easy to beat people up who you think must be up to no good.  “If you’re not guilty, why were you arrested?” == “If you are using a foreign bank, you must be a tax evader”.  Both are easy sales to the average voter.

Slashdotters will see the formula clearly:

1. Identify a group of people sufficiently different from the general voter populace — people we can tax into oblivion.
2. Make the rules they have to follow complex and hidden, with giant penalties for noncompliance.
3. ????
4. Profit.

I think we all know what Step 3 is.  Careers Must Be Advanced, etc.

Recommendation: clean up your act.  File the forms.  Repent.  Empty your wallet.

It’s Form TD F 90-22.1 (PDF) you’ll need, bucko.  Start there.  Maybe other stuff applies to you too, depending on what you’ve got, where, and how much.

Today’s Tax Notes Today has a report from the UCLA Tax Controversy Institute on October 28, 2008.  For those of you spending way too much money on Lexis, the cite is 2008 TNT 211-7.

The article states:

In keeping with IRS Commissioner Douglas Shulman’s focus on international tax administration, fraud technical agents are for the first time being specially trained in the international area, said Beth Elfrey, IRS director of the Small Business/Self-Employed Division Office of Fraud/Bank Secrecy Act.

Elfrey, speaking at the October 28 UCLA Tax Controversy Institute in Beverly Hills, Calif., said foreign bank account report (FBAR) filings are up 90 percent over last year. The penalty for failure to file an FBAR is steep, she said — as high as 50 percent of the account balance in some instances.

Faris Fink, SB/SE’s newly appointed deputy commissioner, speaking October 29 at the American Institute of Certified Public Accountants conference in Washington, talked about the division’s intention to increase departmental interaction. “In SB/SE, we traditionally have not had a lot of interaction or involvement with international,” Fink said. “More and more we’re finding our taxpayers are involved in transactions that have an international flavor to them.” He said the division is responding by continuing its emphasis on the offshore compliance initiative, including the offshore credit card and private banking initiatives.

“We’re going to have to ramp up . . . our knowledge and our experience around how individuals use the international arena to shelter income,” Fink said. The division’s new international examination groups will be located in cities where the Service has detected a higher level of activity, Fink said.

Victor Song, deputy chief of the IRS Criminal Investigation (CI) Division, said at the UCLA conference that fiscal year 2009 priorities remain largely the same as last year, with a focus on Title 26 criminal cases. CI is looking at “working the largest crimes that we can in the most efficient amount of time,” Song said. On average, 80 percent of the cases CI pursues get publicity, he said.

The IRS has recently introduced the concept of automatic penalties if you file a late Form 5471.  See IRS letter to taxpayer on late filed Form 5471 (PDF).  Take that action and public comments as reported above as your sure-fire warning that things are going to REALLY crank down hard in the international arena.

Deliberate noncompliance (oh, let’s just call it lying, shall we?) has never worked well.  Accidental noncompliance (oh, let’s just call it “I forgot”, shall we?) will soon become expensive.

The evangelist in the tent is calling “Come to Jesus!“