Friday, February 11, 2011

Every man is surrounded by a neighborhood of voluntary spies. Jane Austen

The IRS has provided everyone who has been hiding money in a foreign bank account from the IRS with a second chance to come clean. The IRS announced a new offshore voluntary disclosure initiative for those who were thinking that Wikileaks won't get hold of their bank records from a disgruntled Swiss bank employee.

The new initiative requires a 25 percent penalty for most participants; but there is a 12.5 percent penalty for those with small (under $75,000) accounts and a five percent penalty for those who didn't open or cause the account to be opened.

Anyone who wants to participate will have to file original or amended returns and pay all taxes, interest and accuracy-related penalties before August 31, 2011. Also, anyone who wants to participate should consult a tax lawyer to get clearance because if there is a current criminal investigation you can't participate.

The IRS has posted answers to frequently asked questions and a brief guide to the various stages of the initiative on its website

Since the IRS continues to investigate allegations that foreign owned banks have facilitated (or promoted) tax evasion by U.S. residents, its good to have a second chance.

Tuesday, February 1, 2011

Individual Mandate Is Two for Two -

The Health Care law's individual mandate to buy health insuance is now two for two. Two federal district courts have held that the provision is constitutional and two have held it is not. The argument revolves around whether the Commerce Clause can be used to regulate non-activity i.e. the failure to purchase health insurance. The issue is novel because the government has never before required individuals to buy a good or service as a condition of lawful residence in the U.S.

The freedom fighters, 26 states and various individuals are concerned that reading the Commerce Clause to allow Congress to require individuals to purchase health insurance would also permit Congress to regulate "any and all aspects" of our lives - including marriage. Where were these people when Congress passed DOMA? Congress has already passed a law that says who can be married under federal law so why is requiring people to buy insurance such a streach?

Friday, January 28, 2011

New DOMA Challenge Allowed

Three California public employees and their same-sex spouses were allowed to challenge the constitutionality of Code Sec. 7702B(f) because it interferes with their ability to purchase long-term care insurance through their employer. Participants in qualified long-term care programs can deduct the premiums as medical expenses. In addition, the benefits received are not taxable. Code Sec. 7702B(f) denies this favorable tax treatment to state-maintained long-term care insurance plans if they provide coverage to same-sex spouses.

Although "spouses" are eligible for coverage under Code Sec. 7702B(f), the Defense of Marriage Act (DOMA) defines spouse to mean a "person of the opposite sex who is a husband or a wife." It also defines marriage as "a legal union between one man and one woman as husband and wife." So, CalPERS refuses to allow lawfully married same-sex couples to participate in its long-term care program because of DOMA.

The government conceded that DOMA departed from the federal government's usual practice of accepting marriages recognized by state law and the court found that the individuals sufficiently claimed that the laws at issue have no rational relationship to a legitimate governmental interest.

Sunday, November 29, 2009

Foreign Account Tax Compliance Act - Traps for the Unwary

For anyone who has clients or family members that live and work abroad, the new Foreign Account Tax Compliance Act (FATCA) is a real doozy. Although this Act is supposed to punish Americans who hide assets abroad to avoid their tax liabilities, the Act doesn't differentiate between those deliberately hide assets and those who don't realize that they are required to report their assets to the IRS.

Under the FATCA, there’s an up-to-$50,000 penalty for failing to file with your return the new 6038D statement disclosing specified foreign financial assets with an aggregate value >$50k ($10,000 for not filing, plus up to an additional $40,000 if you don’t file within 90 days after the Secretary notifies you that you’ve failed to disclose). Then, if you don’t include the income from such foreign assets, you get hit with a new 40-percent penalty on an understatement attributable to an undisclosed foreign financial asset. And to top it all off, the IRS gets 6 years to assess you for the underreporting and penalty.

But wait, there’s more. There’s a new open-ended unlimited extension of the assessment statute for failing to provide timely information returns required with respect to PFICs and the new 6038D self-reporting of foreign financial assets. Until you file the 6038D disclosure form there’s no SOL on assessment (making it akin to the current situation for fraud). That’s true even if the IRS knows you’ve got the asset(s) because they notified you about failing to file the 6038D and then socked you with $40,000 in penalties for not filing the attachment. And the killer is that the unlimited extension is “not limited to adjustments to income related to the information required to be reported.” I read that to mean the entire return has no SOL on assessment until you file a 6038D for "every" foreign financial asset once the aggregate of your foreign financial assets is >$50k.

For U.S. citizens living abroad the FATCA would require reporting the purchase of a residence with a fair market value of >$50k, even though such an asset is not currently taxable and any gain on the sale of the asset may not be taxable. I assume the same would be true of tax-exempt assets.

Friday, August 21, 2009

Did the IRS Really Win Case Against UBS?

The IRS settled its summons case against UBS this week and will get account information for fewer than 5,000 Americans with accounts at the Swiss bank. Since the IRS was originally asking for information on 52,000 accounts, is this really the victory the IRS claims it is?

Although the settlement agreement apparently lets the IRS pick which accounts are disclosed (so the IRS won't get information it already has perhaps?) it seems a stretch to think that 45,000 or more secret account holders have come forward under the IRS's "amnesty" program or that the IRS has been able to get that much information from the individuals who have already pleaded guilty ot tax evasion. While the banker has given up a number of names, it is doubtful that he had access to over 45,000 accounts - so what about the other 47,000 tax evaders?

Also, the settlement allows UBS to notify account holders and lets them appeal their account's disclosure to the Swiss government. Are the Swiss using this as a way out?

Meanwhile the attack on offshore accounts continues with more indictments this week.

Tuesday, August 18, 2009

IRS Settles UBS Summons Case

It looks like the Swiss backed down and have agreed to let UBS reveal the names of U.S. tax cheats with accounts in the Swiss bank. While the IRS was originally after information about 52,000 accounts, they likely settled for a lot less. Most media outlets are reporting that information about 5,000 to 10,000 accounts will be disclosed.

Also unknown is whether those disclosures will include information about individuals who have already taken advantage of the IRS's amnesty program, or if the IRS will get new names.

In the meantime, this week another individual pled guilty to keeping an offshore account at UBS.

Will prosecutions pick up once the amnesty program ends?

Friday, July 31, 2009

Congressional Ethics and DOMA

Many of the Congressmen and Senators who voted to pass the Defense of Marriage Act (DOMA) are licensed attorneys. Those individuals were required to take an oath to uphold the Constitution of the United States and the State where they were licensed.

In addition, the ethics rules in many states require attorneys to avoid doing anything that would undercut the rule of law.

DOMA explicitly amends the "full faith and credit" clause of the constitution. Unfortunately, the U.S. Constitution may not be amended by Congressional fiat. Shouldn't the lawyers in Congress know that?

Since DOMA is clearly unconstitutional, should those attorneys who voted for it be subject to an ethics investigation and possible sanctions under attorney discipline rules?