There is a new form that tax professionals and individuals with certain foreign financial assets must be aware of, Form 8938 Statement of Specified Foreign Financial Assets. The form is intended to report on are foreign bank accounts or any stock or securities issued by someone who is not a US citizen or a contract with a party that is not a U.S. citizen or U.S. based entity.
For tax years beginning after March 18, 2010 individuals must file a Form 8938 if their foreign financial assets exceeds the “reporting threshold”. You are exempt from filing a Form 8938 for 2012 if your tax year began after that date or you filed your return before the Form 8938 was released. You only have to file a Form 8938 if you are required to file an income tax return for that year. If no exception applies, you must file a Form 8938 even if none of the specified foreign financial assets affect your tax liability for the current tax year.
The completed Form 8938 should be attached to your annual income tax return which includes the following forms:
- A Form 1040;
- A Form 1120;
- A Form 1065;
- A Form 1041;
- A Form 1120-S; and
- A Form 1040NR.
The reporting threshold varies depending on several factors including whether or not the individual resides in the United States or if they file a joint income tax return with their spouse. Resident aliens are required to complete this form. The reporting thresholds are as follows for people whose primary domicile is within the United States, Puerto Rico or America Samoa:
- If you reside in the United States and are unmarried or are married and file separately, you only need to complete a Form 8938 if the total value of your specified foreign assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during that tax year.
- If you are married, reside in the United States and are filing jointly you must complete a Form 8938 if your specified foreign assets are more than $100,000 on the last day of the tax year or $150,000 at any time during the tax year.
For more information on how to determine the total value of your specified foreign assets, the instructions to Form 8938 outline this very clearly.
Since the beginning of February one Swiss bank (Wegelin & Co.)[1] has been indicted and another Swiss bank (Julius Baer Group) [2] announced that it may face possibly significant financial penalties for allegedly helping some of their American clients evade United States income taxes and FBAR filings. Also this week, the New York Times reported that France, Germany, Italy, Spain, and Britain agreed to support United States efforts to identify offshore accounts held by Americans.[3]
Today, the New York Times published an editorial entitled “The Fight Against Tax Evasion” approving the pressure the United States is placing on Switzerland and its banks to release the names of potential American tax-evaders. The editorial concludes: “If Switzerland stonewalls, the Justice Department can indict banks that benefit from tax evasion and seize their assets in the United States, moves that could put them out of business. At some point, the Swiss government will find that result a lot more costly than handing over information on American tax cheats.[4]”
It seems clear that the IRS is gearing-up for a crackdown on tax-evaders who have not accurately reported their foreign-source income and their foreign bank and brokerage accounts. We have written an article that “connects the dots” and provides an analysis of recent events. Our article also demonstrates how our tax boutique has the experience to help taxpayers minimize their taxes and penalties and avoid criminal prosecution.
Swiss Bank, Julius Baer Group, announced yesterday that it may face financial penalties in the face of allegations that it helped its American clients cheat on their United States taxes (read the article here with the Associated Press). This marks the newest development in the US government’s recent trend of cracking down on possible tax violators. At least 10 other Swiss banks, including Wegelin & Co, Credit Suisse and Basler Kantonalbank have been pressured by the U.S. to identify tax-evading American customers and the tax and banking professionals that aided them.
In a time where U.S. tax revenue is falling short of budget demands, the government cannot afford to have tax cheats shielded by Swiss banks. As a rule, the IRS doles out more lenient penalties to individuals that come forward voluntarily and become compliant with US law on unreported foreign income, bank accounts, entities, and other assets than those whom the government needs to seek out itself.
If you need assistance with foreign bank account reporting, M Robinson and Company, PC specializes in assisting our clients accurately report FBARs, guiding them through the Offshore Voluntary Disclosure Initiative (renewed January 9th of this year) and many other tax issues. The government has made it clear that this is an area of tax crime that it is planning tp pursue in the upcoming months. Having experienced tax attorneys on your side will help you minimize what you owe to the IRS.
Attorney Morris Robinson was interviewed by CNN Money reporter, Blake Ellis, on February 3 and again on February 6, 2012 for her article about the $100 million family trust Mitt and Ann Romney established for their five sons. Attorney Robinson, a tax expert, identified the type of trust the Romneys’ have created as an “intentionally defective grantor trust.” This type of trust requires Mitt and Ann to pay the income taxes on the trust income. These tax payments escape both gift and estate taxation, leaving more money to the next generation. Blake Ellis’ article was published yesterday, February 6, 2012, on CNN Money. Click to read her article.
Last week, Attorney Robinson published an article on our blog that described the careful tax planning that went into the establishment of the Romney family’s $100 million trust. His article demonstrates that all of the powerful tax-minimizing techniques successfully used by the Romney family are completely legal and most are easily available to most Americans. Click here to read Attorney Robinson’s article in full.
Contact M. Robinson and Company, P.C. for advice on minimizing your family’s overall effective income, gift and estate taxes.
Why Romney’s Effective 2010 Income Tax Rate is only 10.7 Percent
www.MRobinson.com
January 31, 2012
By Attorney Morris N. Robinson, CPA, LL.M.
BOSTON. Successful families manage to replicate themselves by transmitting their heritage, values, and wealth to the next generation. The next generation always receives what is left of the family fortune after inflation and income, gift, and estate taxes. Successful families, therefore, give more than passing attention to their overall effective tax rates.
Over the past few days, Attorney Morris N. Robinson reviewed the 2010 income tax returns of Mitt and Ann Romney and of various Romney family trusts including their private charitable foundation. He found that, contrary to published reports, the effective United States income tax rate on Mitt and Ann’s total 2010 income of $28 million was only 10.7 percent – and NOT 13.9 percent as reported by the press. Even if so-called Mitt Romney’s “carried interest” income, discussed below, is taxed at 35 percent (the highest regular tax) instead of at 15 percent, his overall effective tax rate rises to only 17.2 percent.
Mitt Romney’s 2010 income tax returns offer the general public insight as to how a very wealthy entrepreneur controls his overall effective income, gift, and estate tax rates. All techniques are completely legal. Many of these techniques are easily available to all Americans. These techniques acquire their impressive tax-saving power through thoughtful coordination by highly-competent tax attorneys, investment advisers, and tax accountants.
Read More on our Website
Boston Globe reporter Todd Wallack quoted Attorney Morris N. Robinson, CPA, LL.M., in the conclusion of his article in today’s Boston Globe, January 19, 2012: “Few Americans Pay Full Tax Rate”. Read Attorney Robinson’s quote about Mitt Romney’s income tax payments or click below for the full article.
“Romney also probably benefited from an array of federal deductions that could push his effective tax rate even lower than 15 percent, said Morris N. Robinson, a Boston tax attorney. Robinson ticked off a list of strategies, including the use of investment losses to offset capital gains. He said he has used similar tactics to help his own clients. It’s completely legitimate,” he said, “but it means the highest rates that are advertised are not necessarily what people pay.”
M. Robinson & Company Website
Determining the status of an organization’s employees is often not a straightforward task. The penalties for misclassifying an employee as an Independent Contractor as defined by the IRS can be stiff. Employers who are found to have made this error can be subject to an IRS audit, back employment taxes, penalties and interest for prior years.
If your company has workers with questionable status, the IRS has recently enacted a new program that could save you a lot of money and anguish, The Voluntary Classification Settlement Program.
VCSP is one of several new initiatives (including the successful Offshore Voluntary Disclosure Initiative that ended August 31st of this year) that IRS Commissioner, Douglas Shulman, has enacted in an effort to motivate people to “come clean” about their tax liabilities. These programs also shine light on the fact that the IRS realizes that not all tax violations are committed consciously. Programs like this allow the government to collect some of the revenue (roughly ten percent) that was lost due to those taxpayers’ errors without making them amenable to the maximum penalty for their transgressions. This may be a good time to “come clean” because the IRS is enacting this program in tandem with a three-year program that increases the number of worker classification audits.
Applicants who are eligible must have:
- Consistently treated workers as non employees
- Filed all the required Forms 1099 for its workers for the previous 3 years
- Not be under audit by the IRS or any other state agency concerning the classification of its workers.
Taxpayers who are eligible for this program will pay no interest and no penalties on their tax liability in exchange for classifying their workers as employees in the future. This program is a fantastic opportunity to get in line with the law with nominal costs, but one should consult with an attorney to ensure that your participation in the Amnesty program is the right choice for your business.
If you need a tax professional to guide you through this program, contact M. Robinson and Company, PC.
The IRS Reopens Voluntary Disclosure Program from Taxpayers who Own Unreported Foreign Financial Accounts and Income
By Timothy R. Weeks, Esq., LL.M.
January 11, 2012
On January 9, 2012, the IRS announced that it is reopening its offshore voluntary disclosure program “to help people hiding offshore accounts get current with their taxes.”[1] The IRS press release announcing the reopening of this program can be found here: http://www.irs.gov/newsroom/article/0,,id=252162,00.html.
The terms of the new Voluntary Disclosure Program are similar to the terms of the 2011 Offshore Voluntary Disclosure Initiative (“2011 OVDI”). Taxpayers who have undisclosed offshore accounts or assets are eligible to apply to the IRS for inclusion in this program. However, the IRS will not accept individuals into the program if it has already commenced an investigation into that individual’s foreign accounts. Inclusion in the program requires taxpayers to file or amend United States income tax returns for 2003 through 2010 and pay the corresponding taxes and interest. Finally, taxpayers must file Forms TD F 90-22.1: Reports of Foreign Bank and Financial Accounts, commonly referred to as FBARs, for tax years 2003 through 2010.
The penalty terms of the reopened disclosure program are expected be more onerous than in the 2009 Offshore Voluntary Disclosure Program (“2009 OVSP”) or the 2011 OVDI. Instead of the 20 percent and 25 percent miscellaneous offshore account penalty for the 2009 OVDP and the 2011 OVDI, respectively, the new program will require individuals to pay a “penalty of 27.5 percent of the highest aggregate balance in the foreign bank account/entities or value of foreign assets during the eight full years prior to the disclosure.” However, as in the previous programs, taxpayers may be eligible for a 12.5 percent penalty if their accounts do not exceed $75,000 or a 5 percent penalty for certain accounts unopened and generally untouched by the taxpayer. Additional failure-to-file, failure-to-pay, and accuracy-related penalties may also apply.
These disclosure programs have been a success for the IRS. To date, the IRS has handled 33,000 voluntary disclosures from the 2009 and 2011 programs and has collected $4.4 billion from those taxpayers. Since many of the 2011 OVDI cases have not been concluded yet, that amount is expected to grow.
Importantly, according to the IRS, those “who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDP program.” Additionally, there is no set deadline for people to apply to the program, although the IRS recommends disclosures sooner rather than later since it cannot guarantee that the terms of the new OVDP will not change over time. “For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.”
Taxpayers who have been accepted into the new program may opt out of the civil settlement structure of the new disclosure program if, after careful analysis, they believe the typical statutory penalties are more beneficial to their specific case.
More details on this new voluntary disclosure program will be available on the IRS website, IRS.gov, within the next month.
Attorney Advertising. This Tax Alert is a periodical publication of M. Robinson & Company, P.C. and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult an attorney concerning your own situation and any specific legal questions you may have. Any tax information contained in this communication is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding any federal tax penalties.
[1] Press Release, IR-2012-5, “IRS Offshore Programs Produce $4.4 Billion To Date for Nation’s Taxpayers; Offshore Voluntary Disclosure Program Reopens,” Jan. 9, 2012.
The IRS published Summertime Tax Tip 2011-13: “Does the IRS Have Money Waiting for You?” The IRS gives instructions to taxpayers who could have claimed the Earned Income Tax Credit but didn’t, or who didn’t receive their tax refund checks in the mail
“The IRS sent an email notice this year during the tax filing season that every year, tens of thousands of individuals are eligible for the Earned Income Tax Credit but fail to claim it on their tax return. Let’s leave to the side the question of whether the Earned Income Tax Credit is good policy. Given that it exists to help poor people, it is a significant positive achievement if we in the professional community can make people aware of the legitimate tax benefits to which they are entitled. Whether we give poor people our own money by charity, or enable them to take legitimate benefits to which they are entitled, the result is the same: more money for them to meet their living expenses. Similarly, the IRS sends out messages every year that many thousands of individuals fail to deposit their tax refund checks. The IRS promotes direct deposit of tax refunds into bank accounts to minimize the extent of this problem. Whether one is claiming a tax refund or depositing an existing refund check, the deadline for the 2008 tax year is April 15, 2012, three years after the original filing deadline.” – said Paralegal, Yechiel Robinson (M. Robinson and Co., P.C. 2011).
The question of missing money is almost always outside the scope of what M. Robinson & Company, P.C. does for its clients. The closest analogy in our practice area is the filing of an amended tax return (Form 1040X) as a “protective claim for refund” to protect the client’s ability to take a refund if the client’s tax position is sustained. For example, there may be a question of whether a taxpayer is allowed to record a business loss as tax-deductible, and if so, which year to assign that loss. This is a special case of refund money that a client might be entitled to take, but it is impossible to know unless we formally request that refund on a Form 1040X for the federal income tax, or Form CA-6 from the Massachusetts Department of Revenue.
As always, the foregoing should be regarded as general conceptual information, and anyone who wants to explore the possibility of deducting a business loss from their income should consult a tax professional.
Attorney Advertising. Read about what we do. See our disclaimer.
The Massachusetts Department of Revenue announced specific laws and guidelines for implementing the annual sales tax holiday in Massachusetts on Saturday, August 13 and Sunday, August 14, 2011. Retailers will not collect the 6.25% sales tax on most items. The tax will still be collected for motor vehicles, certain other items, and any single item sold for $2,500 or more.
One of the guidelines says that any sales tax erroneously or improperly collected must be remitted to the Department of Revenue. (This makes sense to me because a retailer should not have an incentive to profit dishonestly, even if unintentionally.)
For the Technical Information Release, TIR 11-7, click here. For all Technical Information Releases that the Massachusetts Department of Revenue has published in since 1974, click here then follow the links on the bottom of that screen.
