July, 2013 | TaxConnections

29 Jul 2013

Offshore Voluntary Disclosure Practice: IRS Report Card: C-?

It should be obvious to practitioners and taxpayers alike that theIRS offshore voluntary disclosure program first announced in 2009, is not for everyone. It is expensive, time consuming and sometimes nerve-wracking.

But for those taxpayers and practitioners who still consider it an option, here are some miscellaneous comments and observations.

What has been your experience as to how the IRS has preformed in it’s Offshore Voluntary Disclosure Program? Please feel free to add your comments! Also, feel free to advise the IRS directly, since they are currently seeking comments on Offshore Voluntary Disclosure Program!

Written by tbeecher | Posted in United States

27 Jul 2013

Even The IRS Wants Out of Obamacare

The federal employees who will be responsible for administering Obamacare for the American people don’t want it for themselves.

The National Treasury Employees Union, which represents workers at the Internal Revenue Service, is asking its members to write letters to Capitol Hill saying they are “very concerned” about legislative efforts requiring IRS and Treasury employees to enroll in the Obamacare exchanges.

“I am a federal employee and one of your constituents,” one letter begins, Forbes blogger Avik Roy reported on Friday. “I am very concerned about legislation that has been introduced by Congressman Dave Camp to push federal employees out of the Federal Employees Health Benefits Program (FEHBP) and into the insurance exchanges established under the Affordable Care Act (ACA).”

Camp, the Michigan Republican referred to in the letter, is chairman of the House Ways and Means Committee, whose members oversee tax legislation in the House of Representatives. The U.S. Supreme Court ruled last year that Obamacare’s insurance subsidies are technically tax credits, falling under the authority of the IRS.

Camp introduced legislation in April to put all federal employees on the healthcare exchanges in response to news reports that members of Congress and their staffs were seeking to be exempt from the Obamacare requirement that they enroll in the exchanges. Read More

Written by Steven Potts | Posted in United States

26 Jul 2013

Louisiana Tax Amnesty Starts September 23, 2013

Louisiana revenue officials announced that the state’s 2013 Tax Amnesty Program (“Program”) will begin September 23, 2013 and end November 22, 2013. The Program applies to all taxes administered by the Louisiana Department of Revenue (“Department”), except motor fuels taxes, and provides taxpayers an opportunity to avoid all penalties and to get a waiver of half of the interest that would otherwise be owed on the unpaid taxes. Taxpayers must apply to participate and be approved by the Department to meet the Program’s qualification criteria. In announcing dates for the 2013 amnesty period, Revenue Secretary Tim Barfield said all qualified taxpayers accepted into the Program will receive a letter from the Department accompanied by information about the tax periods and amounts owed, as well as payment instructions that the taxpayer should follow to ensure payment is made before the amnesty ends on November 22, 2013. Barfield also announced that the agency has created a website to provide and update information to taxpayers about the Program.

The previously announced Program was authorized by House Bill 456 (“H.B. 456”), which lawmakers passed, and Governor Bobby Jindal signed into law in June 2013. The bill established parameters for the Program, including the criteria for participation, and directed the Department to offer amnesty in 2013, 2014, and 2015 during periods to be set by the agency.

Amnesty is available for the following taxes: Read More

Written by Advertorial | Posted in State And Local Tax (SALT)

26 Jul 2013

Are You Ready for Back-to-School Sales Tax Holidays?

There are currently 17 states offering sales tax holidays where state sales tax charges are temporarily dropped on back-to-school items such as clothing, footwear, classroom supplies, computers and certain other products, according to CCH.

“What’s really important for consumers to know is the specific information about products that qualify for each state’s holiday in order to maximize sales tax savings,” said CCH senior state tax analyst Carol Kokinis-Graves in a statement. “Typically several restrictions will apply and each state usually provides official, highly detailed rules on specific items that do or do not qualify for state sales tax exemptions on designated dates.”

Florida: On Aug. 2-4, the following are exempt: clothing with a sales price of $75 or less per item and school supplies with a sales price of $15 or less per item; and personal computers and related accessories with a sales price of $750 or less purchased for noncommercial use. The holiday exemption does not apply to sales of such items made within a theme park, entertainment complex, public lodging establishment or airport.

Written by tbeecher | Posted in United States

25 Jul 2013

California Phases Out Enterprise Zones, Creates New Sales Tax Exemption

California is phasing out its Enterprise Zone Program (“Program”) and replacing it with three new tax incentives, including a statewide sales tax exemption for some manufacturers and biotechnology companies. The changes were authorized by Assembly Bill 93 (“AB 93”), which passed the state Senate on June 25, 2013 and was approved by the Assembly on June 27, 2013. The bill was signed Thursday, July 11, 2013 by Governor Jerry Brown, who had earlier issued a statement calling AB 93 “a big bipartisan win for California businesses and working people. AB 93 will help grow our economy and create good manufacturing jobs.” On July 3, 2013, the Assembly passed Senate Bill 90 (“SB 90”), which further refined some of the changes that had been adopted in AB 93 and that was also signed on July 11, 2013.

The Program provided businesses operating in designated enterprise zones with certain tax preferences under both the state corporations tax and personal income tax, including an income tax credit for sales tax paid on certain business purchases, hiring credits, net interest deductions, business expense deductions, and net operating loss deductions. AB 93 eliminates the Program effective January 1, 2014, subject to the following:

• Unused sales or use tax credits may be carried forward for ten years.

• Unused hiring credits may be carried forward for up to ten years or through December 2023.

• The net interest deduction may be applied to interest received before January 1, 2014. The deduction will expire for taxable years beginning on or after January 1, 2014, and officially withdrawn on December 1, 2014. Read More

Written by Advertorial | Posted in Sales/Use Tax

25 Jul 2013

IRS Issues New Administrative Authority In Connection To Controlled Group Allocations Of The Research And Experimentation Tax Credit

The Internal Revenue Service (hereinafter “the Service”) has issued Notice 2013-20 in connection to the allocation of the Research and Experimentation Tax Credit (hereinafter “RTC”) to members of a controlled group. The guidance was in response to modifications made to I.R.C. § 41 as part of the American Taxpayer Relief Act of 2012 (hereinafter “ATRA”).

It should be duly recalled that the ATRA simplified the methodology for allocating the RTC to members of a controlled group of corporations and businesses under common control. Under the prior statute and corresponding treasury regulations, all companies under common control that were required to calculate the RTC at the group level were then required to allocate the RTC to the members of the group based upon each member’s standalone RTC. This allocation methodology was principally onerous when group members were required to use different methods for computing their standalone RTCs. The new law provides that the group RTC will now be allocated to the group members based on members’ proportionate share of Qualified Research Expenses (hereinafter “QREs”).

It should be duly noted that for tax years beginning after Dec. 31, 2011, Notice 2013-20 indicates that the treasury regulations dealing with the RTC allocations for controlled groups (e.g., Treas. Reg. §1.41-6(c) and related examples) no longer apply. In its place, taxpayers should allocate the RTC based on their proportionate share of QREs as outlined within the ATRA. Finally, the notice also indicates that the Service intends to modify Treas. Reg. § 1.41-6 to conform to the new allocation rules.

Written by Peter J. Scalise | Posted in United States

25 Jul 2013

US Tax Laws Pushing Americans to Expatriate; OVDI “Arbitrary and Capricious” – An Interview With Bill Yates – Former Attorney, Office of Associate Chief Counsel (International), IRS, continued…

Today’s blog post completes the interview with Willard (Bill) Yates, who recently retired from the Office of Associate Chief Counsel (International), Internal Revenue Service after 31 years of service. During his tenure as a Chief Counsel Attorney, Bill was the recipient of 10 awards, including the Albert Gallatin Award, Treasury’s highest career service award. The Gallatin is awarded only to select federal employees who served twenty or more years in the Department and whose record reflects fidelity to duty. Bill received the Gallatin award for his work throughout his IRS career, including his work on implementation of some of the compliance requirements of the Foreign Account Tax Compliance Act (FATCA).

Most of Bill’s career at IRS focused on offshore compliance, including his participation in a massive overhaul of outdated foreign trust reporting requirements Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts and Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner). Bill was the principal drafter of the regulations under section 679, Foreign trusts having one or more United States beneficiaries, Notice 2003-75, RRSP and RRIF Information Reporting and Notice 2009-85, Guidance for Expatriates Under Section 877A.

Our focus for this series will be on Bill’s comments on the American Citizens Abroad working paper titled, RBT, Residence Based Taxation: A Necessary and Urgent Tax Reform (RBT Proposal), which recently was submitted to the International Tax Reform Working Group of the House Ways and Means Committee. Read More

Written by Virginia La Torre Jeker, J.D. | Posted in Expatriate • International • IRS • OVDP

25 Jul 2013

Trader In Securities

If you are an individual who buys and sells securities you may qualify as a “trader in securities,” for tax purposes. This post attempts to explain how traders must report the income and expenses from being in the trading business.

First it is important to understand the meaning of the terms: “security,” “investor,” “dealer,” and “trader,” and the different manner in which income and expenses are reported.

Internal Revenue Code Section 1236 defines “security” basically for all intents and purposes as any share of stock in any corporation, certificate of stock or interest in any corporation, note, bond, debenture, or evidence of indebtedness, or any evidence of an interest in or right to subscribe to or purchase any of the above.

“Investors” typically buy and sell securities and expect income from dividends, interest, or capital appreciation. If you are an investor you tend to buy securities and hold them for personal investment; generally speaking you are not conducting a trade or business. Most investors are individuals. Sales of these securities result in capital gains and losses that must be reported on Form 1040, Schedule D (PDF), Capital Gains and Losses and on Form 8949 (PDF), Sales and Other Dispositions of Capital Assets, as appropriate. Investors are subject to the capital loss limitations described in IRC 1211(b), in addition to the IRC 1091 wash sales rules. Read More

Written by John Dundon | Posted in United States

25 Jul 2013

“E” Is For The Elderly

“E” is for the elderly. Some of my favorite people are elderly, but instead of singing the praises of my grandma, I suppose I will discuss the tax implications of being old. There aren’t really tax credits for being old. There is a slightly increased standard deduction for taxpayers over 65, but that’s not really noteworthy. Being old does have its perks though. For one it means you are retired, and with retirement comes Social Security. Social Security is up to 85% taxable depending on your income level. For some thoughts on when to claim Social Security, check out my posts from June.

The other part of retirement is the ability to withdraw money from IRAs and 401(k)s. Taxpayers older than 59½ can take distributions without penalty from IRAs and 401(k)s. Anyone younger than that is going to have a 10% early distribution penalty on the withdrawal.

Being old can also work against you with those IRA and 401(k) accounts. When you reach 70½ you will be forced to take money out of your traditional IRA and 401(k) plans whether you want to or not. They are called Required Minimum Distributions and it’s based on your age. At 72 it’s about 4% of the balance of your account. By the age of 78 the RMD is roughly 5% of the balance each year. If you make it to 92 you are looking at 10% of the account balance every year. Read More

Written by Advertorial | Posted in United States

24 Jul 2013

US Tax Laws Pushing Americans to Expatriate; OVDI “Arbitrary and Capricious” – An Interview With Bill Yates – Former Attorney, Office of Associate Chief Counsel (International), IRS, continued…

This is a continuation from yesterday’s post of the interview with Bill Yates:

Yates: Everyone in the room who knew me turned and looked at me. I’ve been involved in horses since I was five. Believe me, no one makes $50 million raising bucking horses. That is patently ridiculous. What it shows is that LGT would accept any explanation regarding the source of a prospective client’s funds or assets. Then, the UBS scandal broke. That’s when things really got ridiculous.

La Torre Jeker: How?

Yates: Well, we started seeing how European governments were shocked, I mean shocked, really, to find out that any of their banks could be involved in promoting and facilitating tax evasion. Give me a break. How could you live in the EU and not know about what was going on in Switzerland, Lichtenstein and the Caribbean tax havens, many of which by the way are British protectorates?

La Torre Jeker: So, are you saying that foreign banks had it coming to them? I mean FATCA. Read More

Written by Virginia La Torre Jeker, J.D. | Posted in Expatriate • International • IRS • OVDP

24 Jul 2013

Eleventh Circuit Rules Against Sales And Use Tax On Rail Carriers

In CSX Transportation, Inc. v. Alabama Department of Revenue, the Eleventh Circuit Court of Appeals (“Circuit Court”) held on July 1, 2013 that Alabama’s imposition of sales and use tax on diesel fuel purchased by rail carriers violates the Railroad Revitalization and Regulatory Reform Act of 1976 (“4-R Act”). This is the second time that the case has been before the Circuit Court. An earlier decision of the Circuit Court holding that a rail carrier could not challenge its competitors’ exemptions from sales and use tax under the 4-R Act was reversed by the United States Supreme Court on February 22, 2011.

The 4-R Act prohibits certain discriminatory taxes. Three prohibitions deal with taxes on property, and the fourth prohibits “another tax” that discriminates against rail carriers. Citing the 4-R Act, CSX Transportation, Inc. (“CSX”) challenged Alabama’s imposition of sales and use tax on diesel fuel purchased by rail carriers. CSX said the tax is discriminatory because fuel purchased by interstate motor and water carriers is exempt from the tax. The Circuit Court held that this established a prima facie showing of discrimination under the 4-R Act, shifting the burden to the State to prove a “sufficient justification” for taxing rail carriers differently. Because the State failed to do so, the Circuit Court held that the tax on diesel fuel purchased by rail carriers is discriminatory in violation of the 4-R Act. It remanded the case to the U.S. District Court for the Northern District of Alabama, directing it to enter declaratory and injunctive relief in favor of CSX.

TECHNICAL INFORMATION CONTACT:

Trisha C. Fortune, Principal – Ryan, LLC

Written by Advertorial | Posted in Sales/Use Tax

23 Jul 2013

California’s Computer Software Exemption Remains In Jeopardy

In the aftermath of a 2011 court defeat involving software taxation, California revenue officials appear poised to seek legislative assistance in undoing the court’s ruling and imposing sales and use taxes—retroactively—on a wide variety of computer software programs. California broadly levies taxes on the sale or use of tangible personal property in the state. However, there is a statutory carve out from these taxes for computer software provided to a user under the so-called Technology Transfer Agreements (TTAs). In recognition of the notion that software is intangible property, these taxes apply in the case of a TTA only to the value of any tangible medium, such as a disk or magnetic tape, on which the licensed program may be transferred to the software user.

The State Board of Equalization (BOE), which administers these taxes, had, by rule, limited the favorable treatment for TTAs to transfers of custom software, not pre-written, or “canned” software programs. In Nortel Networks, Inc. v. Board of Equalization, 191 Cal. App. 4th 1259, 119 Cal. Rptr. 3d 905 (2011), the California Court of Appeals invalidated these rules and awarded the telecommunications equipment maker a multimillion dollar refund.

The California Supreme Court declined to review the decision, leaving taxpayers with a clear victory. But, for two years, the BOE has refused to give up the fight. The agency acknowledged that it is holding back millions of dollars of refund claims filed by other taxpayers. All the while, the BOE appears to be searching for ways to eliminate taxpayer rights to recover or to dramatically reduce the amounts they are entitled to receive:

• It has mounted a collateral challenge—this time against Lucent Technologies, Inc. — in a Los Angeles courtroom in an attempt to re-litigate the Nortel issues. Read More

Written by Advertorial | Posted in Specialty Tax Incentives • State And Local Tax (SALT)