Archive for February 24, 2014

PFICs – A Fairytale Definition; Lives Happily Ever After

What is a PFIC?

A PFIC is a so-called “Passive Foreign Investment Company” which is defined to include any foreign (non-US) corporation if 75% or more of its gross income for the year consists of “passive income” (“income test”), or (2) at least 50% of the average fair market value of its assets during the year are assets that produce or are held for the production of passive income (“asset test”). Passive income generally includes dividends, interest, rents, royalties, most foreign currency and commodity gains, and capital gains from assets that produce such income. As pointed out in my earlier tax blog post just about all of the income of a foreign fund will usually qualify as passive and so, nearly all foreign funds will qualify as PFICs. Read More

Written by | Posted in Corporate • Income Tax • Tax Provision/Tax Reporting

7 Habitual Mistakes Companies Make – Chapter 6 (1)

TaxConnections Blog Post
Internal Audits Fix Financial Accounting Problems –
Executive Summary –

MANY BUSINESSES PUT their blind faith in reactive reporting by their auditors or accountants and expect that their tax manager through the route of normal tax compliance will resolve all tax risks. In the difficult regulatory environment that taxpayers operate in, this is not a prudent tax risk management strategy. Businesses need to have their own internal control and check mechanisms. The tax team that has been formed will also assist in performing internal audits associated with tax risk management. They must be privy to all information, subject to legal privilege, in order to identify, analyze, and solve tax risks effectively, such as accounting provisions, for instance. The tax team, with internal Read More

Written by | Posted in Tax Risk Management

Additional FATCA Guidance Submitted For Publication

Regulations revising and further clarifying the final FATCA (Foreign Account Tax Compliance Act) regulations under Chapter 4 have been submitted to the Office of the Federal Register for publication.

Regulations to coordinate the FATCA regulations under Chapter 4 with the withholding and information reporting rules under Chapters 3 and 61, and Section 3406 have also been submitted to the Office of the Federal Register for publication.

DISCLAIMER: This guidance has been submitted to the Office of the Federal Register (OFR) for publication and is currently pending placement on public display at the OFR and publication in the Federal Register. The version of the regulations released today Read More

Written by | Posted in FATCA

IRS Releases Transfer Pricing Audit Roadmap

Transfer pricing audit is getting a momentum and is being perceived as a big weapon in the hands of the Internal Revenue Service for the adjustments. IRC 482 gives immense powers to the IRS for adjusting income, credits and deductions of a taxpayer where it finds that a revenue is lost due to the related party transactions that were not conducted on arm’s length standard.

The IRS’s Large Business and International division has released a roadmap providing detailed guidance on transfer audits, including audit techniques and tools to assist with transfer pricing exams, as well as an estimated timeline for the exam, insights as to how the exams will be conducted, and tips for upfront planning. Read More

Written by | Posted in Audit • IRS • Transfer Pricing

The United States Knows Where Offshore Tax Evaders Live And Bank!

The United States is tracking down hidden offshore accounts, and the latest news is a report that shows which states have the most taxpayers disclosing such accounts (California is No. 1), and where they are located (Switzerland is tops).

Taxpayers in at least 45 states and the District of Columbia reported accounts in 68 countries and territories.

The new U.S. Government Accountability Office report: “IRS’s Offshore Voluntary Disclosure Program (OVDP): 2009 Participation by State and Location of Foreign Bank Accounts,” is a supplement to its March 2013 report, “Offshore Tax Evasion: IRS Has Collected Billions of Dollars, but May be Missing Continued Evasion.” Read More

Written by | Posted in International • IRS • OVDP • Tax Fraud/Evasion/Crimes

7 Habitual Mistakes Companies Make – Chapter 5 (23)

TaxConnections Blog Post
More Facts Resolve Tax Risks –
Report to the Audit Committee and a Provision Recommendation –

A TAX EXPOSURE is typically a combination of capital, penalties, and interest. A determination must be made, based on the information available, as to whether there is a tax exposure or whether circumstances exist to mitigate or eliminate the exposure. Based on this determination the amount is either provided for, raised as a contingent liability, or excluded as an exposure.

In reporting to the audit committee , the tax exposure is dependent on the facts of the matter which in turn will dictate the risk. The risk could be classified into three categories, Read More

Written by | Posted in Tax Provision/Tax Reporting • Tax Risk Management

“Dirty Dozen” Tax Scams 2014 – List Released By IRS

The IRS issued its annual “DirtyDozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

The Dirty Dozen listing, compiled by the Internal Revenue Service each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

“Taxpayers should be on the lookout for tax scams using the IRS name,” said IRS Commissioner John Koskinen. “These schemes jump every year at tax time. Scams can be sophisticated and take many different forms. We urge people to protect themselves Read More

Written by | Posted in IRS • North America • Tax Fraud/Evasion/Crimes • Tax Tips

North Carolina Department of Revenue Launches Trust Tax Recovery Program

On February 5, 2014, the North Carolina Department of Revenue (the “Department”) began its Trust Tax Recovery Program, which offers amnesty to qualifying companies owing collected but unpaid trust taxes. The Department describes trust taxes as those taxes paid by a customer to a seller or withheld from an employee, and held in trust by the business until filed and paid to the Department. This broad definition encompasses taxes owed on motor vehicle leases and rentals, sales and use taxes, scrap tire and white goods disposal taxes, and certain other withholdings. Also included are use taxes collected on a remote sale to an individual in North Carolina. Use tax liability for certain transactions where tax was not paid to a seller at the time of purchase is not within the definition of trust taxes, as the tax is not the possession of the seller. Read More

Written by | Posted in North America • Sales/Use Tax • Specialty Tax Incentives

Beneficial Ownership Registry for the Cayman Islands is Imminent!

On November 4, 2013, Wayne Panton, the Minister for Financial Services, Commented on the Commencement of Cayman’s Consultation on its G8 Action Plan.

On 31 October, the United Kingdom announced a proposal for a public register of beneficial ownership information, following the results of its public consultation. If implemented, the register conceivably would allow a citizen of any country to access information on the beneficial owners of UK-registered entities.

In the Cayman Islands, we also are assessing our regime on beneficial ownership. In our action plan on the misuse of companies and other legal structures, published immediately following the June G8 Summit, we committed to assess whether a central Read More

Written by | Posted in Caribbean • Europe, Middle East • OECD

Israeli Bank Client Pleads Guilty to Filing False Tax Return

The Latest in a Series of Defendants to be charged on Monday, January 14, 2013 with Concealing Accounts at Israeli Banks was a Beverly Hills resident. We originally posted The Long Arm of the IRS Reaches Israeli Shores – Oy Vey! which discussed that recent Articles about the IRS, FATCA and Israel, are proof that the IRS’ Probe into Secret Offshore Bank Accounts is not just limited to Switzerland.

Now Monajem Hakimijoo, also known as Manny Hakimi, of Beverly Hills, Calif., pleaded guilty on Feb. 13, 2014, in the U.S. District Court for the Central District of California to filing a false federal income tax return for tax year 2007, the Justice Department and Internal Revenue Service (IRS) announced Monday, February 17, 2014. Read More

Written by | Posted in Europe, Middle East • FATCA • FBAR • North America • Tax Fraud/Evasion/Crimes

Who Should Form A Captive Insurance Company?

I’m pleased to announce that, in conjunction with the great people at the TaxConnections website, we’ve published a new book on captive insurance titled “Who Should Form a Captive Insurance Company?”.  You can buy a copy HERE.  Cost: $4.98.

To help potential captive owners and professionals determine if forming a captive is the right decision for them, I’ve written the “10 questions” one of which is, “Have I started an asset protection plan?”

The phrase “asset protection” is bandied about a great deal. There are websites that claim to provide “asset protection” advice and services, various companies who continually tell us about the importance of asset protection and numerous books that help Read More

Written by | Posted in Tax Risk Management

To Roth Or Not To Roth… That Is The Question

Are you wondering what Hamlet has to do with Individual Retirement Accounts (IRA)? I have an answer for that!! Recently revisiting the Shakespeare play ‘Hamlet’ and listening to the opening of the soliloquy in the “Nunnery Scene”, “To be, or not to be, that is the question–” etc., I wondered how many times we face the same questions albeit in not such dire straits as Hamlet!

The question I get asked most of the time in my practice, is whether to pick a Traditional IRA or a Roth IRA! Let’s quickly touch upon the basics:

Who Can Open A Traditional IRA: According to the IRS’ Pub 590, “You can open and make contributions to a traditional IRA if: Read More

Written by | Posted in Individual • Tax Policy
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