Alicea Castellanos | TaxConnections

11 Jan 2023

Trust And Estate Tax Court Case: Taxpayer Fails To File FBARs, Underreports Income And Is Now Deceased. IRS Rules!

IRS Ruled Just in Pursuing Years of Underpayment and Fraud

Long-term inadequate filing of FBARs just lets the IRS loose to pursue fraud – international lack of cooperation and even death notwithstanding, as a recent case shows.

In Estate of Clemons v. Comm’r of Internal Revenue, the U.S. Tax Court has ruled that software entrepreneur Brett Clemons Sr., a holder of overseas accounts, underpaid his tax for several years and that his underpayments were due to fraud.

An American born in Florida, Clemons built a successful programming career and, in the mid-1980s, had started his own company and was soon working as an independent contractor for Hewlett-Packard U.S. By 2001 he was married with two children and opened an account with Union Bank of Switzerland (UBS).

He hid the account from his wife because he intended to get a divorce. The account had several features that helped Clemons (the account’s sole owner and signatory) hide it, and he paid UBS to hold his correspondence and to destroy any unclaimed mail after three years.

Written by Alicea Castellanos | Posted in FBAR Filing • Trust And Estate Tax Court Case • Underreporting Income

10 Dec 2022

Many Tax Law Changes Will Have Ripple Effects Far Into 2023: International Taxpayers And Investors Need To Be On Alert

This year has brought a slew of tax changes for international investors. Many of these changes will have ripple effects far into 2023.

Beneficial ownership transparency. The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a final rule establishing a beneficial ownership information reporting requirement pursuant to the bipartisan Corporate Transparency Act. The rule, Jan. 1, 2024, requires most corporations, limited liability companies, and other entities created in or registered to do business in the U.S. to report information about their beneficial owners – the individuals who ultimately own or control the company – to FinCEN. Reporting companies created or registered before Jan. 1, 2024, will have until Jan. 1, 2025, to file their initial reports. Reporting companies created or registered after Jan. 1, 2024, will have 30 days to file initial reports.

FTC regs. New final foreign tax credit (FTC) regulations were set at the end of 2021 and published early this year in the Federal Register. Effective beginning with the 2022 tax year, these regs can potentially make foreign income taxes that were creditable become non-creditable for U.S. purposes.

Written by Alicea Castellanos | Posted in Expatriate Taxpayers • TaxConnections • Taxpayers And Tax Law Changes

06 Dec 2022

A Slew Of Tax Changes For International Investors

This year has brought a slew of tax changes for international investors. Many of these changes will have ripple effects far into 2023.

Beneficial ownership transparency. The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a final rule establishing a beneficial ownership information reporting requirement pursuant to the bipartisan Corporate Transparency Act. The rule, Jan. 1, 2024, requires most corporations, limited liability companies, and other entities created in or registered to do business in the U.S. to report information about their beneficial owners – the individuals who ultimately own or control the company – to FinCEN. Reporting companies created or registered before Jan. 1, 2024, will have until Jan. 1, 2025, to file their initial reports. Reporting companies created or registered after Jan. 1, 2024, will have 30 days to file initial reports.

FTC regs. New final foreign tax credit (FTC) regulations were set at the end of 2021 and published early this year in the Federal Register. Effective beginning with the 2022 tax year, these regs can potentially make foreign income taxes that were creditable become non-creditable for U.S. purposes.

Written by Alicea Castellanos | Posted in Tax Changes For International Investors

29 Nov 2022

IRS Promises More Enforcement Of Foreign Nationals In U.S.

A newly re-funded IRS is promising more scrutiny on non-U.S. citizens over taxes. Protecting yourself in this new environment means knowing American tax rules and proactively getting the right help.

Foreign nationals living and working in the U.S. may soon be in the crosshairs of a re-energized Internal Revenue Service.

A representative of the IRS Office of Chief Counsel reportedly told an audience at a recent American Bar Association Tax Section conference that compliance among foreign nationals in the U.S. will be a priority and focus of the IRS.

This comes on the heels of the tax agency getting some $80 billion from the landmark U.S. Inflation Reduction Act signed into law last August. The IRS will receive the money over a decade, with a major portion of the funds earmarked for enforcement (and hiring as many as 87,000 new agents).

Written by Alicea Castellanos | Posted in TaxConnections

22 Nov 2022

IRS Promises More Enforcement Of Foreign Nationals In The United States

A newly re-funded IRS is promising more scrutiny on non-U.S. citizens over taxes. Protecting yourself in this new environment means knowing American tax rules and proactively getting the right help.

Foreign nationals living and working in the U.S. may soon be in the crosshairs of a re-energized Internal Revenue Service.

A representative of the IRS Office of Chief Counsel reportedly told an audience at a recent American Bar Association Tax Section conference that compliance among foreign nationals in the U.S. will be a priority and focus of the IRS.

This comes on the heels of the tax agency getting some $80 billion from the landmark U.S. Inflation Reduction Act signed into law last August. The IRS will receive the money over a decade, with a major portion of the funds earmarked for enforcement (and hiring as many as 87,000 new agents).

That number may be deceptive – heavy attrition in personnel and many past years of underfunding may mean the agency mostly replaces what it’s lost – but the IRS has still pledged sharper scrutiny on rich tax cheats, crypto investors and others to close America’s huge gap in tax collection.

Written by Alicea Castellanos | Posted in IRS And Foreign Nationals

10 Nov 2022

U.S. Court Deems A Foundation A Foreign Trust – Greenlighting Penalties

Foreign assets are always tricky for U.S. tax reporting. A recent court decision also shows that differentiating a foundation from a trust is pivotal.

The levying of tax penalties stood in a recent federal appeals court decision on whether a private foundation was a foreign trust subject to such penalties.

In the Rost v. U.S., the U.S. Court of Appeals for the Fifth Circuit upheld tax penalties against U.S. citizen John Rebold, who failed to report his personal-use Liechtenstein “Stiftung” (a non-charitable private foundation) as a foreign trust.

The decedent Rebold formed the Enelre Foundation in 2005 for the general support and education of him and his children. He transferred $2 million to the foundation in 2005 and $1 million in 2007 and did not disclose the transactions to the IRS.

Rebold later learned that the IRS would consider his foundation a foreign trust with the associated reporting requirements. He filed the reports belatedly, in 2013, and the IRS assessed penalties.

Written by Alicea Castellanos | Posted in Estate Planning • Foreign Assets • IRC Sec. 6048

25 Oct 2022

IRS Gets Another “John Doe” Summons In Hunt For Tax Cheats

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A federal district court has greenlighted a John Doe summons to help the IRS fight crypto-related tax fraud. The authorization could help the U.S. government find thousands of tax cheats.

The Internal Revenue Service has received another thumbs-up from a federal court in the agency’s new passion to root out cryptocurrency tax fraud.

The U.S. District Court in the Central District of California authorized the IRS to serve a John Doe summons on Los Angeles-based OX Labs Inc., d/b/a SFOX and its subsidiaries. SFOX is a cryptocurrency prime dealer for professional traders and institutional investors and has more than 175,000 registered users.

The IRS wants information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in crypto between 2016 and 2021 with or through SFOX.

Written by Alicea Castellanos | Posted in Cryptocurrency And Taxes • IRS John Doe Summons

12 Oct 2022

IRS-CI Mexico City Initiative Locates 79 Criminal Fugitives In 1st Year

WASHINGTON – IRS Criminal Investigation (IRS-CI) Mexico City located 79 criminal fugitives in Mexico, Belize, El Salvador, Guatemala, and Honduras as part of a new initiative.

“We are going after anyone who thinks they can cheat the government and simply flee to the south,” said IRS-CI Mexico City Attaché Jaushua Brewer. “Now with so much help from our host country partners, it is even harder for criminals to escape justice.”

In June 2021, IRS-CI Mexico City launched the program to analyze fugitive files, collaborate with U.S. agencies and foreign partners to locate criminals who absconded abroad, and conduct trainings on the extradition process. Through the initiative, in fiscal year 2022, IRS-CI Mexico City located 79 individuals for possible extradition. Eight fugitives have been apprehended to face criminal proceedings or sentences, and include:

Written by Alicea Castellanos | Posted in IRS Criminal Investigations

22 Sep 2022

Second Citizenships And Golden Passports: Do You Have A Backup Plan?

An increasing number of wealthy Americans are seeking second citizenships for themselves and their families. They’re motivated by a mix of rational risk management, shadowy survivalism and a desire to escape what they fear will be confiscatory taxes on the wealthy. Whether they call it an “exit plan” or “backup plan,” wealthy Americans are dropping impressive amounts of money to secure a guaranteed path out of the U.S. for themselves and their families should the need arise.

The global COVID-19 pandemic catalyzed a surge of interest in second citizenships. Americans who thought they could flee from the virus by traveling to their refuge properties in, say, New Zealand, got a rude wake-up call when the pandemic hit. New Zealand, like many other countries, promptly closed their borders to nonresidents.

Hence the increasing interest in the benefits of a “golden passport,” a non-U.S. passport acquired either through a citizenship by descent or citizenship by investment (CBI) program. When the time comes, a golden passport ensures passport holders can enter freely and without visas into the country issuing the passport.

Citizenship By Descent

Written by Alicea Castellanos | Posted in Golden Passports • Second Citizenships

14 Sep 2022

Foreign Accounts Penalty Case Heads To Supreme Court

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Tax filing – and penalties – for foreign accounts may soon be the subject of a major legal decision.

The U.S. Supreme Court plans this fall to hear Bittner v. U.S. This case presents a conflict over statutes under the Bank Secrecy Act (BSA). The question is whether a “violation” under the BSA is the failure to file an annual FBAR no matter the number of foreign accounts or whether there is a separate violation for each account that isn’t properly reported.

The 1970 BSA initially charged the U.S. Treasury Department with collecting information from U.S. persons who have financial interests in or signature authority over financial accounts maintained with financial institutions outside the U.S. In 2003, the Treasury delegated enforcement to the Internal Revenue Service. Although only willful violations were initially subject to penalty, Congress amended the act in 2004 to include penalties for non-willful violations.

Regulations require filing a single annual FBAR for anyone with an aggregate balance over $10,000 in foreign accounts. The penalty for non-willful violation is up to $10,000.

Written by Alicea Castellanos | Posted in Supreme Court

09 Sep 2022

Key Tax Provisions Of The Inflation Reduction Act Of 2022

The Inflation Reduction Act (IRA), signed into law on August 16, 2022, includes tax provisions affecting businesses, individuals, the clean-energy industry, healthcare, and more. Let’s take a look:

Businesses

Sec. 461(l) Business Loss Limitation. The pass-through tax deduction for small business owners (sole proprietorships, some limited liability companies, partnerships, and S-corporations) was enacted under tax reform (TCJA of 2017). The tax break limited individuals from taking more than $250,000 ($500,000 for married taxpayers filing jointly) of business losses to offset nonbusiness income. In effect for tax years 2021 through 2026, it has been extended through 2028.

Research Credit Against Payroll Taxes. For tax years beginning after December 31, 2022, the limitation amount increases by $250,000 to $500,000 for the Sec. 41(h) research credit against payroll tax for small businesses . The first $250,000 of the credit limitation will be applied against the FICA payroll tax liability. The second $250,000 of the limitation will be applied against the employer portion of Medicare payroll tax liability.

Written by Alicea Castellanos | Posted in Inflation Reduction Act

07 Sep 2022

How You Can Lose A Passport Due To Tax Debt

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If you owe enough in delinquent American federal taxes, the U.S. government can take your passport.

The Internal Revenue Service certifies “seriously delinquent” tax debt to the U.S. State Department. This is an individual’s unpaid, legally enforceable federal tax debt, including interest and penalties, that totals more than $55,000 (that amount is adjusted yearly for inflation).

The State Department generally will not issue a passport to you after receiving certification from the IRS, denying your passport application or revoking your current passport. If you’re overseas, the State Department may issue you a limited validity passport good only for direct return to the United States.

How you’re informed

The IRS will send you Notice CP508C when it certifies you to the State Department. (The IRS will send the notice by regular mail to your last known address. Your power of attorney will not receive a copy of the notice.)

Written by Alicea Castellanos | Posted in Passport And Tax Debt