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Tag Archive for Internal Revenue Service

IRS Grants Relief For U.S. Persons Who Own Stock In Certain Foreign Corporations

IRS Grants Relief

The Department of the Treasury and the Internal Revenue Service  issued Revenue Procedure 2019-40 and proposed regulations that provides relief to certain U.S. persons that own stock in certain foreign corporations.

The Revenue Procedure limits the inquiries required by U.S. persons to determine whether certain foreign corporations are controlled foreign corporations (“CFCs”). The Revenue Procedure also allows certain unrelated minority U.S. shareholders to rely on specified financial statement information to calculate their subpart F and GILTI inclusions and satisfy reporting requirements with respect to certain CFCs if more detailed tax information is not available. It also provides penalty relief to taxpayers in the specified circumstances.

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Does Your Home Sale Qualify For The Exclusion of Gain?

Sale of Home IRS Rules

The tax code recognizes the importance of home ownership by allowing you to exclude gain when you sell your main home. To qualify for the maximum exclusion of gain ($250,000 or $500,000 if married filing jointly) you must meet the Eligibility Test , explained later. To qualify for a partial exclusion of gain, meaning an exclusion of gain less than the full amount, you must meet one of the situations listed in Does Your Home Qualify for a Partial Exclusion of Gain? , later.

Before considering the Eligibility Test or whether your home qualifies for a partial exclusion, you should consider some preliminary items.

Transfer of your home to a spouse or an ex-spouse.

Generally, if you transferred your home (or share of a jointly owned home) to a spouse or ex-spouse as part of a divorce settlement, you are considered to have no gain or loss. You have nothing to report from the transfer and this entire publication doesn’t apply to you. However, there is one exception to this rule. If your spouse or ex-spouse is a nonresident alien, then you likely will have a gain or loss from the transfer and the tests in this publication apply.

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Learn Workers Classification Rules For Federal Tax Purposes

Workers Classification Rules

Significant tax consequences result from the classification of a worker as an employee or independent contractor. These consequences relate to withholding and employment tax
requirements, as well as the ability to exclude certain types of compensation from income or take tax deductions for certain expenses. Some consequences favor employee status, while others
favor independent contractor status. For example, an employee may exclude from gross income employer-provided benefits such as pension, health, and group-term life insurance benefits. On
the other hand, an independent contractor can establish his or her own pension plan and deduct contributions to the plan. An independent contractor also has greater ability to deduct work related expenses.

Under present law, the determination of whether a worker is an employee or an independent contractor is generally made under a facts and circumstances test that seeks to determine whether the worker is subject to the control of the service recipient, not only as to the nature of the work performed, but the circumstances under which it is performed. Under a special safe harbor rule (sec. 530 of the Revenue Act of 1978), a service recipient may treat a worker as an independent contractor for employment tax purposes even though the worker is in fact an employee if the service recipient has a reasonable basis for treating the worker as an independent contractor and certain other requirements are met. In some cases, the treatment of a worker as an employee or independent contractor is specified by statute.

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U.S. Citizenship And Immigration Services To Close All But Seven Of Its Overseas Offices

Helen Burggraf

The U.S. Citizenship and Immigration Services has announced that it plans to close all but seven of its 23 overseas offices, including those in London, Frankfurt, Rome and Bangkok.

This represents a change from its earlier plan, announced in March, that it would close all 23 of the outposts.

In a statement, the USCIS said the “organizational changes” would “allow more effective allocation of USCIS resources to support, in part, backlog reduction efforts.”

It said the offices it plans to keep open would be those in Beijing and Guangzhou, China; Nairobi, Kenya; New Delhi, India; Guatemala City, Guatamala; Mexico City, Mexico; and San Salvador, El Salvador.

“The first planned closures are the field offices in Monterrey, Mexico, and Seoul, South Korea, at the end of September,” the USCIS statement said.

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A Reprieve From Revocation Of Passport When You Owe Taxes!

Manasa Nadig

I have been fortunate the past couple of years to have been able to travel. I find that as I check off places on my bucket list, I keep adding on to it! I have been bitten by the travel bug! We recently went to Munich, Germany and climbed 14 stories to the top of The Kirche of St. Peter. The climb through the narrow stairway was somewhat crowded and tight at times but it was absolutely worth it! The views at the top were breath-taking.

Of course when you travel, you need your passport. What happens when you owe taxes to the Government, can they revoke your passport? If you remember, back in 2015, there was a Law passed called the FAST Act. The Act was mostly about transportation but they got in a clause that if you owed more than $50,000 in taxes, the Government could revoke your existing passport or deny you a new passport.

Under Section 32101 of the FAST Act, if the IRS certifies a taxpayer as having a ‘seriously delinquent tax debt”, which is: (1) Owing $52,000 or more in taxes and (2) Meeting certain other requirements under IRC §7345(b), the State Department must deny the taxpayer’s original or renewal passport application and may revoke or limit an existing passport.

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Foreign Trusts: IRS Continues To Issue Bogus Form 3520-A Penalty Notices – My Letter To The IRS

Gary Carter

When I was a kid we lived across the street from the Wolfermans. The Wolfermans got a dog. One day I was in my yard, and their dog was barking. Mr. Wolferman came out, clapped his hands and called the dog. The dog joyfully bounded to Mr. Wolferman. Mr. Wolferman then proceeded to spank the dog, apparently for barking. I remember thinking what a fool Mr. Wolferman was for doing that – the dog would never come to him again when called.

A couple of weeks ago I described the traumatic experience of a client who had received a $10,000 penalty notice from the IRS for a completely invalid purpose. As the owner of a foreign trust, my client had done all she could have done to comply with the filing requirements of a foreign trust owner. She was compliant, yet was slapped with a $10,000 penalty. See Foreign Trusts: IRS Penalty Notices For Late Forms 3520-A Traumatize Many Innocent Taxpayers!

Since then, I have learned firsthand of dozens of similar notices, and I suspect there have been thousands issued for the same invalid purpose. Then, this week, another client contacted me about receiving the exact notice under the exact circumstances.

Below is the letter I wrote to the IRS on behalf of the client who received the latest notice. The recipients of these notices represent  foreign trust owners who are doing their best to obey the law (the Wolfermans’ dog) only to be punished by a formidable but misguided tax collection agency (Mr. Wolferman). Would one blame the dog for wandering off to find someone kinder and wiser to pledge allegiance to (as in expatriation)?

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IRS Formally Announces It Will No Longer Challenge Foreign Tax Credits On Two French Social Services Contributions

French Flag 2

The U.S. Internal Revenue Service said on Wednesday that it “will not challenge” the claiming of foreign tax credits against certain controversial payments that potentially thousands of American expatriates resident in France have been paying for years, and noted that taxpayers who wish to file a claim for refund of U.S. tax with respect to a foreign tax credit have 10 years after the “due date for filing the return” in question in which to do so.

The IRS statment, which was only two paragraphs long, came less than two weeks after the tax authority admitted in a U.S. Tax Court that it had wrongly collected millions of dollars of tax from France-resident American citizens in connection with their payment of the French “Contribution Sociale Generalisee” (CSG) and “Contribution au Remboursement de la Dette Sociate” (CRDS) taxes.

As reported, that statement was seen as capping a years-long legal saga, and was expected to potentially launch millions of dollars worth of tax refund claims by U.S. expats who have lived in, and been filing tax returns from, France.

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List Of Designated Qualified Opportunity Zones Under Internal Revenue Code § 1400Z-2

IRS Opportunity Zones

This IRS notice lists the population census tracts the Secretary of the Treasury (Secretary) designates as qualified opportunity zones (Zones).

BACKGROUND

Section 13823 of “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for the fiscal year 2018,” P.L. 115-97, which was enacted December 22, 2017, amended the Internal Revenue Code (Code) by adding §§ 1400Z-1 and 1400Z-2.

Section 1400Z–1(b)(1)(A) of the Code allows the Chief Executive Officer (CEO) of each State to nominate a limited number of population census tracts to be designated as Zones for purposes of §§ 1400Z-1 and 1400Z-2. Revenue Procedure 2018-16, 2018-9 I.R.B. 383, provided guidance to State CEOs on the procedure for making these nominations. Section 1400Z-1(b)(1)(B) of the Code provides that after the Secretary receives notice of the nominations, the Secretary may certify the nominations and designate the nominated tracts as Zones.

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IRS States Income From Abroad Is Taxable

IRS On Income Abroad

Many United States (U.S.) citizens and resident aliens receive income from foreign sources. There have been recent reports about the interest of the Internal Revenue Service (IRS) in taxpayers with accounts in Liechtenstein. The interest of the IRS, however, extends beyond accounts in Liechtenstein to accounts anywhere in the world. Consequently, the IRS reminds you to report your worldwide income on your U.S. tax return.

If you are a U.S. citizen or resident alien, you must report income from all sources within and outside of the U.S. This is true whether or not you receive a Form W-2 Wage and Tax Statement,  a Form 1099 (Information Return) or the foreign equivalents.  See Publication 525, Taxable and Nontaxable Income, for more information.

Additionally, if you are a U.S. citizen or resident alien, the rules for filing income, estate and gift tax returns and for paying estimated tax are generally the same whether you are living in the U.S. or abroad.

Hiding Income Offshore

Not reporting income from foreign sources may be a crime.  The IRS and its international partners are pursuing those who hide income or assets offshore to evade taxes. Specially trained IRS examiners focus on aggressive international tax planning, including the abusive use of entities and structures established in foreign jurisdictions.  The goal is to ensure U.S. citizens and residents are accurately reporting their income and paying the correct tax.

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IRS Trends And Challenges

IRS LOGO May

According to the IRS Strategic Plan FY 2018 to 2020, these are the major Trends and Challenges going forward:

SERVING AN INCREASINGLY COMPLEX TAX BASE

The U.S. tax base is becoming more complex. Economic and demographic changes in our society have fundamentally changed the way citizens earn money and the way we live. U.S. workers earning income through contracting or freelancing is projected to increase as more workers pursue flexible arrangements or earn income through digital platforms and app-based businesses (the “gig economy”).

This shift in income sources requires the IRS to adapt its outreach and enforcement efforts. According to one assessment, in the gig economy, nearly one-third of those earning money through app-based platforms were unaware of their tax status as small business owners. This likely affects the rate of voluntary tax compliance. In addition to changes in employment trends, family structures and living habits are shifting. A record number of Americans live in multigenerational households, a dynamic that could affect a taxpayer’s ability to claim deductions and credits accurately. This highlights the growing need for IRS to communicate eligibility requirements and verify compliance.

MANAGING GLOBAL TAX COOPERATION

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Earned Income Tax Credit And Child Tax Credit – What Changed

IRS On Child Tax Credits And Earned Income Tax Credits

Are you planning on claiming the Earned Income Tax Credit (EITC) or the Child Tax Credit (CTC) on your federal tax return this year? If yes, then you should know some things have changed since last year.

Child Tax Credit

The first thing you need to be aware of is that the Tax Cuts and Jobs Act changed the requirement for claiming the CTC. Eligible children must have a Social Security Number (SSN) that is valid for employment. If you have a newborn or other child for whom you do not have a SSN yet, you may want to visit your local Social Security office or apply online soon and get one before you have to file.

Earned Income Tax Credit

Under the EITC, eligible families with three or more qualifying children could get a maximum credit of up to $6,431. EITC for people without children could mean up to $519 added to their tax refund.

All workers who earned around $54,000 or less should learn about EITC eligibility and use the EITC Assistant to find out if they qualify before filing. The Assistant will help determine your filing status, if you have a qualifying child or children, if you qualify to receive the EITC, and estimate the amount of the credit you could get. If you don’t qualify, the Assistant explains why.

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The IRS Office Of Chief Counsel Is Using Email To Avoid Disclosure Of Program Manager Technical Advice

Nina Olson On The Office Of Chief Counsel

This blog highlights problems with the transparency of the IRS Office of Chief Counsel (OCC), which I discussed in the 2018 Annual Report to Congress (ARC).  I also discussed transparency in the 2006 (p.10), 2007 (p.124), 2010, and 2011 (p. 380) Annual Reports, and in the Fiscal Year Objectives Reports in 2008 (p. xxi) and 2018.

A big part of the OCC’s most recent transparency problem is that it allows its attorneys to avoid disclosure of advice to IRS program managers (called Program Manager Technical Advice or PMTA), by issuing the advice as an email, rather than a memo.  Although I do not know when the OCC created this loophole, the number of PMTA disclosures has been falling in recent years (as shown below).  Compounding the problem is that the OCC has not issued any written guidance describing what must be disclosed as PMTA and most of OCC’s attorneys have not received training on that topic in the last few years.  In addition, the OCC has no systems to monitor whether all PMTAs are timely identified, processed as PMTAs, and disclosed.

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