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Tag Archive for Internal Revenue Service

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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Expatriates Are Very Upset With The United States IRS: 120+ Comments Educate You Why

John Richardson On Expatriate Taxes

We continue to receive commentary on the article written by TaxConnections Member John Richardson of Citizenship Solutions. His blog post on USA Of The 21st Century Is Like Britain In The 19th Century has hit a nerve with many expatriates around the world. The blog post and the 120+ comments that follow explain what is happening to those who happened to be born here but do not live in the United States. There is more to learn that will leave you at the edge of your seats so stay tuned to this post.

Read this post that has 120+ comments and growing by the day and please forward to expatriates you know to add commentary.

https://www.taxconnections.com/taxblog/the-usa-of-the-21st-century-is-like-britain-in-the-19th-century/#.XH3XiKJKiJB

Please add your commentary below to continue to educate others on the consequences of United States FATCA tax laws on your life.

Written By TaxConnections CEO, Kat Jennings

 

IRS Rules Regarding Retirement Plans And Loans

IRS - IRS Rules Regarding Retirement Plans And Loans

Can A Loan Be Taken From An IRA?

Loans are not permitted from IRAs or from IRA-based plans such as SEPs, SARSEPs and SIMPLE IRA plans. Loans are only possible from qualified plans that satisfy the requirements of 401(a), from annuity plans that satisfy the requirements of 403(a) or 403(b), and from governmental plans. (IRC Section 72(p)(4); Reg. Section 1.72(p)-1, Q&A-2)

What Happens If A Loan Is Taken From An IRA?

If the owner of an IRA borrows from the IRA, the IRA is no longer an IRA, and the value of the entire IRA is included in the owner’s income. (IRC Sections 408(e)(2) and (3))

If the owner of an IRA pledges part of the IRA as collateral, the part of the IRA that is pledged is treated as distributed. (IRC Section 408(e)(4))

Under What Circumstances Can A Loan Be Taken From A Qualified Plan?

A qualified plan may, but is not required to provide for loans. If a plan provides for loans, the plan may limit the amount that can be taken as a loan. The maximum amount that the plan can permit as a loan is (1) the greater of $10,000 or 50% of your vested account balance, or (2) $50,000, whichever is less.

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Tax Professionals Now Able To Obtain Wage And Income Transcripts Needed For Tax Preparation

IRS - Request Wage Statements From IRS

The Internal Revenue Service, in partnership with the tax preparation community, has devised a new process that will allow tax practitioners to access employer information needed for return preparation and electronic filing while also protecting taxpayer data.

The new process is part of a series of steps planned by the IRS to enhance safeguards around the tax transcript format and distribution to better protect taxpayers from identity theft. A transcript is a summary of tax return entries on the Form 1040 series.

In September 2018, the IRS began partially masking the personally identifiable information for all individuals and entities listed on an individual tax return. The redesigned transcript will fully display all financial entries. See New Tax Transcript and Customer File Number for details.

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Guidance Related To The Foreign Tax Credit, Including Guidance Implementing Changes Made By The Tax Cuts And Jobs Act

IRS - Foreign Tax Credit Guidance

Background

The Act made several significant changes to the Internal Revenue Code with respect to the foreign tax credit rules and related rules for allocating and apportioning expenses for purposes of determining the foreign tax credit limitation. In particular, the Act repealed the fair market value method of asset valuation for purposes of allocating and apportioning interest expense under section 864(e)(2), added section 904(b)(4), added two foreign tax credit limitation categories in section 904(d), amended section 960(a) through (c), added section 960(d) through (f), and repealed section 902 along with making other conforming changes. The Act also added section 951A, which requires a United States shareholder of a controlled foreign corporation (“CFC”) to include certain amounts in income (a “global intangible low-taxed income inclusion” or “GILTI inclusion”).

This document contains proposed regulations (the “proposed regulations”) addressing (1) the allocation and apportionment of deductions under sections 861 through 865 and adjustments to the foreign tax credit limitation under section 904(b)(4); (2) transition rules for overall foreign loss, separate limitation loss, and overall domestic loss accounts under section 904(f) and (g), and for the carryover and carryback of unused foreign taxes under section 904(c); (3) the addition of separate categories under section 904(d) and other necessary updates to the regulations under section 904 including revisions to the look-through rules and other updates to reflect pre-Act statutory amendments; (4) the calculation of the exception from subpart F income for high-taxed income under section 954(b)(4); (5) the determination of deemed paid credits under section 960 and the gross up under section 78; and (6) the application of the election under section 965(n).

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Virtual Currency And The IRS

Venar Ayar- Virtual Currency

Virtual currency refers to any digital currency which is only available in an electronic form and not as a physical form of money. Virtual currencies, like Bitcoin, are created by a process known as “mining,” where an individual, using powerful computers, authenticates transactions in what is known as a “blockchain,” or a ledger of digital transactions.

Virtual currencies may be traded on digital trading platforms, such as the third-party Coinbase, and can be used as a form of online payment, held as an investment, or used in loans to other individuals.

The IRS And Virtual Currencies

According to IRS Notice 2014-21, “the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.”  This means, per IRS determination, virtual currencies, such as Bitcoin, are treated as property, and subject to tax regulations.

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IRS Large Business And International Report On The Examination Process

IRS Logo Nov
ISSUE ONE: LB&I EXAMINATION PROCESS

The Internal Revenue Service introduced the Large Business & International Examination Process (LEP) in 2016. Designed to provide an organizational approach for conducting efficient examinations from the first contact with the taxpayer through the final stages of issue resolution, LEP is described in IRS Publication 5125 (2-2016). See also IRM 4.46 LB&I Examination Process. Many aspects of LEP are working well; in particular, LEP has resulted in closer collaboration on the formulation and issuance of Information Document Requests (IDRs). The LB&I subgroup understands that the IRM is in the process of being revised to reflect the new issue-based “campaign” initiative  and that additional changes will likely be made to LEP as LB&I gains experience with the campaign process.

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Treasury, IRS Issue Proposed Regulations On New Opportunity Zone Tax Incentive

Tax Opportunity Zones

The Treasury Department and the Internal Revenue Service today issued proposed regulations and other published guidance for the new Opportunity Zone tax incentive.

Opportunity Zones, created by the 2017 Tax Cuts and Jobs Act, were designed to spur investment in distressed communities throughout the country through tax benefits. Under a nomination process completed in June, 8,761 communities in all 50 states, the District of Columbia and five U.S. territories were designated as qualified Opportunity Zones. Opportunity Zones retain their designation for 10 years. Investors may defer tax on almost any capital gain up to Dec. 31, 2026 by making an appropriate investment in a zone, making an election after December 21, 2017, and meeting other requirements. Read more

Expenses For Business Meals Under §274 Of The Internal Revenue Code

Business Meal Expenses Under Tax Cuts And Jobs Act

This IRS notice provides transitional guidance on the deductibility of expenses for certain business meals under § 274 of the Internal Revenue Code. Section 274 was amended by the Tax Cuts and Jobs Act, Pub. L. No. 115-97, § 13304, 131 Stat. 2054, 2123 (2017) (the Act). As amended by the Act, § 274 generally disallows a deduction for expenses with respect to entertainment, amusement, or recreation. However, the Act does not specifically address the deductibility of expenses for business meals. Read more