Dormant Foreign Corporations

A Controlled Foreign Corporation (“CFC”) is, in general, a foreign corporation controlled by a U.S. person(s) through ownership of stock.  A U.S. person owning at least 10% of a CFC has a reporting requirement for an annual information return of Form 5471 Information Return of U.S. Persons with Respect to Certain Foreign Corporations.  Depending on how the U.S. person is affiliated with the foreign corporation determines which category filer they are as well as which schedules are required to be submitted with Form 5471.

If the foreign corporation is dormant, the filer may use summary filing procedures provided by IRS Revenue Procedure 92-70 (1992-2 C.B. 435).  For this procedure, the IRS determined that a foreign corporation is deemed to be a dormant foreign corporation if at all times during the foreign corporation’s annual accounting period (within the meaning of section 6038(e)(2)):

1. the foreign corporation conducted no business and owned no stock in any other corporation other than another dormant foreign corporation;
2. no shares of the foreign corporation (other than directors’ qualifying shares) were sold, exchanged redeemed, or otherwise transferred, nor was the foreign corporation a party to a reorganization;
3. no assets of the foreign corporation were sold, exchanged, or otherwise transferred, except for de minimis transfers described in (4) and (5) below;
4. the foreign corporation received or accrued no more than $5,000 of gross income or gross receipts;
5. the foreign corporation paid or accrued no more than $5,000 of expenses;
6. the value of the foreign corporation’s assets as determined pursuant to U.S. generally accepted accounting principles (but not reduced by any mortgages or other liabilities) did not exceed $100,000;
7. no distributions were made by the foreign corporation; and
8. the foreign corporation either had no current or accumulated earnings and profits or had only de minimis changes in its beginning and ending accumulated earnings and profits balances by reason of income or expenses specified in (4) or (5) above.

Original content posted on https://www.christopherbyrne.com/dormant-foreign-corporations/ 

New York Utilizing Electronic Data Records for Tax Audits

Taxpayers claiming residency outside of New York while maintaining ties to New York, such as an apartment, room, or other ties in New York, may be exposing themselves to a New York tax audit.  In general, the taxpayer has the burden of demonstrating by clear and convincing evidence that the taxpayer was not present in New York for more than 183 days.

With today’s available technology electronic records are readily accessible to provide evidence which reflects the days the taxpayer is in New York.  Examples of the records the New York State Department of Taxation and Finance (“DTF”) requests includes credit card/bank statements, EZ pass toll invoices, travel itineraries, personal calendars, etc.  Even simply logging onto an employee computer terminal leaves evidence of your whereabouts.

The DTF regularly requests records directly from electronic data sources in an effort to refute days where the taxpayer has contended that s/he was not present in New York on a given day.  For example, the DTF may request cell phone records directly from the service provider; each outbound and inbound call requires a connection to a cell phone tower, which may be used to triangulate the taxpayer’s position on any given day.

The use of electronic data records to prove residency requires taxpayers to exercise due diligence to insure that they are aware of their days present in New York.

Original content posted on https://www.christopherbyrne.com/york-utilizing-electronic-data-records-tax-audits/

Many IRS Return Due Dates Changed for 2015 Reporting Season (including FBAR) and Change to IRS Audit Period

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 was signed into law on July 31, 2015.  This legislation changes the IRS return due dates going forward and the IRS audit period.

IRS Return Due Date Changes

Starting after December 31, 2015:

• Partnership tax returns are due March 15, NOT April.  If your partnership isn’t on a calendar year, the return is due on the 15th day of the third month following the close of your tax year.

• C corporation tax returns are     due April 15, NOT March 15. For non-calendar years, it is due on the 15th day of the fourth month following the close of the tax year.  For C corporations with tax years ending on June 30 will continue to have a due date of September 15 until 2025.  For years beginning after 2025, the due date for these returns will be October 15.

• S corporation tax returns remain unchanged—they are still due March 15, or the third month following the close of the taxable year

• FBARs filing deadline changes from June 30th to April 15th.  6 month extensions are now available.

Changes to IRS Audit Period

Prior to the IRS statute of limitations for audit was generally 3 years or 6 years  for substantial understatement of income (if you omitted more than 25% of your gross income).  The Supreme Court in  U.S. v. Home Concrete & Supply, LLC (2012) held that overstating your tax basis was not the same as omitting income.  The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 over rules the Supreme Court’s 2012 decision.  Now, following this new legislation, the tax code says: “An understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission from gross income.” The change applies to tax returns filed after July 31, 2015. It also applies to previously filed returns that are still open.  This means that overstating your tax basis is the same as omitting income for purposes of the IRS statute of limitations for audit.

For further information on this topic please contact Christopher J. Byrne at (212) 239-1931 or visit http://christopherbyrne.com/.

This content was originally posted at http://christopherbyrne.com/irs-return-due-dates-changed-2015-reporting-season-including-fbar-change-irs-audit-period/ 

IRS Gets FAT off of FATCA

The Foreign Account Tax Compliance Act (FATCA) is a United States federal law that requires US citizens living home or abroad to report all assets held in financial accounts outside of the United States.  It further requires foreign banks to report the holdings of all US citizens to the Internal Revenue Service. 

Congress passed FATCA in 2010 to make it harder for U.S. taxpayers to hide assets held in offshore accounts and shell corporations. Since 2010, FATCA has enabled the IRS to collect billions of dollars in taxes and fines on previously undeclared assets of US taxpayers.

Can I get penalized through FATCA?

Through FATCA, the US is successfully driving strict compliance from international banks.  By threatening foreign banks with a 30% tax and exclusion from U.S. markets, over 80 nations and 77,000 financial institutions have agreed to the new law including all the big boys like Switzerland, Russia and China. U.S. account holders who aren’t compliant have limited time to get to the IRS. The IRS recently changed its programs, making its Offshore Voluntary Disclosure Program (ODVP) a little harsher. Yet for those not willing to pay the 27.5% penalty—which rose to 50% August 4, 2014 for some banks—the new IRS’s Streamlined Program may be a good option if you can qualify.

Note that despite the new laws, FBAR filings are still required. FBARs (Foreign Bank Account Reporting) predate FATCA, but this isn’t the first time the IRS has asked for duplicate reporting. FATCA piles on to the reporting including Form 8938, but it doesn’t replace FBARs. FBAR’S have been in the law since 1970 but have taken on huge importance since 2009. U.S. citizens with foreign bank accounts greater than $10,000 must file an FBAR each year by June 30.

These forms are serious, and so are the criminal and civil penalties. Failure to file FBAR can mean fines up to $500,000 and prison up to ten years. Even a non-willful civil FBAR penalty can mean a $10,000 fine. Willful FBAR violations can draw the greater of $100,000 or 50% of the account for each violation–and each year is separate. These kinds of numbers add up fast.

If you are a high wage earner with international holdings, now is the time to become compliant.  Contact Christopher J. Byrne for expert advice and guidance for all international tax matters.  Or see our website at http://www.christopherbyrne.com

Foreign Tax Compliance Act and What It Means for US Citizens

FATCA, or the Foreign Tax Compliance Act, say international tax attorneys, is a new U.S law that will have a significant effect on the reporting of financial information and tax compliance for foreign accounts when it is implemented in 2014. The aim of this act is to combat tax evasion and recover finances owed to the U.S. government by requiring foreign banks to report their dealings with U.S. citizens and, similarly, individuals to report on their dealings with foreign banks.

The FATCA timeline:

• 2010. On March 18^th, as part of the Hiring      Incentives to Restore Employment Act (HIRE), FATCA was signed into law by      the U.S. government. On August 27^th, the IRS issues Notice      2010-60. This notice defines “foreign financial institution”, declares      FATCA exemptions, account documentation and reporting requirements.
• 2011. On April 8^th, IRS Notice 2011-34      revises requirements and provides clarity on priority concerns. On July 14^th,      IRS Notice 2011-53 gives foreign financial institutions more time to enter      FATCA agreements and meet the requirements.
• 2012. On February 8^th, proposed regulations      are released with important changes, including updated timelines for      grandfathered debt obligations, reporting and withholding.
• 2013. Final regulations are issued on January 17^th.      On February 14^th, Switzerland and the U.S. sign an agreement on      international tax compliance and the implementation of FATCA. On August 9^th,      the IRS portal opened and by December 31^st, the foreign      financial institution Agreement came into effect.
• 2014. The 1^st of January will be the      cut-off date for grandfathered obligation. April 25^th will be      the last date on which foreign financial institutions have to register for      inclusion on the FFI list (safe harbor). The list will be published on 2^nd      June. 31^st December is the deadline for FFI’s to complete      remediation on pre-existing high-value accounts.
• 2015. On January 1^st, foreign financial      institutions will begin withholding on high-valued accounts that have been      identified as noncompliant. They, along with U.S. Withholding Agents will      also begin withholding on payments to identified noncompliant passive      non-financial foreign entities. On March 15^th, tax return      reporting and information return reporting will begin.
• 2016. March 15^th is the due date for annual      tax return reporting and information reporting. Participating forging      financial institutions (PFFIs) will begin withholding on all noncompliant      individual accounts and undocumented entity accounts that were      pre-existing accounts.
• 2017. On January 1^st, withholding will      begin on gross proceeds for USWAs, WAs and PFFIs. This includes      withholding on “passthru payments”.
• 2018. On March 15^th, gross proceeds will be      included for year-end 2017.

Christopher J Byrne can help you with all of your financial reporting needs. Our team of tax specialists is experienced with FATCA, FBAR compliance, PFIC reporting, and more.  For more information on FATCA or any other advice on foreign tax, please contact us at christopherbyrne.com today and speak to one of our experienced international tax attorneys.

Understanding OVDI- Offshore Voluntary Disclosure Initiative

A globalized economy means that in today’s day and age many individuals see much more mobility than in prior decades. It is common to see assets such as rental properties, stocks and securities, bank accounts, etc that are spread out globally because of this mobility. However, how does this affect you as a United States citizen?

The United States taxes its citizens and residents on their worldwide income and imposes annual reporting of certain foreign assets. This can be problematic for members of global families with these world-wide assets as many individuals for one reason of another inadvertently have left one or more of these assets off of their U.S. income tax returns. Failure to come into U.S. tax compliance can result in severe financial penalties, prosecution, and even mandatory jail time. There are tax amnesty programs that have been put into place via the IRS to help avoid this issue; it is called Offshore Voluntary Disclosure Initiative .

Penalties are still payable by those who engage in the program, but take note of the clear benefits. In short the penalties are as follows:

• Currently 20% accuracy-related penalty of the total underpaid tax amount for all the years of missed tax payments.
• A penalty of 27.5% of the highest aggregate balance in offshore accounts or value of foreign assets during the period of the tax amnesty program.

There is unmistakably no price tag that can be placed on the peace of mind given to participants of the program who become tax compliant and no longer have to fear prosecution for tax evasion.

When it comes to international tax and taxation, taxpayers are better off with the services of a reputable tax attorney. You can maximize these and other advantages of the OVDI TaxAmnesty Programs with the guidance of a certified public accountant and tax attorney.

For more information about OVDI you can work closely with Christopher J. Byrne. I bring over 20 years of experience with me to every case I work with and I also keep a close team of highly educated individuals on the case as well. We also work with FBAR compliance and PFIC reporting. Stay on top of your taxation requirnments and needs with Christopher J. Byrne PLLC at christopherbyrne.com.

For more information about the tax amnesty programs such as the Offshore Voluntary Disclosure Program, contact Christopher Byrne. Bringing over 20 years of experience, you know that you are working with a team who knows exactly how to help you properly file your international tax returns.