Archive for the ‘International’ Category

TIGTA: “IRS Can’t Track International Correspondence.” IRS: “So What.”

Wednesday, September 30th, 2015

The nature of my practice is such that I have a relatively large number of clients who live outside the United States. When one of my expatriate clients gets an IRS notice, I shudder. The IRS offices that handle international issues have issues with correspondence coming from the US. I’ve had to send the same item five times to the ITIN office…where it was lost five times. (At least they were consistent.) It turns out that the IRS doesn’t know what happens to much of the mail the agency sends overseas.

It was no surprise when I read a report issued by TIGTA (the Treasury Inspector General for Tax Administration) today titled, “Planned Improvements Have Not Been Made to Manage and Track Correspondence With International Taxpayers.” Here’s what TIGTA found:

Even though the IRS sent approximately 855,000 notices and letters to U.S. taxpayers living in other countries during Calendar Year 2014, it cannot determine taxpayer response rates. The lack of data on response rates for international taxpayers is problematic because this information is needed to determine the effectiveness of international correspondence on increasing taxpayer compliance and to make program improvements.

IRS data systems are not designed to accommodate the different styles of international addresses, which can cause notices to be undeliverable. Other factors complicate the delivery of international mail, making its delivery less certain than domestic correspondence.

In addition, the IRS generally does not know if international taxpayers receive the tax correspondence sent to them. Without specific controls to monitor and metrics to measure international tax correspondence, the IRS cannot determine the impact of its international tax correspondence on taxpayer compliance.

TIGTA made five recommendations; the IRS disagreed with all but one of them:

While the IRS generally agreed that TIGTA’s recommendations could provide additional insight into the factors contributing to undeliverable international mail, it does not believe this information would permit the IRS to overcome budgetary, statutory, and operational constraints as needed to achieve appreciable improvement in its current processes. TIGTA does not believe that the IRS’s response is adequate because current IRS processes for addressing international mail issues are ineffective or nonexistent.

So what should you do if you’re an international taxpayer? The easiest solution is to have someone in the US designated to receive a copy of your correspondence from the IRS. You can do this by completing Form 8821 and checking box 5a (“If you want copies of tax information, notices and other written communications sent to the appointee on an ongoing basis, check this box”). The instructions for Form 8821 are here.

By the way, I completely agree with what TIGTA wrote–that the IRS’s response is inadequate. But don’t worry, the IRS’s Annual Filing Season Program is continuing….

Neymar Tax Evasion Investigation Continues; Judge Freezes $48 Million of Assets

Sunday, September 27th, 2015

Neymar is one of the world’s best soccer players. Given an injury to fellow Barcelona player Lionel Messi, there’s pressure on Neymar and his teammates to step up. Earlier this year it was disclosed that Neymar was being investigated for tax evasion. That investigation has apparently continued; a judge froze 188.8 million Reals ($47.6 million) of Neymar’s assets.

According to the news report, the judge froze assets of Neymar and his parents. The judge froze three times the value of the alleged evasion ($18 million). His parents dispute the evasion.

Not Remitting Employment Taxes Doesn’t Work in Japan Either

Sunday, August 9th, 2015

In the United States, one of the quickest ways of getting in tax trouble is by withholding employment taxes and not remitting those taxes to the IRS. The rate of investigation is as close to 100% as you can get–and it’s normally a criminal investigation. It appears the same holds true in Japan. This story has a second component: There’s something about strip clubs–err, adult entertainment facilities, that make them hotbeds for tax evasion.

From Osaka, Japan comes the story of Naoko Hayashi. The 52-year-old former manager of the Jumeirah hostess club has been indicted and charged with not remitting 57.7 million yen ($464,000) out of 83.2 million yen ($669,000) withheld from pay of the hostesses working in the club. The article in the Tokyo Reporter notes that it costs a minimum of 50,000 yen ($402) to enter the club.

Among the problems with not remitting withholding tax is that it’s a crime that’s fairly trivial to prove. The payroll records will show the withholding, and the National Tax Agency and the Osaka Regional Taxation Bureau won’t show the withholding. It’s also a crime that is guaranteed to show up: When the hostesses file their tax returns and claim the withholding the tax agency won’t see it. But it appears the Bozo tax contingent is equally active in Japan as in the United States.

Deadline Changes for 2016 Tax Returns and 2016 FBAR

Sunday, August 2nd, 2015

Congress passed and President Obama signed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 in late July. That law’s primary function has nothing to do with tax; however, it will have a major impact on entity tax returns for 2016 and for the 2016 FBARs:

  • Partnership tax returns will be due on March 15th, not April 15th (for calendar year partnerships);
  • C Corporation tax returns will be due on April 15th, not March 15th (for calendar year C Corporations);
  • S Corporation tax returns remain due on March 15th (unchanged); and
  • FBARs (FINCEN Form 114) will be due on April 15th, not June 30th.  An extension for six months will be available (until October 15th).

The most important change for my practice is the FBAR. Here’s the exact change in the law:

The due date of FinCEN Report 114 (relating to Report of Foreign Bank and Financial Accounts) shall be April 15 with a maximum extension for a 6-month period ending on October 15 and with provision for an extension under rules similar to the rules in Treas. Reg. section 1.6081–5. For any taxpayer required to file such Form for the first time, any penalty for failure to timely request for, or file, an extension, may be waived by the Secretary.

It is unclear whether a separate extension for the FBAR will need to be filed. The reference to Treasury Regulation 1.6081-5 is for the automatic two-month extension of time to file for those residing outside the United States, so it appears those who do so reside will have a June 15th deadline for filing the FBAR (with a four-month extension available until October 15th).

There are several other deadline changes in the law, but they all are for 2015 returns due in 2016 (not 2014 returns due in 2015). Also, because Friday, April 15, 2016 is Emancipation Day in the District of Columbia the deadline for tax returns will be extended to Monday, April 18, 2016. However, it is likely the deadline for FBARs will not be extended from April 15, 2016. The deadline for FBARs is a receipt deadline, not a postmark deadline, as is not extended if the deadline falls on a weekend or holiday. My strong suspicion is that this change in deadline could be a huge FUBAR given the three day extension for tax returns in 2016. We will have to see if common sense exists within FINCEN or if bureaucratic regulatory procedures take precedence (which is what I suspect will happen).

Does a Nonresident Alien Spouse that Has Elected to be Treated as a US Person Need to File an FBAR?

Monday, June 29th, 2015

With the FBAR deadline upon us, an interesting question arose: Does a spouse covered by the §1.6013-6 regulation allowing a nonresident alien individual to be treated as a resident need to file an FBAR? Logic says no; the FBAR comes out of the Bank Secrecy Act, not the Tax Code. And the IRS agrees with logic: “If the wife is non us person for FBAR therefore she does not have a filing requirement.” (That quote comes from a question I submitted to the FBAR group at the IRS.)

But beware, if the taxpayers have a Form 8938 filing requirement the wife’s accounts will need to be reported on that form. That’s a tax form, so the accounts would need to be included.

BEA-10 Due on June 30th

Wednesday, June 24th, 2015

Just a reminder this morning that the BEA-10 mandatory survey of foreign investment by Americans is due on June 30th. If you own 10% or more of a foreign entity, you will need to file this form. New filers must mail the forms in.

There are significant penalties if you don’t file this, so it’s definitely something to take care of (if it applies to you).

FBAR Due in One Week

Tuesday, June 23rd, 2015

The Report of Foreign Bank and Financial Accounts (Form 114, the FBAR) is due on June 30th. The form must be electronically filed with FINCEN. Your tax professional may be able to do it through his software (we can) or you can do it yourself using the BSA EFile system. There is now an online form you can use (besides Adobe reader) that may work better (it certainly can’t work worse).

Because of the Hom decision of last year, we now must again report foreign online gambling accounts. That’s basically all online gambling sites except the legal sites in Delaware, Nevada, and New Jersey. I maintain a list of online gambling sites and their mailing addresses here.

There are ridiculous penalties if you willfully fail to file an FBAR (half the balance in the account or $100,000 (per account), whichever is greater). Thus, as I said last year, just file the FBAR…timely.

A Ship Over Troubled Waters Sinks Leeds’ Cellino For Now

Monday, December 1st, 2014

From the Sport (not Sports) page of the Telegraph and the BBC we find that Leeds beat league-leading Derby two to nil in football (or soccer for us colonials). Derby manager Steve McClaren was quoted by the BBC: “It’s just one of them days, a bad day at the office. We were below our best and when you’re not at your best, you can be beaten.” However, the real news was what happened away from the pitch.

Massimo Cellino owns Leeds United. Unfortunately, he’s also been found guilty of evading import taxes on a boat in Italy. The Football League ordered Mr. Cellino to resign because he was convicted of “…an offence involving a ‘Dishonest Act’….” Mr. Cellino vows an appeal.

In any case, his ouster will likely be very short-term. He can resume his ownership on March 18th; at that point his conviction will be “deemed spent.”

Lawsuits Against FATCA in Canada

Thursday, August 14th, 2014

A lawsuit was filed in Federal Court in Vancouver, British Columbia, challenging Canada’s complying with the US Foreign Account Tax Compliance Act (FATCA). This is the law that spawned Form 8938 (the “Son of FBAR”). This law, passed in 2010, mandates that account information on Americans be shared with the IRS from foreign bank accounts or there will be mandatory 30% withholding on any US payments to those accounts.

The lawsuit alleges that disclosing information on Canadian account holder is a violation of privacy and property rights of the account holders in violation of the Canadian constitution.

I have no idea how slow the Canadian tax system works, but I suspect this lawsuit will take years to work its way through the court system.

I’ll Drink to That!

Monday, August 11th, 2014

Some tax-related news today from the other side of the pond. In Birmingham, England, two stores have been barred from selling alcohol as they had fake export labels. The report in the Birmingham Mail notes that the shops had over 200 bottles of non-taxed liquor.

This is very similar to the smuggling of cigarettes in the United States. In New York City, state and local taxes on cigarettes will add nearly $10 to the cost of a pack; it’s $0.17 in Missouri. That kind of differential breeds illegal activity.

In any case, two stores lost £2,000 of alcohol and later lost their licenses.