IRS updates voluntary disclosure practices for hidden offshore funds

The Internal Revenue Service has updated its voluntary disclosure procedures for taxpayers with previously undisclosed funds, instituting tougher procedures. 
IRS deputy commissioner for services and enforcement Kirsten Wielobob issued a memorandum last week that the IRS posted publicly Thursday, outlining the process for all voluntary disclosures following the closing of the IRS’s Offshore Voluntary Disclosure Program on Sept. 28, 2018. She noted in the memo that the 2014 OVDP began as a modified version of the OVDP that launched in 2012 after earlier programs in 2009 and 2011. “These programs were designed for taxpayers with exposure to potential criminal liability or substantial civil penalties due to a willful failure to report foreign financial assets and pay all tax due in respect of those assets,” she wrote. “They provided taxpayers with such exposure potential protection from criminal liability and terms for resolving their civil tax and penalty obligations.” The new procedures are effective for all disclosures after Sept. 28, 2018. The penalties have grown steadily stiffer for taxpayers who continue to hide their funds in foreign bank accounts, and the latest version of the program may give taxpayers and tax practitioners pause. “Under the new procedures, taxpayers will find that the cost of making a disclosure has increased,” commented Barbara Kaplan, a tax attorney and shareholder at the law firm Greenberg Traurig, in an email from the firm. “A number of things have changed: the number of years for the program, the application of penalties, a right to go to Appeals to contest the IRS findings after examination, the making of the offshore and domestic programs the same and the requirement to include an explanatory narrative. It also appears that the examination phase is more like a true IRS audit than just a compliance review.” A fraud penalty, and a willful FBAR penalty for offshore cases where taxpayers intentionally failed to file a foreign bank account report, will now be applied to one of the six years of the disclosure period, or less if the noncompliance occurred over a shorter period of time, she noted. “Additional civil penalties can be expected,” Kaplan wrote in an email. “CI [IRS Criminal Investigation] will continue to screen all disclosures to determine if a taxpayer is eligible to make the disclosure. Once pre-clearance is granted, the taxpayer will have to disclose the nature of the non-compliance, including a narrative providing facts and circumstances, assets, entities and any related parties or professional advisors involved in the noncompliance.” That could have an impact on tax professionals who have advised taxpayers who have been hiding their funds. But taxpayers and their representatives will have to weigh the pros and cons of the new procedures. “The amended or delinquent returns will be examined and, at the end of the process, it is expected that an agreement will be reached,” said Kaplan. “Cooperation with the civil examination is required and, if not given, could lead to revocation of preliminary acceptance into the program. At the end of the day, taxpayers who afford themselves of this process will be relieved of criminal exposure but not the civil ramifications. For those who do not have criminal exposure, this program should not be used.”

Tabla de taxes en Estados Unidos

La tabla de taxes en estados unidos más altas corresponden a 5 estados, por ejemplo la tasa de Washington es del 8.92%, el de Alabama es de 9.01%, la tasa de Arkansas es del 9.30%, la tasa de Tennessee es del 9.46% y el de Luisiana es del 9.98%.

De todos modos la tasa del impuesto a las ventas es diferente de cuerdo al estado, pero también en base a los ingresos recaudados de un impuesto que a su vez afecta a la economía.

Esta diferencia hace que los consumidores elijan comprar productos on line o cruzar la frontera, pues los consumidores también deben hacer frente a los impuestos a las ventas locales que pueden ser altas.

Pero un estado puede tener un impuesto a las ventas con un porcentaje moderado y en todo el estado se podría estipular una tasa local y estatal combinada alta comparándolo con otros estados.

A nivel estatal California es el estado con la tasa de impuestos a las ventas más alta: el 7.25%. En  Tennessee, Rhode Island e Indiana, la tasa es del 7%. En Colorado la tasa a las ventas es del 2.9% y en Wyoming, Nueva York, Hawái, Georgia y Alabama es del 4%.

Cuando no se cobra el impuesto a las ventas, tiene que ver con áreas con diferencia en la tasa de impuestos a las ventas entre dos jurisdicciones, ya que los consumidores de estas áreas hacen sus compras en las de bajos impuestos  como en los suburbios como por ejemplo en Chicago que evitan un tasa del 10.25% por el impuesto a las ventas.

Del mismo modo las empresas buscan áreas con tasas menores, como por ejemplo en Nueva Inglaterra las empresas minoristas buscan New Hampshire  en lugar de Vermont para instalar su empresa para evitar el impuesto a las ventas.

Top five tax planning opportunities for individuals in 2018

As we enter into the tax planning stage of the year, the focus shifts to helping clients understand the impact of the Tax Cuts and Jobs Act and optimize their tax positions. That is no small task, given that there are over 130 new tax provisions.

No. 5 — Itemized deductions versus the standard deduction

The Tax Cuts and Jobs Act roughly doubles the standard deduction. This means that for 2018, joint filers can enjoy a standard deduction of $24,000. However, the new law suspends personal exemption deductions and eliminates or limits many of the itemized deductions. For example, the state and local tax deduction is now capped at $10,000 per year, or $5,000 for a married taxpayer filing separately. Also, the Tax Cuts and Jobs Act temporarily eliminates miscellaneous itemized deductions subject to the 2 percent floor (like tax preparation fees and employee business expenses) and limits the home mortgage interest deduction to home acquisition debt of up to $750,000, or $375,000 for a married taxpayer filing separately.

So, what does this mean for tax payers? For those who typically claim the standard deduction, chances are their tax bill will decrease for 2018. Although personal exemption deductions are no longer available, a larger standard deduction, combined with lower tax rates and an increased child tax credit, may result in less tax. Also, you may find that clients who itemized last year won’t itemize this year, or they may be able to itemize for state income tax purposes but not for federal. You will need to run the numbers to assess the impact for each client. Depending on the results, you may need to adjust your clients’ estimated quarterly tax payments or encourage them to turn in a new Form W-4 to their employers.

No. 4 — Revisit your qualified tuition plans

Qualified tuition plans, also called 529 plans, are a great way to ease the financial burden of paying for college. Before the Tax Cuts and Jobs Act, earnings in a 529 plan could be withdrawn tax-free only when used for qualified higher education at colleges, universities, vocational schools or other post-secondary schools. Thanks to the Tax Cuts and Jobs Act, 529 plans can now be used to pay for tuition at an elementary or secondary public, private or religious school, up to $10,000 per year. If your clients are paying tuition for their children or grandchildren to attend elementary or secondary schools, encourage them to either set up or revisit their 529 plans. They’ll thank you for it later.

No. 3 — Watch out for home equity debt interest

Under the Tax Cuts and Jobs Act, home equity debt interest is no longer deductible. Or so you thought. According to the IRS, interest paid on home equity loans and lines of credit is deductible if the funds were used to buy or substantially improve the home that secures the loan. In other words, it’s treated as home acquisition debt subject to the new $750,000/$375,000 limit. This is good news for homeowners, but it forces you to trace how the proceeds were used. If your client used the cash to pay off credit card or other personal debts, the interest isn’t deductible, even if the payoff occurred prior to 2018.

No. 2 — Bunch charitable contributions

The new law temporarily increases the limit on cash contributions to public charities and certain private foundations from 50 to 60 percent of adjusted gross income. However, the doubling of the standard deduction and changes to key itemized deductions will prevent some clients from itemizing in 2018 and therefore benefiting from this increased limit. One way to combat this is to bunch or increase charitable contributions in alternating years. Suggest that clients set up donor-advised funds. This will allow them to claim a charitable tax deduction in the funding year and schedule grants over the next two years or other multiyear periods. Clients can take advantage of the deduction when they’re at a higher marginal tax rate while actual payouts from the fund can be deferred until later. It’s a win-win situation.

No. 1 — Maximize the qualified business income deduction

Perhaps the hottest topic of the Tax Cuts and Jobs Act is the new qualified business income deduction under Section 199A. Individuals who own interests in a sole proprietorship, partnership, LLC, or S corporation may be able to deduct up to 20 percent of their qualified business income. However, the deduction is subject to various rules and limitations.

Although the final official guidance is lacking on this new deduction, there are some planning strategies that can be considered now. For example, clients can adjust their business’s W-2 wages to maximize the deduction. Also, it may be beneficial for clients to convert their independent contractors to employees where possible, but make sure the benefit of the deduction outweighs the increased payroll tax burden and cost of providing employee benefits. Other planning strategies include investing in short-lived depreciable assets, restructuring the business, leasing and selling property between businesses, and, yes, even getting married.

FASB updates accounting for leasing standard

The Financial Accounting Standards Board issued an accounting standards update Monday to reduce cost and ease implementation of the leasing standard for financial statement preparers.

The ASU simplifies transition requirements. For lessors, it also provides a practical expedient for the separation of non-lease components from lease components.

The update also provides an option to apply the transition provisions of the new standard at its adoption date, instead of at the earliest comparative period presented in its financial statements; and a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are met.

“The targeted improvements in the ASU address areas our stakeholders identified as sources of unnecessary cost or complexity in the leases standard,” said FASB Chairman Russell Golden in a statement. “They represent the FASB’s commitment to proactively address implementation issues raised by our stakeholders to ensure a successful transition to the new standard without compromising the quality of information provided to investors.”

Senate panel advances IRS commissioner and introduces IRS reform bill

A closely divided Senate Finance Committee advanced the nominee for the next Internal Revenue Service commissioner, Charles Rettig, by a vote of 14 to 13, but he awaits a vote by the full Senate.

Rettig is a tax attorney at the Beverly Hills law firm Hochman, Salkin, Rettig, Toscher & Perez, P.C. who has spent most of his career representing clients before the IRS. If he is confirmed by the full Senate, he would succeed acting commissioner David Kautter, who is also the Assistant Secretary of the Treasury for Tax Policy. Kautter has been acting commissioner since the end of John Koskinen’s term last November. Rettig would be coming in at a time when the IRS is dealing with the massive tax cuts law that Congress passed last December.

“For the IRS to implement the biggest tax overhaul in a generation, it is essential that the agency is fully staffed and led by a strong, capable commissioner,” said Senate Finance Committee chairman Orrin Hatch, R-Utah, in a statement. “The job of commissioner is further complicated by years of mistrust and scandals at the agency. Chuck Rettig is the right pick to both implement tax reform and restore trust in the IRS. I am pleased that the committee advanced his nomination, and I look forward to the Senate acting quickly on his nomination so he can get started on the hefty tasks he will be charged with as the agency’s leader.”

However, Democrats on the committee voted against confirming Rettig, in part as a protest against the IRS and the Treasury Department’s decision this week to let 501(c)4 tax-exempt organizations, such as political action groups, avoid listing the names of their donors (see Many political tax-exempts no longer required to report donors).

“The Trump administration has taken a qualified nominee and dumped him right in the middle of a dark-money political firestorm of their own creation,” said Sen. Ron Wyden, D-Ore., the ranking Democrat on the committee. “And a radical change in tax law regarding transparency and disclosure has dragged the IRS and Treasury into a swirling set of questions about the president’s foreign financial ties and motivations. As a result, this nomination is no longer an isolated debate that can begin without context.”

Despite their differences, Hatch and Wyden agreed to introduce bipartisan legislation Thursday aimed at reforming some of the IRS’s administrative practices, echoing legislation that already passed the House in April.

The Taxpayer First Act is also based on two 114th Congress bills (S. 3156 and S. 3157) that passed the Finance Committee unanimously in 2016. It aims to increase taxpayer protections and electronic filing; enhance whistleblower protections; reform policies concerning IRS employees; increase scrutiny of IRS audit criteria; and support prevention of identity theft and tax refund fraud.

“Ensuring the IRS has greater flexibility and bringing it into the 21st century continues to be a top priority – especially with the largest rewrite of the tax code in more than three decades on the books,” Hatch said in a statement. “We’ve been working hand in glove with the administration to ensure a proper and seamless implementation of new policies and are confident this bill will streamline the agency in a way that protects taxpayers from fraud and abuse, increases electronic filing and supports IRS employees.”

“With every passing day there’s a new headline about hackers and crooks stealing taxpayer dollars and personal data,” Wyden stated. “Congress must do more to protect American taxpayers from fraud and financial abuse. This bipartisan legislation will make common-sense changes to help taxpayers and streamline administrative rules at the IRS, which will allow tax officials and agents to better safeguard the American people against financial predators.”

Tax know-how and CPA credential rank high for financial advice

Tax knowledge is considered to be the most important factor when choosing a financial advisor, according to a new survey, which also found the CPA credential to be the one most associated with financial advice.

The survey, from 1st Global, a wealth management firm that works with CPAs, found that 66 percent of affluent and emerging affluent consumers view tax knowledge as the most important factor when choosing a financial advisor. In addition, 47 percent of the respondents associated the CPA designation with financial advice, the largest of any designation included in the study. For the study, 1st Global and PopResearch polled 300 respondents with $150,000 or more in assets.

The report, “Investors, CPAs and Tax-Focused Financial Advice,” found that even though 53 percent of the survey respondents currently work with a CPA or accountant, tax-aware advice is still a key concern for them. Tax-optimized investing (58 percent), estate tax planning (45 percent) and tax burden reduction (45 percent) ranked as the top three specialties the investors who were surveyed said they seek when choosing a financial advisor.

The respondents were asked about other credentials as well, including Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Financial Consultant (ChFC), Certified Investment Management Analyst (CIMA) and Personal Financial Specialist (PFS), but the CPA came out on top. “CPAs were ranked first,” said 1st Global president David Knoch. “They actually ranked 50 percent higher than CFPs. The survey asked people to see if they could recognize professional certifications and licenses to see if they could associate them with the provision of financial advice. 

The one they recognized the most 47 percent of the time was CPAs. CFAs actually came in second at 40 percent. CFPs were third at 30 percent, and 27 percent of people said they didn’t recognize any of them. And then 7 percent recognized ChFC and CIMA, and only 4 percent recognized the PFS designation, so the CPA designation was the most recognized of survey respondents.”

Trust was considered to be more important to investors than skills or knowledge, with 90 percent of the survey respondents defining a trusted advisor as someone who had their best interest in mind. Only 10 percent named skills or knowledge as important.

“There has been a public policy debate around how financial advisors should practice,” said Knoch. “We don’t often get into the headlines about how financial advisors are compensated and levels of service, and the way to regulate it. It’s usually too boring for anyone to be talking about, but it’s actually been in the headlines more recently. 

The idea of the DOL’s [Department of Labor's] fiduciary rule for financial advisors we think has more investors asking the question, ‘How is my advisor serving me and what is their responsibility to me?’ I think it’s bringing up questions that investors may not have thought to ask.”

Despite growing access to digital interactions and information, face-to-face discussions continued to be important to the survey respondents, with 57 percent ranking face-to-face interactions as very or extremely important to them.

“Well more than half of the survey’s respondents felt like it was either very or extremely important to meet face to face with the person giving them advice,” said Knoch.

The majority of respondents indicated they would discuss investments and long-term financial aspirations with their CPA or accountant, and 74 percent said they were somewhat or extremely comfortable doing that.

The survey also revealed some generational differences, with younger generations seeking financial advice from professionals more than Baby Boomers. More than 60 percent of respondents in Generation X and Generation Y said they have a CPA and a financial advisor. In addition, younger respondents with a CPA were 6 percent more satisfied with their financial advisors.

“Gen X and millennial individuals are much more interested in becoming an educated participant in the process rather than merely delegating,” said Knoch. “The delegation behaviors are actually very boomer like. 

Integration behaviors are much more Gen X and millennial like. That does speak to Gen X and millennials hiring financial advisors more than their boomer counterparts, and in fact some other surveys have shown that to be the case. Gen X and millennials are hiring financial advisors more often than their boomer counterparts.”

CPAs could be losing out by not targeting younger clients with financial advice, according to the survey results, which found many people just doing it for themselves. “It was also interesting in this survey, as we talk about younger clients, of the 31 to 35 age cohort, 64 percent of those who had a CPA also had a financial advisor,” said Knoch. “In fact, out of the entire thing, 38 percent used a CPA, and of those, 56 percent used a financial advisor. 

For those who did not use a CPA, 72 percent of them did not have a financial advisor, so there was a have and have not element here. People who were involving expert professionals in their lives tended to have expert professionals that would help them work on both taxes and investments. They chose not to bring a CPA into their life. They appeared to be much more of a do it yourself-er when it came to getting financial services.”

Many investors are looking for tax-optimized investing strategies, especially in the wake of the new tax law, although the survey didn’t ask specifically about the Tax Cuts and Jobs Act. But there's more opportunity for CPAs to offer such services in the context of the tax overhaul.

“What was interesting in this is that tax-optimized investing was the most selected category that these investors were looking for,” said Knoch. “It was interesting that while they seemed to be seeking tax-optimized advice, you have a number in this group that are not actually hiring CPAs or financial advisors to do that. Therein we think lies a tremendous opportunity for the CPA professionals in America today who may not be serving as financial advisors. 

Frankly speaking, a CPA who is not in the wealth management profession today, this survey is saying clearly right now is the time to start. These people answering this survey, 62 percent, more than any other, agreed that CPAs have the ethical standards and skills needed to serve a family’s needs.”

With 58 percent of the survey respondents seeking tax-optimized investing strategies, Knoch believes American families are looking for these services from CPAs. “For the firms that are already offering wealth management," he said, "we think now is the time to ask the question: ‘Are we playing at our best?’ The demand for these services from CPA firms may never have been higher since CPAs started offering financial services three or four decades ago.”

IRS details new reporting requirements for life insurance

The Internal Revenue Service spelled out new information reporting requirements Thursday for some life insurance contracts under the recently enacted Tax Cuts and Jobs Act.

The new requirements will apply to reportable death benefits paid, along with reportable policy sales, that were made after Dec. 31, 2017. The IRS provided transitional guidance Thursday postponing any reporting under Section 6050Y of the tax code until the final regulations are issued. The transitional guidance gives taxpayers some extra time to satisfy any reporting obligations that could occur before the IRS and the Treasury publish the final regulations.

Information returns have to be filed in the situations below, according to the IRS:

- By anyone who acquires a life insurance contract, or any interest in a life insurance contract, in a “reportable policy sale”;

- By an issuer of a life insurance contract upon notice of a transaction required to be reported above or upon any notice of a transfer of a life insurance contract, or any interest in a life insurance contract, to a foreign person; and

- By any payor of “reportable death benefits.”

A “reportable policy sale” is usually the acquisition of an interest in a life insurance contract, either directly or indirectly, if the acquirer has no substantial family, business or financial relationship to the insured. A “reportable death benefit” is an amount paid when an insured person dies under a life insurance contract that was transferred in a reportable policy sale.

The IRS is asking for public comments on the proposed regulations to implement the new reporting requirements.

EITC due diligence warnings on the way

Preparers who filed returns claiming the Earned Income Tax Credit but who possibly fell short of due diligence requirements will soon receive IRS Letter 4858, “Alert to Return Preparers Related to EITC Claims.”

In response to concerns about fraudulent or mistaken EITC claims, over the past few years the IRS has been putting more of a burden on tax preparers to vet their clients more carefully, including filling out Form 8867, “Paid Preparer’s Due Diligence Checklist.”

https://www.eitc.irs.gov/tax-preparer-toolkit/preparer-due-diligence/consequences-of-failing-to-meet-your-due-diligence) for preparers ranging generally from $500 to $5,000.

IRS instructions for preparers who receive the notice include: “Review your office procedures to make sure you meet all four due diligence requirements. If you receive this letter, we will continue to monitor the refundable credit returns you prepare.”

The Tax Preparer Toolkit on IRS.gov has more information on due diligence requirements.

Consejos de impuestos para extranjeros residentes y no residentes

Incluso si no eres un ciudadano estadounidense, si vives en los Estados Unidos o pasas una cantidad significativa de tiempo allí, todavía tienes que pagar el impuesto sobre la renta de EE.UU.

Extranjero residente o no residente

El IRS (siglas en inglés para Servicio de Impuestos Internos) usa dos pruebas, la prueba de la tarjeta verde y la prueba de presencia sustancial, para evaluar tu estado de extranjero. Si cumples con los requisitos de cualquiera de ellos, se te considera un extranjero residente para efectos fiscales, de lo contrario, te tratan como un extranjero no residente.

Si eres un extranjero con una tarjeta de residencia, es decir, cuando el Servicio de Inmigración y Ciudadanía de los Estados Unidos te permiten residir legalmente en el país, eres un extranjero residente. Sin embargo, si no tienes una tarjeta de residencia y pasas al menos 31 días en los EE.UU. durante el año fiscal en curso y un total de 183 días, durante los tres últimos años fiscales (incluido el año fiscal en curso), lo más probable es que satisfagas el requisito de presencia física y también te traten como un extranjero residente.

Contando 183 días

Al contar el número de días que estás presente en los EE.UU. durante el período de tres años, no tienes que incluir cada día. En su lugar, cuenta sólo una fracción de los días en dos de los tres años. Supongamos, por ejemplo, que estás tratando de averiguar tu estado para el año fiscal 2017, ya que viviste en los EE.UU. por 60 días. Cuenta los 60 días para 2017, un tercio de los días en el 2016 y una sexta parte de los días en el 2015. Por lo tanto, si estuvieras en los EE.UU. durante 120 días en 2016 y 180 días en 2015, sólo incluye 40 días para 2016 y 30 días en 2015, con el total para el período de tres años, siendo 130 días. En este escenario, se paga impuesto a los ingresos como un extranjero no residente.

Además, no se tienen en cuenta los días en que están presentes físicamente en los EE.UU. bajo las siguientes circunstancias:

Días que te desplazas para trabajar en los Estados Unidos a partir de una residencia en Canadá o México, si regularmente viajas desde Canadá o México.

Días que estás en los Estados Unidos por menos de 24 horas cuando estás en tránsito entre dos lugares fuera de los Estados Unidos.

Días que estás en los Estados Unidos como un miembro de la tripulación de un buque extranjero.

Días que no puedes salir de los Estados Unidos debido a una condición médica que surgió durante tu estadía.

Días que eres un "individuo exento".

Un "individuo exento" para los propósitos de este ensayo se refiere a las siguientes personas:

Un individuo temporalmente presente en los Estados Unidos como un individuo de un gobierno extranjero en virtud de una visa "A" o "G".

Un maestro o aprendiz temporalmente en los Estados Unidos bajo una visa "J" o "Q", que cumple sustancialmente con los requisitos de la visa.

Un estudiante temporalmente en los Estados Unidos bajo una visa "F", "J", "M" o "Q", que cumple sustancialmente con los requisitos de la visa.

Un atleta profesional temporalmente en los Estados Unidos para competir en un evento deportivo de caridad.

Impuestos a los residentes extranjeros

Como residente legal de EE.UU., estás sujeto a las normas fiscales de los ciudadanos estadounidenses. Esto significa que tienes que reportar todos los ingresos que ganas en las declaraciones de impuestos anuales, con independencia del país en el que lo ganas. Al preparar tu declaración, siempre puedes utilizar el 1040, o si eres elegible, el 1040A o el 1040EZ.

Impuestos a los no residentes

Un no residente también debe pagar impuestos a los ingresos al IRS, pero sólo en el ingreso que está vinculado efectivamente a los EE.UU., que generalmente incluye el dinero que gana, mientras está en los EE.UU. Sin embargo, el IRS, no tiene autoridad para imponer impuestos sobre los ingresos que los no residentes ganan en sus países de origen o en cualquier país extranjero para este caso. Al preparar tu declaración de impuestos de los EE.UU., debes usar el Formulario 1040NR o uno más corto como el 1040NR-EZ, si eres elegible. Independientemente de la forma que utilices, sólo informarás de las cantidades que se consideran ingresos de fuente estadounidense. Al igual que los extranjeros residentes y ciudadanos estadounidenses, hay deducciones y créditos que puedes reclamar para reducir tu ingreso gravable.

Doble condición de los contribuyentes

En el año de transición entre ser un no residente y un residente para efectos fiscales, se considera en general un Contribuyente en Estado Dual. Un Contribuyente en Estado Dual presenta dos declaraciones de impuestos para el año, una declaración para la porción del año que fue considerado un no residente y otra por la porción del año considerado residente. En algunas situaciones, el contribuyente puede optar por ser tratado como residente durante todo el año en el año de transición para evitar tener que presentar dos declaraciones separadas.