Ups! Congress Considers Cracking Down on Corporate Profit Shifting and Tax Haven Abuse

Ups. remember those articles I shared with you about Corporate America's tax loopholes?  Well Congress is having "meetings"  concerning those very loopholes.  Things don't look for the continuation of Corporate tax loopholes.

***

The House Ways and Means Committee held a hearing Thursday to examine corporate tax reform and the impact of offshore tax havens on base erosion and profit shifting by multinationals.

 

In convening the hearing, Ways and Means Chairman Dave Camp, R-Mich., noted that the U.S. has the highest statutory tax rate in the industrial world of up to 35 percent. He has heard comments about that fact ever since the committee issued a discussion draft of international tax reform proposals in October 2011 (see Congressional Republicans Propose International Tax Reforms).

“Nearly all have offered a universal observation—having the highest corporate rate in the developed world along with an outdated international tax system is a barrier to success that leaves our country falling further behind our foreign competitors,” he said in his opening statement. “Academics and economists agreed, and also cautioned, that any solution to these challenges must protect against erosion of the U.S. tax base through the shifting of profits to low-tax jurisdictions. Their concern is not without merit. Oftentimes, multinational businesses reduce their tax liability by separating the jurisdiction in which income is booked for tax purposes from the jurisdiction in which the economic activity occurs. The result of these practices is ‘erosion’ of the tax base in a jurisdiction where the activity takes place.”  read more

Reminder: IRS Closed Friday June 14

We hope IRS employees everywhere have a safe 3 day week-end

Reminder: IRS Closed Friday June 14; Filing and Payment Deadlines Unchanged

The Internal Revenue Service reminds taxpayers that, due to the current budget situation including the sequester, the agency will be shut down on Friday, June 14.

Abatement of Penalities? Penalty Relief Modification for First Time Abate Policy

Here it is, the IRS is talking about abatement of penalties under certain situations.

***

The Internal Revenue Service has modified its “first time abate” policy, which provides a one-time consideration of penalty relief, based on the taxpayer’s compliance history, for taxpayers who have been subjected to a first-time penalty charge.

 

The recently updated policy modifies the IRS first time abate policy for penalty relief, the IRS said in an email to tax professionals Friday. This type of penalty removal is a one-time consideration available only for a first-time penalty charge and based on taxpayers’ compliance history.

According to the policy, the FTA penalty relief option for failure to file, failure to pay and failure to deposit penalties, under certain conditions, does not apply if the taxpayer has not filed all returns and paid, or arranged to pay, all tax currently due. For example, the taxpayer is considered current if they have an open installment agreement and are current with their installment payments.

The FTA relief only applies to a single tax period for a taxpayer, the IRS noted. For example, if a request for penalty relief is being considered for two or more periods of a taxpayer, and the earliest period meets the FTA criteria, FTA would apply only to the earliest period, and not for all periods.
Penalty relief under the first time abatement provision does not apply to returns with an event-based filing requirement, such as Form 706, U.S. Estate Tax Return; Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return; Form 1120, U.S. Corporation Income Tax Return; and Form 1120S, U.S. Income Tax Return for an S Corporation if, in the prior three years, at least one Form 1120S was filed late but not penalized. This list is not all-inclusive, the IRS cautioned.

The IRS said it would base decisions on removing any future failure to file, failure to pay or failure to deposit penalties on any information taxpayers provide that meets reasonable cause criteria.
Taxpayers who have been billed for penalty charges who feel they have reasonable cause, should send their explanations with their bill to their service center or call the IRS at (800) 829-1040 for assistance. Taxpayers may also use Form 843, Claim for Refund and Request for Abatement.

IRS Looking Into Ways to Pre-Verify Tax Refunds

The IRS has been way to quiet since the stick down of the Registered Tax Return Preparer ordeal and now we know a little about what they've been doing.


The Internal Revenue Service is exploring ways to improve its verification process before issuing tax refunds, but it needs to do a better job of managing the risks, according to a new government report.

The report, from the Government Accountability Office, noted that the IRS receives few information returns before issuing most tax refunds. In 2012, the IRS issued 50 percent of tax year 2011 refunds to individuals by the end of February, but had only received 3 percent of information returns.

 

Most information returns are not received by the IRS until after mid-April, and the IRS conducts the first match of tax and information returns in July, with subsequent matches in February and May of the following year. For tax year 2010, an average of over a year passed before the IRS notified taxpayers of matching discrepancies, which the IRS recognizes is a long time lag that burdens taxpayers. For tax year 2011, IRS matched over 140 million individual income tax returns against the 1.6 billion information returns it received from third parties such as employers. Generally, this match does not occur until well after refunds are issued.

In early 2011, then-IRS Commissioner Doug Shulman outlined a vision for a “Real Time Tax” system, a strategy to improve verification by matching third-party information to income tax returns during the pre-refund screening process rather than after refunds are issued. In 2012, the IRS launched a three-phase exploratory effort to assess the tradeoffs inherent in pursuing Real Time Tax.

Moving the matching of third-party information during the pre-refund screening process could have significant impacts on taxpayers, third parties, and IRS processes and systems. But it could also require congressional action to authorize changes to the Tax Code, including, perhaps, changes to some information return due dates. Considerations associated with moving the due dates include whether third parties have the information they need before the current due dates and whether they would have sufficient time to detect and correct errors before reporting. IRS officials noted that they do not yet consider Real Time Tax a “project” and have not decided whether to pursue Real Time Tax.

The GAO report acknowledged that the IRS is generally following leading practices in its Real Time Tax exploratory effort by, for example, dedicating a team and defining program goals. However, the IRS did not develop an overall timeline because IRS management views Real Time Tax as a broad goal, and officials wanted to avoid causing concern that the IRS had already decided on a path.

Without a timeline for the overall exploratory effort, though, the IRS cannot know if its efforts will be completed in even the broad time frames the IRS is considering, the GAO pointed out, and Congress may not be able to determine what legislative action might be required.

IRS officials stated that managing risk is a high priority, but they have not developed an overall risk management framework, as they are still in the early stages of the exploratory effort, according to the GAO. Officials said they plan to further develop the strategy if the IRS pursues the Real Time Tax effort. But without systematically identifying and evaluating the risks of Real Time Tax options, IRS officials may miss critical factors that could complicate the effort, the GAO warned. A record of prior risk analyses could help prevent unnecessarily repeating the same analyses.

The GAO recommended that the IRS identify time frames for the exploratory effort's critical phases and activities and develop a risk management framework for Real Time Tax. IRS agreed with the GAO’s recommendations.

“We agree with GAO’s selection of leading practices for exploratory efforts, such as real time tax, and appreciate acknowledgement of IRS efforts in implementing four of the six leading practices selected,” wrote IRS Deputy Commissioner for Operations Support Beth Tucker in response to the report. “The IRS also agrees with GAO’s recommendation. As the IRS continues to engage stakeholders and explore the real time tax concept, we will identify timeframes for critical phases and key activities and develop a risk management framework.”

Whose Preparing Whose Taxes?

A Closer Look at IRS 2013 Filing Season Statistics

More than 30% of taxpayers prepare their own returns at home, by themselves. This number has been growing year after year.

As the IRS Newswire - May 20, 2013 - shows in the 2013 Filing Season Statistics, self-preparation of individual income tax grew by 4.4% from 2012 filings to 2013 filings.

While the percentage of taxpayers using the services of a tax professional remains almost the same from 2012 to 2013, use of the IRS website to prepare individual returns increased by 24.7%. The fact that more people are using the free filing option available in the IRS website is another indicator of the self-services tendency in the tax return preparation industry. Read More

 

 

The IRS and Tax Professionls; What Happens Next?

There is an undercurrent happen in respect to the IRS and tax professionals who are not Enrolled Agents, Tax Attorneys and CPAs.  Not sure what is happening; but I guess we'll all know soon enough.

IRS Criminal Investigations in 2012

Quick note on IRS's criminal investigations last year (2012)  There was no shortage of convictions.

***

Criminal investigation initiations totaled 5,125 cases in fiscal 2012 while investigations completed were 4,937 – up 5 percent from fiscal 2011. Convictions totaled 2,634 in fiscal 2012 while the conviction rate edged up slightly to 93 percent.

Beginning 2013 - Simplified Option for Home Office Deduction

The IRS,beginning in 2013 will offer a siplified option to figure your business use of your home.  View the summary of the IRS's Announcement.  If you rent the new method has its pros, however using the new method, you won't be able to do certain things such as carry over the excess deduction.

Simplified Option for Home Office Deduction

Beginning in tax year 2013 (returns filed in 2014), taxpayers may use a simplified option when figuring the deduction for business use of their home.
Note: This simplified option does not change the criteria for who may claim a home office deduction. It merely simplifies the calculation and recordkeeping requirements of the allowable deduction.
Highlights of the simplified option:

• Standard deduction of $5 per square foot of home used for business (maximum 300 square feet).
• Allowable home-related itemized deductions claimed in full on Schedule A. (For example: Mortgage interest, real estate taxes).
• No home depreciation deduction or later recapture of depreciation for the years the simplified option is used.

Full details on the new option can be found in Revenue Procedure 2013-13.
Comparison of methods

Simplified Option	Regular Method
Deduction for home office use of a portion of a residence allowed only if that portion is exclusively used on a regular basis for business purposes	Same
Allowable square footage of home use for business (not to exceed 300 square feet)	Percentage of home used for business
Standard $5 per square foot used to determine home business deduction	Actual expenses determined and records maintained
Home-related itemized deductions claimed in full on Schedule A	Home-related itemized deductions apportioned between Schedule A and business schedule (Sch. C or Sch. F)
No depreciation deduction	Depreciation deduction for portion of home used for business
No recapture of depreciation upon sale of home	Recapture of depreciation on gain upon sale of home
Deduction cannot exceed gross income from business use of home less business expenses	Same
Amount in excess of gross income limitation may not be carried over	Amount in excess of gross income limitation may be carried over
Loss carryover from use of regular method in prior year may not be claimed	Loss carryover from use of regular method in prior year may be claimed if gross income test is met in current year

How to get back copies of previously-filed tax returns and protect your files during hurricane season

WASHINGTON — With the start of this year’s hurricane season, the Internal Revenue Service encourages individuals and businesses to safeguard themselves against natural disasters by taking a few simple steps.

Create a Backup Set of Records Electronically
Taxpayers should keep a set of backup records in a safe place. The backup should be stored away from the original set.

Keeping a backup set of records –– including, for example, bank statements, tax returns, insurance policies, etc. –– is easier now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet. Even if the original records are provided only on paper, they can be scanned into an electronic format. With documents in electronic form, taxpayers can download them to a backup storage device, like an external hard drive, or burn them to a CD or DVD.

Document Valuables
Another step a taxpayer can take to prepare for disaster is to photograph or videotape the contents of his or her home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.
A photographic record can help an individual prove the market value of items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area.

Update Emergency Plans
Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

Check on Fiduciary Bonds
Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

IRS Ready to Help
If disaster strikes, an affected taxpayer can call 1-866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues.

Back copies of previously-filed tax returns and all attachments, including Forms W-2, can be requested by filing Form 4506, Request for Copy of Tax Return. Alternatively, transcripts showing most line items on these returns can be ordered on-line, by calling 1-800-908-9946 or by using Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript or Form 4506-T, Request for Transcript of Tax Return.

Interest Rates Remain the Same for the Third Quarter of 2013

The worst part about requesting an Installment Agreement with the IRS is the Interest rate you end up paying.  This is one of the reasons the Interest Rates Announcements are important.

 

 

WASHINGTON – The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning July 1, 2013, as in the prior quarter. The rates will be:

• three (3) percent for overpayments [two (2) percent in the case of a corporation];
• three (3) percent for underpayments;
• five (5) percent for large corporate underpayments; and
• one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during April 2013 to take effect May 1, 2013, based on daily compounding.

Tax Reform Hearings

The Senate Finance and House Ways and Means Committees have held more than 50 hearings combined, examining every aspect of tax reform. These hearings have drilled down to consider issues like how the tax code affects families, how it distorts businesses’ decisions and hampers growth, and how it influences the nation’s financial system.

Chairmen Baucus and Camp have talked with taxpayers from Montana and Michigan and heard from hundreds of experts about how tax reform can simplify the system for families, help businesses innovate, and make the U.S. more competitive.

Click here to learn more about Tax Reform @ Taxreform dot gov

The IRS Reminds Taxpayers to Report Foreign Assets

The IRS has been extremely gracious with warning U.S. taxpayers to own up to and tell all about their foreign assets and offshore accounts.  It is our belief that this "nice guy" approach will end with Americans going to federal prison over offshore accounts. 

 

When individuals read about American Corporation's Tax Loopholes, they often times, feel like they shouldn't have to report their offshore activities.  This may or may not be a valid argument.  My job is to help individual tax payers understand that you may not have the resources to fight the IRS should they target you.  Plus, not reporting foreign assets and offshore bank accounts, when you are required to, is a crime.

 

It's clear beyond a shadow of a doubt that the IRS is and has been targeting offshore account holders.  Make no mistake about it, individual tax payers caught in this offshore battle won't have the benefits of the Tea Party scandal.  In other words, there will be no protest and no Senate hearing, just the sound of the prison door closing.  IRS is serious about reporting foreign assets and offshore accounts.  I don't know how else to say it!

 

 

IRS Reminds Those with Foreign Assets of U.S. Tax Obligations

WASHINGTON – The Internal Revenue Service reminds U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2012, that they may have a U.S. tax liability and a filing requirement in 2013.

The filing deadline is Monday, June 17, 2013, for U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular due date of their tax return. Eligible taxpayers get two additional days because the normal June 15 extended due date falls on Saturday this year. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for additional information additional information on extensions of time to file.

Nonresident aliens who received income from U.S. sources in 2012 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 17 depending on sources of income. See Taxation of Nonresident Aliens on IRS.gov.

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B to their tax return. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets.

Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.
Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds. Instructions for Form 8938 explain the thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted and what information must be provided.

Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2012 must file Treasury Department Form TD F 90-22.1. This is not a tax form and is due to the Treasury Department by June 30, 2013. For details, see Publication 4261: Do You Have a Foreign Financial Account? Though this form can be filed on paper, Treasury encourages taxpayers to file it electronically.

Taxpayers abroad can now use IRS Free File to prepare and electronically file their returns for free. This means both U.S. citizens and resident aliens living abroad with adjusted gross incomes (AGI) of $57,000 or less can use brand-name software to prepare their returns and then e-file them for free.
Taxpayers with an AGI greater than $57,000 who don’t qualify for Free File can still choose the accuracy, speed and convenience of electronic filing. Check out the e-file link on IRS.gov for details on using the Free File Fillable Forms or e-file by purchasing commercial software.

A limited number of companies provide software that can accommodate foreign addresses. To determine which will work best, get help choosing a software provider. Both e-file and Free File are available until Oct. 15, 2013, for anyone filing a 2012 return.

Any U.S. taxpayer here or abroad with tax questions can use the online IRS Tax Map to get answers. An International Tax Topic Index page was added recently. The IRS Tax Map assembles or groups IRS forms, publications and web pages by subject and provides users with a single entry point to find tax information.