The federal government has long been concerned with assets and businesses based abroad but owned by United States citizens. The IRS regularly looks to address income that is purposefully generated outside the country to avoid taxation. As part of the efforts to ensure that foreign investments are taxed correctly, the Tax Cuts and Jobs Act (TCJA), which was passed last year, made sizable changes to taxation rules, such as the addition of regulations mandating that global intangible low-taxed income produced by controlled foreign corporations be included in a taxpayer’s taxable income.

What Is a Controlled Foreign Corporation?

A controlled foreign corporation (CFC) is an American corporation that operates in another country with U.S. shareholders who hold 50% or more of the control of that corporation. American shareholders, directors, or officers of one of these businesses must report their income from the foreign corporation and pay taxes on that income. 

New Laws Under the Tax Cuts and Jobs Act

The TCJA provides that a U.S. taxpayer who possesses at least 10% of the value or voting rights in at least one CFC must now report global intangible low-taxed income from these CFCs as currently taxable income. This holds true even if there are no distributions to shareholders. 

One change ushered in by the Tax Cuts and Jobs Act of 2017 permits eligible employees of privately held corporations to postpone paying income tax on the value of qualified stock options and restricted stock units (RSUs) granted to them by their employers. Under the law, one can postpone payment of this tax for up to 5 years.

This law is meant to encourage employee stock ownership in startup or early-stage businesses. It applies to stock options that are exercised and RSUs that are settled as of or after December 31, 2017. 

The IRS has announced and clarified many requirements that affect whether a person may be eligible for tax deferral. For example, in order for a company to be eligible, at least 80% of its domestic employees must have received stock options during a single calendar year. 

If it has come to your attention that your tax filings may not be in compliance with U.S. tax laws and regulations, and you may be concerned you could face criminal liability, the IRS Offshore Voluntary Disclosure Program (OVDP) may provide a means to rectify your noncompliance status. 

About the Offshore Voluntary Disclosure Program

The OVDP applies to tax issues related to unreported offshore income or assets. The OVDP was created for taxpayers who are concerned the IRS will view their conduct as willful or fraudulent. Under the law, a taxpayer’s failure to report offshore financial assets and fully pay the taxes due related to such assets may lead to criminal charges. Allowing for voluntary disclosure once tax returns have been filed is a way a taxpayer may be able to avoid criminal prosecution.

In order to utilize the OVDP, certain requirements must be met and certain procedures must be followed. Several iterations of the OVDP have been in effect over the past few years. The IRS ended one disclosure program on September 28, 2018 and announced new rules that would affect disclosures made after that date.

The Internal Revenue Service (IRS) has no plans to create a voluntary disclosure program for virtual currency similar to what has previously been offered for undisclosed foreign assets, an agency official recently said in a speech at a tax symposium.

In 2014, the IRS stated that cryptocurrencies such as Bitcoin that could be converted to traditional currencies are considered property for the purposes of taxation. Thus, a person may experience a gain or a loss when selling or exchanging cryptocurrency based on the value of the cryptocurrency at the time of the exchange. 

Because cryptocurrencies are classified as property, general taxation rules of property will apply. The sale of cryptocurrencies, the use of them to purchase goods or services, or retaining the cryptocurrencies for investment purposes generally have tax consequences, which may mean taxes will be owed.

If you are one of the millions of Americans who is saving for retirement, the IRS recently announced some good news for you. Starting in 2019, you can contribute more money to certain retirement accounts, including IRAs, 401(k)s, 403(b)s, most 457 plans, and the Thrift Savings Plan for federal workers. These changes will allow many people to save more money for retirement, and more tax deductions will be available.

Changes to Contribution Limits and Deductions

With this change, the IRS has increased the annual IRA contribution limit for the first time since 2013. The IRS also announced rules that make it easier to qualify for a Roth IRA as well as to deduct contributions to a traditional IRA. The changes include:

• With respect to the contribution limits to IRAs and Roth IRAs, the limit in 2019 is $6,000. That is a $500 increase from years prior.
• An extra $500 can be contributed to 401(k)s, 403(b)s, most 457 plans, and Thrift Savings Plans. The new limit is $19,000 in 2019.

Starting in 2019, more people will be eligible for Roth IRAs. These IRAs have the distinct advantage of tax-free distributions during retirement. Only those under certain income levels qualify for a Roth IRA.