Posted on December 10, 2020 in Taxation Law

U.S. taxpayers who own offshore accounts or other foreign assets may struggle to understand their requirements for reporting foreign investments to the Internal Revenue Service (IRS) and paying taxes on foreign income. In some cases, these matters have become even more confusing following recent changes to the programs the IRS has made available to taxpayers. In 2018, the IRS ended the Offshore Voluntary Disclosure Program (OVDP), and recently, it also took down the Delinquent International Information Return Submission Procedures (DIISP) from its website. This has left many taxpayers concerned about their ability to become compliant with IRS requirements and avoid penalties related to reporting foreign assets and income.

What Is DIISP?

Previously, the DIISP allowed taxpayers to receive a waiver of the penalties that would normally apply to unreported foreign assets. Taxpayers could qualify for the DIISP if they did not have any unreported income, as long as they could show that they had reasonable cause for their non-compliance, such as death, serious illness, natural disasters, or ignorance of tax laws.

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 Posted on December 01, 2020 in Property Taxes

Tax laws in the United States change regularly at both the federal and state levels. In the 2020 election, California voters passed a ballot measure that made some changes to how property taxes are addressed when a person moves to a new home or transfers ownership of real estate property. Taxpayers will want to understand how this new law will affect them and what they can do to avoid tax increases.

Proposition 19 and Property Tax Reassessment

Under Proposition 13, which passed in 1978, property taxes in California are based on the purchase price of a property, and they are subject to small annual increases. When a property is sold or transferred to a new owner, property taxes are reassessed based on the market value of the property. However some homeowners have been allowed to transfer their property tax assessments to a new home. In addition, parents or grandparents could transfer a primary residence to their children or grandchildren without the need for reassessment, and they could transfer other types of property with the first $1 million in value being exempt from reassessment.

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 Posted on November 23, 2020 in Tax Audits

The IRS pays close attention to taxpayers’ income and financial transactions, and there are a variety of reasons it may conduct tax audits. In recent years, virtual currencies such as Bitcoin have been a growing concern for the IRS, and many cryptocurrency owners have received notices regarding their requirements for reporting transactions involving these currencies. This scrutiny is likely to increase in the future as the use of virtual currencies becomes more widespread. In fact, the IRS released a draft of the 1040 tax form for 2020, and one of the first questions that is included on this form is “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” This indicates that those who own or trade cryptocurrency may face audits if they do not meet their requirements for reporting transactions and paying applicable taxes.

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 Posted on November 12, 2020 in Taxation Law

The U.S. Tax Code is very complex, and taxpayers will often struggle to understand their tax obligations, their requirements for filing tax returns and other forms, and the steps they should take to avoid penalties. Nonresident aliens (NRAs), or those who are not U.S. citizens or U.S. nationals and do not maintain a substantial presence in the United States, may have certain tax obligations, including the requirement to pay taxes on income generated by rental properties. Failure to file the proper forms and pay taxes on this income may result in tax audits and penalties.

Tax Requirements for Rental Income From Real Property

When an NRA acquires real property in the United States, that person will usually not be required to file any forms with the IRS or pay taxes. However, there will be tax on any income earned through the rental of this property. The tax rate that applies to this income will depend on whether it is considered passive income (known as FDAP income) or effectively connected income (ECI) that is associated with a U.S. trade or business.

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 Posted on October 30, 2020 in Tax Audits

U.S. taxpayers are required to report foreign financial accounts and other offshore assets and investments, and taxes may apply to income earned from foreign sources. In the past, the IRS allowed taxpayers who had not met these requirements to become compliant through the Offshore Voluntary Disclosure Program (OVDP). This program is no longer available, and it has left some taxpayers unsure about how to report their foreign assets and pay any taxes owed while minimizing the potential penalties that may apply. 

One issue that the IRS has identified as an area of concern involves taxpayers who applied for pre-clearance with the OVDP but did not complete this program. Specifically, some taxpayers may have been denied access to the program, or they may have voluntarily withdrawn their requests. The IRS’s Large Business & International (LB&I) division will be investigating these taxpayers, and tax audits may be performed in cases involving continued noncompliance.

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 Posted on October 27, 2020 in Tax Audits

The U.S. tax code is very complex, and taxpayers are required to file a wide variety of forms correctly when completing their tax returns. This is especially true for those who own foreign assets or earn income from foreign sources. Failure to meet these requirements can result in tax audits, and taxpayers may face hefty penalties for their failure to comply with their tax requirements. 

The Large Business & International (LB&I) division of the Internal Revenue Service maintains a number of “campaigns” meant to address ongoing concerns about misreporting of assets and income and noncompliance with tax obligations. One notable campaign addresses “loose filing” of Form 5471, (Information Return of U.S. Persons with Respect to Certain Foreign Corporations).

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 Posted on October 26, 2020 in Tax Audits

The Internal Revenue Service is always on the lookout for taxpayers who fail to comply with tax laws, and it maintains a number of Large Business and International (LB&I) campaigns to address tax avoidance through unreported income or undisclosed assets. Foreign investments are an area that the IRS commonly examines, and one issue that has been highlighted is the holding of assets in trusts outside the United States. Failing to file the proper forms or making errors when reporting assets in foreign trusts can lead to tax audits and significant penalties.

Penalties for Errors in Form 3520 and 3520-A

There are a variety of reporting requirements that apply for U.S. citizens and companies or estates in the United States that are owners or beneficiaries of foreign trusts. The term “foreign trust” is broadly interpreted to include any trust that is not considered a domestic trust. Domestic trusts are trusts that are primarily controlled by people or entities in the United States and are supervised by a U.S. court. There is a lack of clarity concerning some financial accounts that may be treated by the IRS as a trust.

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 Posted on October 19, 2020 in Taxation Law

U.S. citizens and residents are required to meet a variety of tax obligations, and in some cases, they may continue to owe taxes even if they no longer live in the United States. For those who have not met their requirements, the Internal Revenue Service (IRS) may be looking to collect expatriation taxes that are owed, and it may perform audits on individuals who are not in compliance with their tax obligations.

What Is the Expatriation Tax?

When moving to another country, adult citizens of the United States can relinquish their citizenship, and non-citizens may terminate their resident status in the United States. For those who expatriated after June 17, 2008, an expatriation tax will apply if they meet one of the following criteria:

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 Posted on October 01, 2020 in Employment Taxes

The employment laws in California have gone through a number of major changes over the past year. Assembly Bill 5 (AB5), which went into effect on January 1, 2020, put in place new rules for worker classification, specifying when a person may be considered an employee or an independent contractor. However, there has been some confusion about whether certain workers are exempt from these rules. A new bill, AB2257, was approved by California Governor Gavin Newsom on September 4, 2020, superseding, amending, and adding further complexity to the worker classification issue.

Exemptions Under AB2257

AB5 specified, with certain exceptions, that a three-part test, known as the “ABC test,” should be used to determine whether a worker should be classified as an employee or as an independent contractor. This test states that for a person to be considered an independent contractor, he or she must 1) be free from the control and direction of the company that hired him or her when performing his or her duties, 2) perform work that is not in the usual course of the hiring company’s business, and 3) regularly be engaged in a trade or occupation that has been established independently.

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 Posted on September 29, 2020 in Small Business Taxes

Employers and employees throughout the United States have been affected by the COVID-19 pandemic. Many businesses have been forced to close, reduce hours in operation, or lay off employees. While some programs have been implemented to provide relief to both businesses and individual taxpayers, many people and businesses continue to struggle financially. In response to these concerns, a recent presidential order has been issued that will allow employers to defer certain payroll taxes.

Payroll Tax Deferral Available from September through December of 2020

On August 8, 2020, President Trump issued a Presidential Memorandum, “Relief with Respect to Employment Tax Deadlines Applicable to Employers Affected by the Ongoing Coronavirus (COVID-19) Disease 2019 Pandemic.” This order allows employers to defer the withholding of employees’ share of Social Security (FICA) taxes on wages paid between September 1, 2020, and December 31, 2020. Deferrals are available for any employee who earns less than $4,000 on a biweekly basis before taxes are withheld.

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